Arizona Court of Appeals Division One Holds That Statute Requiring Performance Bonds for Completion of Developer Improvements to Subdivisions Grants Discretion to Counties on When to Call the Bonds.

Empire Residential Construction sought to build a subdivision in Coconino County in three phases.  Pursuant to A.R.S. § 11-821(C) and Coconino County Subdivision Ordinance No. 82-3 § 4.14(A)(2), the County required Empire to post $4.4 million in bonds to ensure completion of roadways, emergency evacuation routes, fire station additions, and landscaping improvements.  The first two phases were developed as planned, but Empire went bankrupt before commencing construction on the final phase.  The subdivision improvements and addition to the fire station were never completed.

After a series of trustee sales, Bellemont 276, L.L.C. acquired the final phase and began negotiating with the County over the cost to complete the final improvements.  Bellemont wanted the County to call the performance bonds and use the funds to complete the improvements Empire had promised to make, arguing that it had bought the property with the expectation that the improvements would be completed with funds from the bonds.  The County refused to call the bonds. 

Bellemont and other affected parties, including the Ponderosa Fire District which had lost out on fire station improvements, brought an action seeking declaratory and mandamus relief.  The County argued that the statute and ordinance afforded the County discretion on whether to call the bonds and therefore mandamus relief was inappropriate because calling the bonds was not merely a ministerial, non-discretionary act.  The trial court disagreed and ordered the County to take actions which would result in the calling of the bonds.  The County complied but also filed a timely appeal.

The Arizona Court of Appeals reversed the decision and remanded with instructions to enter judgment in favor of the County.  The language of A.R.S. § 11-821(C) requires that subdivision regulations adopted by a county “shall require the posting of performance bonds . . . as may be appropriate and necessary to ensure the installation of” certain infrastructure.  The Court held that the statute is designed to protect the public from the cost of improvements when the developer is unable to make them, but in this instance, Bellemont was a developer and therefore the County had discretion to make Bellemont pay for the improvements rather than calling the performance bonds.  The mandatory language of § 11-821(C) merely required that the amount of the bonds be adequate to cover the cost of the improvements; the statute imposes no obligation on the County to call the bonds when the County has another option to protect the public from paying for the improvements, such as making the new developer-owner pay the costs.  Because the County had discretion, mandamus relief was inappropriate.

Similarly, the ordinance stated that after a developer defaults, the County “may do or have done all work and charge subdivider’s deposit with all costs and expenses incurred.”  Bellemont argued that the ordinance grants the County discretion to perform the work itself or hire outside contractors to do the work, but does not give discretion as to whether to call the bonds at all.  The Court disagreed, holding that the use of the word “may” rather than “shall” indicates discretion, particularly when read together with A.R.S. § 11-821(C).

Judge Gould authored the opinion; Presiding Judge Winthrop and Judge Portley joined