$47K Sanctions for "Filing … Election Challenge Without Substantial Justification" in Arizona

The sanctions were imposed against Mark Finchem, "the Republican Party nominee for Arizona Secretary of State, [who] lost the November 8, 2022, election by more than 120,000 votes," and his lawyer.

From Thursday's Finchem v. Fontes, decided by the Arizona Court of Appeals (Judge Samuel A. Thumma, joined by Judges Michael J. Brown and Andrew M. Jacobs):

Mark Finchem appeals from two awards of attorneys' fees as sanctions totaling $47,706.50 based on his filing of this election challenge without substantial justification…. Finchem, the Republican Party nominee for Arizona Secretary of State, lost the November 8, 2022, election by more than 120,000 votes. On December 9, 2022, … Finchem filed a Verified Statement of Election Contest (VSEC), challenging that result and requesting a special election. Finchem's amended VSEC asserted (1) misconduct and (2) illegal votes…. After oral argument, in a thirteen-page Rule 54(b) final judgment entered in late December 2022, the court granted the motions to dismiss. The judgment concluded that the amended VSEC "fail[ed] to state a meritorious challenge," "cannot sustain an election contest," and that the allegations are "not well-pled facts; they are legal conclusions masquerading as alleged facts." …

[B.] The Superior Court Did Not Err in Finding Finchem's Claims Were Groundless.

… In finding Finchem's claims were groundless, the superior court properly noted sanctions in election cases are, and should be, rare, given "the potential chilling effect a sanctions award may have on legitimate challenges in the future." With that starting point, however, the court then looked at the record and concluded Finchem's claims were groundless.

After summarizing the allegations in the amended VSEC, the superior court concluded that none of the alleged "misconduct presented a 'fairly debatable' election challenge as Finchem did not and could not allege that any of these acts rendered uncertain the outcome of an election he lost by over 120,000 votes." Finchem has not shown that was wrong. Instead, … Finchem argues that the amended VSEC "specifically called into question more than 261,000 votes." … [T]he argument is not supported. Nowhere does the amended VSEC assert that 261,000 votes were missing or cast illegally, instead addressing 60,000 votes in Maricopa County and 20,000 votes in Pima County—a total of 80,000. That number is still 40,000 votes less than what Finchem would have needed to challenge the results of an election he lost by more than 120,000 votes.

At oral argument before this court, Finchem continued to assert that "he did not just allege, as the court held, … that there were 80,000 votes [ ] he was contesting," arguing that post-filing "newly discovered evidence was presented at the time of the sanction." Finchem also argued that his motion to reconsider "brought forth evidence" that the court did not properly consider showing "for the purposes of sanctions another … 290,000 [votes] through a failure to follow the chain of custody … and another 300,000 signature verification issues."

Claimed post-filing evidence, however, is not dispositive; the question is whether Finchem brought his claim without substantial justification. Nor was the superior court required to consider evidence first presented in a motion to reconsider. Finchem has not cited, nor has this court found, any authority requiring the superior court, when applying A.R.S. § 12-349, to accept as true factual allegations in a pleading, which would appear to be antithetical to A.R.S. § 12-349. Thus, the superior court did not err in failing to consider or analyze new evidence attached to Finchem's motion for reconsideration.

The superior court also found that Finchem failed to articulate "how voting software caused illegal votes to be cast." He alleged no specific evidence as to how the machines malfunctioned or how the malfunctions changed the outcome. Specifically, the court found, Finchem "offered no tether" between the alleged voting "machine malfunctions and the outcome of the election he challenged here." On this record, Finchem has not shown that the superior court erred in finding his claims were groundless.

[C.] The Superior Court Did Not Err in Finding Finchem's Election Contest Was Not Filed in Good Faith.

The superior court found that Finchem filed this case "without substantial justification" under A.R.S. § 12-349(A)(1). As applicable here, that statute declares that "'without substantial justification' means that the claim … is groundless and is not made in good faith." … "Courts should evaluate the absence of good faith under § 12-349(A)(1) objectively—consistent with the Arizona Rule of Civil Procedure 11 standard—which 'is not based on whether an attorney subjectively pursues claims in good faith, but instead is judged on an objective standard of what a professional, competent attorney would do in similar circumstances.'" "A claim is 'not made in good faith' if (1) it is groundless and (2) the party or attorney knows or should know that it is groundless, or is indifferent to its groundlessness, but pursues it anyway."

The superior court found that Finchem's claim was not made in good faith because: (1) the amended VSEC challenged 80,000 votes, far less than the than 120,000 margin of the election; (2) the amended VSEC made demonstrably false assertions; (3) "the decision to pursue his claims without regard to contrary evidence strongly suggests that this election contest was not motivated by a sincere belief that the error alleged affected the election result;" (4) McCauley failed to "conduct a reasonable investigation to determine whether and to what extent viable challenges to the election could be asserted on Finchem's behalf;" (5) the amended VSEC ignored "Arizona cases establishing that an election contest requires not only alleged acts of misconduct, but also evidence that the misconduct or irregularities complained of rendered the outcome of the election uncertain;" and (6) McCauley personally told the superior court during oral argument that he knew the filing lacked merit, stating he was "less at risk of being disbarred as a result of the filing given his impending retirement."

Although Finchem broadly argues his challenge was not filed in bad faith, he does not challenge any of the specific findings supporting a conclusion that he failed to act in good faith. Nor does he claim that any finding was clearly erroneous, based on the record presented. Finchem has not shown that the superior court erred in finding his claims were not filed in good faith.

[D.] The Superior Court Did Not Err in Imposing the Specific Sanctions Finchem Challenges.

The superior court made detailed findings addressing the A.R.S. § 12-350 factors and Finchem does not argue that the court failed to properly apply that statute. Nor does Finchem claim that the amount of sanctions imposed was excessive. In imposing sanctions, the superior court significantly reduced the fees requested by Fontes. On this record, the superior court did not err in awarding Hobbs $7,434 in attorneys' fees as a sanction against [Fontes' then-lawyer] McCauley and awarding Fontes $40,272.50 as a sanction against Finchem, both pursuant to A.R.S. § 12-349, with interest accruing at 9.25 percent until paid….

[IV.] Sanctions on Appeal.

Fontes' answering brief seeks sanctions on appeal against Finchem and McCauley …. Finchem's reply brief does not address, or dispute, the request…. Finchem's appeal was "without substantial justification" and "unreasonably expands or delays the proceeding." While the "statute refers only to the bringing of a claim, thus implying that a party's conduct in maintaining the action is immune from sanction … the statute is most reasonably construed to also apply to attorneys or parties who maintain sanctionable claims."

Looking at the factors specified in A.R.S. § 12-350, Finchem's appeal: (1) sought to challenge the December 2022 judgment, which was final and beyond challenge long before this appeal was taken; (2) miscited authority for propositions that were never supported or have changed given statutory amendment; (3) sought to extend (and expand) the arguments being asserted and failed to account for arguments that were not valid, not factually supported or reasonably applicable; and (4) did not prevail and resulted in the superior court's sanction decision being affirmed in its entirety. To be sure, the relevant financial positions of the parties and whether this appeal was taken in bad faith (contrast to whether this case was not filed in good faith) are unclear based on the record presented. Having considered all these factors, however, the court concludes that sanctions, in the form of a portion of Fontes' reasonable fees incurred on appeal, are appropriate under A.R.S. § 12-349(A)(3). Accordingly, Fontes is awarded a portion of his reasonable attorneys' fees incurred on appeal, as well as any taxable costs incurred on appeal, contingent on compliance with ARCAP 21.

An interesting decision; I'm not an expert on the field, so I can't speak to how it fits with other precedents in this area, but I thought it was worth passing along. Craig Alan Morgan, Shayna Stuart & Jake Tyler Rapp (Sherman and Howard, LLC) represent Fontes.