Iqtunheimr v. Val Vista Lakes

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

IQTUNHEIMR, LLC, Plaintiff/Appellant,

v.

VAL VISTA LAKES COMMUNITY ASSOCIATION, et al.,
Defendants/Appellees.

No. 1 CA-CV 25-0095

FILED 10-31-2025

Appeal from the Superior Court in Maricopa County
No. CV2024-002225
The Honorable Jennifer C. Ryan-Touhill, Judge

AFFIRMED

COUNSEL

CHDB Law, LLP, Tempe
By Lydia Peirce Linsmeier, Kyle Banfield
Counsel for Appellees

Denton Peterson Dunn, PLLC, Mesa
By Larry A. Dunn
Co-Counsel for Appellant

Brown Patent Law, Scottsdale
By Nathan Brown
Co-Counsel for Appellant
Dessaules Law Group
By Jonathan A. Dessaules, Thomas E. Raccuia
Counsel for Amicus Curiae Arizona Homeowners Coalition

Jeremy Whittaker, Gilbert
Amicus Curiae

Lisa Marx, Sun City
Amicus Curiae

MEMORANDUM DECISION

Vice Chief Judge David D. Weinzweig delivered the decision of the Court,
in which Presiding Judge Jennifer M. Perkins and Judge Cynthia J. Bailey
joined.

W E I N Z W E I G, Vice Chief Judge:

¶1 Iqtunheimr, LLC (“Homeowner”) appeals the superior
court’s dismissal of its complaint against Val Vista Lakes Development
(“Val Vista”) and Timothy Hedrick, along with the sanctions order and
award of attorney fees. We affirm.

FACTS AND PROCEDURAL BACKGROUND

¶2 Val Vista is a master-planned community association with
2,243 members. When formed, the homeowners adopted a Declaration of
Covenants, Conditions, Restrictions, Assessments, Charges, Servitudes,
Liens, Reservations and Easements (“Declaration”).

¶3 Homeowner owned a house in Val Vista and sued Val Vista
and a member of its board, Hedrick, for breach of contract, breach of the
implied covenant of good faith and fair dealing, and breach of contract by
selective enforcement and failure to maintain. Homeowner alleged that
both Val Vista and Hedrick breached the Declaration and harmed the Val
Vista community by failing to maintain the entrance signs, clubhouse fence,
outdoor shower, plumbing, electric wires, paving, community waterfall,
community parks and greenbelts, community walls, fountains, pools, lakes
and community churches.

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¶4 Val Vista and Hedrick moved to dismiss the lawsuit for
failure to state a claim. See Ariz. R. Civ. P. 12(b)(6). The superior court
dismissed much of the lawsuit “because [Homeowner] has not complied
with the mandatory statutory requirements for a derivative claim.” Val
Vista was awarded its attorney fees and costs as the prevailing party in a
dispute arising out of contract, and Homeowner was sanctioned $5,000 for
bringing and pursuing claims without substantial justification.
Homeowner voluntarily dismissed the rest of its claims and timely
appealed. We have jurisdiction. A.R.S. §§ 12-2101(A)(1), -120.21(A).

DISCUSSION

I. Complaint Dismissal.

¶5 A motion to dismiss should be granted only if the plaintiff is
not entitled to relief under any interpretation of the facts. Swift Transp. Co.
of Ariz. v. Ariz. Dep’t of Revenue, 249 Ariz. 382, 385, ¶ 14 (App. 2020). Arizona
courts assume the truth of all well-pled, material allegations in the
complaint, but “do not accept as true allegations consisting of conclusions
of law, inferences or deductions that are not necessarily implied by well-
pleaded facts, unreasonable inferences or unsupported conclusions from
such facts, or legal conclusions alleged as facts.” Id. (quoting Jeter v. Mayo
Clinic Ariz., 211 Ariz. 386, 389, ¶ 4 (App. 2005)).

¶6 A “derivative claim” is an action brought by a shareholder or
partner to enforce an entity’s cause of action against its officers and
directors or third parties. Judson C. Ball Revocable Tr. v. Phx. Orchard Grp. I,
L.P., 245 Ariz. 519, 521, ¶ 3 n.3 (App. 2018). An action is derivative “if the
gravamen of the complaint is injury to the corporation, or to the whole body
of its stock or property without any severance or distribution among
individual holders, or if it seeks to recover assets for the corporation or to
prevent the dissipation of its assets.” Albers v. Edelson Tech. Partners L.P.,
201 Ariz. 47, 52, ¶ 17 (App. 2001).

¶7 To file a derivative lawsuit, Arizona law requires the
shareholder have standing under § 10-3631, comply with the demand
requirements of § 10-3632 and file a well-pled complaint. Ariz. R. Civ. P.
23.1; A.R.S. §§ 10-3631, -3632; see Judson, 245 Ariz. at 522, ¶ 6. “A proceeding
may be brought in the right of a domestic corporation to procure a
judgment in its favor by . . . any member or members having twenty-five
per cent or more of the voting power or by fifty members, whichever is
less.” A.R.S. § 10-3631(A).

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¶8 A shareholder without standing to pursue a derivative
lawsuit may still file a direct cause of action when: “(1) the relationship
between the shareholders and a wrongdoer is separate from the
shareholders’ status as shareholders or their ownership interest in the
corporation, (2) the wrongdoer owes a duty to the shareholders for some
reason other than their status as shareholders, or (3) the injuries or damages
were sustained by individual shareholders rather than by the corporation.”
Albers, 201 Ariz. at 52, ¶ 18.

¶9 Homeowner insists it filed a direct lawsuit against Val Vista,
not a derivative lawsuit. We disagree. Val Vista was a non-profit
corporation under A.R.S. § 33-1802(1). Homeowner was a member of Val
Vista. And Homeowner points to only derivative harm in its lawsuit,
alleging that Val Vista breached the Declaration when it failed to maintain
the common areas, including the community parks, pools, greenbelts and
the clubhouse. Those are derivative claims that belong to the community
as a whole, not to Homeowner as an individual. See Judson, 245 Ariz. at 521,
¶ 3 n.3.

¶10 Homeowner lacked standing to pursue derivative claims
against Val Vista because it did not meet the requirements of § 10-3631.
Homeowner never secured the consent of enough homeowners to assert
derivative claims under § 10-3631(A)(1), and did not make a demand on Val
Vista under § 10-3632.

¶11 Homeowner relies on two unpublished memorandum
decisions to overcome the statute’s plain language. See Stevens v. Caldamone,
1 CA-CV 06-0788, 2007 WL 5463553 (Ariz. App. Dec. 11, 2007) (mem.
decision); Tober v. Civano 1: Neighborhood Ass’n, Inc., 2 CA-CV 2012-0129,
2013 WL 950558 (Ariz. App. Mar. 12, 2013) (mem. decision). That reliance
is misplaced.

¶12 In Stevens, this court allowed a homeowner to pursue direct
claims against an HOA because the community documents empowered
individual homeowners to enforce the CC&Rs against the HOA. 1 CA-CV
06-0788 at *3, ¶¶ 11–13. Here, the Declaration says the opposite. Add to
that, the court in Stevens dismissed the remaining claims as derivative
because, as here, the plaintiffs alleged harm to the whole association. Id. at
**3–4, ¶¶ 14–15, 20.

¶13 In Tober, this court dismissed a derivative lawsuit because the
homeowner did not follow the statutory obligations. 2 CA-CV 2012-0129 at
*2, ¶ 8. We held the homeowner “lacks capacity to sue the board by

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bringing a direct action” because “[s]he claims no special relationship with
the board, alleges no individual injury, and does not assert the board owed
her a duty for any reason other than her membership status.” Id. at *2, ¶ 8.
We hold the same here.

¶14 We likewise reject Homeowner’s argument that “any attempt
by the trial court to depict [Homeowner] as suing on behalf of the
corporation[] is contrary to the rule that the facts must be construed in favor
of the [Homeowner].” Not so. Whether Homeowner sued on behalf of the
corporation is a question of law. Gemstar Ltd. v. Ernst & Young, 185 Ariz.
493, 499 (1996) (“The issue of [] capacity to sue is a question of law, which
this court reviews de novo.”).

II. Sanctions.

¶15 Homeowner also appeals the sanctions imposed by the
superior court. We review an award of sanctions for an abuse of discretion.
Villa De Jardines Ass’n v. Flagstar Bank, FSB, 227 Ariz. 91, 96, ¶ 12 (App. 2011).

¶16 Arizona courts may sanction parties who bring claims
without substantial justification. A.R.S. § 12-349(A)(1). A claim is brought
without substantial justification when both groundless and not made in
good faith. A.R.S. § 12-349(F). “Groundless” is synonymous with
“frivolous.” Ariz. Republican Party v. Richer, 257 Ariz. 237, 243, ¶ 15 (2024).
A claim is groundless “if the proponent can present no rational argument
based upon the evidence or law in support of that claim.” Id. (citation
omitted). A claim is not groundless, by contrast, when “fairly debatable”
or a “long shot.” Id. (“[A] claim may lack winning merit without being
sufficiently devoid of rational support to render it groundless.”). A claim
is made in bad faith when (1) objectively groundless and (2) “the party or
attorney knows or should know that it is groundless, or is indifferent to its
groundlessness, but pursues it anyway.” Id. at 248–49, ¶¶ 38, 40. That is an
objective standard based on what professional, competent attorneys would
do under similar circumstances. Id.

¶17 We discern no error. Arizona law plainly prevented
Homeowner from asserting a direct cause of action against Val Vista for
alleged injuries to the common areas. See A.R.S. §§ 10-3631, -3632. A
professional, competent attorney would have understood this was a
derivative lawsuit and sought to comply with the requirements for
derivative lawsuits. Homeowner was sanctioned because its claims were
groundless and not made in good faith.

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III. Attorney Fees and Costs.

¶18 Homeowner challenges the superior court’s award of
attorney fees and costs. We review the superior court’s award of attorney
fees for abuse of discretion. Orfaly v. Tucson Symphony Soc’y, 209 Ariz. 260,
265, ¶ 18 (App. 2004). The superior court has broad discretion to award
attorney fees. Ray & Lindsay - 11, LLC v. Town of Gilbert, 252 Ariz. 147, 151,
¶ 23 (App. 2021). “To find an abuse of discretion, there must either be no
evidence to support the superior court’s conclusion or the reasons given by
the court must be clearly untenable, legally incorrect, or amount to a denial
of justice.” Charles I. Friedman, P.C. v. Microsoft Corp., 213 Ariz. 344, 350, ¶
17 (App. 2006) (citation modified).

¶19 Homeowner argues the superior court abused its discretion
when it granted Val Vista and Hedrick their attorney fees because many of
the time entries on the supporting invoices did not fully describe the
lawyers’ activities. We discern no abuse of discretion because the court’s
award is supported by reasonable evidence. What is more, the superior
court already reduced Val Vista’s attorney fee award by $3,750. Val Vista
sought $63,720 in attorney fees, but the court awarded only $59,970.

¶20 Val Vista and Hedrick request their reasonable attorney fees
and costs on appeal under A.R.S. § 12-341.01. Val Vista and Hedrick
prevailed in this contract action, so we award them their reasonable
attorney fees and costs upon compliance with ARCAP 21.

CONCLUSION

¶21 We affirm.

MATTHEW J. MARTIN • Clerk of the Court
FILED: JR

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