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Falcone Brothers & Associates, Inc. v. City of Tucson

Court of Appeals of Arizona, Second Division

August 25, 2016

Falcone Brothers & Associates, Inc., an Arizona corporation, Plaintiff/Appellant,
City of Tucson, an Arizona municipal corporation, Defendant/Appellee.

         Appeal from the Superior Court in Pima County No. C20152217 The Honorable Richard S. Fields, Judge The Honorable Richard E. Gordon, Judge

          Carmichael & Powell, P.C., Phoenix By David J. Sandoval Counsel for Plaintiff/Appellant

          Michael G. Rankin, Tucson City Attorney By Stacy Stauffer, Principal Assistant City Attorney, Tucson Counsel for Defendant/Appellee

          Chief Judge Eckerstrom authored the opinion of the Court, in which Presiding Judge Vásquez and Judge Miller concurred.


          ECKERSTROM, Chief Judge.

         ¶1 Following a contractual dispute regarding a road- improvement project, appellant Falcone Brothers and Associates, Inc. (Falcone) filed a civil complaint against appellee City of Tucson (City). The City maintained that the action was barred because the issues already had been decided by the City's director of procurement and that Falcone had refused to challenge the director's "administrative decision" by special action as required by the parties' contract and the City's code. We conclude that neither the contract nor the City code can direct judicial review of a breach-of-contract claim by special action; therefore, we reverse the trial court's order granting the City's motion to dismiss and remand the case for further proceedings.

         I. Factual and Procedural Background

         ¶2 In 2012, Falcone and the City executed a contract that incorporated chapter 28 of the Tucson Code, a chapter also known as the Procurement Code. Under the applicable version of that code, a dispute regarding a contract would be decided first by a contract officer from the City's Procurement Department. Tucson, Ariz., Code ("TC") §§ 28-76, 28-91 to 28-93 (1987 & Supp. 2007).[1] An aggrieved party then could file an appeal with the City's director of procurement. TC § 28-94. If the director assigned the claim to a hearing, the director would appoint a hearing officer to conduct the proceeding and make a recommendation, which included proposed findings and conclusions. See TC §§ 28-94(3), 28-96, 28-113, 28-114(1). The Procurement Code broadly authorized the director to "affirm, modify, or reject the hearing officer's recommendation in whole or in part, . . . remand the matter to the hearing officer with instructions, or make any other appropriate disposition." TC § 28-114(2). The Procurement Code specified that "[a] decision by the director shall be final." TC § 28-115. Under TC §§ 28-117 and 28-118, the director's final decision could only be challenged by "special action review" in the superior court filed within thirty days. The Procurement Code stated that "[e]xhaustion of the procedures set forth in this Code shall be a condition precedent to seeking judicial review, " TC § 28-117, and that the code "provide[d] the exclusive procedure for asserting a claim or cause of action against this city" that arose from a procurement contract. TC § 28-118.

         ¶3 According to Falcone, the company suffered approximately $2.5 million in damages from the construction project. Those damages included the additional costs that Falcone incurred from errors in the plans it had relied on to formulate its bid, as well as unforeseeable utility conflicts and subterranean structures for which the City bore responsibility.

         ¶4 In 2014, Falcone submitted a notice of claim pursuant to A.R.S. § 12-821.01, expressly reserving its right to file a civil suit. In the notice, the company maintained "the claim procedure set forth in the Contract [w]as illegal and unenforceable, " but Falcone nonetheless agreed to participate in the City's administrative proceedings. In the first stage of that process, a City contract officer rejected Falcone's claim in its entirety. After Falcone appealed, a hearing officer conducted an evidentiary hearing and recommended to the director that the claim be denied. The director then issued a decision on April 20, 2015, denying Falcone any additional compensation.[2]

         ¶5 Despite the limitation in TC § 28-117, Falcone did not seek special action relief from this decision. Instead, the company filed a complaint in the superior court asserting claims of breach of contract and unjust enrichment. The City filed a motion under Rule 12(b)(1), Ariz. R. Civ. P., to dismiss the complaint on three grounds: failure to exhaust administrative remedies, res judicata, and collateral estoppel. The trial court granted the motion after oral argument, stating that the grounds for its decision were "stated on the record." Neither party provided a transcript of the hearing. This appeal by Falcone followed.

         II. Appellate Jurisdiction

         ¶6 With respect to the procedures applicable to a case such as this, both parties have cited this court's opinion in Richard E. Lambert Ltd. v. City of Tucson Department of Procurement, 223 Ariz. 184, 221 P.3d 375 (App. 2009). There, the aggrieved contractor pursued an appeal in the superior court that was characterized as a "special action" under the City's Procurement Code. Lambert, 223 Ariz. 184, ¶¶ 4-5, 221 P.3d at 377-78. We expressly declined to address whether this procedure was proper. Id. n.1. We also implied that we had appellate jurisdiction over the resulting judgment from the superior court under the former A.R.S. § 12-2101(B), which was later renumbered § 12-2101(A)(1).[3] See Lambert, 223 Ariz. 184, ¶ 5, 221 P.3d at 378.

         ¶7 That provision allows an appeal to this court when an action is "commenced in a superior court." § 12-2101(A)(1). However, neither an appeal nor a special action in the superior court is "commenced" there within the meaning of this statute. Stant v. City of Maricopa Emp. Merit Bd., 234 Ariz. 196, ¶¶ 7-8, 319 P.3d 1002, 1004-05 (App. 2014). Accordingly, because Lambert did not identify a proper ground for appellate jurisdiction, we do not rely on that case as precedent.

         ¶8 The present case differs from Lambert because Falcone filed a civil complaint in the superior court. The case therefore "commenced" in that court pursuant to § 12-2101(A)(1), and the trial court's dismissal order is a "final judgment" subject to appeal. Id. Although the court's order initially lacked certification pursuant to Rule 54(c), Ariz. R. Civ. P., we have stayed the appeal and revested jurisdiction in the superior court to obtain such certification. See Ariz. R. Civ. App. P. 3; Madrid v. Avalon Care Ctr.-Chandler, L.L.C., 236 Ariz. 221, ¶ 5, 338 P.3d 328, 330-31 (App. 2014). With a formal judgment now included in the record on appeal, we have appellate jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and 12-2101(A)(1).

         III. Discussion

         ¶9 As it did below, Falcone claims on appeal that the "administrative process" prescribed by the City violates Falcone's constitutional rights to due process and a jury trial. Specifically, Falcone maintains that the City's director of procurement is not a neutral arbiter of the City's contract disputes and that the limited process of review afforded by the City denies an aggrieved party the opportunity for "a de novo review of the facts" by an impartial decision-maker. In light of these alleged constitutional defects, Falcone asserts that the trial court erred in granting the City's motion to dismiss and that the "civil complaint was appropriately filed and should be tried on its merits."

         ¶10 Rule 12(b)(1) allows a trial court to dismiss an action for lack of subject matter jurisdiction. When, as here, a trial court's disposition of such a motion does not resolve any disputed jurisdictional facts, we review the court's ruling de novo. See Church of Isaiah 58 Project of Ariz., Inc. v. ...

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