Butler Law v. Hon. higgins/winslow Memorial
Butler Law v. Hon. higgins/winslow Memorial
Opinion
¶ 1 Winslow Memorial Hospital ("Hospital") filed this legal-malpractice action in the Superior Court of Navajo County against Butler Law Firm, PLC ("BLF"), a professional limited liability company ("PLLC") organized in Maricopa County, and against attorneys Everett S. Butler and Matthew D. Williams, both Maricopa County residents (collectively, "Defendants"). The trial court denied Defendants' motion for change of venue. We reverse and hold that venue does not properly lie in Navajo County as to any of the Defendants.
I. BACKGROUND
¶ 2 In March 2013, BLF entered into a legal-services agreement (the "Representation Agreement" or "Agreement") with the Hospital to draft an employment contract for the Hospital's CEO. The Hospital is in Navajo County. The Representation Agreement stated that BLF would provide "legal services" to the Hospital and that Everett S. Butler, BLF's sole member, would have "primary responsibility" for representing the Hospital. In addition to an hourly fee, the Hospital agreed to reimburse BLF for costs incurred on its behalf, including "travel, parking, computerized legal research, long distance calls, photocopying, court costs and filing fees, court transcripts, messenger services, etc." The Representation Agreement was written on BLF's letterhead and displayed BLF's Phoenix address, but it was silent as to where BLF was to perform its services under the Agreement.
¶ 3 The relationship between the parties soured. In January 2016, the Hospital sued BLF, Butler, and Williams, a non-member attorney employed by BLF. The complaint alleged legal malpractice, breach of fiduciary duty, and breach of the covenant of good faith and fair dealing.
¶ 4 Defendants moved to transfer venue to Maricopa County pursuant to A.R.S. § 12-404(A). They argued that because all Defendants resided in Maricopa County, venue in Navajo County was improper unless a statutory exception applied under A.R.S. § 12-401.
¶ 5 The trial court denied the motion. Relying on
Morgensen v. Superior Court
,
¶ 6 We granted review to consider (1) whether BLF "contracted in writing to perform an obligation" in Navajo County, and (2) whether an LLC is an "other corporation" contemplated by the venue statute. We have jurisdiction pursuant to article 6, section 5(3), of the Arizona Constitution and A.R.S. § 12-120.24.
II. DISCUSSION
A. Standard of Review
¶ 7 The interpretation of Arizona's venue statutes is a matter of law that we review de novo.
Yarbrough v. Montoya-Paez
,
¶ 8 Section 12-401 provides generally that "[n]o person shall be sued out of the county in which such person resides" unless a statutory exception applies. The statutory exceptions to the general venue rule are narrowly construed, and "courts will not enlarge or add to an express exception."
Wray v. Superior Court
,
¶ 9 The Hospital argues that three exceptions allow Defendants to be sued in Navajo County: A.R.S. § 12-401, subsections (5), (10), and (18). Because it is not clear that the trial court considered the applicability of subsection (10), although the Hospital urged it as a ground for suing Defendants in Navajo County, we confine our review to subsections (5) and (18). 2
B. Written Contract to Perform an Obligation in One County
¶ 10 Section 12-401(5) states: "Persons who have contracted in writing to perform an obligation in one county may be sued in such county or where they reside." We interpreted this provision in
Miller Cattle Co. v. Mattice
: "[I]f the contract be in writing, and must necessarily be executed in a county different from that of the domicile of the party contracting, then, for breach of the contract, he may be sued in either of these counties."
¶ 11 The Hospital argues that the Representation Agreement was a written contract to perform legal services in Navajo County because the Agreement expressly referred to representation of the Hospital (located in Navajo County) with respect to the Hospital's Navajo County business affairs. Therefore, according to the Hospital, BLF's obligations under the Representation Agreement could not be performed without "acting within" Navajo County, "whether by traveling there physically or by causing effects within that county by use of the Internet and other communication methods."
¶ 12 But for venue to lie in Navajo County, the Representation Agreement must have
required
performance there, "either expressly or by necessary implication."
Blakely
,
¶ 13 The trial court misconstrued
Morgensen
by finding that the Agreement implicitly required performance in Navajo County because the Hospital "exclusively contracted business" there. Although the Hospital is in Navajo County, "[t]he determining factor is not whether the contract requires the
plaintiff
to perform in the county of suit, but whether it requires the
defendant
to so perform."
Morgensen
,
C. Venue as to the Attorney Defendants
¶ 14 The Hospital also claims venue is proper as to Butler and Williams individually under subsection (5) because, under the PLLC statute, each member or employee of a PLLC remains " personally liable for any results of the negligent or wrongful acts, omissions or misconduct committed by him or by any person under his direct supervision and control while performing professional services on behalf of the limited liability company." A.R.S. § 29-846 (emphasis added).
¶ 15 This argument is unavailing. Subsection (5) applies only to "[p]ersons who have contracted in writing to perform an obligation." Here, neither attorney entered into the Representation Agreement; rather, BLF did. As the Hospital acknowledges, although Butler signed the Agreement, he did so as BLF's agent.
See
A.R.S. § 29-654 (describing
when a member or manager is an agent of an LLC). But when an LLC binds itself to a contract through an agent, only the LLC, not the agent, is bound to the contract.
See
Queiroz v. Harvey
,
¶ 16 Even if Butler were bound personally by the Representation Agreement, contract-based venue in Navajo County would remain improper for the reasons discussed above. See supra ¶¶ 10-13. And in no event would the Representation Agreement create venue as to Williams, who did not sign the Agreement and is not even a member of BLF.
¶ 17 Furthermore, even if the subsection (5) exception applied to BLF, venue would still not lie as to Butler and Williams. Section 12-401(7) provides: "When there are several defendants residing in different counties, action may be brought in the county in which any of the defendants reside." This permits defendants to be subject to venue outside their county of residence, but only if another defendant is a resident in the county of suit. BLF is not a resident of Navajo County, so § 12-401(7) would not make venue proper as to Butler and Williams under subsection (5) or any other exception.
D. Actions Against "Other Corporations"
¶ 18 Section 12-401(18) states:
Actions against railroad companies, insurance companies, telegraph or telephone companies, joint stock companies and other corporations may be brought in any county in which the cause of action, or a part thereof, arose, or in the county in which the defendant has an agent or representative, owns property or conducts any business.
Subsection (18) does not refer to LLCs, so it does not on its face apply to BLF. But the Hospital argues, as it successfully did in the trial court, that a limited liability company is an "other corporation[ ]" under the statute.
¶ 19 Subsection (18) creates an exception for "other corporations." We interpret words in a statute in accordance with their statutory definition.
See
Fields v. Elected Officials' Ret. Plan
,
¶ 20 The Arizona Constitution states, "The term 'corporation,' as used in this article, shall be construed to include all associations and joint stock companies having any powers or privileges of corporations not possessed by individuals or co-partnerships...." Ariz. Const. art. 14, § 1. The "powers or privileges" of corporations are found in A.R.S. § 10-302.
See
Reilly v. Clyne
,
¶ 21 Limited liability companies are statutorily created entities formed pursuant to the Arizona Limited Liability Company Act ("ALLCA"). A.R.S. §§ 29-601 to -858. 3 The legislature placed ALLCA within title 29, which governs partnerships, whereas corporations are governed by title 10. The inclusion of ALLCA under a separate title from corporations bespeaks a legislative intent to create an entity distinct from corporations. And the legislature expressly recognized that an LLC organized outside Arizona is an "unincorporated entity." See § 29-601(13) (defining "foreign limited liability company").
¶ 22 Legislative history is likewise bereft of any suggestion that LLCs fall within the subsection (18) exception. Partnerships have never been included in an exception in the venue statute and are therefore covered by the general venue rule under § 12-401.
See
Rev. Stat. Ariz. Terr., Civ. Code, § 17-85 (1901). And because ALLCA was enacted long after the general venue statute and the corporation exception, the legislature could not have intended to include LLCs in an exception to the venue statute when it was enacted. Nor has the legislature since manifested any intent to include them.
Cf.
Collins v. Stockwell
,
¶ 23 Furthermore, the LLC structure is sufficiently different from that of corporations that an LLC does not naturally fall within the scope of "other corporations" in subsection (18). An Arizona LLC is a distinct business entity that is neither a partnership nor a corporation.
4
"Limited liability companies are statutorily-created entities, designed primarily to provide the personal liability protection found in a corporate structure, while allowing the LLC members the state and federal tax benefits generally provided in a partnership setting."
TM2008 Invs., Inc. v. Procon Capital Corp.
,
¶ 24 The trial court erred when it applied the subsection (18) exception on the basis that LLCs, like corporations, are amenable to "veil-piercing," that is, subjecting their members to personal liability via the alter-ego doctrine. Venue and the alter-ego doctrine reflect different policy considerations. Venue is based on convenience in choosing the site for litigation,
see, e.g.
,
Sil-Flo Corp. v. Bowen
,
III. CONCLUSION
¶ 25 We reverse the trial court's order denying the Defendants' motion for a change of venue, and we remand the case to that court for further proceedings consistent with this opinion.
"Because Arizona's venue statute was adopted from the Texas statute, that state's decisions are of particular interest."
Cacho v. Superior Court
,
Section 12-401(10) states, in relevant part: "When the foundation of the action is a crime, offense or trespass for which an action in damages may lie, the action may be brought in the county in which the crime, offense or trespass was committed or in the county in which the defendant or any of the several defendants reside or may be found...." We do not decide here whether subsection (10) applies, and that question may be raised on remand. But we have held that "a defendant must have been present in the county at the time of the commission of the 'trespass' before venue can be laid in that county."
Smitherman v. Superior Court
,
Professional limited liability companies, like BLF, are formed pursuant to article 11 of ALLCA. A.R.S. §§ 29-841 to -848. Only those licensed to perform the professional services described in a PLLC's articles of organization may be members of that PLLC. § 29-844(B)(1). PLLCs also have distinct rules relating to liability for professional negligence. See § 29-846. None of the unique features of PLLCs are pertinent to this case, and so we base our decision on "the laws applicable to other limited liability companies." See § 29-843.
By contrast, some states expressly treat LLCs as partnerships.
See, e.g.
,
Ex parte WMS, LLC
,
Reference
- Full Case Name
- The BUTLER LAW FIRM, PLC; Everett S. Butler; Matthew D. Williams, Petitioners, v. the Honorable Robert J. HIGGINS, Judge of the Superior Court of the State of Arizona, in and for the County of Navajo, Respondent Judge, Winslow Memorial Hospital, Inc., D/B/A Little Colorado Medical Center, Real Party in Interest.
- Cited By
- 8 cases
- Status
- Published