Insurance Company Not Liable For Loss Of Funding To Build Rocky Point Hotel

By Terri Jo Neff

Farm Bureau Financial Service and one of its Arizona representatives is not liable for the fact a group of developers lost funding for a hotel – casino in Puerto Peñasco, a coastal town in Mexico commonly known as Rocky Point, the Arizona Court of Appeals has ruled.

Last week a three-judge appellate panel affirmed a Pima County Superior Court judge’s ruling last year which dismissed a 2016 lawsuit filed by Cholla Bay Hotel Group LLC; CBHG Management S.A. DE C.V.; Desert Springs Equestrian Center LLC, and Lorilei Peters, who was a principal of Desert Springs Equestrian.

The various plaintiffs -collectively referred to as the CBHG plaintiffs- sued for defamation as well as tortious interference in a business expectancy and contract due to Farm Bureau information Cully provided to private investigators.

Those investigators were hired by Grupo Financiero IMBURSA in 2013 to conduct a due diligence review of the CBHG plaintiffs related to a $15 million loan for construction of a hotel and casino in Rocky Point. The loan, according to the lawsuit, was to be funded by Grupo Financiero and guaranteed by the Mexican government.

CBHG also alleged a Mexican government agency had approved it for a gaming license within Mexico.

In their lawsuit, the CBHG plaintiffs alleged the development loan was denied due to negative information Farm Bureau provided to the investigators. That involved a 2010 insurance claim for theft made by Peters on behalf of Desert Springs Equestrian with a value of more than $250,000.

The lawsuit alleged the letter “recklessly made false allegations of criminal conduct on behalf of Ms. Peters in connection with an allegedly fraudulent theft claim.” It also alleged Farm Bureau and Cully improperly sent a referral to the Arizona Department of Insurance and the National Insurance Crime Bureau, which the CBHG plaintiffs asserted was defamation.

In response to the lawsuit, Farm Bureau asserted that CBHG failed to produce admissible evidence of the existence of the $15 million loan, the hotel franchise agreement in Rocky Point, or a Mexican gaming license. Farm Bureau also argued the documents which were produced by the CBHG plaintiffs could not be authenticated and some bore “several hallmarks of being a forgery.”

Without validated evidence, CBHG could not substantiate its claim of a business expectancy, a judge with the Pima County Superior Court ruled in dismissing the CBHG lawsuit. The dismissal order noted the plaintiffs’ business expectancy claims were “too attenuated, speculative.”

CBHG timely appealed, arguing the judge erred in rejecting admissible evidence and in not properly addressing the defamation claim. The appeal also challenged the lower court’s opinion that CBHG’s business-expectancy claim was too attenuated and speculative.

But according to the unanimous appellate decision, CBHG had to show the existence of a valid contractual relationship or business expectancy in order to prove intentional interference with business expectancy and contract.

The burden of proof was on the CBHG plaintiffs to provide a showing of “a business relationship evidenced by an actual and identifiable understanding or agreement which in all probability would have been completed if the defendant had not interfered.” Judge Sean Brearcliffe wrote in the appellate decision.

“Simply stating that the documents have a government stamp on the first of sixty-five pages and having a third party with no personal knowledge of either the characteristics of the stamp or the ministry’s receipt of the documents testify, is not sufficient,” Brearcliffe wrote. “CBHG was unable to produce admissible evidence below to create a genuine issue of material fact as to the existence of a valid contractual relationship or business expectancy.”

As to the defamation claim, the court of appeals ruled insurance companies such as Farm Bureau have a statutory duty to refer claims they believe to be fraudulent to the Insurance Fraud Unit of the Arizona Department of Insurance.

The CBHG plaintiffs, jointly or individually, have until Sept. 6 to file a petition for review to the Arizona Supreme Court.