Covington v. Neumann

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

JOHN COVINGTON, Plaintiff/Appellee,

v.

SARAH NEUMANN, Defendant/Appellant.

No. 1 CA-CV 24-0096

FILED 11-12-2024

Appeal from the Superior Court in Maricopa County
No. CV2020-005168
The Honorable Bradley H. Astrowsky, Judge

AFFIRMED IN PART; VACATED AND REMANDED IN PART

COUNSEL

Maynard Cronin Erickson & Curran, P.L.C., Phoenix
By Daniel D. Maynard, Michael D. Curran
Counsel for Plaintiff/Appellee

Katz & Bloom, Phoenix
By Norman M. Katz, Jay R. Bloom
Counsel for Defendant/Appellant
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MEMORANDUM DECISION

Vice Chief Judge Randall M. Howe delivered the decision of the court, in
which Presiding Judge Michael S. Catlett and Judge Jennifer M. Perkins
joined.

H O W E, Judge:

¶1 Sarah Neumann (“Neumann”) appeals from several minute
entries and orders that (1) appointed an appraiser to value a home she owns
with John Covington (“Covington”), (2) required the parties to accept the
appraiser’s valuation, (3) gave Covington the right to buy out Neumann’s
interest based on that valuation, but (4) denied her motion to order the sale
of the home. For the following reasons, we vacate the superior court’s
orders appointing an appraiser, requiring the parties’ acceptance of the
appraisal, and granting Covington the right to buy out Neumann’s interest,
but we affirm the denial of her motion to order the sale of the home.

FACTS AND PROCEDURAL BACKGROUND

¶2 In 2010, Covington bought a home in Phoenix. Covington, an
industrial designer, photographer, and musician, renovated the home and
constructed a studio in the home’s garage. Covington and Neumann began
dating in 2018. After Neumann began spending a significant amount of
time living with Covington, Covington discussed selling her a 50% interest
in the home. In December 2018, Covington hired an appraiser, who valued
the home at $630,000. Covington then consulted with Neumann and drafted
a co-ownership agreement (the “Agreement”), which the parties signed on
March 13, 2019. Under the Agreement, Covington retained $315,000 in
equity, and Neumann assumed the remaining mortgage, $217,800, leaving
her with $97,200 in equity. Neumann paid Covington $74,950 for this equity
interest, and Covington lent Neumann $21,600 at 3% interest to pay for the
remainder. Neumann and Covington also agreed to each contribute $30,000
to a home renovation budget.

¶3 As part of the Agreement, the parties contemplated how to
divide the property if their relationship ended. Specifically, the Agreement
included an “Exit” clause that provided:

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If we split, we establish Independent Agreed Appraised price
of home. We can either sell and split proceeds 50/50 and
Sarah is responsible to pay off balance of Mortgage, or John
can buy out Sarah paying the difference between 50% of the
appraised value and balance on the mortgage to retain
ownership.

¶4 In early 2020, the parties’ relationship ended. Covington
obtained a new appraisal in March 2020, which valued the home at
$510,000, but Neumann did not agree to the appraisal or to establish an
“Independent Agreed Appraised price” (“IAAP”) based on its valuation.

¶5 In April 2020, Covington filed a complaint in part seeking
declaratory judgment that he may buy Neumann’s interest in the home for
$27,725 under the Agreement. Neumann denied Covington’s declaratory
claim in her answer and asserted several counterclaims unrelated to the
home.

¶6 Neumann moved for summary judgment on Covington’s
declaratory judgment claim, arguing that the parties never reached an
IAAP. In her motion, Neumann also asked the court to declare that the
parties must sell the home. The court found that the Agreement is “clear
and unambiguous concerning what will occur in the event the parties
terminate their relationship;” that is, they first needed to establish an
Independent Agreed Appraised price of the home which had not been
done. The court granted Neumann summary judgment because it found
she had never agreed to Covington’s March 2020 appraisal on which he
based his $27,725 buyout.

¶7 The court, however, denied her motion to require sale of the
home because it found the Agreement did not impose a deadline to
establish an IAAP and therefore an IAAP could still be established. The
court instead ordered the parties to confer on obtaining an IAAP and, if the
parties could not agree, the court would appoint a Real Estate
Commissioner. Because the parties could not agree on a method for
obtaining an IAAP, the court appointed a commissioner. In 2022 during this
litigation, Neumann obtained her own appraisal of the home’s value as of
March 11, 2020, and then currently as of March 25, 2022, estimated at
$525,000 and $680,000 respectively. In a motion, Covington averred that he
would agree to the March 11, 2020, valuation.

¶8 After continued litigation, Covington moved to clarify the
date of the valuation, arguing the IAAP should be retrospective to 2020

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because he continued to pay the home’s mortgage, taxes, and insurance in
the intervening three years since the parties’ separation.
In a September 2023 minute entry, the court granted the motion and
clarified that the IAAP should be determined retrospectively between
February 19, 2020, and March, 11, 2020. In so ordering, the court reasoned
that “[n]othing in the Agreement supports a conclusion that the appraised
price of the home would be premised upon the value of the home over three
years after the parties split.” The court gave Covington five days upon
receipt of the appraisal to decide if he would buy out Neumann’s interest
or agree to sell the home. If he elected to buy out Neumann’s interest,
Covington would then have 21 calendar days to post a bond with the
Maricopa County Clerk of Court. If Covington failed to timely post the
bond, the court would deem Covington to have elected to sell the home.

¶9 Covington received the appraisal on October 25, 2023, and
elected to buy out Neumann’s interest on October 27, 2023, thus requiring
him to post bond by November 17, 2023. On November 9, 2023, Covington
moved to not post bond because he had asserted claims again Neumann
that he wished to offset against the amount he would owe her.
Alternatively, Covington asked to place the funds in his lawyer’s trust
account. On November 28, 2023, the court denied Covington’s motion,
treating it as a motion for reconsideration and not one to extend time.
Because Covington had not posted bond, the court ordered the parties to
sell the home. Covington then moved to extend time for posting bond,
which the court granted, finding good cause and excusable neglect. The
court entered judgment on the above orders pursuant to Arizona Rule of
Civil Procedure 54(b). Neumann timely appealed, and we have jurisdiction.
A.R.S. § 12-2101(A)(1).

DISCUSSION

¶10 On appeal, Neumann argues the court erred by (1) appointing
a commissioner to determine an IAAP, (2) granting Covington the option
to elect between buying out Neumann’s interest or selling the home; (3)
ordering the IAAP be determined retrospectively to February/March 2020,
and (4) extending Covington’s deadline to post bond. Neumann further
argues that because the parties did not agree to an IAAP, the court erred by
not ordering the home be sold. Covington does not cross-appeal the court’s
grant of summary judgment to Neumann on his declaratory relief claim
asserting the right to buy out Neumann’s interest for $27,725. Rather, he
asserts the court did not err in its subsequent orders because the court
properly interpreted the contract.

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¶11 We review the superior court’s interpretation of a contract de
novo. See Rand v. Porsche Fin. Servs., 216 Ariz. 424, 434 ¶ 37 (App. 2007)
(noting contract interpretation is a question of law). In interpreting a
contract, courts “seek to discover and effectuate the parties’ expressed
intent.” Terrell v. Torres, 248 Ariz. 47, 49 ¶ 14 (2020). We construe the
contract’s language according to its plain, ordinary meaning, attempting
“to reconcile and give effect to all terms of the contract to avoid any term
being rendered superfluous.” Id. at 50 ¶ 14. We interpret a contract in its
entirety, seeking to effectuate the parties’ intent as to all terms. Id. at 49–50
¶ 14.

I. Commissioner Appointment.

¶12 Neumann argues the court rewrote the Agreement and added
terms not found in the contract. She contends the contract did not give
Covington the option to choose between buying out her interest or selling
the home but rather required both parties to agree to the IAAP. In response,
Covington argues the court may fill in missing but implied terms in a
contract. He argues at the same time, however, that the exit provision is
unambiguous. He further argues that the Agreement gave him the election
between the two exit options because he originally owned the home solely
and the Agreement did not give Neumann the option to buy his interest.

A. “Agreed Appraised price.”

¶13 The Agreement does not give a court authority to order the
parties to reach an IAAP or to appoint a commissioner. The language of the
exit provision is simple. The Agreement states, “[i]f we split, we establish
Independent Agreed Appraised price of home.” The Agreement then states
that “[w]e can either sell and split proceeds 50/50 and Sarah is responsible
to pay off balance of Mortgage, or John can buy out Sarah paying the
difference between 50% of the appraised value and balance on the mortgage
to retain ownership.”

¶14 The court interpreted the first sentence of the exit provision
as a precondition to buying out or selling the home, i.e., that the Agreement
requires the parties to obtain an appraisal and use the valuation of that
appraisal as the buyout price. But the Agreement states only that the parties
shall establish an “Independent Agreed Appraised price” of the home.
(Emphasis added.) Thus, the Agreement contemplates the parties’
agreement to a price. The Agreement does not state that the parties shall
appoint an independent appraiser or agree to be bound by the valuation of
such an appraiser. Had the parties wished to be bound by the valuation of

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an independent appraiser, even if they did not agree with the appraiser’s
valuation, the parties could have so structured the Agreement. In other
words, the issue is not whether the commissioner’s appraisal was
“independent,” but rather whether the price obtained by its valuation was
“agreed.”

¶15 By the Agreement’s plain language, an objected-to appraisal
does not qualify as an IAAP because the valuation is not “agreed.”
“Independent Agreed Appraised price” consists of three adjectives and one
noun. Each of those adjectives modifies the noun “price.” Thus, by using
the language, “agreed,” the parties demonstrated their intent to be bound
only by an appraised price they both “agreed” to. The court itself found that
“[t]he agreed upon price must be agreed upon by both parties. Covington
does not get to unilaterally establish the price.” By the same reasoning,
because any “Agreed Appraised price” requires both parties’ consent, the
court lacked power to order Neumann to accept the commissioner’s
valuation over her objection.

B. Covington’s Buyout Right.

¶16 Neumann argues that the court wrongly permitted
Covington to buyout Neumann based on a price she did not agree to.
Covington responds that the parties always contemplated his having the
option to buy out Neumann because the home is his place of work and that
the lack of an IAAP is due to Neumann’s bad faith.

¶17 The Agreement does not give Covington the unilateral right
to choose between buying out Neumann’s interest or selling the home.
Under the Agreement, both parties are equal 50% co-owners of the home.
The Agreement provides the parties with two options for disentangling
their financial interest in the home: (1) “We can either sell . . . or [(2)] John
can buy out Sarah.” Consistent with the parties’ equal ownership shares,
the Agreement evinces the parties’ intent to jointly decide the exit option
by beginning the exit provision with “we.” Likewise, by using “or,” the
Agreement places the two exit options as equal. Covington asserts that he
“can decide which option to apply,” but at his deposition he conceded that
the Agreement does not state “how one option would be chosen over the
other.” Although Covington argues he always intended to have the option
to buy out Neumann because the home was his place of work, he also
argues the Agreement is unambiguous. “When the provisions of the
contract are plain and unambiguous upon their face, they must be applied
as written, and the court will not . . . add something to the contract which
the parties have not put there.” Employers Mut. Cas. Co. v. DGG & CAR, Inc.,

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218 Ariz. 262, 267 ¶ 24 (2008) (cleaned up). The Agreement lacks any
language discussing either Covington’s motivations behind the buyout
option or how the parties would choose between the two exit options. By
its plain language and read as a whole, the Agreement presumes the parties
will jointly decide which exit option to choose.

¶18 The Agreement’s implicit requirement that the parties sell the
home when the parties cannot agree on an IAAP further disclaims
Covington’s right to buy out Neumann’s interest. Even if the Agreement
requires the parties to first attempt in good faith to reach an IAAP, the price
must still be “agreed.” Thus, the Agreement preconditions Covington’s
buyout option by first requiring the parties to reach an IAAP. By contrast,
the Agreement places no preconditions on a sale of the home. Covington
asserts that Neumann acted in bad faith by not agreeing to her own
retrospective March 11, 2020 appraisal. But the court never found that
Neumann acted in bad faith, and we do not reweigh the evidence on appeal.
Lehn v. Al-Thanayyan, 246 Ariz. 277, 284 ¶ 20 (App. 2019). Because the
condition precedent to the buyout option never occurred, Covington cannot
buy out Neumann’s interest.

¶19 Finally, the overall structure of the Agreement reflects the
parties’ intent to sell the home if they could not reach an IAAP. Covington
and Neumann own equal interests in the home. Those interests are worth
what the market is willing to pay for them. As discussed, by using “or,” the
Agreement considers a buyout and sale as equal options. Because the
parties own equal interests, both options should return equal
equity/compensation to the parties. But if a buyout would result in a
windfall for one party because the appraisal does not properly reflect the
market price, then a buyout would effectively grant greater equity/interest
to one party than to the other. Because the parties did not intend for the end
of their relationship to result in a financial windfall to one party, the
Agreement does not provide Covington a unilateral right to elect the
buyout option.

II. Sale of Home.

¶20 Because the parties could not reach an agreement on a buyout
price, Neumann argues the court should have ordered the parties to sell the
home. The court, however, properly denied Neumann’s motion to order the
sale of the home because she did not properly raise a claim for declaratory
relief in the litigation.

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¶21 In his declaratory claim, Covington sought only that the court
grant him the right to buy out Neumann’s interest for $27,725. Determining
whether Covington had that right did not require the court to order the sale
of the home. Instead, whether the Agreement requires the sale of the home
is itself a separate claim for relief. In her answer, Neumann did not seek a
declaration ordering the parties to sell the home. Rather, she first moved for
the court to order its sale in her motion for summary judgment. Neumann’s
motion raises a compulsory counterclaim because her claim also arises out
of the Agreement and does not require adding another party. See Ariz. R.
Civ. P. 13(a); Ariz. R. Civ. P. 57 (applying the rules of civil procedure in
declaratory judgment actions). Because a compulsory counterclaim must be
raised in the pleadings, Neumann did not properly raise her counterclaim
in her summary judgment motion. Ariz. R. Civ. P. 13(a).

¶22 Because the court should not have ordered the appointment
of a commissioner or granted Covington the power to elect to buy out
Neumann’s interest, we do not reach the other issues Neumann raises on
appeal.

III. Attorney’s Fees.

¶23 Neumann requests her attorney’s fees on appeal under A.R.S.
§ 12-341.01 and her costs under A.R.S. § 12-341. Neumann is the successful
party on balance in this appeal. Because this appeal is a “contested action
arising out of a contract,” we award Neumann her reasonable attorney’s
fees under A.R.S. § 12-341.01. We also award Neumann her reasonable costs
upon compliance with ARCAP 21.

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CONCLUSION

¶24 We affirm the court’s denial of Neumann’s motion to order
the sale of the home. But we vacate the court’s orders appointing a
commissioner, requiring the parties to accept the commissioner’s appraised
price, and granting Covington the option to elect to buy out Neumann’s
interest. Because this decision affects neither the court’s grant of summary
judgment to Neumann on Covington’s declaratory relief claim nor the other
claims and counterclaims raised by Covington and Neumann in this
litigation, we remand for proceedings consistent with this decision.

AMY M. WOOD • Clerk of the Court
FILED: AGFV

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