Opinion
1 CA-CV 23-0418
05-16-2024
LAW OFFICE OF LARRY A. ZIER, P.C., Plaintiff/Appellee, v. JULIE MIZELL, Defendant/Appellant.
Zelms Erlich & Mack, Phoenix By Robert B. Zelms, Samantha J. Sawyer Counsel for Plaintiff/Appellee Julie Mizell, Fountain Hills Defendant/Appellant
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Maricopa County No. CV2019-003610 The Honorable Randall H. Warner, Judge
Zelms Erlich & Mack, Phoenix By Robert B. Zelms, Samantha J. Sawyer Counsel for Plaintiff/Appellee
Julie Mizell, Fountain Hills Defendant/Appellant
Judge David D. Weinzweig delivered the decision of the Court, in which Presiding Judge Andrew M. Jacobs and Judge Jennifer M. Perkins joined.
MEMORANDUM DECISION
WEINZWEIG, JUDGE
¶1 Julie Mizell appeals the superior court's refusal to set aside a judgment against her. For the reasons that follow, we reverse and remand.
FACTS AND PROCEDURAL HISTORY
¶2 At issue here is the enforceability of a liquidated damages clause. Larry Zier ("Lawyer") agreed to represent Julie Mizell ("Client") in her 2015 medical malpractice and medical battery lawsuit ("Tort Lawsuit"). Lawyer and Client agreed that Client would be responsible for litigation costs and expenses. Lawyer withdrew from representing Client in the Tort Lawsuit after a dispute over costs and expenses in 2017.
¶3 Lawyer later filed this lawsuit against Client in 2019 to recover $10,482 in litigation costs and expenses incurred in the Tort Lawsuit. The superior court ordered arbitration. The arbitrator awarded Lawyer only $6,482 ("Arbitration Award"), finding that a different lawyer incurred the remaining $4,000 in costs. Client appealed the Arbitration Award and countersued Lawyer for legal malpractice.
¶4 The superior court dismissed Client's legal malpractice claim and the parties entered a settlement agreement ("Settlement Agreement"). The Settlement Agreement required Client to pay Lawyer a total of $5,000 in five monthly installments of $1,000. The Settlement Agreement was agreed upon in open court and the parties jointly moved to voluntarily dismiss the case. Liquidated Damages Clause
¶5 The Settlement Agreement contained a liquidated damages clause that required Client to pay another $10,000 in damages to Lawyer if any of her monthly $1,000 payments were untimely:
The Parties agree to execute a stipulated judgment in favor of [Lawyer] in the amount of $15,000 ("Judgment") to secure the
payment of the Settlement Funds . . . [Lawyer] will file the Judgment with the Court. The Judgment shall not be recorded, and no efforts shall be made to execute on the Judgment as long as the Settlement Funds are timely paid in $1,000 net installments by the 15th of each month, as set forth above. If any payment arrives late, [Lawyer] shall be entitled to record the Judgment, and make any efforts to collect any remaining amounts of the $15,000 Judgment from [Client].
¶6 Lawyer received Client's first payment one day late, the second payment two days late and the third payment three days late. Client paid the two remaining payments on time for a total of $5,000.
¶7 After the second late payment, Lawyer recorded the Judgment and notified Client that she breached the Settlement Agreement. And, based on the liquidated damages clause, Lawyer demanded an additional $10,000 from Client.
¶8 Client moved the superior court to find that she satisfied the terms of the Settlement Agreement, and to order Lawyer to cease his collection efforts for the liquidated damages. The court denied both motions, finding (1) the Settlement Agreement was enforceable, (2) Client breached its terms by making two untimely payments, (3) Client was required to pay an additional $10,000 under the Judgment and liquidated damages clause, and (4) Client did not satisfy the Judgment and breached the Settlement Agreement because she failed to pay that additional sum. Client unsuccessfully moved for reconsideration and relief from the Judgment, arguing, among other things, that she satisfied the Settlement Agreement and the Judgment was void. Lawyer filed a garnishment action.
¶9 Client appealed. We have jurisdiction. A.R.S. §§ 12-120.21 and -2101(A)(1).
DISCUSSION
¶10 Client raises several claims in her opening brief, including that Lawyer defamed her, violated the professional rules of conduct, and engaged in unlawful debt collection practices. Because Client did not raise those claims before the superior court, we will not tackle them for the first time on appeal. Englert v. Carondelet Health Network, 199 Ariz. 21, 26-27, ¶ 13 (App. 2000).
¶11 Client seeks relief from the Judgment pursuant to Arizona Rule of Civil Procedure 60(b). Arizona courts are authorized to vacate a final judgment under various circumstances, including when "the judgment has been satisfied" or "applying it prospectively is no longer equitable." Ariz. R. Civ. P. 60(b)(5). We review the denial of a Rule 60 motion for an abuse of discretion. Gonzalez v. Nguyen, 243 Ariz. 531, 533, ¶ 8 (2018). A court abuses its discretion if there is no evidence to support its conclusion or the conclusion is legally incorrect, clearly untenable or a denial of justice. Charles I. Friedman, P.C. v. Microsoft Corp., 213 Ariz. 344, 350, ¶ 17 (App. 2006).
¶12 Client argues she satisfied the terms of the Settlement Agreement because she paid $5,000 and the remaining $10,000 is unenforceable. Lawyer argues the $10,000 owed under the Judgment is a reasonable and enforceable liquidated damages clause. We review de novo whether a settlement agreement is enforceable. Robertson v. Alling, 237 Ariz. 345, 347, ¶ 8 (2015).
¶13 Settlement agreements are contracts and we interpret them under general contract principles. Emmons v. Superior Ct., 192 Ariz. 509, 512, ¶ 14 (App. 1998). Arizona courts will enforce a contract unless its terms are unconscionable, illegal or against public policy. Dobson Bay Club II DD v. La Sonrisa de Siena, LLC, 242 Ariz. 108, 115, ¶ 39 (2017).
¶14 Arizona courts will not enforce a liquidated damages clause that acts as a penalty because the "central objective behind the system of contract remedies is compensatory, not punitive." Dobson Bay, 242 Ariz. at 110, ¶ 9 (quoting Restatement (Second) of Contracts § 356, cmt. a). A liquidated damages clause acts as a penalty when the clause awards the non-breaching party more money than would be "fair compensation" for the breach of contract. Aztec Film Prods., Inc., v. Quinn, 116 Ariz. 468, 470 (App. 1977) (holding a penalty is "designed to punish" or "prevent a breach by the threat of punishment.").
¶15 But liquidated damages clauses may be enforceable if they satisfy two requirements:
• First, the stipulated amount must be a reasonable forecast of just compensation for the harm anticipated or actually caused by the breach of contract. Dobson Bay, 242 Ariz. at 111, ¶ ¶ 11-15. • Second, the potential harm caused by the breach must be hard to estimate. Id.
¶16 The liquidated damages clause in the Settlement Agreement is a penalty. It was designed to prevent a breach of the Settlement Agreement "by the threat of punishment." Aztec Film, 116 Ariz. at 470.
¶17 Lawyer sued Client for $10,482 in costs and expenses, but Lawyer was awarded only $6,482 in the arbitration because the arbitrator found that a different lawyer incurred the remaining $4,000 in costs. The parties then settled for $5,000. Client paid all five installments under the Settlement Agreement for a total of $5,000. The first installment was one day late, the second installment was two days late, and the third installment was three days late. The final two installments were timely. Lawyer then recorded the Judgment and demanded an additional $10,000 in liquidated damages.
¶18 A liquidated damages award of $10,000 based on three late payments-received a total of six days late-is not a reasonable forecast of the harm anticipated or actually caused by the untimely payments. To the contrary, it requires an "excessive" and "disproportionate" payment untethered to actual damages. Aztec Film, 116 Ariz. at 469-70; see also Dobson Bay, 242 Ariz. at 112, ¶ 21 (noting the liquidated damages must "account for the length of time" a payment is late to reasonably predict the loss).
¶19 Lawyer is still entitled "to the recovery of such actual damages as he can prove." Aztec Film, 116 Ariz. at 470 (citation omitted). Lawyer argues his actual damages should include additional amounts unrelated to the breach, including (1) the discount he accepted to settle, (2) his acceptance of payment in installments rather than a lump sum, (3) his waiver of claims against Client, (4) the $5,000 deductible he paid to his insurance carrier before the Settlement Agreement was made, and (5) the "fees" he incurred as a pro se litigant to respond to Client's motions. We disagree. Lawyer's damages are limited to losses incurred because of Client's late payments. See Dobson Bay, 242 Ariz. at 112-13, ¶¶ 21-24.
¶20 Lawyer's actual damages were limited to the interest used to calculate "the loss of use of money" on a late payment. See Dobson Bay, 242 Ariz. at 115, ¶ 35; A.R.S. § 44-1201(A)(2) (interest rate is ten percent a year). On this record, that amount is $1.64.
¶21 Because the liquidated damages clause was designed to punish Client for making an untimely payment, rather than fairly compensate Lawyer for damages, we reverse.
CONCLUSION
¶22 We reverse and remand to the superior court for proceedings consistent with this decision. We also remand for dismissal of Lawyer's garnishment action brought to collect the $10,000 penalty. The Judgment shall be vacated and a new judgment entered which directs Client to pay Lawyer $1.64 in actual damages.
¶23 Client requests her attorney fees on appeal. We decline her request because she is a pro se litigant. Munger Chadwick, P.L.C. v. Farwest Dev. &Constr. of the Sw., LLC, 235 Ariz. 125, 126-27, ¶ 5 (App. 2014). Client is, however, entitled to her costs on appeal, upon compliance with ARCAP 21.
Lawyer moved to strike Client's supplemental brief for untimeliness. Because we resolve this appeal without need for Client's supplemental brief, we deny the motion as moot.