AADC | Common Defense Q2

COMMON

Defense The Arizona Association of Defense Counsel Newsletter

2021-2022 Board of Directors Jill J. Ormond President

Micalann Pepe Vice President

Amy Wilkens

INDEX The Arizona Association of Defense Counsel Newsletter

Treasurer

Brian Rubin Secretary

Chris H. Begeman Imm. Past President

SUMMER 2022

Adam Lang DRI State Representative

Doreen Myles

PAGE 3 - GENERAL LIABILITY UPDATE: SHORT-TERM RENTAL/VRBOS

Executive Director

2021-2022 Board Members J.P. Harrington Bisceglia Amanda Breemes Parker Bunch Todd Erb

PAGE 5 - PRACTICING IN THE METAVERSE: BUSINESS OPPORTUNITIES; CYBER AND PRIVACY RISKS PAGE 7 - 2022 ARIZONA LEGISLATIVE SESSION UPDATE PAGE 8 - 2022 ASU OPLINGER BLAKE CLOSING ARGUMENT COMPETITION

Jennifer Elias Amanda Heitz John Gregory Jason Kasting Michael Hrnicek Kara Klima Shanks Leonhardt Grace Lynn Tim McKercher Eadie Rudder David Schmidt J.T. Shoaf Lisa Streu

PAGE 9 - UPCOMING EVENTS PAGE 10 - FOR THE DEFENSE PAGE 11 - TAKE LESS. DO MORE. BE MORE. PAGE 12 - YLD UPDATE PAGE 13 - AADC|YLD HAPPY HOUR FOR ARIZONA KIDS PAGE 14 - ARIZONA COURT OF APPEALS LOOKS TO AADC FOR AMICUS SUPPORT ON CONSTITUTIONAL QUESTION PAGE 15 - WELCOME TO OUR NEWEST CORPORATE AND IN-HOUSE COUNSEL MEMBERS

Zara Torosyan Victoria Torrilhon

2021-2022 YLD Board of Directors Kimberly Page Anne-Grace Reule Dan Bernardone Board Members: Nathan Gallinat Maxwell Shanahan Madison Farnsworth Seraphim Sparrow Maxwell Shanahan Stephanie Baldwin Jim Carlson Steven Crocchi John Habib

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General Liability Update: Short-Term Rental/VRBOs BY: MICHAEL HRNICEK, GENERAL LIABILITY CHAIR (HRNICEK LAW, P.L.L.C.)

Short term rentals (“STR”) (also known as vacation rentals by owner) recently received greater protection by the Arizona Supreme Court in Kalway v. Calabria Ranch HOA, LLC, No. CV-20-0152-PR. Kalway v. Calabria Ranch HOA, LLC. Comprising a significant portion of Arizona’s economy, STR and visitor activity contributed over $6.6B to Arizona’s economic output, $2.8B of income to Arizonans, and provided 75,500 jobs (https://azrtr.org/wpcontent/uploads/2021/09/AZ-STR-Impact-Report-February-2022.pdf (“The Economic Impact of Short-Term Rentals in Arizona” Rounds Consulting Group (Feb. 2022).) Arizona recognized the role SRT plays in its economy and enacted A.R.S. §9-500.39 in 2016, providing protections for SRT (defined as typically covering stays between one night and one year). The legislature subsequently passed an additional law to further protect owners’ legal rights to rent: members of HOAs “. . . may use [their] Property as a rental Property unless prohibited in the declaration and shall use it in accordance with the declaration’s rental time period restrictions.” A.R.S. §33-1806.01.

Although the government may not restrict short term rentals, private parties (i.e. HOAs) had an opening to do so through deed restrictions and covenants conditions and restrictions (CC&RS). Numerous HOAs amended their CC&Rs after 2016 accordingly to impose such restrictions. Those HOA restrictions are now in jeopardy as a result of Kalway.

At issue in Kalway was whether amendments to the CC&Rs restricting members’ use of their property.

Although SRTs were directly at issue, the analysis of SRT restrictions is analogous. The Arizona Supreme Court asked whether the restrictions were foreseeable to owners who bought their homes before the amendments.

If the amendments were not reasonably foreseeable, the owners did not have proper notice. “The original declaration must give sufficient notice of the possibility of a future amendment; that is, amendments must be reasonable and foreseeable.” Kalway, ¶ 10. “We hold that an HOA cannot create new affirmative obligations where the original declaration did not provide notice to the homeowners that they might be subject to such obligations.”

Because of this holding, recently imposed HOA CC&R SRT restrictions are in doubt. SRT HOA members will argue that the restrictions were unforeseeable and ran contrary to the original CC&Rs to which they agreed.

Certified real estate specialist Christopher Charles, Esq. of Provident Law notes, “. . . in light of the recent Supreme Court decision, many, if not all, of the CC&R amendments which have been implemented to restrict short term rentals are void and ineffective.” (https://www.providentlawyers.com/arizonasupreme-court-issues-new-ruling-protecting-shortterm-rentals/ (April 6, 2022).)

Key takeaway: insurance carriers should expect HOA member SRT claims arising out of lack of notice against HOA boards and executives and officers. Because the suits will likely sound primarily in contract and seek injunctive and declaratory relief, there will be coverage and damages issues.

Practicing in the Metaverse: Business Opportunities; Cyber and Privacy Risks

BY VICE CHAIR, CYBER SECURITY AND DATA PRIVACY COMMITTEE BRENT J. ARNOLD (PARTNER, GOWLING WLG, TORONTO)

Many lawyers were surprised, confused and/or amused by recent news that a New Jersey firm had opened the first personal injury firm in the metaverse (the virtual world existing alongside our physical reality, in which people explore, play, and engage in commercial activity as digital avatars). This reaction was probably to be expected; law firms are notoriously slow to adapt to new business models or even to adopt productivity-improving technology. But some lawyers have been thinking about what this world means for the profession for some time. Now that some are setting up shop in Decentraland and other similar platforms, it will be possible for clients to meet with lawyers, avatar-to-avatar, in 3D simulations of law offices, probably with expensive NFT artwork hanging on virtual walls.

The metaverse not only provides new virtual “places” to practice, but also raises legal issues that should keep litigators and courts busy for some time. You can buy virtual property (real and personal) in the metaverse that exists only in the metaverse, so can you sue if your property is damaged or vandalized? What are your rights if you buy a product in real life based in false representations about the product in the metaverse (e.g. it looked better in the 3D virtual “store” where you browsed for it)? YouTube is full of clips of people having accidents while wearing VR headsets; is the headset manufacturer liable if you trip and are injured because you were seeing the virtual world instead of the real staircase in front of you? What if someone in the virtual world is using your real-world trademark to sell their virtual products in the metaverse? What court has jurisdiction over these disputes, and what’s the governing law?

Hanging over the prospect of practicing in the metaverse are the cybersecurity and privacy issues that attend any computer-mediated interaction. How secure is my conversation with a client in my metaverse office from interception and leaking? All clients provide personally identifiable information to lawyers, if only while setting up a retainer; some clients provide valuable but not-yet-patented intellectual property. It is not difficult to imagine that my metaverse office may attract hackers looking to extract ransoms, or to carry out industrial espionage against my clients. As a mere user of the platform (even if I bought the digital real estate where my virtual office stands), the only control I have over the safety of my client’s data in the metaverse is to make sure I don’t discuss or receive it in the metaverse. That is why lawyers already operating on these platforms aren’t practicing there as such. Their virtual offices provide a place to advertise their services and make contact with potential clients, but from there, client intake and the giving of actual advice are quickly redirected to physical offices or to encrypted, private communications tools (e.g. the chat or videoconference platforms lawyers have grown used to using during pandemic remote deployment).

Downstream, it seems likely that as more businesses move the metaverse and seek to do more with it than just advertise, the technology will evolve to address security and privacy concerns.

Recall how quickly videoconference platforms moved to end-to-end encryption as they became more crucial in the early months of the pandemic. Even the data sovereignty issue should be surmountable, either through the harmonization of international privacy laws, or the offering of local hosting options.

For now, though, what can a lawyer actually, safely do in a metaverse office? Until safety and privacy features are in place to protect privilege, its safest use is to allow lawyers to establish a marketing presence in a space where clients already are (or will be). Imagine a Facebook ad that your target audience can walk around in, where they see your branding, read about and even ask questions about the firm. Your metaverse office can also double as your virtual event space, where clients come to meet your lawyers socially, or attend more immersive versions of the content firms currently deliver in webinar form. There is no reason that courts could not evolve from hearing cases by videoconference to conducting public hearings in 3D recreations of courts, with all the symbols, costumes, and pageantry we’ve lost in the move from physical courts to the web. As these proceedings are public anyway, security issues (except perhaps the avatar equivalent of Zoom bombing) are less of a concern than in the giving of privileged advice in a public virtual space.

Virtual legal practice aside, the mere act of showing up in the metaverse raises concerns that go to the heart of current and evolving privacy laws. Today, to visit a virtual law office in Decentraland, I need only make up a username, create an avatar (that can look like me, or look nothing like me, if I prefer), and provide an email address.

I could be anyone, and all the platform really knows about me is the email address I gave (which I may have made up, as there’s no identity authentication barrier to my starting to walk around in this virtual world). At this level of engagement, I am like a lurker on Twitter with no bio and no photo. However, if I want to customize my experience, engage in commerce, or otherwise have a richer and more immersive experience, then just as with social media, I’ll be providing a lot more personal data (e.g. about my preferences, my reactions and interactions inside the virtual world, possibly biometric data as the interface technology becomes more

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sophisticated, and certainly my crypto wallet information if I want to buy goods and services). What if I want to access my personal data, or wish my data to be forgotten? Will the platform be able to move my stored data across jurisdictions without my consent, and if it does, what guarantee will I have that it’s protected?

As with seemingly every technological advancement, the metaverse has arrived before the legal framework for managing it has been worked out. It will be fascinating to see how lawmakers, regulators, and courts grapple with the legal issues the metaverse is already raising.

2022 Arizona Legislative Session Update

BY MOLLY PODLESNY SANDERS & PARKS, P.C. Arizona is routinely at the forefront of making changes to the status quo for how lawyers conduct business and practice law. This legislative session is no different. There are two bills of note currently in the state legislature that if passed, would affect the practice of law in Arizona.

The first bill, SB1565 was introduced in the Arizona Senate on February 1, 2022. This bill would allow attorneys to be sworn into the bar by the Arizona Supreme Court without being members of the State Bar of Arizona. As of 2020, there were mandatory state bar memberships in 31 states and the District of Columbia. If passed SB1565 would place Arizona among the minority of states with solely voluntary bar associations and potentially upend the lawyer licensing and disciplinary process in Arizona. The bill passed the Senate and was introduced in the House, where it also passed the House Judiciary Committee. It has been retained by the House Committee of the Whole, where it remains on the calendar. No vote has yet been held and the bill remains in limbo with other bills—likely due to the legislature’s focus on passing a budget.

Currently, to become a licensed attorney in Arizona, prospective lawyers must be members of the State Bar. Proponents of the bill suggest it would remove another entry requirement to practice law in Arizona and further reduce legal costs –the same motivation behind last year’s Supreme Court rules that (1) allow non-lawyers to have ownership interests in law firms and share profits with lawyers; and (2) allow the licensing of legal paraprofessionals to provide limited public services, including representing clients in court.

Opponents of the bill suggest that it improperly invades separation of powers by usurping the role of the Arizona Supreme Court in regulating attorney licensing and membership.

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2022 ASU Oplinger Blake Closing Argument Competition

On April 4, 5, and 7, 2022, the AADC sponsored and provided judges for Arizona State University Sandra Day O’Connor School of Law’s Oplinger-Blake Closing Argument Competition. The AADC sponsors this Moot Court competition each year. This competition was held in person for the first time since the beginning of the pandemic. The law students participating were given a tort-based fact pattern involving the rescue doctrine, the firefighter exception, and the failure to warn. All of the competitors demonstrated a mastery of the facts and issues. The students were provided with the fact pattern, deposition transcripts, and photographs. AADC members volunteered as judges and scored the students in several areas including how they developed their argument using the available facts/law and their presentation style. The judges also provided verbal coaching and feedback at the conclusion of each team’s argument. All students did a terrific job and expressed how much they appreciate the dialog with the judges.

During the competition three students stood out. Taking first was Madison Van Natter. Second place went to Christopher Giles. hird place was Evan Ridley. The AADC is so proud of these law students and is eagerly anticipating their entry into the Arizona legal community.

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CLE Webinars June 15, 2022: Asset Investigations (Subrosa Investigations) AADC Events September 15, 2022: AADC Annual Meeting and Fall Kickoff (details TBA)

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For the Defense CASE: DARREN UDD, AMY UDD V. CITY OF PHOENIX (POLICE DEPARTMENT) Cavanagh Law Frim attorneys Debora Verdier and Chrisanne Gultz, received a full defense verdict following an eightday jury trial in front of the Honorable Dominic Lanza in September 2021. The claims in the case included Gender Discrimination and Associational Discrimination under Title VII and various claims for defamation. On the Gender Discrimination claim, the jury found in favor of the defendant concluding that Plaintiff could not meet his burden of establishing that gender was at least a motivating factor in the defendant’s actions. The Court dismissed Plaintiff’s wife’s claim for associational discrimination prior to the case being submitted to the jury. As for the defamation claims, the jury found that some of the allegedly defamatory statements were subject to an absolute privilege and, thus, the defendant could not be liable for those statements. The jury found that other of the allegedly defamatory statements were subject to a conditional privilege and Plaintiffs could not establish that the defendant acted with malice or consciously disregarded the truth of those statements when making them. Plaintiffs asked for $880,315 in constructive discharge damages and $6 million in defamation damages; the jury found in favor of defendant and awarded them nothing.

Mike Halvorson and Erica Spurlock of Jones, Skelton, & Hochuli obtained a unanimous defense verdict in wrongful death/negligent infliction of emotional distress case. Plaintiffs turned left in front of Defendant, who claimed he was traveling through the intersection on a green light. Plaintiffs argued Defendant was speeding and entered the intersection from the designated right turn lane as evidenced by the area of impact. Plaintiffs asked the jury for $3.2 million, Defendants asked for a defense verdict.

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CASE: BARBARA SLOAN V. FARMERS INSURANCE COMPANY OF ARIZONA, FARMERS INSURANCE EXCHANGE, AND FARMERS GROUP, INC. ARIZONA COURT OF APPEALS | JULY 13, 2021.

On July 13, 2021, the Arizona Court of Appeals affirmed both the trial court’s 2019 denial of Plaintiff’s motion for a new trial under Ariz. R. Civ. P. 59, and her motion for relief from judgment under Ariz. R. Civ. P. 60(c) (Appeals 1 and 3), thus affirming the defense verdict. Plaintiff moved for reconsideration, which was denied.

This case arose in 2009 when Plaintiff’s house burned in a fire and she was criminally charged with arson.

The insurer paid the claim in full after the charges were dismissed. Plaintiff alleged the insurer acted in bad faith. In July 2012, following a 22-day trial and four days of deliberation, the jury issued a verdict in favor of the Defense, agreeing the insurer had acted reasonably. Plaintiff moved for a new trial, which was denied, and from which she appealed (Appeal 1). The insurer prevailed on a second appeal (Appeal 2), but the case was remanded for additional findings. On remand, the trial court agreed with the insurer and affirmed the verdict, and Plaintiff appealed (Appeal 3).

Jones, Skelton & Hochuli attorneys Don Myles, Lori Voepel, and Ashley Villaverde Halvorson prevailed in three appeals on behalf of their client, Farmers Insurance Company of Arizona, affirming their 2012 defense verdict in a bad faith case.

On January 18, Kelsey Dressen, with the Law Offices of Choate & Wood, Farmers Insurance Exchange, began a three day trial in Maricopa County. Defendant admitted negligence, but disputed causation and damages. The parties stipulated to the medical bills that included two ER visits and physical therapy treatment, which totaled $17,537.90. Plaintiff also presented a lost wage claim that totaled $6,480. The defense disputed Plaintiff’s lost wages and ongoing pain and suffering. Plaintiff called his client, employer representative and physical therapist to testify. The defense did not call any witnesses. At close, Plaintiff suggested to the jury to award $132,000.

The defense suggested $19,537. The jury deliberated for 30 minutes and returned a verdict of $23,000.

Take Less. Do More.

Be More

By Zara Torosyan, McCarthy Building Companies Arizona Rules of Civil Procedure, Rule 1, states that cases should be “construed, administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding.”

But are they?

The way we currently practice law is outdated. Times have changed in the last decade or two, but the way we practice law has not kept up with the times. Despite the many changes to the Arizona Rules of Civil Procedure, our community continues to practice the way it has been for many years now. For example, in 2018 Arizona introduced a new “Tier System,” which limits discovery based on damages sought. Under these new rules, a Tier 1 case must be completed within 120 days.

But when is the last time we have seen a case be completed, from start to finish, in 120 days?

As lawyers, we are not known to be wholly accepting of change, especially if it comes in a large wave; and we tend to react to change as a threat rather than an opportunity. The reason for refusing to change tends to be more of “this is the way we have been doing things” versus “this is the best way to do this thing.”

One, but not the only, cause of the problem is the archaic billable requirement by many firms. While a well-reasoned measure for any business, the focus of the hourly requirements and goals are not very client friendly, and in fact quite the opposite. The outcome appears to be endless extension requests and multi-year litigation that ends up costing both sides more time and money than necessary.

Many folks cannot afford to hire a lawyer, and those that can, usually don’t view the cost as a good use of their money. Even with the evolving computer technology, artificial intelligence, and data analytics, the attitude and approach to litigation within the profession are not client oriented. Instead of the focus being an expedited, judicious, and painless experience, it is normally a 2-3 year slow painful process that mostly benefits the firms, not the clients.

I am not going to solve any problems in this one opinion article. But one thing we could all do better is instead of focusing on getting more clients, more cases, and more documents, we instead focus on litigating fewer cases. But litigating them better and faster. This may be controversial, but it should not be. If the goal as a lawyer is to best serve our clients, I suggest we may need to take less, do more, and be more.

The AADC YLD board has grown to twelve members representing seven law firms including: Bowman & Brooke; Gordon Rees; Jaburg Wilk; Jones, Skelton & Hochuli; Keller, Nebeker, Carlson, Haluck; Rai & Barone; and Snell & Wilmer.

The November CLE hosted by the AADC YLD and presented by Rimkus was a success with approximately 50 people in attendance. The YLD is planning another CLE program for spring 2022. Stay tuned for details.

In addition, we are excited to announce the annual YLD Charitable Softball Tournament is back for 2022!

The YLD is in the planning stages for a fall tournament, being cognizant of COVID-19 and needed precautions. Once again, we are partnering with Southwest Human Development, an Arizona non-profit focused on early childhood development, to host the tournament and annual raffle. Break out those gloves and join us for some healthy competition benefitting Arizona children!

The YLD mentorship program is focusing on law student outreach and is seeking law school representatives from ASU and University of Arizona. If you know a current law student who would be interested in serving on the AADC YLD Board, please email sbaldwin@jshfirm.com.

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AADC|YLD Happy Hour For Arizona Kids

On May 24, the AADC YLD hosted a happy hour and raffle benefiting Southwest Human Development. Not only did attendees have the opportunity to celebrate with craft beers and small bites at Huss Brewing Company, 13 lucky winners won prizes in the Raffle for Kids! The evening raised over $3,000 and will support Arizona children through programs and services offered by Southwest Human Development. The evening would not been a success without our amazing sponsors, Huss Brewing Co., HKA, Vocational Diagnostics Incorporated, Ward Cornett & Associates, and Integrated Medical Evaluations, Inc. Did you know that each year over 140,000 children and their families benefit from the over 40 programs offered by Southwest Human Development? These programs focus on the most critical years in a child’s development, the first five years and range from Newborn Intensive Care to Head Start Early Literacy programs. If you missed the happy hour, don’t worry, you have another opportunity to support Southwest Human Development!

The Annual Softball Tournament supporting Southwest Human Development will be held in November of 2022. We are recruiting firm softball teams for a little healthy rivalry! Please reach out to Nathan Gallinat, NMG@jaburgwilk.com to register your team!

Arizona Court of Appeals Looks to AADC for Amicus Support on Constitutional Question In a somewhat unusual move earlier this year, the Arizona Court of Appeals issued an order specifically requesting amicus briefings from the AADC to address an issue of constitutional interpretation. In Torres v. JAI Dining, 1 CA-CV 19–0544. The case revolves around the liability of a liquor licensee for serving a patron who left the establishment, returned to a residence, and hours later drove drunk, causing a fatal collision. After a $2,000,000 plaintiffs’ verdict in 2019, the Court of Appeals reversed, finding that the driver’s return to his home constituted a superseding and intervening event.

The Arizona Supreme Court granted review and reversed, remanding to the Court of Appeals to consider other issues raised by the licensee, but not previously addressed by the Court of Appeals, including the validity and applicability of A.R.S. § 4-312, the Arizona Dram Shop Liability statute.

Although at the common law, there was no liability on the part of businesses that serve alcohol for torts committed by their patrons, in Ontiveros v. Borak, 136 Ariz. 500 (1983), the Arizona Supreme Court abolished the doctrine of tavern owner nonliability. Following this decision, the Legislature enacted § 4-312, which defined the scope of liability. In the mid-1990s, however, the Arizona Court of Appeals held in Young ex. rel. Young v.

DFW Corp., 184 Ariz. 187 (App. 1995), held that in light of the change in common law as reflected by Onitiveros, the statute violated the Anti-Abrogation Clause of the Arizona Constitution. Since Young, however, the Arizona Supreme Court has further developed the law surrounding the anti-abrogation clause, calling into question Young’s holding.

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Faced with this legislative and jurisprudential backdrop, the Court of Appeals called on the AADC, among other stakeholders, to submit amicus briefs. The AADC answered this call. Amanda Heitz of Bowman and Brooke LLP prepared the amicus brief on behalf of the AADC. The AADC’s brief outlined the historical interpretation and application of the anti-abrogation clause, as well as post-Young developments in the law, and addressed separation of powers issues to argue that the legislation did not violate the constitution.

In late March, the Court of Appeals issued its opinion, overruling Young, and finding that § 4-312(B) did not violate the Constitution. On May 18, the Court of Appeals denied the plaintiffs’ motion for reconsideration.

Welcome to Our Newest Corporate and In-House Counsel Members

Leslie Harrach

Robert Nukt

Sarah Wolfe, Will Comer & Steve Tabu

Emilie Bell

April Hamilton & Beth Tippett

Kathleen Heth & Johanna Oh

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AADC Newsletter Committee: Amy Wilkens (Lorber, Greenfield & Polito, LLP), Brian Rubin (Thomas, Rubin & Kelley, P.C.), Eadie Rudder (Carpenter, Hazlewood, Delgado & Bolen), Jennifer Elias (Farley, Choate & Wood), Grace Lynn (Bremer, White, Brown & O'Meara), Stephanie Baldwin (Jones, Skelton & Hochuli), and Doreen Myles (AADC Executive Director)