Arizona Court of Appeals Division Two Holds That (1) Breach-of-Contract Damages Are Not Subject to Comparative-Fault Principles under Arizona’s UCATA; (2) the Collateral-Source Rule Can Apply to Breach-of-Contract Cases If the Breach Had a Willful or Tortious Character; and (3) A.R.S. § 12-1566 Requires a Request for a Fair Market Valuation Hearing Within Thirty Days of the Property’s Sale and Does Not Authorize an Extension.

In 2009, Beth and Enrico Laos avoided a non-judicial foreclosure on a ranch they owned by borrowing $900,000 from John Munic Enterprises, Inc. (“Munic”).  The Laoses never paid Munic, and Munic discovered that Beth Laos had misrepresented the value of the assets securing the loan.  Munic sued the Laoses for breach of contract and fraud, was granted summary judgment on both claims, and was awarded contract damages of $1,362,305.70 for the loan principal, unpaid interest, and attorneys’ fees.  The trial court declined to award additional compensatory or punitive damages on the fraud claim.

More than a year after the judgment, the Laoses discovered that Munic sued its attorney for legal malpractice in connection with his work on the loan and had entered into a confidential settlement with him.  They moved for relief from the judgment under Rule 60(c)(5), which applies if “the judgment has been satisfied, released, or discharged,” arguing that the amount of the settlement should be credited against the judgment against them or that Munic should be required to enter a satisfaction of judgment.  They also requested a hearing on the fair market value of the ranch.  The trial court denied the Rule 60(c)(5) motion and the request for a hearing.

The court of appeals affirmed.  First, the court concluded that Arizona’s Uniform Contribution Among Tortfeasors Act (“UCATA”) did not require crediting the amount of the confidential settlement against the Laoses’ judgment.  The court pointed to a recent decision holding that breach of contract is not within UCATA’s definition of “fault” and thus breach-of-contract claims are not subject to comparative-fault principles.  See Fidelity & Deposit Co. of Md. v. Bondwriter Sw., Inc., 228 Ariz. 84, 263 P.3d 633 (App.  2011). The court then concluded that the damages awarded to Munic sounded primarily in contract, and thus UCATA did not apply.

The court then considered whether the collateral source rule applies to this case.  That doctrine, which typically applies in personal injury cases, provides that the plaintiff’s recovery from a source other than the defendant does not reduce the defendant’s liability to the plaintiff.  Earlier cases from the court of appeals had refused to apply the rule in ordinary contract cases.  The court reviewed other authorities and cases decided since that time, including cases from other jurisdictions, that appear to undercut that principle, particularly for situations involving breaches of contract with a tortious character.  The court concluded that the application of the collateral source rule must be decided on a case-by-case basis, and, in this case, it did apply because the breach of contract had a “willful or tortious” character, among other reasons.

Finally, the court rejected the Laoses’ argument that they were entitled to a fair market valuation hearing under A.R.S. § 12-1566 to determine the value of their foreclosed home.  That statute requires a request for such a hearing within thirty days of the sale of the property and does not authorize a court to extend that time.  Because the Laoses did not cite any authority that would allow such an extension, the trial court did not err in denying the request.

Chief Judge Howard authored the opinion; Judges Brammer and Olson concurred.