DAVIS v. PRESCOTT

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

ARLO G. DAVIS, et al., Plaintiffs/Appellants,

v.

CITY OF PRESCOTT, a body politic and corporate, Defendant/Appellee.

No. 1 CA-CV 25-0105
FILED 01-29-2026

Appeal from the Superior Court in Yavapai County
No. S1300CV202400683
The Honorable Tina R. Ainley, Judge

VACATED AND REMANDED

COUNSEL

Musgrove Drutz Butner & Gautreaux, PC, Prescott
By Mark W. Drutz, Jeffrey D. Gautreaux
Counsel for Plaintiffs/Appellants

Sims Mackin LTD, Phoenix
By Kristin M. Mackin
Counsel for Defendant/Appellee
 DAVIS, et al. v. PRESCOTT
Decision of the Court

MEMORANDUM DECISION

Judge Michael S. Catlett delivered the decision of the Court, in which
Presiding Judge D. Steven Williams and Judge Andrew M. Jacobs joined.

C A T L E T T, Judge:

¶1 Arlo and Karen Davis (collectively, “the Davises”), appeal the
superior court’s orders dismissing their claim for declaratory relief against
the City of Prescott (“the City”) and denying leave to amend their
complaint. We vacate the judgment and remand.

FACTS AND PROCEDURAL HISTORY

¶2 When reviewing an order granting a motion to dismiss, we
assume the facts in the complaint are true. Coleman v. City of Mesa, 230 Ariz.
352, 356 ¶ 9 (2012).

¶3 The Davises, through a trust, own a home located in the City.
Michael and Donna Odle, also through a trust (collectively, “the Odles”),
own a property neighboring the Davises’ property. The City’s Land
Development Code (“the Code”) applies to the Odles’ property.

¶4 In December 2023, the Davises realized the Odles were
constructing a home and garage the Davises believed violated the Code’s
setback requirements. Seven months later, the Davises sued the City for
declaratory relief. They alleged the City violated the Code because the
Odles’ home is not set back at least 25 feet from its front lot line. The
Davises claimed this caused the Odles’ home and garage to be too close to
the Davises’ home and patio, which interferes with the Davises’ peace and
privacy and negatively impacts their view.

¶5 The City moved to dismiss, arguing the Davises did not raise
a justiciable controversy or exhaust administrative remedies. The Davises
responded to the motion and sought leave to amend their complaint to sue
the City for negligence. The City argued the court should deny the Davises
leave to amend based on qualified immunity.

¶6 The superior court dismissed the complaint without
prejudice, concluding the Davises did not exhaust their administrative
remedies. It also denied the Davises leave to amend because amending

2
 DAVIS, et al. v. PRESCOTT
Decision of the Court

would be futile. The court thought the proposed amended complaint did
not sufficiently allege gross negligence or intent to cause injury to overcome
qualified immunity. The Davises timely appealed.

JURISDICTION

¶7 Neither party challenges our jurisdiction, but we must
independently determine that we have jurisdiction. Sorensen v. Farmers Ins.
Co., 191 Ariz. 464, 465 (App. 1997).

¶8 The superior court dismissed the complaint without
prejudice, but it also certified its order as final. See Ariz. R. Civ. P. 54(c).
Usually, we lack jurisdiction to review a dismissal without prejudice.
McMurray v. Dream Catcher USA, Inc., 220 Ariz. 71, 74 ¶ 4 (App. 2009). And
including Rule 54(c) language “does not render an otherwise non-
appealable order or judgment appealable[.]” Brumett v. MGA Home
Healthcare, L.L.C., 240 Ariz. 420, 426 ¶ 6 (App. 2016). But in this case, the
court fully resolved the Davises’ complaint. Although the judgment said it
was “without prejudice”—likely so the Davises could pursue
administrative remedies—it fully and finally resolved their declaratory
judgment claim. And a denial of leave to amend is appealable when the
court enters a final judgment. Walls v. Ariz. Dep’t of Pub. Safety, 170 Ariz.
591, 596–97 (App. 1991). We have jurisdiction. See A.R.S. § 12-2101(A)(1).

DISCUSSION

¶9 The Davises argue the superior court erred by dismissing
their complaint and then denying leave to amend it.

I. Motion to Dismiss

¶10 We review de novo the dismissal of a complaint under Rule
12(b)(6). Shepherd v. Costco Wholesale Corp., 250 Ariz. 511, 513 ¶ 11 (2021).

A. Exhaustion

¶11 The Davises contend the superior court erred by dismissing
their complaint for failure to exhaust. The allegations in the Davises’
complaint, when taken as true, do not establish that they failed to exhaust
available administrative remedies, so the superior court indeed erred.

¶12 Generally, Arizona law requires a party to exhaust available
administrative remedies “before appealing to the courts.” Southwest Soil
Remediation, Inc. v. City of Tucson, 201 Ariz. 438, 442 ¶ 12 (App. 2001)

3
 DAVIS, et al. v. PRESCOTT
Decision of the Court

(internal citation omitted). Doing so promotes judicial economy and avoids
premature judicial intervention. Moulton v. Napolitano, 205 Ariz. 506, 511
¶ 9 (App. 2003). It also allows an “administrative agency to perform
functions within its special competence[.]” Id. (internal citation omitted).

¶13 But failure to exhaust is an affirmative defense. See Mills v.
Ariz. Bd. of Tech. Registration, 253 Ariz. 415, 420 ¶ 12 (2022). To raise that
defense through a motion to dismiss, the facts necessary to establish it
“must appear in the complaint.” Shepherd, 250 Ariz. at 514 ¶ 16. Arizona is
a notice pleading state—a complaint need not “set forth every fact that may
be associated with a claim,” id. at 514 ¶ 14, or anticipate affirmative
defenses, id. at 514 ¶ 15.

¶14 The City has not answered the Davises’ complaint, so it has
not yet interposed any affirmative defenses. The Davises were not required
to anticipate that the City would raise exhaustion as a defense and then
plead around it. Id. Plus, in granting the City’s motion, the superior court
relied on information outside the complaint without treating the motion as
requesting summary judgment. See Ariz. R. Civ. P. 12(d). It is not clear at
all from the Davises’ complaint that, as non-parties to a building permit,
they had a viable administrative remedy to appeal its issuance. Because it
is not evident from the face of the Davises’ complaint that they failed to
exhaust a viable administrative remedy, the superior court erred in
granting the City’s motion to dismiss. See Shepherd, 250 Ariz. at 514 ¶ 16.

B. Justiciability

¶15 The City also moved to dismiss on grounds the Davises did
not raise a justiciable controversy. The superior court did not address this
argument, instead dismissing for failure to exhaust. But we have rejected
the City’s exhaustion argument, so we address justiciability.

¶16 Arizona’s Uniform Declaratory Judgment Act (the “UDJA”)
allows a court to determine a person’s “rights, status or other legal
relations” under a municipal ordinance. A.R.S. § 12-1832. Under the UDJA,
a controversy involving a municipal ordinance is justiciable when there are
“specific adverse claims, based upon present rather than future or
speculative facts, which are ripe for judicial determination.” Manning v.
Reilly, 2 Ariz. App. 310, 314 (1965); Mills, 253 Ariz. at 423–24 ¶ 25 (a claim is
justiciable under the UDJA when facts in a complaint “’show a present
existing controversy which permits the court to adjudicate any present
rights[.]’” (quoting Moore v. Bolin, 70 Ariz. 354, 358 (1950)).

4
 DAVIS, et al. v. PRESCOTT
Decision of the Court

¶17 The Davises alleged the City violated the Code when it issued
a building permit allowing the Odles to erect structures not setback at least
25 feet from the front lot line of the Odles’ property. They alleged that
permit and the resulting construction are harming them because the new
structures negatively impact the view from their patio and interfere with
privacy, peace, and quiet in their home. These allegations of direct and
ongoing harm as neighboring property owners create a present controversy
between the Davises and the City sufficient for justiciability under the
UDJA. Manning, 2 Ariz. App. at 314; Mills, 253 Ariz. at 423–24 ¶ 25. But to
be clear, we take no position on the merits of the Davises’ declaratory
judgment claim.

II. Leave to Amend

¶18 The Davises also maintain the superior court erred by
denying leave to amend their complaint to add a negligence claim on
grounds that doing so would be futile. We review the denial of leave to
amend for an abuse of discretion, ELM Ret. Ctr., LP v. Callaway, 226 Ariz.
287, 292 ¶ 25 (App. 2010), but we consider de novo whether a request to
amend is futile. Ute Mountain Ute Tribe v. Ariz. Dep’t of Revenue, 254 Ariz.
410, 416 ¶ 22 (App. 2023). Generally, denying leave to amend is an abuse
of discretion when a party “merely seeks to add a new legal theory.”
MacCollum v. Perkinson, 185 Ariz. 179, 185 (App. 1996).

¶19 The Davises sought to amend their complaint to add a new
legal theory that the City negligently issued the Odles a building permit.
Arizona law grants public entities and employees qualified immunity for
the issuance of “any permit, license, certificate, approval, order or similar
authorization” unless they “intended to cause injury or [were] grossly
negligent.” A.R.S. § 12-820.02(A)(5). The superior court denied leave to
amend on futility grounds, concluding the Davises’ new allegations did not
overcome qualified immunity.

¶20 But qualified immunity under § 12-820.02 is also an
affirmative defense. See City of Yuma v. Evans, 85 Ariz. 229, 233 (1959)
(referring to “governmental immunity” as a “defense[]” that “must be
specially pleaded in order to be available”). Like with administrative
exhaustion, the Davises were not required to anticipate the City’s qualified
immunity defense and plead around it in their proposed amended
complaint. See Shepherd, 250 Ariz. at 514 ¶ 15. This is particularly true
because the difference between ordinary negligence and gross negligence
largely turns on intent. Negligence occurs when one fails to act as a
reasonable person would. Weatherford ex rel. Michael L. v. State, 206 Ariz.

5
 DAVIS, et al. v. PRESCOTT
Decision of the Court

529, 535 ¶ 20 n.4 (2003). Gross negligence occurs when one acts with
reckless indifference. Roebuck v. Mayo Clinic, ___ Ariz. ___, ___, 575 P.3d
375, 383 ¶ 18 (2025); see also id. ¶ 19 (“[G]ross negligence adds a quasi-intent
element by requiring a showing that the defendant acted with reckless
indifference.”). The facts contained in the Davises’ proposed amended
complaint do not negate the possibility that, when granting the Odles a
building permit, the City acted with reckless indifference. Even when a
claimant must allege facts with specificity, “[m]alice, intent, knowledge,
and other conditions of a person’s mind may be alleged generally.” Ariz.
R. Civ. P. 9(b). So the superior court erred by refusing the Davises leave to
amend on grounds they did not allege facts showing the City acted with a
particular intent.

¶21 We take no position on the merits of the Davises’ amended
complaint, including whether it otherwise sufficiently pleaded a negligence
claim against the City. The City may argue on remand that the amended
complaint fails to state a claim for relief, but those arguments must rely on
facts in the amended complaint, not on future affirmative defenses the City
might assert. See Shepherd, 250 Ariz. at 514 ¶¶ 14–16.

CONCLUSION

¶22 We vacate the judgment and remand for further proceedings.
The Davises request attorney fees on appeal under A.R.S. § 12-341.01,
which allows fees when a party is successful in an action “arising out of
contract.” We deny that request because this is not an action arising out of
contract. We grant the Davises’ costs on appeal upon compliance with
Arizona Rule of Civil Appellate Procedure 21.

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

6