Arizona

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Horizon Resources Bethany Ltd. v. Cutco Industries Inc.,
881 P.2d 1177 (Ariz.App.Div.1 05/10/1994)

Arizona Court of Appeals

No. 1 CA-CV 92-0047

881 P.2d 1177, 180 Ariz. 72

Filed: May 10, 1994.

HORIZON RESOURCES BETHANY LTD., AN ARIZONA LIMITED PARTNERSHIP, PLAINTIFF-APPELLANT
v.
CUTCO INDUSTRIES, INC., A NEW YORK CORPORATION, FORMERLY KNOWN AS CUT & CURL, INC., DEFENDANT-APPELLEE

Appeal from the Superior Court of Maricopa County. Cause No. CV 90-32000. The Honorable Alan S. Kamin, Judge

Larry G. Haddy, Attorney for Plaintiff-Appellant, Phoenix.

Gallagher & Kennedy, P.A. by Michael W. Sillyman, Bruce A. Giles, Deborah J. DePaoli, Attorneys for Defendant-Appellee, Phoenix.

Gerber, Claborne, McGregor, Judge.

Gerber

GERBER, Judge

Horizon Resources Bethany Ltd. (Horizon) filed suit against Cutco Industries, Inc. (Cutco) for enforcement of a lease guaranty agreement. Horizon appeals from a summary judgment in favor of Cutco. The primary issue on appeal is this: does a guarantee of the performance of a lease for a specific term continue into a successive term when the guarantor consents to alter the lease to allow an extension or to exercise an option to renew provided in the original lease?

FACTS AND PROCEDURAL HISTORY

Cutco is the successor in interest to an entity named Cut & Curl, Inc. Cutco is a New York corporation, as was Cut & Curl, Inc. Horizon is the successor in interest to H.D.C. Phoenix Bethany Corp. (H.D.C.) and J.E.H. Development Company (J.E.H.), affiliated entities operated by the Hansen family. In April 1978, H.D.C. and J.E.H. entered into several lease agreements wherein Cut & Curl, Inc., or its subsidiaries, leased space across the country from the Hansen entities.

On or about April 3, 1978, H.D.C. as landlord entered into a specific subject lease with the tenant, Cut & Curl of Bethany Square, Inc., an Arizona corporation which was a wholly owned subsidiary initially of Cut & Curl, Inc. and later of Cutco. Under the lease, Cut & Curl of Bethany Square, Inc. rented space at Bethany Square shopping center located at 43rd Avenue and Bethany Home Road in Phoenix, Arizona. The lease had a ten-year term. It did not provide for extensions. Marvin W. Marcus, as treasurer of Cut & Curl of Bethany Square, Inc., executed the lease. It was attested to by John C. Marchal, the director of real estate for the parent corporation. The tenant's address in the lease was not an Arizona address but the same New York address as that of the parent corporation. The lease also contained a number of references to the parent corporation.

The parent corporation guaranteed payment of the lease, providing H.D.C. with a written guaranty agreement which stated as follows:

In the event of default in the payment of rent hereunder, CUT & CURL, INC. hereby guarantees the prompt payment of rent payable under this lease provided that the total guarantee of such rent shall not exceed the sum of $10,000.00 with respect to the lessee hereunder; and in no event shall such guarantee extend beyond the sum of $50,000.00 during any consecutive twelve (12) month period for all leases between Cut & Curl, Inc., its subsidiaries, and licensees, as Lessees and J.E.H. Development Company, its subsidiaries and affiliates, as Lessors.

(footnote omitted). The guaranty was part of the overall arrangement between Cut and Curl, Inc. and the Hansen entities for the leasing of the various properties throughout the country. Marchal and Marcus signed the guaranty for Cut & Curl, Inc. Marcus was treasurer not only of the subsidiary but also of the parent corporation.

During 1985, Douglas C. Stock headed a company that managed the Bethany Square shopping center for the landlord. Michael Kramer, who had become treasurer of both the parent corporation and its Arizona subsidiary, contacted Stock to discuss certain modifications to the lease. Stock and Kramer negotiated the proposed modifications and eventually executed an addendum to the lease on July 5, 1985. Stock believed that all of the requested modifications were being requested not only by the subsidiary but also by the parent since he dealt solely with persons connected to the parent corporation at its New York offices.

The resulting addendum contained several modifications of the original lease including the addition of options to renew the lease. The terms of the addendum were contained in a letter written on the letterhead of Cutco Industries, Inc. Kramer signed the addendum in his capacity as treasurer of Cut & Curl of Bethany Square, Inc.

During 1988, Randolph Strada managed the Bethany Square shopping center for the landlord. Strada never dealt with the tenant, Cut & Curl of Bethany Square, Inc., but always dealt with persons in Cutco's New York office. Early in the year, he received a letter from Marchal, who identified himself as Cutco's director of real estate and construction, seeking to confirm the expiration date of the lease at Bethany Square. Strada confirmed that the expiration date of the original lease was May 31, 1988 with two five-year options remaining.

In April 1988, Cut & Curl of Bethany Square, Inc. exercised the first option to renew the lease. Kramer, still treasurer of both the parent and the subsidiary, advised Strada by letter that the option was being exercised. Although Kramer signed the letter merely as "treasurer," the letter contained no reference to the parent corporation but instead referred solely to the subsidiary.

Two years into the option term, Cut & Curl of Bethany Square, Inc. ceased operations and vacated the premises. When Cutco refused a demand to take over the payments due under the lease, Horizon, which had succeeded to H.D.C.'s interest in the lease, filed suit to enforce the guaranty agreement.

After the parties filed cross motions for summary judgment, the trial court granted summary judgment for Cutco. The trial court found no basis for finding Cutco liable on the underlying lease. It concluded that the express terms of the guaranty did not indicate that it was of a continuing nature regarding any successive lease terms and, therefore, Cutco was entitled to judgment under Westcor Co. Ltd. Partnership v. Pickering, 164 Ariz. 521, 524, 794 P.2d 154, 157 (App. 1990)(holding that for a guarantee of the performance of a written lease for a specific term to continue into a successive term, the "express terms" of the lease must show it is of a continuing nature). The trial court found no merit to Horizon's argument that Westcor should be distinguished because of the evidence of the guarantor's knowledge and consent to extension of the lease.

Discussion

A reviewing court must view the evidence most favorably to the party opposing the motion for summary judgment, taking all inferences from the evidence in favor of the opposing party. Johnson By and Through Johnson v. Svidergol, 157 Ariz. 333, 335, 757 P.2d 609, 611 (App. 1988).

To the extent Horizon may be arguing that Cutco bound itself on the underlying lease along with its subsidiary, we agree with the trial court that the evidence fails to support that contention. Even though persons who were officers of both the parent and the subsidiary signed the lease, the addendum, and the option to extend the lease, the documents consistently stated that they were being signed on behalf of the subsidiary. Although Cutco may have involved itself in negotiations at various stages on behalf of its subsidiary, the record does not indicate that the parties meant Cutco to be a party to the lease agreement. Its liability was only that of a guarantor.

In its appellate briefs, Horizon argues that Cutco should be held liable on the lease executed by its subsidiary because the subsidiary was a mere instrumentality of the parent corporation. A parent corporation is responsible for actions of its subsidiary when the subsidiary has become a mere instrumentality, so overshadowed by the parent corporation that the separate corporate identity should be disregarded to prevent perpetration of a fraud. Oldenburger v. Del E. Webb Dev. Co., 159 Ariz. 129, 134, 765 P.2d 531, 536 (App. 1988).

Horizon has not offered any evidence to show that the affairs of Cut & Curl of Bethany Square, Inc. were conducted as a mere instrumentality of Cutco, other than to show that the subsidiary was owned by the parent and that they shared many of the same officers. As the Nevada Supreme Court said in Bonanza Hotel Gift Shop, Inc. v. Bonanza No. 2, 95 Nev. 463, 596 P.2d 227 (Nev. 1979), a mere showing that one corporation is owned by another or that the two share interlocking officers or directors is insufficient to support a finding of alter ego. The case of Gatecliff v. Great Republic Life Ins. Co., 170 Ariz. 34, 821 P.2d 725 (1991), cited by Horizon, does not hold to the contrary. In Gatecliff, the Arizona Supreme Court acknowledges that ownership by the parent and common officers or directors are among the factors tending to show that one corporation exercises control over the management and activities of another. That case makes it clear, however, that an alter ego theory requires not only a showing of unity of control but also proof that observance of the corporate form would sanction a fraud or promote inJustice. Id. at 37-38, 821 P.2d at 728-29. Horizon provided no evidence of the latter.

Horizon's main argument is that if Cutco consented to having its subsidiary extend the lease, Cutco cannot escape liability under the guaranty agreement. Horizon contends that the trial court erred in failing to distinguish this case from Westcor on that basis. An appellate court is not bound by the trial court's Conclusions of law. City of Scottsdale v. Thomas, 156 Ariz. 551, 552, 753 P.2d 1207, 1208 (App. 1988). Therefore, we make our own determination of how the guarantor's subsequent consent to extension of a lease affects the rule stated in Westcor concerning a noncontinuing guaranty.

If we conclude that the lack of express terms showing that the guaranty continued does not prevent the guaranty from applying during the extended term where the guarantor has consented to the extension, then the trial court erred in granting summary judgment for Cutco. The record is replete with evidence from which a trier of fact could conclude that Cutco both consented to the lease's modification, including an option to renew, and also consented to the exercise of the option by its subsidiary. A motion for summary judgment should not be granted if there is evidence creating a genuine issue of material fact. Orme School v. Reeves, 166 Ariz. 301, 305, 802 P.2d 1000, 1004 (1990).

In Westcor, this court addressed whether the lease must contain express terms showing that the guaranty continues into the extended term.*fn1 In quoting from Zero Food Storage, Inc. v. Udell, 163 So. 2d 303, 304-05 (Fla. App. 1964), we recognized a split of authority on this issue, with some courts concluding that express terms are needed and others concluding they are not. Westcor, 164 Ariz. at 523, 794 P.2d at 156. In Arizona, however, contracts of guaranty are strictly construed to limit the liability of the guarantor. Consolidated Roofing & Supply Co. Inc. v. Grimm , 140 Ariz. 452, 455, 682 P.2d 457, 460 (App. 1984). In Westcor, we reached the same Conclusion as in Zero Food Storage that in order for a guarantee of the performance of a written lease for a specific term to continue into a successive term, the express terms of the lease must show that the guaranty is of a continuing nature. Id. at 523-24, 794 P.2d at 156-57.

However, the court in Zero Food Storage indicated that the rule would be different if the option to extend had been exercised with the participation or consent of the guarantor. 163 So. 2d at 304. Other courts have also recognized this exception. See LeCraw v. Atlanta Arts Alliance, Inc., 126 Ga. App. 656, 191 S.E.2d 572, 575-76 (Ga. App. 1972) (noting that because the undertaking of a surety is strictly observed, it cannot, in law or equity, be bound further than the very term of its contract, and if the principal and obligee change the terms of the contract without the surety's consent, the surety is discharged).

In Westcor this court neither engrafted this exception onto the rule we adopted nor indicated its rejection. No issue of consent was raised in that case, and, therefore, it was not necessary to address the issue.

In Indian Village Shopping Ctr. Inv. Co. v. Kroger Co., 175 Ariz. 122, 854 P.2d 155 (App. 1993), Division Two of this court addressed whether a guarantor was discharged from its guaranty as a result of a lease modification made without the guarantor's consent. The court noted that the issue was one of first impression in Arizona. It applied the law of the Restatement of Security (1941) because, absent state law to the contrary, the Arizona courts then usually applied Restatement law. See Fort Lowell-NSS Ltd. Partnership v. Kelly, 166 Ariz. 96, 800 P.2d 962 (1990). Division Two applied section 128 of that Restatement, which impliedly states that the surety is not discharged when it consents to modification of the underlying contract but adds that the surety may be discharged when the contract is modified without the surety's consent. The court also noted that in comment g to section 82, the term "guaranty" is used in the Restatement as a synonym for suretyship and the term "guarantor" is used as a synonym for surety.

Comment c to section 128 provides as follows regarding consent:

The consent of the surety to alterations is binding on him whether expressed as part of his obligation, given later but before the alteration, or subsequent to the alteration. In the first case he is bound on his contract, in the second he is estopped, and in the third case he has waived his defense. The surety's consent may be either written or oral.

From the foregoing, we conclude that if Cutco consented to an alteration of the lease to allow extensions or consented to exercise the option to renew provided in the original lease, it is estopped to argue that the guaranty does not apply to the extended term.

Horizon's last argument is that even if the renewal created an entirely new lease not covered by the first clause of the guaranty, the language of the final clause would extend guaranty protection to any subsequent lease between the parties. The clause in question provides that "in no event shall such guarantee extend beyond the sum of $50,000.00 during any consecutive twelve (12) month period for all leases between Cut & Curl, Inc., its subsidiaries, and licensees, as Lessees and J.E.H. Development Co., its subsidiaries and affiliates, as Lessors."

We agree with the trial court that this clause cannot be interpreted as Horizon argues. Agreements which are clear and unambiguous will be enforced according to their terms, and words used will be given their normal meaning. Korman v. Kieckhefer, 114 Ariz. 127, 559 P.2d 683 (App. 1976). Here, the language in the final clause gives no guarantee. The clause simply limits the total liability arising under the various guaranty agreements made by the parent corporation. This argument does not entitle Horizon to summary judgment.

Conclusion

For the reasons stated, the trial court erred in finding that the noncontinuing guaranty was not enforceable during the extended term if the guarantor later consented to the extension of the lease term. Because an issue of fact exists as to whether Cutco truly consented to the extension, we reverse and remand for further proceedings consistent with this opinion.

Rudolph J. Gerber, Judge

CONCURRING:

John L. Claborne, Presiding Judge

Department D

Ruth V. McGregor, Judge

Opinion Footnotes

*fn1 The second issue in Westcor, having to do with the fact that the option to renew was not exercised until after the original lease expired, has no application to this case in which the option was exercised during the term of the original lease..

I. FACTUAL AND PROCEDURAL BACKGROUND

From 1986 to 1993, Yellow Cab purchased workers' compensation insurance from the Fund, and in 1994, from Travelers. Yellow Cab did not, however, purchase workers' compensation insurance for taxi drivers. After this court's decision in Central Management, the Fund informed Yellow Cab that it must pay workers' compensation insurance premiums for drivers and include the drivers' compensation in payroll documents. It audited Yellow Cab and calculated unpaid premiums for 1990 to 1993 at over $3.3 million. Travelers sought over $1.1 million in premiums for 1994.

When Yellow Cab failed to pay, the insurers filed suit for breach of contract. Yellow Cab filed a counterclaim seeking a declaratory judgment that its drivers were independent contractors and that the insurers were not entitled to workers' compensation premiums.

The trial court granted partial summary judgment to the insurers on the issue of the drivers' status. When the insurers filed a second motion for summary judgment related to damages, Yellow Cab opposed it and sought a continuance pursuant to Arizona Rule of Civil Procedure 56(f) to conduct additional discovery. The trial court, however, denied a continuance and granted summary judgment to the insurers. It also granted summary judgment against Yellow Cab on its counterclaims. Finally, the trial court denied the insurers' motion to amend the complaint.

II. DISCUSSION

A. Standard of Review

Normally when this court reviews a grant of summary judgment, it takes the facts in the light most favorable to the non-moving party and affirms if the evidence produced in support of the defense or claim has so little probative value that no reasonable person could find for its proponent. See Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990). We review de novo the trial court's application of the law and its determination whether genuine issues of material fact preclude summary judgment. Gonzalez v. Satrustegui, 178 Ariz. 92, 97, 870 P.2d 1188, 1193 (App. 1993).

The insurers contend, however, that a different standard should apply here because the case concerns workers' compensation. We acknowledge that workers' compensation premiums are at issue and that when reviewing an Industrial Commission award to an injured worker, we view the administrative law Judge's fact findings in favor of sustaining the award and search the record for sufficient evidence to support the findings. See Anton v. Industrial Comm'n, 141 Ariz. 566, 569, 688 P.2d 192, 195 (App. 1984). But, a dispute over the insurers' liability for premiums bears little, if any, relationship to whether the evidence supports an Industrial Commission award to a worker. Thus, we will apply the normal summary judgment standard and review de novo whether the trial court correctly applied the law, taking the facts most favorably to Yellow Cab. See Gonzales, 178 Ariz. at 97, 870 P.2d at 1193.

B. Status of Taxi Drivers as Independent Contractors or Employees

The insurers' motion for summary judgment contended that the right-to-control test governs the central issue of the drivers' status and that this court "ha[d] already performed this exact analysis in a case involving a virtually identical taxi cab company." They cited Central Management and claimed that this court had found as a matter of law that cab drivers were employees. The trial court agreed, concluding that Central Management was "dispositive" and compelled a finding that the drivers were employees for purposes of the insurance premiums. The court also enumerated fourteen factual findings in support of its Conclusion.

We disagree that Central Management compels a finding that Yellow Cab drivers are employees. There, this court "recognize[d] that an appellate court may make an independent determination of whether a claimant is an independent contractor as a Conclusion of law based on the totality of facts and circumstances." 162 Ariz. at 189, 781 P.2d at 1376. But, that statement was in the context of an injured worker who had filed a claim for benefits; at the end of the decision, we simply found adequate evidence to support the Industrial Commission award without making an independent finding as a matter of law that the driver was an employee. Id. at 192, 781 P.2d at 1379. Therefore, Central Management did not establish that all taxi drivers are employees.

Furthermore, in Central Management, we found indicia of control in the employer's provision of training and performance evaluations, denial of dispatch service to a deficient driver, and assignment of the driver to cab stands and restricted work areas. 162 Ariz. at 191-92, 781 P.2d 1378-79. Here, these indicia either do not exist or are disputed. And, although the insurers argue that Yellow Cab merely drew "semantic distinctions" without substance between its practices and those in Central Management, we conclude that the trial court improperly drew inferences from the facts favorable to the insurers and ignored other facts supported by affidavit or deposition testimony that distinguish Yellow Cab's policies and practices from those in Central Management.

For example, the court found that Yellow Cab "possessed the right to hire, discipline and fire drivers," yet Yellow Cab's statement of facts clearly disputed these Conclusions. Moreover, unlike the cab company in Central Management, Yellow Cab entered Independent Contractor Agreements with drivers and in turn granted them a license to use trade names and logos. It did not control the hours or the places where the drivers worked or their manner of dress. It did not control the fares charged or require drivers to account for them; it did not sanction drivers for failing to respond to dispatch calls. It did not pay the drivers anything; instead, the drivers paid it for services such as dispatch communications and use of the trade name or vehicle lease. Yellow Cab did not prevent drivers from hiring others to drive for them or from driving for other companies.

Summary judgment is not intended to resolve factual disputes nor is it an occasion for weighing the evidence. Nicoletti v. Westcor, Inc., 131 Ariz. 140, 142, 639 P.2d 330, 332 (1982). Rather, if more than one reasonable inference may be drawn from a material fact, summary judgment should not be granted. United Bank v. Allyn, 167 Ariz. 191, 195, 805 P.2d 1012, 1016 (App. 1990). "Any evidence or reasonable inference contrary to the material facts--i.e., the facts which the moving party needs to show his entitlement to judgment--will preclude summary judgment." Id.

Santiago v. Phoenix Newspapers, Inc., 164 Ariz. 505, 794 P.2d 138 (1990), supports our Conclusion. There, our supreme court found disputed fact questions existed on whether a newspaper delivery driver was an independent contractor or a servant for whom his employer was vicariously liable. "Whether an employer-employee relation exists may not be determined as a matter of law [on summary judgment] in either side's favor, because reasonable minds may disagree on the nature of the relationship." Id. at 513, 794 P.2d at 146. See also Livingston v. Citizen's Utility, Inc., 107 Ariz. 62, 65, 481 P.2d 855, 858 (1971) (summary judgment reversed because unless only one reasonable inference can be drawn from the evidence, the issue is one for the jury).

The insurers contend that if we reverse summary judgment, they may be denied insurance premiums for years during which they were liable for payment of workers' compensation claims. After oral argument in this matter, the insurers filed a request that we take judicial notice that they had on several occasions paid workers' compensation benefits to Yellow Cab drivers. In effect, the insurers argue that because the taxi drivers' entitlement to workers' compensation benefits has already been determined, Yellow Cab should be estopped from asserting that any of its drivers are independent contractors. Even if we were inclined to take judicial notice of these facts, for the following reasons, it would not affect the outcome of this appeal.

The insurers' argument essentially raises the question whether prior workers' compensation proceedings have any preclusive effect in this litigation. See Circle K v. Industrial Comm'n, 179 Ariz. 422, 425, 880 P.2d 642, 645 (preclusion encompasses the archaic doctrines of res judicata and collateral estoppel). The party asserting preclusion, however, has the burden of proving that an issue was in fact litigated, determined, and that the determination was necessary. Bayless v. Industrial Comm'n, 880 P.2d 654, 179 Ariz. 434, 439. The insurers fail to show that they at any time raised the preclusive effect of the Yellow Cab workers' compensation payments in the trial court. On appeal, we consider only matters presented to the trial court. See Linder v. Brown & Herrick, 189 Ariz. 398, 409, 943 P.2d 758, 769 (App. 1997) (this court considers only the evidence presented to the trial court).

Because a reasonable jury could find from Yellow Cab's controverting statement of facts and reasonable inferences from those facts that the drivers were not employees, we reverse summary judgment for the insurers.

C. Remaining Issues in the Appeal

The insurers also sought summary judgment on their entitlement to premiums as calculated by rules promulgated by the National Council on Compensation Insurance and approved by the Arizona Department of Insurance. Yellow Cab's appeal challenges that entitlement and the trial court's denial of a Rule 56(f) motion to stay proceedings to allow additional discovery and administrative proceedings. In light of our holding that fact questions demand a trial on whether the drivers are employees and thus whether the insurers are entitled to additional premiums, we need not address either of these issues.

Yellow Cab asks that we reverse the trial court's grant of summary judgment to the insurers on Yellow Cab's counterclaim for a declaratory judgment on the drivers' status and for bad faith. We do so. We also grant Yellow Cab's request for reversal of the award of attorney's fees to the insurers because the latter are no longer prevailing parties.

Yellow Cab cites Wagenseller v. Scottsdale Memorial Hospital, 147 Ariz. 370, 392-94, 710 P.2d 1025, 1047-49 (1985), to support its request for attorney's fees incurred in the appeal. Wagenseller held that one who overturns a summary judgment on appeal may be a "successful party" for purposes of Arizona Revised Statutes Annotated ("A.R.S.") section 12-341.01 if she "achieve[d] reversal of an unfavorable interim order . . . that [was] central to the case and if the appeal process finally determine[d] an issue of law sufficiently significant that the appeal may be considered as a separate unit." Id. at 393-94, 710 P.2d at 1048-49. Wagenseller's appeal "established important points of law and public policy." Id. at 394, 710 P.2d at 1049. Although Yellow Cab gained reversal of a central adverse order, our finding that factual issues preclude summary judgment is not a final determination of a significant, separate issue.

Yellow Cab's reply additionally asserts A.R.S. section 12-349 as a basis for a fee award. We do not agree that the insurers' position was wholly without merit. In the exercise of our discretion, we deny the request for an award of attorney's fees on appeal.

The insurers request an award of attorney's fees on appeal under A.R.S. section 12-341.01. They are not at this juncture the prevailing parties and thus are not entitled to an award of fees. See Esmark, Inc. v. McKee, 118 Ariz. 511, 514, 578 P.2d 190, 193 (App. 1978).

D. The Cross-Appeal

The insurers cross-appeal from the trial court's denial of their motion for leave to amend the complaint to add Arizona Checker Leasing as a defendant under an alter ego theory. They argue that the trial court abused its discretion in finding the attempted amendment "too late." Arizona Rule of Civil Procedure 15(a) allows amendment "by leave of court or by written consent of the adverse party. Leave to amend shall be freely given when Justice requires."

At a hearing on the motion, Yellow Cab argued that the insurers had unduly delayed and that it would be prejudiced by the amendment because two witnesses had become unavailable. The trial court concluded that the insurers had "had plenty of time to do whatever discovery you needed to do to figure something out about the entities" and that the insurers had known of Arizona Checker Leasing's existence when they filed the complaint. It found the motion "too late" and lacking "good cause."

Good cause is not the standard by which to evaluate such a motion. But correspondence dated August 13, 1997, reveals that the insurers did know of Arizona Checker Leasing and sought a stipulation to add it to the complaint. When no stipulation was forthcoming, the insurers failed to seek permission to amend until almost a year later.

Whether to allow amendment is within the trial court's discretion, yet amendment should be liberally granted unless the moving party has unduly delayed in making the request, the motion is in bad faith or for purposes of delay, or amendment would be futile. MacCollum v. Perkinson, 185 Ariz. 179, 185, 913 P.2d 1097, 1103 (App. 1996). "[T]he mere fact that the attempt to amend comes late[] is not justification for denial of leave to amend." Owen v. Superior Court, 133 Ariz. 75, 79, 649 P.2d 278, 282 (1982). The trial court should consider the degree of notice and prejudice to the opposing party, id., but mere unavailability of a witness does not in itself constitute prejudice.

The insurers' motion to amend was certainly belated, but nothing in the record suggests that the amendment would be futile or that the request was made in bad faith or to delay proceedings. Further, the fact that counsel had sought an amendment and related discovery by stipulation, albeit unsuccessfully, is not grounds to find counsel "negligent or dilatory, thereby causing a resultant delay to be considered 'undue.'" Id. at 80, 649 P.2d at 283.

On the other hand, the insurers had raised the alter ego theory in the original complaint and acceded to Yellow Cab's request to dismiss two individual defendants with an understanding that piercing the corporate veil was still an issue subject to further discovery and possible amendment. *fn1 Yellow Cab later refused discovery. *fn2

Under these circumstances, the insurers' attempt to assert the same theory of liability, but against a different party defendant, fails to constitute undue prejudice to Yellow Cab, and the latter does not claim that discovery on this issue was unexpected. Additionally, we are remanding this case for trial and presumably further discovery. Public policy favors litigating a case on the merits; Yellow Cab has alleged minimal prejudice. Therefore, we reverse the denial of the motion to amend and remand with instructions to grant the motion. Upon compliance with Rule 21, Arizona Rules of Civil Appellate Procedure, cross-appellants will be awarded attorney's fees for the cross-appeal.

PHILIP E. TOCI, Judge

CONCURRING:

CECIL B. PATTERSON, Jr., Presiding Judge

SUSAN A. EHRLICH, Judge

Opinion Footnotes

*fn1 Correspondence attached to the insurers' motion to compel shows that in early 1998, the parties discussed disclosure of alter ego evidence and that Yellow Cab urged that Mr. and Mrs. Arnett be dismissed. The insurers agreed if "dismissal [will] not be used as a pretext for preventing discovery into the corporate structure . . . and other matters that may relate to piercing the corporate veil . . . [and] we may reach a stipulation regarding legitimate amendments in the future." Yellow Cab agreed to these terms.

*fn2 Correspondence in late June reveals that the insurers were pursuing the issue of the appropriate defendants and whether Arizona Checker Leasing could be responsible for the debts of its subsidiaries. Yellow Cab refused further discovery on the alter ego theory as a "fishing expense".

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