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Specialty Companies Grp., LLC v. Meritage Homes of Ariz., Inc. - 8/5/2021

Arizona Supreme Court holds that an alter-ego claim against a judgment-debtor’s parent corporation is not an action on a judgment and is bound by the limitation period applicable to the cause of action underlying the judgment.

A judgment-creditor obtained a judgment for breach of contract against an LLC in 2011, based on a breach that occurred in 2007.  The judgment-debtor, however, was dissolved by that point.  In 2015, the judgment creditor sued the parent corporation of the LLC, alleging that the parent corporation was liable on an alter-ego theory.  The trial court dismissed the claim because it was time-barred by the six-year statute of limitations applicable to claims for breach of a written contract.  The court of appeals reversed, however, holding that the claim was timely because it was an “action on a judgment,” and such actions must be brought within five years after a judgment becomes final. 

The Supreme Court reversed again, agreeing with the trial court.  When a plaintiff seeks to hold a parent company liable under an “alter ego” theory, an alter-ego claim is not itself a cause of action but is instead derivative of the underlying cause of action upon which liability is based and is also bound by the limitation period applicable to the underlying claim.  Here, the alter-ego liability was tied to the breach of contract claim.  Accordingly, the claim was subject to the six-year statute of limitations applicable to breach of written contract claims.  The claim against the parent corporation, brought more than six years after the breach, was therefore barred.

The Supreme Court rejected the argument that the suit is an “action on a judgment” under A.R.S. § 12-1551.  That section provides that a judgment creditor may extend a judgment’s enforceability by five years by filing an affidavit of renewal “or by an action brought on” the judgment.  A.R.S. § 12-1551(A).  The statutory action is a vestige of a common law mechanism for renewing a judgment.  The action on a judgment is not a vehicle for collateral enforcement, such as piercing the corporate veil via an alter-ego claim.  An alter-ego claim is thus not an action on a judgment because it is not an action to renew the judgment against the judgment debtor. 

Justice Bolick authored the unanimous opinion.

Posted by: Joseph N. Roth

Posted On: 8/9/2021