State v. foothills/hanke

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

STATE OF ARIZONA, et al., Plaintiffs/Appellees,

v.

FOOTHILLS RESERVE MASTER OWNERS ASSOCIATION, INC.,
Defendant/Appellee.
______________________________________________________________

DIETMAR HANKE, et al., Intervenors/Appellants

No. 1 CA-CV 22-0216
FILED 3-7-2023

Appeal from the Superior Court in Maricopa County
No. CV2017-010359
The Honorable Timothy J. Thomason, Judge

AFFIRMED

COUNSEL

Dietmar and Linda Hanke, Phoenix
Intervenors/Appellants

Arizona Attorney General’s Office, Phoenix
By Michelle Burton, Joe Acosta, Jr.
Counsel for Plaintiffs/Appellees

Zeitlin & Zeitlin, P.C., Phoenix
By Dale S. Zeitlin, Casandra C. Markoff
Counsel for Defendant/Appellee
 STATE, et al. v. FOOTHILLS/HANKE, et al.
Decision of the Court

MEMORANDUM DECISION

Presiding Judge Samuel A. Thumma delivered the decision of the Court, in
which Judge Cynthia J. Bailey and Vice Chief Judge David B. Gass joined.

T H U M M A, Judge:

¶1 Appellants Dietmar and Linda Hanke appeal from the grant
of the State of Arizona’s motion for summary judgment on their claim for
severance damages involving the State’s condemnation of neighboring
land. Because the Hankes have shown no error, the judgment is affirmed.

FACTS AND PROCEDURAL HISTORY

¶2 In 2017, the Arizona Department of Transportation (ADOT)
filed this action to condemn land to extend the 202 freeway. ADOT sought
to condemn land owned by the Foothills Reserve Master Owners’
Association, Inc. (HOA). Under the HOA’s Covenants, Conditions, and
Restrictions (CC&Rs), the HOA board represented HOA members in
condemnation proceedings. The Hankes, who are HOA members and own
one of the nearly 600 units in the Foothills Reserve, later intervened as
defendants. The Hankes argued that the condemnation was not for a public
need or use and was improper, and that the HOA could not represent their
interests.

¶3 By mid-2018, the HOA stipulated that the State could obtain
immediate possession of the land being taken and that the taking was
necessary and for a proper public use. The Hankes were not a party to this
stipulation. Over the Hankes’ objection, the court entered the stipulated
order for immediate possession in July 2018.

¶4 In 2019, the superior court determined that the CC&Rs
authorized the HOA to represent all homeowners for their damages claims
in the condemnation. When the Hankes objected, the court allowed the
Hankes to represent themselves, meaning the HOA no longer represented
their interests.

¶5 Although stating severance damages totaled $204,000, the
Hankes sought “substitute facilities” damages totaling nearly $1.5 million
and punitive damages. On motion, the court ruled that “substitute
facilities” damages were not recoverable and that, at most, the Hankes were

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Decision of the Court

entitled to severance damages, representing “the difference between the
market value of the remainder before and after the taking.” See State ex rel.
Ordway v. Buchanan, 154 Ariz. 159, 164 (1987). Given statutory immunity,
see A.R.S. § 12-820.04 (2023),1 the court also rejected the Hankes’ punitive
damage claims.

¶6 The State and the HOA, on behalf of all unit owners other
than the Hankes, reached a settlement that the court approved over the
Hankes’ objection. The State moved for summary judgment against the
Hankes, seeking a determination they were owed $5,000 in severance
damages and arguing the Hankes failed to dispute the $5,000 amount with
admissible controverting evidence. The Hankes opposed the motion,
arguing existing eminent domain law was unjust. The Hankes stated that
the proper valuation date was in 2005, when ADOT made the “unofficial
announcement” of the project, resulting in a claim for $204,000 in severance
damages. In doing so, the Hankes stated the $204,000 severance claim was
“insufficient to make” them whole. The Hankes’ damages opinion largely
focused on their “substitute facilities” claim for nearly $1.5 million that the
court previously rejected.

¶7 The State’s reply argued the Hankes did not dispute genuine
issues of material fact sufficient to defeat the motion for summary
judgment. The State argued the Hankes admitted in their response that they
will not “comply with Arizona law regarding the computation of
damages,” that their damages claim did not comply with Arizona law
regarding severance damages and that, instead, they disagreed with
eminent domain law. Accordingly, the State repeated its request that the
court grant summary judgment requiring it to pay the Hankes $5,000 in
severance damages plus interest.

¶8 The court granted summary judgment for the State and
against the Hankes, with the resulting partial final judgment directing the
State to pay the Hankes $5,000 plus interest. The State timely paid that
amount and the Hankes timely appealed. This court has jurisdiction
pursuant to Article 6, Section 9, of the Arizona Constitution and A.R.S. §§
12-120.21(A)(1) and -2101(A)(1).

DISCUSSION

1 Absent material revisions after the relevant dates, statutes cited refer to
the current version unless otherwise indicated.

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Decision of the Court

¶9 The Hankes argue three general issues on appeal: (1) the
State’s taking of the land for the freeway was improper; (2) the State and
the HOA could not properly stipulate to the taking; and (3) the superior
court erred in granting the State’s motion for summary judgment. The court
addresses these issues in turn.

I. The Hankes Have Not Shown the State’s Taking of the Land for
the Freeway Was Improper.

¶10 The State has the power of eminent domain to take private
property for a necessary public use upon paying just compensation. See,
e.g., Ariz. Const. art. 2, § 17; A.R.S. §§ 12-1112; 12-1131; Bailey v. Myers, 206
Ariz. 224, 228 ¶ 14 n.1 (App. 2003). Whether a taking is for a public use is
“a judicial question.” Ariz. Const. art. 2, § 17; A.R.S. § 12-1132(A). The issue
of necessity, by contrast, is deferential, giving “great weight” to assertions
of necessity. Bailey, 206 Ariz. at 228 ¶ 14 n.1. To defeat a necessity claim, the
party opposing the taking must show by clear and convincing evidence it
is “unnecessarily injurious.” See Queen Creek Summit, LLC v. Davis, 219 Ariz.
576, 580 ¶ 16 (App. 2008) (citation omitted).

A. Public Use.

¶11 Public use includes “[t]he possession, occupation, and
enjoyment of the land by the general public, or by public agencies.” A.R.S.
§ 12-1136(5)(a)(i). Although agreeing “the freeway is a public use,” the
Hankes argue the freeway was built for the purpose of “general economic
health,” which is expressly excluded from the statutory definition of
“public use.” See A.R.S. § 12-1136(5)(b). Contrary to that assertion, freeways
have long been understood to serve a public use under eminent domain
law. See, e.g., Calmat of Ariz. v. State ex rel. Miller, 176 Ariz. 190, 191 (1993);
State ex rel. Herman v. Schaffer, 105 Ariz. 478, 479 (1970); State ex rel. Morrison
v. Thelberg, 87 Ariz. 318, 324 (1960). The Hankes have cited no authority for
the proposition that a public freeway is not a public use and have not shown
the superior court erred in considering the public use issue.

B. Public Need and Necessity.

¶12 The Hankes argue there was “no public need” for the
freeway. The State may exercise eminent domain for roads so long as it
benefits the county, city or inhabitants and is authorized by statute. A.R.S.
§ 12-1111. The Legislature has delegated to ADOT the power to acquire real
property by condemnation that it “considers necessary for transportation
purposes.” A.R.S. § 28-7092(A). Land for “transportation purposes”
includes land needed to build highways. See A.R.S. § 28-7092(B). The

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Decision of the Court

Hankes have not shown how the taking here failed to comply with these
requirements or was undertaken for any improper purpose.

¶13 The Hankes argue other land could have been taken to build
the freeway instead of the HOA common area. Although perhaps true, the
Hankes cite no authority for the proposition that the availability of
alternatives defeats the taking of specific land. Moreover, the availability of
alternative land does not mean the taking was unnecessary. See, e.g.,
Chambers v. State ex rel. Morrison, 82 Ariz. 278, 280–83 (1957) (rejecting
argument that the taking was not necessary because the State could have
condemned other land). The Hankes have failed to show there was not a
public need for the taking or that it was not necessary.

II. The State and the HOA Properly Could Settle Their Dispute.

¶14 The Hankes argue the HOA was not the proper party to
represent the homeowners, and, as a result, the settlement between the
State and the HOA was improper because it did not properly include the
Hankes. The Hankes also argue the superior court “force[d]” the settlement
between the State and the HOA on the Hankes and that they should have
been able to object to the settlement.

A. The HOA Properly Could Represent the Homeowners.

¶15 The HOA’s CC&Rs expressly provide the unit owners
appoint the Board [of the HOA] to represent the owners “in connection with
the taking” of any common area, adding that “[t]he Board shall act in its
sole discretion” in that representation. The CC&Rs designate the HOA to
represent unit owners in a condemnation action. See also Catalina Foothills
Unified Sch. Dist. v. La Paloma Prop. Owners Ass’n, Inc., 238 Ariz. 510, 517–18
¶ 28–30 (App. 2015) (holding the HOA may represent the homeowners in a
condemnation action of a subdivision’s common areas when authorized by
the CC&Rs). The court correctly determined the HOA was the proper party
to represent the homeowners.

B. The State and the HOA Could Settle Their Disputes
Without Participation or Approval by the Hankes.

¶16 The Hankes were allowed to intervene as parties to represent
their separate interests. The Hankes then moved to sever their case before
the State and the HOA reached a settlement, asserting they “are pursuing
an entirely different remedy than the HOA.” The superior court granted the
Hankes’ motion to sever. Additionally, the court made clear the HOA was
not representing the Hankes, the Hankes were not bound by any settlement

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Decision of the Court

or resolution of the dispute between the State and the HOA and, similarly,
could not object to any such settlement or resolution. The Hankes, however,
seek to challenge the settlement between the HOA and the State.

¶17 The Hankes were not bound by, or parties to, the settlement
agreement between the State and the HOA. Accordingly, the Hankes have
not shown how they have standing to object to or appeal from that
settlement agreement. Dowling v. Stapley, 221 Ariz. 251, 273-74 ¶¶ 72-76
(App. 2009). The superior court made clear the Hankes were representing
themselves in their claim for damages from the State. Because they were not
parties to the settlement agreement, the court could not “force” a settlement
on the Hankes. For these reasons, the State and the HOA could settle their
disputes without participation by the Hankes.

III. Summary Judgment was Proper Because the Hankes Did Not
Show a Genuine Dispute of Material Fact.

¶18 The Hankes argue summary judgment was improper because
the superior court erred in limiting their recovery to severance damages,
not using 2005 for the “before” date for severance damages, and not
allowing them to recover substitute facilities and punitive damages.

¶19 “The court shall grant summary judgment if the moving party
shows that there is no genuine dispute as to any material fact and the
moving party is entitled to judgment as a matter of law.” Ariz. R. Civ. P.
56(a). When the movant shows that no genuine issue of material fact exists,
the opposing party has the burden to produce sufficient competent
evidence to show such an issue exists. E.g., Kelly v. NationsBanc Mortg. Corp.,
199 Ariz. 284, 287 ¶ 14 (App. 2000). “If the opposing party does not so
respond, summary judgment, if appropriate, shall be entered against that
party.” Ariz. R. Civ. P. 56(e). This court reviews de novo a grant of summary
judgment. Andrews v. Blake, 205 Ariz. 236, 240 ¶ 12 (2003).

¶20 Here, the State condemned a common area of land owned by
the HOA. The Hankes, however, had a claim for severance damages for any
diminution of value of their unit. See State ex rel. Ordway v. Buchanan. 154
Ariz. 159, 164 (1987) (“Severance damages are proper when the land
condemned is part of a larger parcel.”); accord A.R.S. § 12–1122(A).
Severance damages are measured by “comparing the worth of the
remaining property before and after the taking.” City of Phoenix v. Wilson,
200 Ariz. 2, 9 ¶ 18 (2001). Applying this law, the superior court properly
concluded the Hankes both were entitled to severance damages and had
the burden to prove their severance damages. Buchanan, 154 Ariz. at 164.

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Decision of the Court

¶21 Although typically the date of the summons is used to
determine severance damages, at times, the date may be the order of
immediate possession, particularly when the value of the property has
increased. See City of Scottsdale v. CGP-Aberdeen, L.L.C., 217 Ariz. 626, 634 ¶
36 (App. 2008). Here, the order for immediate possession was issued in July
2018. The State’s expert used July 2018 to determine the “before” and
“after” market value to calculate severance damages to the Hanke’s unit.
Looking at the difference between those values, the State’s expert opined
that the Hankes incurred $5,000 in severance damages. The State relied on
this value in seeking summary judgment. In opposing the State’s motion,
the Hankes did not dispute, as a factual matter, the $5,000 in damages.
Instead, the Hankes claimed far higher damages based on different legal
concepts.

¶22 First, the Hankes used November 2005 as the “before” date,
claiming ADOT first informally announced the freeway project then.
Although conceding the State did “nothing” on the project for at least a
decade after November 2005, the Hankes claim their unit decreased in value
“well over $100k” during that decade. But planning is not a taking for
purposes of determining severance damages. City of Scottsdale, 217 Ariz. at
634 ¶ 34; see also Weintraub v. Flood Control Dist. of Maricopa Cnty., 104 Ariz.
566, 571 (1969) (“[N]otice of preliminary proceedings of proposed actions
which may result in taking land for public use is not a damaging of a
property which would entitle the owner to compensation therefor.”); State
ex rel. Herman v. Larriva’s Ace Elec. Co., 11 Ariz. App. 452, 454 (1970) (“The
fact that a resolution has been passed does not necessarily mean that the
property will ever be condemned.”). Accordingly, the Hankes have not
shown the court erred in using the July 2018 order of immediate possession
as the proper date for severance damages.

¶23 Second, the Hankes used “the current date” as the “after” date
when they calculated damages in 2020, adding “Proximity Damages are
likely to continue to accrue.” But the “before” and “after” dates used to
determine severance damages refer to the value of Hankes’ unit before and
after the July 2018 immediate possession order, seeking to place them in the
position they “would have occupied had no taking occurred.” See State ex
rel. Miller v. Filler, 168 Ariz. 147, 149, 150 (1991). As a result, the Hankes
failed to disclose or show the court facts to dispute the severance damages
calculation, looking at the “before” and “after” condition when the State
took possession of the property in July 2018. Thus, the Hankes failed to
show a genuine dispute as to any material fact as to severance damages.

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Decision of the Court

¶24 The Hankes argue they should have been able to recover
“general, special, indirect, consequential, incidental, and hedonic damages”
as well as punitive and substitute facilities damages, as they argued in
opposing the State’s motion for summary judgment. The superior court
properly concluded the Hankes cannot recover punitive damages from the
State. See A.R.S. §§ 12-820.04 (establishing immunity for public entity and
public employee acting with the scope of employment) & 28-7092(A)
(authorizing ADOT to use condemnation to acquire real property
“necessary for transportation purposes”). Other than severance damages,
the Hankes have not shown a legal right to these other types of damages
claimed, and the superior court properly concluded the Hankes failed to do
so. See Maricopa Cnty. v. Shell Oil Co., 84 Ariz. 325, 327 (1958) (explaining the
property owner bears the burden to establish recoverable damages).

¶25 Finally, the Hankes have shown no entitlement to
compensation for the State to pay them the costs of buying a different unit
or house, what they call replacement cost or substitute facilities damages.
They cite no authority on appeal supporting such a claim and no Arizona
opinion has recognized the concept as a requirement for eminent domain.
To the extent the Hankes rely on dicta in Brown v. United States, 263 U.S. 78
(1923), the United States Supreme Court later made clear that the concept is
not constitutionally required. See United States v. 50 Acres of Land, 469 U.S.
24, 33 (1984); see also id. at 35 (noting the concept “diverges from the
principle that just compensation must be measured by an objective
standard that disregards subjective values which are only of significance to
an individual owner.”). Nor have the Hankes shown that Arizona law fails
to provide constitutionally required just compensation here. See Catalina
Foothills Unified Sch. Dist., 238 Ariz. at 516 ¶ 21. For these reasons, the
Hankes have shown no error in the superior court granting the State’s
motion for summary judgment and awarding them $5,000 in severance
damages.

IV. The Hanke’s Failure to Serve the HOA as Required by This Court’s
Orders and Rules Entitles the HOA to Sanctions.

¶26 The Hankes served their notice of appeal on both the State
and the HOA, and the Hankes’ briefs on appeal criticize actions by both the
State and the HOA. The Hankes, however, failed to serve the HOA with
their opening brief on appeal when they filed it. But see ARCAP 4(f)
(requiring such service). This court then ordered the Hankes to serve the
HOA by September 6, 2022, and to file a certificate of service. See ARCAP
4(f) & (g). That order added the court “will consider imposing sanctions if
appellants fail to serve Foothills [with] any additional documents filed in

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Decision of the Court

this appeal.” The Hankes failed to serve their opening brief on the HOA by
September 6, 2022. The HOA now seeks attorneys’ fees as a sanction, citing
A.R.S. § 12-349.

¶27 Reasonable attorneys’ fees and expenses may be assessed
against a party who unreasonably expands or delays the proceeding. A.R.S.
§ 12-349(A)(3). The Hankes claim they did not serve their opening brief on
the HOA as ordered by the court because they were “[l]acking support staff
and having suffered several cyberattacks.” However, the Hankes filed
numerous motions between the time the court first ordered them to serve
the HOA with the opening brief and when the Hankes finally did so. This
conduct belies the claim that they were not able to serve the HOA. Because
the Hankes unreasonably expanded and delayed the proceedings, the HOA
is awarded its reasonable attorneys’ fees incurred on appeal that were
caused by that sanctionable conduct.

CONCLUSION

¶28 The judgment is affirmed. Along with the award of sanctions
for the HOA under A.R.S. § 12-349, the arguments asserted by the Hankes
against the HOA arise out of contract. Accordingly, as the successful party
on appeal, the HOA is awarded its reasonable attorneys’ fees and costs
incurred on appeal under A.R.S. §§ 12-341 and 341.01, contingent upon its
compliance with ARCAP 21.

AMY M. WOOD • Clerk of the Court
FILED: AA

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