Rli Insurance Company v. National Construction & Development, Inc.

IN THE
ARIZONA COURT OF APPEALS
DIVISION TWO

RLI INSURANCE COMPANY, AN ILLINOIS CORPORATION,
Plaintiff/Appellant,

v.

NATIONAL CONSTRUCTION & DEVELOPMENT, INC., AN ARIZONA
CORPORATION,
Defendant/Appellee.

No. 2 CA-CV 2023-0208
Filed October 28, 2024

Appeal from the Superior Court in Mohave County
No. S8015CV202300568
The Honorable Lee F. Jantzen, Judge

VACATED AND REMANDED

COUNSEL

Jennings Haug Keleher McLeod LLP, Phoenix
By Edward Rubacha and James L. Csontos
Counsel for Plaintiff/Appellant

Lundberg & Elias PLLC, Bullhead City
By T’shura-Ann Elias
Counsel for Defendant/Appellee
 RLI INS. CO. v. NAT’L CONSTR. DEV.
Opinion of the Court

OPINION

Judge Brearcliffe authored the opinion of the Court, in which Presiding
Judge Sklar and Vice Chief Judge Eppich concurred.

B R E A R C L I F F E, Judge:

¶1 RLI Insurance Company (RLI) appeals from the superior
court’s judgment in favor of National Construction & Development, Inc.
(NCD). Because we conclude that the matter was not subject to arbitration
and the court erroneously dismissed RLI’s complaint, we vacate the
judgment and remand for further proceedings.

Factual and Procedural Background

¶2 Judgment was rendered below as a grant of a motion to
dismiss under Rule 12(b)(1), Ariz. R. Civ. P., for lack of subject matter
jurisdiction. In such a case, we would review the superior court’s ruling de
novo and view the facts in the light most favorable to upholding the ruling.
See Church of Isaiah 58 Proj. of Ariz., Inc. v. La Paz Cnty., 233 Ariz. 460, ¶ 9
(App. 2013); Swichtenberg v. Brimer, 171 Ariz. 77, 82 (App. 1991) (if
jurisdictional fact issues are distinct from merits, “the trial court may
consider affidavits, depositions and exhibits, and does not thereby convert
a motion to dismiss for lack of jurisdiction to one for summary judgment”).

¶3 However, the superior court’s ruling was also responsive to
RLI’s request for relief under A.R.S. § 12-3007(B), whereby “[o]n motion of
a person alleging that an arbitration proceeding has been initiated or
threatened but that there is no agreement to arbitrate, the court shall
proceed summarily to decide the issue.” (Emphasis added.) We have held
elsewhere that “this court treats a motion to compel arbitration like a motion
for summary judgment.” Duncan v. Public Storage, Inc., 253 Ariz. 15, ¶ 10
(App. 2022) (emphasis added); see § 12-3007(A) (motion to compel
arbitration).

¶4 We see no reason why a motion to preclude arbitration under
§ 12-3007(B) should be reviewed any differently. In Duncan, we explained
that our review of a motion to compel arbitration is evaluated de novo and
that the reviewing court will defer to the superior court’s factual findings
unless clearly erroneous. 253 Ariz. 15, ¶ 10. And, as here, where neither
party requested an evidentiary hearing and the court made its ruling after

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Opinion of the Court

argument, we will assume that “the superior court summarily determined
any relevant disputed fact issues.” Id. ¶ 11; see also Ruesga v. Kindred Nursing
Ctrs., L.L.C., 215 Ariz. 589, ¶¶ 24-25 (App. 2007); Church of Isaiah 58 Proj. of
Ariz., Inc., 233 Ariz. 460, n.4. In any event, the essential facts are not in
dispute. We review de novo the court’s ruling on RLI’s § 12-3007(B) motion
and its ruling on NCD’s motion to dismiss, viewing the facts in the light
most favorable to upholding those orders.

¶5 NCD entered into a construction contract with a property
owner, Robert Pulver, in October 2021. Under the contract, NCD was to
remodel a building and parking lot for Pulver in Fort Mohave, Arizona.
The contract included an arbitration clause in which NCD and Pulver
agreed that:

Any dispute or claim related to or arising from
this Contract, its performance, breach,
interpretation, validity, or enforceability, shall
be exclusively (except as provided below)
resolved by final binding arbitration before the
American Arbitration Association (AAA),
utilizing AAA Commercial Arbitration Rules.

In February 2022, NCD mailed a preliminary twenty-day lien notice to
Pulver, in accord with A.R.S. § 33-992.01. Thereafter, NCD completed the
project and mailed Pulver an invoice seeking final payment. Pulver did not
pay the invoice. NCD then recorded its “Notice and Claim of Mechanics’,
Materialman’s, or Professional Services Lien Pursuant to A.R.S. § 33-993”
with the Mohave County Recorder. NCD, pursuant to its construction
contract, filed a claim for arbitration against Pulver with the American
Arbitration Association (AAA).

¶6 After the arbitration proceeding between NCD and Pulver
began, Pulver secured a statutory discharge of lien bond from RLI with
Pulver as its principal, pursuant to A.R.S. § 33-1004. The lien discharge
bond was recorded in Mohave County. Although RLI was not a signatory
to the construction contract, NCD thereafter amended its AAA arbitration
pleading to add RLI as a party defendant.

¶7 In response to being added as an arbitration defendant, RLI
filed a complaint with the superior court seeking: (1) declaratory relief that
NCD had failed to perfect its lien against the property; and (2) a summary
determination under A.R.S. § 12-3007(B) that it is not bound to Pulver’s and
NCD’s arbitration agreement. Specifically, as to the mechanic’s lien, RLI
urged that “NCD failed to commence an action” to “foreclose the [l]ien

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 RLI INS. CO. v. NAT’L CONSTR. DEV.
Opinion of the Court

within six months of its recording” the notice and claim of lien as required
by A.R.S. § 33-998 and further failed to record a notice of pendency of action
(or “lis pendens”) as required under A.R.S. § 12-1191. As to the arbitration
agreement, RLI asserted that, because it was not a party to the construction
contract and arbitration agreement, it should not be subject to NCD and
Pulver’s arbitration proceeding.

¶8 NCD moved to dismiss the complaint under Rule 12(b)(1),
Ariz. R. Civ. P., for lack of subject-matter jurisdiction.1 NCD argued that,
by RLI stepping in as surety under the lien discharge bond and “binding
itself to pay the outstanding obligations alleged to be owed” by its
principal, Pulver, RLI became likewise bound to the mandatory arbitration
provision. NCD also advanced that, even though RLI was not a signatory
to the arbitration agreement, “the statutes governing sureties generally
provide for including sureties as parties” in disputes with their principals,
and, otherwise, common law exceptions applied that bound RLI to
arbitration.

¶9 NCD also argued that the superior court lacked jurisdiction
to assess the validity of the mechanic’s lien because the claim was subject
to arbitration; but, even if it could, NCD further argued, the only
requirement to perfect a mechanic’s lien is filing an action to enforce the
lien within six months, which it accomplished by initiating arbitration. RLI
opposed the motion to dismiss and cross-moved for a summary
determination on its claims.

¶10 At the conclusion of oral argument, the superior court
granted NCD’s motion to dismiss and denied RLI’s request for relief
pursuant to § 12-3007(B).2 In its judgment, the court ruled that “the
arbitration clause in the construction agreement between [NCD] and Robert
Pulver is a mandatory arbitration clause,” “said arbitration clause applies
to [RLI],” and the court “d[id] not have jurisdiction over this matter.” The
court certified the judgment as final pursuant to Rule 54(c), Ariz. R. Civ. P.,

1NCD also moved pursuant to Rule 12(b)(7) for failure to join a

necessary party under Rule 19, Ariz. R. Civ. P. The superior court did not
rule on this basis and, given our disposition on appeal, we do not address
it.

2The hearing transcript was not included in the record on appeal;

consequently, we glean the superior court’s ruling from the clerk’s minute
entry following the hearing and from the resulting judgment.

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 RLI INS. CO. v. NAT’L CONSTR. DEV.
Opinion of the Court

and RLI appealed. We have jurisdiction pursuant to A.R.S. § 12-
2101(A)(1).3

Discussion

¶11 The superior court dismissed RLI’s complaint because it
determined that RLI was bound by the mandatory arbitration clause in the
construction contract between NCD and Pulver. It therefore concluded that
it lacked jurisdiction over the dispute on the mechanic’s lien. “The question
of whether a non-party” like RLI “is bound by an arbitration agreement is
properly resolved by the court as a matter of law.” Duenas v. Life Care Ctrs.
of Am., Inc., 236 Ariz. 130, ¶ 23 (App. 2014). We review legal questions de
novo. See SAL Leasing, Inc. v. State ex rel. Napolitano, 198 Ariz. 434, ¶ 13
(App. 2000).

¶12 In evaluating a motion under § 12-3007, a superior court is
confined to determining whether an agreement to arbitrate exists. Est. of
Decamacho ex rel. Guthrie v. La Solana Care & Rehab, Inc., 234 Ariz. 18, ¶ 8
(App. 2014). It is undisputed that RLI was not a signatory to the agreement
between NCD and Pulver containing the arbitration clause. Generally, “a
party is bound to arbitrate only those disputes which it has contractually
agreed to arbitrate.” Smith v. Pinnamaneni, 227 Ariz. 170, ¶ 22 (App. 2011).
However, a non-signatory to an arbitration agreement may be bound to
arbitrate under certain circumstances. See Duenas, 236 Ariz. 130, ¶ 26
(outlining theories for binding non-signatory to arbitration agreement, such
as “equitable estoppel” and “third-party beneficiary”). But, on the record
before us, we conclude RLI is not bound to arbitrate under statute or
common law.

3Generally, an order compelling arbitration is an unappealable
interlocutory order. See S. Cal. Edison Co. v. Peabody W. Coal Co., 194 Ariz.
47, ¶ 20 (1999); Ruesga, 215 Ariz. 589, ¶ 12. Here, however, although the
superior court’s ruling had the effect of allowing the arbitration to proceed,
it was not the result of a motion to compel arbitration. The court dismissed
RLI’s complaint to, in part, bar arbitration and certified the judgment as
final pursuant to Rule 54(c). Thus, it is an appealable judgment and our
jurisdiction is proper. See Ruesga, 215 Ariz. 589, n.2 (order that “dismiss[ed]
the entire case constituted a final, appealable judgment”).

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 RLI INS. CO. v. NAT’L CONSTR. DEV.
Opinion of the Court

I. RLI is Not Bound by Statute to Arbitrate

¶13 In its motion to dismiss below and on appeal, NCD first
argued:

[T]he statutes governing sureties generally
provide for including sureties as parties to
dispute[s] involving their principals. By
stepping in as the surety and binding itself to
pay the outstanding obligations alleged to be
owed, RLI became a non-signatory to the
construction agreement and thus bound to the
terms of said contract because the obligations
RLI agreed to perform on behalf of Pulver arise
from the construction contract. Since the rights
involved here were created by contract, the
parties must accept and abide by the terms of
the contract.

The only “statute[] governing sureties” that NCD identifies is § 33-1004(B),
which it asserts “required [NCD] to add [RLI]” as “the surety to the pending
suit.” NCD’s argument misconstrues RLI’s statutory obligations.

¶14 In interpreting a statute, we strive to give effect to its plain
meaning. See State ex rel. Ariz. Dep’t of Revenue v. Tunkey, 254 Ariz. 432,
¶¶ 31-32 (2023) (Bolick, J., concurring); Roberts v. State, 253 Ariz. 259, ¶ 20
(2022) (“‘[C]ourts will not read into a statute something which is not within
the manifest intention of the legislature as gathered from the statute itself,’
and similarly the ‘court will not inflate, expand, stretch or extend a statute
to matters not falling within its expressed provisions.’” (quoting City of
Phoenix v. Donofrio, 99 Ariz. 130, 133 (1965))). Absent any ambiguity in the
statute, we go no further than its plain language. See Welch v. Cochise Cty.
Bd. of Supervisors, 251 Ariz. 519, ¶ 11 (2021).

¶15 A lien discharge bond is a security mechanism governed by
statute which binds its issuer to satisfy amounts encompassed by a notice
and claim of lien. See § 33-1004(A), (B) (“The bond shall be in an amount
equal to one hundred fifty percent of the demand set forth in and secured
by the notice and claim of lien and shall be conditioned for the payment of
the judgment that would have been rendered against the property for the
enforcement of the lien.”). Contrary to NCD’s argument, stepping in as a
surety in this context does not bind RLI to the arbitration requirement of
the underlying contract.

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Opinion of the Court

¶16 A materialman’s lien attaches to a property as opposed to
being a personal or contractual obligation. See A.R.S. § 33-981(A) (“[E]very
person who labors or furnishes professional services . . . shall have a lien on
such building, structure or improvement for the work or labor done . . . .”);
Ranch House Supply Corp. v. Van Slyke, 91 Ariz. 177, 180-81 (1962) (purpose
of materialman’s lien statute “is that laborers and materialmen enhancing
the value of another’s property should be protected” (quoting Kerr-McGee
Oil Indus., Inc. v. McCray, 89 Ariz. 307, 311 (1961))). Amounts encompassed
by a notice and claim of lien are based on the value of materials and labor
or services provided to and incorporated into a construction project. See
§ 33-981(A) (lien amount is “for the work or labor done or professional
services, materials, machinery, fixtures or tools furnished . . . .”); Wahl v. Sw.
Sav. & Loan Ass’n, 106 Ariz. 381, 386 (1970) (amount of lien based on actual
labor or materials placed into building thereby enhancing value of
property).

¶17 Although often the same, such amount may or may not
correlate to amounts owed under any construction contract. See United
Metro Materials, Inc. v. Pena Blanca Props., L.L.C., 197 Ariz. 479, ¶ 39 (App.
2000) (materialman who has contracted with contractor rather than
property owner has lien rights only for “reasonable value” of what it
furnished, “regardless of the price agreed with the contractor,” although
contract price “constitutes prima facie proof of reasonable value”); Adams
Insulation Co. v. Los Portales Associates Ltd. P’ship, 167 Ariz. 112, 113 (App.
1991) (“A lien is a method to secure payment of an obligation and is distinct
from the obligation it secures.” (quoting Mathis v. Liquor Bd., 146 Ariz. 570,
574 (App. 1985))); Cashway Concrete & Materials v. Sanner Contracting Co., 158 Ariz. 81, 83 (App. 1988) (“[T]he validity of the lien and the reasonable
value of the material provided, are wholly separate from the contract. They
relate to a statutory remedy designed to protect materialmen from those
who do not pay their bills. That remedy stands apart from the contract
remedy.”). In fact, a right to a lien may arise where no contract exists at all.
Paul C. Helmick Corp. v. Lucky Chance Min. Co., 127 Ariz. 82, 86 (App. 1980)
(statutory right to lien does not depend on privity of contract between
supplier and owner); Ranch House Supply Corp., 91 Ariz. at 181 (explaining
that a “materialman . . . does not have to deal with the owner directly” to
fall within scope of § 33-981(B)); L. M. White Contracting Co. v. St. Joseph
Structural Steel Co., 15 Ariz. App. 260, 265 (1971) (full payment by contractor
to subcontractor does not satisfy contractor’s obligation to subcontractor’s
supplier). The separation between the lien right and the construction
contract is so prominent that parties to a construction contract cannot
impair any non-party materialman’s lien right without his express “written

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Opinion of the Court

consent,” and any contractual provisions that purport to do so are void.
A.R.S. § 33-1008(A).

¶18 The initial distinctions between the materialman’s lien rights
and the construction contract do not dissolve when an owner of a burdened
property posts a surety bond; rather, the property itself is simply freed of
the lien burden, and the surety assumes the burden through the bond. See
§ 33-1004(A), (B). The bond must cover one hundred fifty percent of the
materialman’s original demands in the notice and claim of lien “and shall
be conditioned for the payment of the judgment that would have been
rendered against the property for the enforcement of the lien.” § 33-
1004(B). Now, when the materialman—or “claimant”—pursues an action
to foreclose on his lien rights, the action is maintained against the surety
and the owner, who is now a “principal” under the bond. § 33-1004(C). If
the action is successful, “a judgment for the claimant on the bond shall be
against the principal and the principal’s sureties for the reasonable value of
the labor and material furnished and shall not be against the property.”
§ 33-1004(E). But the extent of the surety’s responsibility reaches only as far
as the bond; if the judgment amount exceeds the “penal sum” of the bond,
that excess amount must be satisfied against the principal owner, not the
surety. Id.; see also United Metro Materials, Inc., 197 Ariz. 479, ¶¶ 1-3, 25
(concluding no legal basis for holding surety liable for fees beyond extent
of the bond).

¶19 In sum, the law governing a materialman’s lien establishes
that these lien rights are distinct from any contractual obligation that may
or may not exist, and the statutes governing a surety’s responsibilities
under a lien-discharge bond do not erase these distinctions. These statutes
do not, by their plain terms, bind RLI to obligations arising under a
construction contract between the bond’s principal and a lien claimant.

¶20 NCD nonetheless seems to argue—in direct contrast to its
position above—that the absence of any reference to arbitration in § 33-1004
means that the statute does not expressly bar it from joining RLI in its
arbitration with Pulver. NCD points to Jeanes v. Arrow Ins. Co., where we
held that the legislature’s “failure . . . to allude to procedural remedies” in
Arizona’s uninsured motorist law “indicate[d] a legislative intent not to
interfere with the remedies which were otherwise available to the parties
under existing law,” such as arbitration. 16 Ariz. App. 589, 591 (1972).
However, the fact that NCD may not be expressly barred by statute from
including a lien-discharge bond insurer in an arbitration proceeding misses
the point. Because of the general rule that a non-signatory is not bound by
an arbitration agreement, NCD must first cite some authority for binding

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Opinion of the Court

RLI as a non-signatory to its arbitration agreement with Pulver. See Duenas,
236 Ariz. 130, ¶ 26.

II. RLI is Not Bound to NCD’s Arbitration Clause by Common Law
Exceptions

¶21 A non-signatory to a contract may be required to arbitrate
under that contract if certain common law exceptions apply. Id. (“Theories
for binding a non-signatory to an arbitration agreement include
incorporation by reference, assumption, agency, veil-piercing or alter ego,
equitable estoppel, and third-party beneficiary.”). As to those exceptions,
NCD first argues, as it did below, that “direct benefits estoppel” applies to
bind RLI to arbitration.

¶22 “Under direct benefits estoppel, a nonsignatory may be
compelled to arbitrate only when the nonsignatory (1) knowingly exploits
the benefits of an agreement containing an arbitration clause, or (2) seeks to
enforce terms of that agreement or asserts claims that must be determined
by reference to the agreement.” Austin v. Austin, 237 Ariz. 201, ¶ 29 (App.
2015). NCD argues that this exception applies because “[t]he duty to pay
the unpaid balance that is due and owing to [NCD] that [RLI] has obliged
itself to pay for filing its statutory bond arises out of the construction
agreement.” In other words, NCD contends that direct benefits estoppel
applies because RLI’s obligations “arise[] out of Pulver’s contractual
obligation to pay [NCD] for the work it performed.” As explained above,
this misstates RLI’s obligations as surety. RLI’s obligations arise from § 33-
1004, the notice and claim of lien, and the bond agreement itself; they do
not arise from the construction contract. NCD has not shown that either
prong of the estoppel standard applies here: there is no suggestion that RLI
exploited a benefit deriving from the construction contract, or that RLI was
seeking to enforce terms of the construction contract. This exception is
therefore inapplicable and does not bind RLI to the construction contract’s
arbitration agreement.

¶23 Second, NCD contends, conclusorily and incorrectly, that RLI
“became a third-party to the construction agreement between [NCD] and
Pulver,” and therefore RLI “is bound to the terms of said contract.” “Under
the third-party beneficiary exception, a non-signatory party may be barred
from avoiding arbitration if he has received a direct benefit from the
arbitration agreement.” Austin, 237 Ariz. 201, ¶ 24. And, “[i]n evaluating
whether the third-party beneficiary theory applies to a particular
arbitration agreement, ‘a court must look to the intentions of the parties at
the time the contract was executed.’” Id. (quoting Schoneberger v. Oelze, 208
Ariz. 591, n.6 (App. 2004)).
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Opinion of the Court

¶24 NCD does not, however, point to any benefit that RLI
received, whether directly or indirectly, from either the construction
contract generally or the arbitration clause specifically. To the extent RLI
“gained” at all here, it did so indirectly through the separate contract under
which it issued a lien discharge bond that benefitted Pulver, not from the
construction contract. Moreover, NCD fails to identify anywhere in the
arbitration provision or the construction contract any intent expressed by
the parties to benefit any third party, let alone RLI specifically.
Consequently, this exception does not apply.

¶25 The superior court erred in concluding that RLI was bound
by the arbitration agreement between NCD and Pulver. The court further
erred in consequently granting NCD’s motion to dismiss for lack of subject
matter jurisdiction. We therefore vacate the superior court’s judgment
dismissing RLI’s claims and remand for the court to: (1) enter an order
consistent with § 12-3007(B) that RLI is not bound to arbitration; and (2)
proceed with RLI’s complaint for declaratory relief on the validity of the
lien.

III. Attorney Fees

¶26 Because we vacate the superior court’s judgment in favor of
NCD, we also vacate its award of attorney fees and costs to NCD below.
On appeal, both parties request attorney fees pursuant to A.R.S. § 12-341.01.
NCD is not the prevailing party on appeal, so we deny its request for
attorney fees and costs. As the prevailing party on appeal, we award RLI
its attorney fees and costs upon its compliance with Rule 21, Ariz. R. Civ.
App. P. See Lacer v. Navajo Cnty., 141 Ariz. 392, 394 (App. 1984) (party
demonstrating absence of a contract sued upon entitled to attorney fees
under § 12-341.01).

Disposition

¶27 We vacate the superior court’s judgment in favor of NCD and
remand for further proceedings consistent with this opinion.

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