Kresock v. Gordon Ex Rel. County of Maricopa

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

FRANK D. KRESOCK, JR.; RICHARD W. HUNDLEY and law firm of
BERENS, KOZUB, KLOBERDANZ & BLONSTEIN, P.L.C.,
Petitioners,

v.

THE HONORABLE MICHAEL GORDON, Judge of the SUPERIOR
COURT OF THE STATE OF ARIZONA, in and for the County of
MARICOPA,
Respondent Judge,

ROSEMARY DePAOLI; GREGORY MEELL; ABRAM, MEELL &
CANDIOTO, P.A., an Arizona professional corporation,
Real Parties in Interest.

No. 1 CA-SA 16-0026
FILED 3-17-2016

Petition for Special Action from the Superior Court in Maricopa County
CV2013-055126
The Honorable Michael D. Gordon, Judge
The Honorable John R. Hannah Jr., Judge

JURISDICTION ACCEPTED; RELIEF GRANTED

COUNSEL

Berens, Kozub, Kloberdanz & Blonstein, PLC, Phoenix
By Richard W. Hundley
Counsel for Petitioner
Burch & Cracchiolo, P.A., Phoenix
By Daniel R. Malinski
Counsel for Real Parties in Interest

OPINION

Judge Samuel A. Thumma delivered the Opinion of the Court, in which
Presiding Judge Kent E. Cattani and Judge Diane M. Johnsen joined.

T H U M M A, Judge:

¶1 Accepting jurisdiction in this special action, this court grants
relief because attorneys’ fees imposed as sanctions pursuant to Arizona
Revised Statutes (A.R.S.) section 12-349 (2016)1 and Ariz. R. Civ. P. 11 are
not “damages awarded” for purposes of calculating a supersedeas bond
pursuant to A.R.S. § 12-2108(A) and Ariz. R. Civ. App. P. 7(a)(4)(A).

FACTS AND PROCEDURAL HISTORY

¶2 The superior court dismissed on motion Petitioner Frank D.
Kresock Jr.’s civil claims against the Real Parties in Interest Rosemary
DePaoli, Gregory J. and Jane Doe Meell, and Abram, Meell & Candioto, P.A.
As sanctions pursuant to A.R.S. § 12-349 and Ariz. R. Civ. P. 11, the
judgment awarded attorneys’ fees to the Real Parties and against Kresock,
his attorney Petitioner Richard W. Hundley and Hundley’s law firm
Petitioner Berens, Kozub, Kloberdanz and Blonstein, P.L.C. Petitioners’
appeal from that judgment is pending before this court.

¶3 Petitioners unsuccessfully asked the superior court to stay
enforcement of the judgment, claiming no supersedeas bond was required
because the judgment awarded no damages. The same day the superior
court denied that requested stay, Petitioners sought a similar stay from this
court in the appeal. This court denied that motion without prejudice to
Petitioners filing a special action. This is that special action.

1Absent material revisions after the relevant dates, statutes and rules cited
refer to the current version unless otherwise indicated.

2
 KRESOCK v. HON GORDON/DEPAOLI
Opinion of the Court

DISCUSSION

¶4 Given the nature of a supersedeas bond, and the unique
procedural background of this case, exercising special action jurisdiction is
appropriate. See Ariz. R.P. Spec. Act. 1(a); see also City Ctr. Exec. Plaza, LLC,
v. Jantzen, 237 Ariz. 37, 39 ¶ 2 (App. 2015) (citing cases). Accordingly, this
court accepts special action jurisdiction.

¶5 The relevant portion of the supersedeas bond statute
provides:

If a plaintiff in any civil action obtains a
judgment under any legal theory, the amount of
the bond that is necessary to stay execution
during the course of all appeals or discretionary
reviews of that judgment by any appellate court
shall be set as the lesser of the following:

1. The total amount of damages awarded
excluding punitive damages.

2. Fifty per cent of the appellant’s net
worth.

3. Twenty-five million dollars.

A.R.S. § 12-2108(A) (emphasis added); accord Ariz. R. Civ. App. P. 7(a)(4)(A)
(similar). Jantzen held that attorneys’ fees awarded pursuant to A.R.S. § 12-
341.01 are not “damages” for purposes of setting a supersedeas bond under
A.R.S. § 12-2108(A)(1) (enacted in 2011) and Ariz. R. Civ. App. P. 7(a)(4)(A)
(promulgated in 2012). 237 Ariz. at 42 ¶ 13. Jantzen has been applied or
construed in other contexts. See Bobrow v. Superior Court, ___ Ariz. ___, ___
¶¶ 2, 10, 12, 2016 WL 425193 at *1-*3 (App. Feb. 4, 2016) (applying Jantzen
in denying, on special action review, relief from order requiring
supersedeas bond in full amount of family court decree awarding one
spouse living expenses and value of a house); Wells Fargo Bank N.A. v.
Superior Court, ___ Ariz. ___, ___ ¶¶ 11-18, 2016 WL 337457 at *3-*5 (App.
Jan. 28, 2016) (discussing Jantzen in construing Ariz. R. Civ. App. P. 7(a)(2),
which authorizes superior court to “enter any further order, in lieu of or in
addition to the [supersedeas] bond, which may be appropriate to preserve
the status quo or the effectiveness of the judgment”).2 No decision has
applied Jantzen in considering whether attorneys’ fees imposed as sanctions

2 No such “further order in lieu of” a supersedeas bond is at issue here.

3
 KRESOCK v. HON GORDON/DEPAOLI
Opinion of the Court

are “damages” for purposes of setting a supersedeas bond under A.R.S. §
12-2108(A)(1).

¶6 Although both parties agree the supersedeas bond statute
applies, they argue it directs diametrically different results. Petitioners
argue attorneys’ fees imposed as sanctions are not “damages” under the
supersedeas bond statute “according to [the] ‘peculiar and appropriate
meaning’” the term “damages” has “in the law.” Jantzen, 237 Ariz. at 41 ¶
13 (citing authority). Accordingly, Petitioners argue, because “[n]o
damages were awarded” to the Real Parties, “no actual supersedeas bond
is required” to stay enforcement of the judgment. The Real Parties counter
that attorneys’ fees imposed as sanctions are “damages,” relying on cases
cited in Jantzen, a law review article, cases construing Fed. R. Civ. P. 11 and
Ariz. R. Civ. P. 11, and A.R.S. § 12-349. The authorities the Real Parties cite,
however, either do not support their argument, or support Petitioners’
argument.

¶7 Jantzen stated:

In Arizona, courts generally do not
construe “damages” to include attorneys’ fees.
We see no reason to diverge from the general
rule here. This is not a case where attorneys’ fees
are a legal consequence of an original wrongful
act or any of the other situations where
attorneys’ fees can be considered damages. See
Desert Mountain Prop. Ltd. P’ship v. Liberty Mut.
Fire Ins. Co., 225 Ariz. 194, 209 ¶ 61 . . . (App.
2010) (“[W]hen one party’s breach of contract
places the other in a situation that makes it
necessary to incur expenses to protect his
interest, such costs and expenses, including
attorneys’ fees, should be treated as the legal
consequences of the original wrongful act and
may be recovered as damages.”).

237 Ariz. at 41-42 ¶ 13 (citations omitted). The Real Parties argue that
attorneys’ fees imposed as sanctions are akin to the fees sought in Desert
Mountain, meaning they are damages for purposes of the supersedeas bond
statute.

4
 KRESOCK v. HON GORDON/DEPAOLI
Opinion of the Court

¶8 For certain types of substantive claims, attorneys’ fees may be
recovered as a component of damages. See Jantzen, 237 Ariz. at 42 ¶ 13
(citing and distinguishing authority); Desert Mountain, 225 Ariz. at 209 ¶ 61
(citing cases); see also State Bar of Arizona, Arizona Attorneys’ Fees Manual
§§ 7.1-7.5 (5th ed. Supp. 2014) (listing examples of claims where attorneys’
fees are damages, including “tort of another;” wrongful repudiation of
insurance coverage; and fees caused by wrongful injunction, attachment,
garnishment or execution). No such claim is present here. The attorneys’
fees awarded were not incurred as a result of “one party’s breach of
contract,” in a damages award made by a finder of fact or in a damages
award in an order resolving a dispositive motion. As in Jantzen, the
attorneys’ fees imposed here were not “a legal consequence of an original
wrongful act or any of the other situations where attorneys’ fees can be
considered damages.” 237 Ariz. at 42 ¶ 13 (citing Desert Mountain).
Accordingly, the cases relied upon by the Real Parties that Jantzen
distinguished are just as distinguishable here.

¶9 The Real Parties argue that Ariz. R. Civ. P. 11 sanctions are
meant to be remedial, citing a 1986 law review article discussing competing
rationales for sanctions available under then-recent changes to Fed. R. Civ.
P. 11:

Rule 11 sanctions can be imposed on the
lawyer, the client, or both. The sanctions are
viewed by some as primarily compensatory and
by others as primarily punitive; the tension
between these two views cannot be completely
reconciled. On the one hand, sanctions are a
form of cost-shifting, compensating a party for
expenses incurred because of an opponent’s
unnecessary, wasteful, or abusive conduct. On
the other hand, they are a form of punishment,
imposed only on those who violate the rule.
Whatever the rationale for imposing sanctions,
their frequent use is likely to be a significant
deterrent.

Melissa L. Nelken, Sanctions Under Amended Federal Rule 11 - Some “Chilling”
Problems in the Struggle Between Compensation and Punishment, 74 Geo. L.J.
1313, 1314 (1986). Although the Real Parties rely on the portion of the quote
indicating sanctions are a form of cost shifting, the same can be said for fee
shifting under A.R.S. § 12-341.01. Jantzen, however, held that fees awarded
under A.R.S. § 12-341.01 were not “damages” under the supersedeas bond

5
 KRESOCK v. HON GORDON/DEPAOLI
Opinion of the Court

statute. And the alternative basis for awarding sanctions listed in the quote
-- that they are a form of punishment -- clearly takes such awards outside
of the supersedeas bond statute, which expressly excludes “punitive
damages” when calculating the amount of a bond. A.R.S. § 12-2108(A)(1).
More broadly, this law review article does not address whether fees
imposed as Fed. R. Civ. P. 11 sanctions are damages for purposes of a
supersedeas bond statute. Nor have the Real Parties cited any case
construing Fed. R. Civ. P. 11 or Ariz. R. Civ. P. 11 that supports such a
proposition.

¶10 Finally, the primary basis for the sanctions imposed here was
A.R.S. § 12-349.3 When applicable, that statute provides that a court “shall
assess” as sanctions “reasonable attorney[s’] fees, expenses and, at the
court’s discretion, double damages of not to exceed five thousand dollars
against an attorney or party.” A.R.S. § 12-349(A). Thus, this statute
differentiates between “attorney[s’] fees” (which were imposed as
sanctions here) and “damages” (which were not). Given this dichotomy, it
is impossible to read the term “damages awarded” in A.R.S. § 12-2108(A)
to conclude a supersedeas bond must include both “attorney[s’] fees . . . and
. . . damages” in A.R.S. § 12-349(A). See, e.g., State ex rel. Montgomery v.
Harris, 234 Ariz. 343, 344 ¶ 8 (2014) (“’[T]he best and most reliable index of
a statute’s meaning is its language and, when the language is clear and
unequivocal, it is determinative of the statute’s construction.’”) (quoting
State v. Hansen, 215 Ariz. 287, 289 ¶ 7 (2007)); Bilke v. State, 206 Ariz. 462, 464
¶ 11 (2003) (“The court must give effect to each word of the statute.”); P.F.
West, Inc. v. Superior Court, 139 Ariz. 31, 34 (App. 1984) (stating different
statutory terms or phrases are not treated as synonymous unless context
permits no other meaning).

3It is at least arguable that A.R.S. § 12-349 is the sole basis for the sanctions,
given the superior court’s observation that the statutory sanction “is a
reasonable sanction for the Rule 11 violation.” In any event, there is no
showing that Ariz. R. Civ. P. 11 provides an adequate, independent basis
for the sanctions imposed, let alone that the outcome in determining
damages under the supersedeas bond statute would differ if such a
showing had been made.

6
 KRESOCK v. HON GORDON/DEPAOLI
Opinion of the Court

CONCLUSION

¶11 This court accepts special action jurisdiction and grants relief
by ordering that the award of attorneys’ fees as sanctions pursuant to A.R.S.
§ 12-349 and Ariz. R. Civ. P. 11 are not “damages awarded” for purposes of
calculating a supersedeas bond pursuant to A.R.S. § 12-2108(A) and Ariz.
R. Civ. App. P. 7(a)(4)(A). Given this conclusion, the Real Parties’ request
for costs and attorneys’ fees incurred in this special action is denied.

:ama

7