County of La Paz v. Yakima Compost Co.

OPINION

¶ 1 This breach-of-contract action arises from performance of a contract between the County of La Paz (the “County”) and Yakima Compost Company, Inc. and Yakima Company, Inc. (collectively ‘Yakima”) in which Yakima agreed to receive and process sewer sludge on county land for twenty-five years. The County appeals from a $9.2 million judgment entered after a jury returned a verdict in the form of special interrogatories in favor of Yakima. The County also appeals the trial court’s rulings that denied its post-trial motion for judgment as a matter of law, new trial, and remittitur and reaffirmed a judgment as a matter of law in favor of Lincoln General Insurance Company (“Lincoln”), which served as surety on a bond required by the parties’ contract. Yakima cross-appeals that portion of the judgment that terminated the contract in light of Yakima’s recovery of lost future profits. For the reasons that follow, we affirm.

*596 BACKGROUND 1

¶ 2 On September 17, 2002, the County and Yakima executed the Regional Sludge Drying Facility Operation Agreement (the “Agreement”), which permitted Yakima to receive sewage sludge from wastewater treatment facilities located inside and outside Arizona and process it by solar drying on county land for an initial period of twenty-five years. The Agreement recited that the sludge drying facility would be located temporarily on a county landfill, the facility would be relocated within three years, and the County was “diligently pursuing acquisition of a permanent site.” Among other provisions, the Agreement required Yakima to provide a closure plan to the County for approval prior to operation, furnish the County a $1 million performance bond (the “Bond”) within sixty days, and comply with all local, state, and federal environmental laws.

¶ 3 Soon after execution of the Agreement, disputes arose between the parties, which culminated in initiation of this lawsuit by the County on May 15, 2003, a counterclaim filed by Yakima on June 9, 2004, and the County’s joinder of Lincoln, surety under the Bond, as a defendant on February 3, 2005. After the parties engaged in extensive discovery, and the trial court denied the County’s multiple motions for summary judgment, the case proceeded to a jury trial in August 2007. During trial, the trial court granted Lincoln’s motion for judgment as a matter of law (“JMOL”), ruling the County did not present any evidence regarding Lincoln’s breach of its obligations under the Bond and that Yakima’s breach of the Agreement was still an issue to be determined. The triaj court denied the County’s motion for JMOL on Yakima’s counterclaim.

¶ 4 The jury returned special interrogatory answers finding that (1) Yakima did not materially breach the Agreement, (2) the County was not damaged by any breach by Yakima, (3) the Agreement did not permit the County to terminate after three years, (4) the County breached the Agreement, (5) Yakima was damaged by the County’s breach, and (6) Yakima’s damages totaled $9.2 million. On January 25, 2008, the trial court entered a judgment awarding Yakima $9.2 million in damages, but ordered that the Agreement be terminated because the jury had awarded Yakima damages for lost future profits. Additionally, the court awarded Yakima $750,000 in attorneys’ fees and $10,000 in costs. The court also awarded Lincoln $45,795.44 in attorneys’ fees. Thereafter, the County filed a motion seeking relief from the judgment in the alternative forms of JMOL, new trial, and/or remittitur. In a detailed ruling, the trial court denied the County’s motion. This timely appeal and cross-appeal followed.

DISCUSSION

I. The appeal

A. Denial of motion for JMOL or new trial on Yakima’s counterclaim on Yakima’s counterclaim

¶ 5 The County argues the trial court committed reversible error by denying its motion for JMOL or new trial urged on several bases, which we address in turn. 2 We review the court’s JMOL ruling de novo and view the evidence and all reasonable inferences from the evidence in the light most favorable to Yakima as the nonmoving party. Hudgins v. Sw. Airlines, Co., 221 Ariz. 472, 486, ¶ 37, 212 P.3d 810, 824 (App.2009). We review the court’s refusal to grant a new trial for an abuse of discretion. Id.

*597 1. Notice of claim

¶ 6 The County argues it was entitled to JMOL because Yaldma failed to comply with Arizona Revised Statutes (“A.R.S.”) section 12-821.01(A) (2003), which bars a lawsuit against a public entity unless the claimant notifies the entity of its claim within 180 days of the claim’s accrual date. 3 Alternatively, the County contends the court erred by refusing to submit the issue to the jury, thereby requiring a new trial. Yakima counters, among other things, the trial court correctly denied JMOL and a new trial because the County waived the statutory compliance issue as a matter of law by failing to assert it until raising it in a motion for partial summary judgment filed on November 17, 2006, approximately thirty months after initiation of the counterclaim.

¶ 7 The County waived the statutory-compliance issue by failing to assert it in either a reply to the counterclaim or a motion filed pursuant to Arizona Rule of Civil Procedure (“Rule”) 12(b). As our supreme court noted last year, lack of compliance with § 12-821.01(A) is an affirmative defense that a governmental entity waives by failing to assert it in an answer or a Rule 12(b) motion. City of Phoenix v. Fields, 219 Ariz. 568, 574, ¶ 27, 201 P.3d 529, 535 (2009); see also Pritchard v. State, 163 Ariz. 427, 432, 788 P.2d 1178, 1183 (1990). In the present ease, the County elected not to challenge Yakima’s counterclaim via a Rule 12(b) motion. And although the County raised a number of affirmative defenses in its reply to the counterclaim, it failed to raise lack of compliance with A.R.S. § 12-821.01(A). For this reason alone, the trial court correctly ruled that the County had waived the issue.

¶ 8 The County does not contest it failed to preserve the statutory compliance defense in its reply or a Rule 12(b) motion but instead argues it nevertheless preserved the defense by raising it in a disclosure statement provided to Yakima on October 27, 2004, four months after Yakima filed its counterclaim. 4 Even assuming the County could preserve its defense by raising it in a disclosure statement, the court was not precluded from finding waiver because the County actively litigated the counterclaim for an extended period before asserting its defense in the motion for summary judgment. We are guided by the supreme court’s decision in Fields, which held that even when a party properly preserves its notice of claim statutory defense in an answer or Rule 12(b) motion, “it may waive that defense by its subsequent conduct in the litigation.” 219 Ariz. at 574, ¶ 29, 201 P.3d at 535. The court reasoned that any challenge to the sufficiency of a notice is facially apparent and can be quickly and easily adjudicated early in the case, thereby avoiding protracted litigation. Id. at 575, ¶ 30, 201 P.3d at 536. Consequently, the court held that a government entity waives the defense by taking substantial action to litigate the merits of a claim that would have been unnecessary had the entity promptly asserted the defense. Id. Because the city in Fields had engaged in discovery and motion practice unrelated to the sufficiency of the notices of claim for four years before raising the defense in a motion for summary judgment, the court held that the city had waived the defense as a matter of law. Id. at ¶¶ 31-33; see also Jones v. Cochise County, 218 Ariz. 372, 380-81, ¶¶ 27-29, 187 P.3d 97, 105-06 (App.2008) (holding defendant had waived notice of claim defense by actively litigating case for nearly one year after complaint filed).

¶ 9 Like the defendants in Jones and Fields, the County actively defended the counterclaim by engaging in extensive pretrial discovery and by filing motions unrelated to the notice of claim statutory defense. Nevertheless, the County attempts to distinguish these eases by asserting that unlike the situations in Fields and Jones, discovery was necessary to precisely identify the ac *598 crual date of Yakima’s counterclaim before the County could raise the statutory defense in its motion for partial summary judgment filed November 17, 2006. The record does not support this argument. The County identified accrual dates in its disclosure statement submitted four months after Yakima filed its counterclaim. No reason appears why the County could not have then moved the court to dismiss the counterclaim for lack of compliance with A.R.S. § 12-821.01(A). Moreover, the County substantially litigated issues related to the counterclaim that were unrelated to the accrual issue. For example, the County moved to strike Yakima’s damages expert witness on November 18, 2005 and, as reflected in its March 22, 2006 Rule 16(b) scheduling conference memorandum, retained its own expert witness on Yakima’s damages and disclosed that expert’s report. The County also deposed Yakima’s damages expert on September 20, 2006. Therefore, even assuming additional discovery was warranted before moving for partial summary judgment on the notice of claim statutory defense, the County waived that defense by litigating the merits of the counterclaim for an extended period before filing its potentially dispositive motion.

¶ 10 The County also argues it could not have predicted the holdings in Jones and Fields, and therefore the trial court erred by ruling that the County’s delay in asserting its defense served as an intentional waiver of the defense. See Am. Cont’l Life Ins. Co. v. Ranier Constr. Co., 125 Ariz. 53, 55, 607 P.2d 372, 374 (1980) (holding waiver is “express, voluntary, intentional relinquishment of a known right or such conduct as warrants an inference of such an intentional relinquishment.”).

¶ 11 We reject the County’s contention for two reasons. First, Jones and Fields did not establish a new legal principle by holding that the notice of claim statutory defense is an affirmative one subject to waiver. See Pritchard, 163 Ariz. at 432, 788 P.2d at 1183 (holding challenge to timeliness of a notice of claim is an affirmative defense and “is subject to waiver”); Young v. City of Scottsdale, 193 Ariz. 110, 114, ¶ 15, 970 P.2d 942, 946 (App.1998) (deciding city waived defense that notice of claim was improperly served by processing claim and failing to object to service of process), disapproved, on other grounds by Deer Valley Unified Sch. Dist. No. 97 v. Houser, 214 Ariz. 293, 297, ¶ 12, 152 P.3d 490, 494 (2007). Thus, the County could have anticipated it would lose its ability to raise the statutory defense by actively litigating the counterclaim for a lengthy period of time. Indeed, the supreme court in Fields found waiver as a matter of law even though the city decided to substantially litigate the case prior to raising the statutory defense before the decision in Jones. Second, the County did not have to consciously intend to relinquish its defense in order to waive it, as the County implicitly asserts. Waiver may be inferred from a party’s actions that are inconsistent with intent to assert a right. Jones, 218 Ariz. at 379, ¶ 23, 187 P.3d at 104.

¶ 12 Finally, we reject the County’s contention that the trial court violated its due process rights by applying Jones “at the last moment” without notice to either party and when the County had insufficient time to contest the ruling before having to file its notice of appeal. Even assuming the County was deprived of its due process right to notice and an adequate opportunity to present its claims, see Kessen v. Stewart, 195 Ariz. 488, 492, ¶ 16, 990 P.2d 689, 693 (App.1999), because it fails to demonstrate how it was unreasonably prejudiced by the deprivation, we do not find reversible error. Borchers v. Ariz. Bd. of Pardons & Paroles, 174 Ariz. 463, 467, 851 P.2d 88, 92 (App.1992). Specifically, because we review the trial court’s application of Jones de novo, the County has received a full and fair opportunity to be heard on the issue. See Mobilisa, Inc. v. Doe, 217 Ariz. 103, 113, ¶ 32, 170 P.3d 712, 722 (App.2007) (deciding no prejudice from trial court's ruling on discovery request before receipt of response because, among other reasons, appellate court considered response as part of de novo review).

¶ 13 In summary, the trial court correctly decided as a matter of law that the County waived the notice of claim statutory defense by failing to assert it in either a reply to the *599 counterclaim or a Rule 12(b) motion and by litigating the merits of the counterclaim for an extended period of time. Consequently, the court did not err by denying the motion for JMOL on this basis and by refusing to grant a new trial to submit the applicability of the statutory defense to the jury.

2. Right of termination without cause

¶ 14 The County argues it was entitled to JMOL on Yakima’s counterclaim because the County had an absolute right under sections 6 and 18(B) of the Agreement to terminate the Agreement regardless of whether it made any effort to secure a permanent site for the sludge drying facility within a three-year period, thereby obviating the counterclaim. Yakima responds, and the trial court agreed, the jury properly interpreted sections 6 and 18(B) as permitting termination of the Agreement only if the County was unsuccessful in securing a permanent site after making a diligent effort to do so. We review the trial court’s interpretation of the Agreement de novo as a matter of law. Burke v. Voicestream Wireless Corp. II, 207 Ariz. 393, 395, ¶ 11, 87 P.3d 81, 83 (App.2004).

¶ 15 After reciting that the location of the sludge drying facility will be relocated after three years, section 6 of the Agreement provides, in relevant part, as follows:

The County is diligently pursuing acquisition of a permanent site for the Sludge Drying Facility. Upon finalization of such acquisition^] Yakima shall proceed to obtain all necessary permits and approvals for relocation and operation of the Sludge Drying Facility to the permanent site[,] and shall relocate the Sludge Drying Facility as expeditiously as possible once such permits and approvals are obtained. If the County does not succeed in acquiring a permanent site within three (3) years after execution of this Agreement, the County may terminate this Agreement pursuant to Section 18 below.

Section 18(B) of the Agreement permits the County to terminate the Agreement “if it has not acquired a permanent site for the Sludge Drying Facility as of the date that is three (3) years after execution of this Agreement.” The crux of the parties’ dispute is whether section 6 imposed on the County an obligation to diligently seek a permanent site throughout the three-year period.

¶ 16 We construe the meaning of a contract provision from the language the parties used and in view of all circumstances. Smith v. Melson, Inc., 135 Ariz. 119, 121, 659 P.2d 1264, 1266 (1983). We give words their ordinary meaning and interpret the contract “so as to make it effective and reasonable.” Phelps Dodge Corp. v. Brown, 112 Ariz. 179, 181, 540 P.2d 651, 653 (1975). Applying these principles, we decide the trial court correctly rejected the County’s argument.

¶ 17 A plain reading of section 6 reveals the County was obligated for a minimum of three years to seek a permanent site for the sludge drying facility. Section 6 provides that the County has the right to terminate the Agreement “[i]f the County does not succeed in acquiring a permanent site within three (3) years.” The word “succeed” contemplates the County would expend effort to acquire a permanent site. See Webster’s II New College Dictionary 1127 (3d ed. 2005) (defining “succeed” as, among other things, “[t]o accomplish something desired or intended”); see also Wagenseller v. Scottsdale Memorial Hosp., 710 P.2d 1025, 1038, 147 Ariz. 370, 383 (1985) (holding the covenant of good faith and fair dealing implied in every contract “requires that neither party do anything that will injure the right of the other to receive the benefits of them agreement”). Section 6 defines the duration of the effort as three years. Thus, as a matter of law, the Agreement imposed an obligation on the County to actively seek a permanent site, and the trial court correctly rejected the County’s contention that it could terminate the Agreement at the end of three years even if it made no effort to acquire a site.

3. Right of termination with cause

¶ 18 The County next argues the trial court erred by denying its motion for JMOL because Yaldma breached the Agreement by failing to timely submit the Bond, closure plan, and aquifer permit, thereby permitting the County to terminate the Agreement and negating the counterclaim. Yakima re *600 sponds, and the trial court agreed, that whether Yaldma breached the Agreement was an issue of fact for the jury, and we should defer to the jury’s finding.

The Bond

¶ 19 Section 30 of the Agreement required Yakima to furnish the Bond to the County within sixty days after the County executed the Agreement on September 17, 2002. The purpose of the Bond was to guarantee that a surety would assume responsibility for completing performance of the Agreement, including a clean closure of the facility, in the event of Yakima’s default. Because Yakima failed to furnish the Bond prior to November 16, 2002, the County contends it was entitled to terminate the Agreement, which it did on February 18, 2003, and the trial court erred by refusing to grant JMOL on this basis. Yakima offers several responses, and we find one dispositive: Even assuming the failure to furnish the Bond triggered the County’s contractual rights to terminate the Agreement, the County was contractually prevented from taking this action because Yakima sufficiently cured any breach.

¶ 20 Section 15 of the Agreement provides, in relevant part, that “failure or unreasonable delay by either party to perform any material obligation” constitutes a default unless the nonperforming party “commences to cure[,] correct or remedy such failure or delay[,] and ... completes such cure[,] correction or remedy in accordance with Seetion[ ] 18.” Section 18 permits the County to terminate the Agreement under specified circumstances unless Yakima (1) commences to cure its failure within thirty days after the date the County provides written notice of default, and (2) cures the default “in a diligent manner within a reasonable period of time” after commencement of the effort to cure. The evidence presented at trial supports a finding that Yakima satisfied these conditions.

¶ 21 Yakima presented sufficient evidence to permit the jury to find that Yakima timely commenced efforts to cure its failure to furnish the Bond. Yakima submitted a closure plan on November 6, 2002 for the County’s approval, which was not forthcoming by January 10, 2003, the date the County notified Yakima of its default. 5 According to Jim Willett, Yakima’s president, before issuing a performance bond, insurance companies required an approved closure plan to completely define Yakima’s performance. 6 In a letter dated April 4, 2003 (trial exhibit 656), Yakima’s attorney described his client’s efforts to obtain the Bond before and after the County’s notice of default. He referred to letters previously provided to the County showing that three leading insurance brokers had contacted “no less than fifteen major insurance companies,” which had refused for underwriting reasons to provide the Bond. Additionally, Willett testified that around the time he received the County’s notice of default, he explored the possibility of obtaining the Bond with a letter of credit from Yakima’s bank in lieu of an approved closure plan but was unsuccessful. In light of this evidence, the jury was justified in finding that Yakima made continuing efforts to cure the breach during the thirty-day period after issuance of the notice of default.

¶22 The evidence further permitted the jury to find that Yakima cured the default in a diligent manner within a reasonable time frame by working with the County to obtain an acceptable closure plan and Bond form. Jay Howe, a member of the County’s Board of Supervisors in 2002, testified that although Yakima submitted a closure plan on November 6, 2002, the County did not notify Yakima *601 of any deficiencies with the plan until March 31, 2003. After Yakima submitted a revised plan on May 8, the County did not approve the plan until October 20 and did not notify Yakima of its decision until Howe spoke with Yakima’s attorney in November. As Howe stated, “[T]he reason [for the absence of the Bond] was the fault of the County’s because of the tie between the clean Closure Plan and the ... Bond. You cannot bond something you don’t have approved [sic].”

¶23 Howe further testified that thirteen days after Yakima learned of the County’s approval of the closure plan,.the County received a letter from Yakima’s insurance agent stating that the Bond had been approved and would be issued “within a couple of days” provided the County approved the form of the Bond, which mirrored the County’s format, but additionally included an annual renewal clause. Howe stated the County initially denied the form because “what they wanted was a 25-year bond,” but ultimately approved that same form six months later on May 13, 2004. Willett called the bond company the day he learned of the County’s approval, and Yakima submitted the Bond the following month on June 17, 2004.

¶ 24 Ron Ballard, a surety bond agent, testified that he had been in the performance bond industry since 1979 and was involved in the issuance of the Bond in this case. Ballard explained that a bonding company will not issue a performance bond without knowing what performance is being guaranteed and that a twenty-five-year or ten-year performance bond does not exist within the industry. Ballard testified that a normal term for a performance bond is “[t]ypically one year or less.” In a letter addressed to Yakima’s insurance agent regarding the Bond, Ballard stated that his company could only issue a bond for an annual renewable term “[d]ue to the scope of work and the total length of [Yakima’s] overall contract with the [County].” The letter further explained, “The surety industry in general does not issue bonds for terms that come anywhere close to the term of this particular contract.” According to Ballard, the major concerns he had with issuance of the Bond were the incompletion of the closure plan and the lack of a one-year, renewable term limit.

¶ 25 Based on the foregoing evidence, the jury was justified in finding that Yakima acted diligently to furnish the Bond by working with the County to secure its approval of both the closure plan and the term of the Bond. 7 Because Yakima furnished the Bond approximately one month after the County approved the Bond’s form, the jury could have found that Yakima furnished the Bond within a reasonable period of time. Consequently, the trial court correctly denied the County’s motion for JMOL on this issue. In light of our decision, we need not address the parties’ alternative arguments concerning the timing of the Bond.

The Closure Plan

• ¶ 26 Section 2(D) of the Agreement states that Yakima “shall prepare a Closure Plan for the Facilities ... [and] provide[ ] [it] to the County for its review and approval prior to the commencement of operations.” The County briefly argues it was entitled to terminate the Agreement because Yakima failed to obtain an approved closure plan before beginning operations or within a reasonable time after the County declared a default. We disagree.

¶ 27 Section 18 of the Agreement sets forth the type of defaults that entitle the County to terminate the Agreement after giving Yakima notice and opportunity to cure; failure to timely submit a closure plan is not included within the list. Rather, assuming the breach is a material one, sections 16 and 17 provide that the nonbreaching party may sue for *602 damages or specific performance. Therefore, the County was not entitled to terminate the Agreement even assuming Yakima materially breached the Agreement by commencing operations prior to obtaining an approved closure plan.

The Aquifer Permit

¶ 28 Section 9 of the Agreement required Yakima to comply with applicable environmental laws and obtain and maintain any necessary governmental permits, licenses, and approvals. Specifically, although the Arizona Department of Environmental Quality (“ADEQ”) had not adopted regulations governing solid waste facility plans, section 9(C) compelled Yakima to comply with future regulations. If Yakima failed to operate the facility in compliance with applicable permits or environmental laws, the County had the right to either suspend receipt of new sludge or terminate the Agreement after giving Yakima notice and an opportunity to cure. The County argues the trial court erred by failing to grant JMOL on the counterclaim because Yakima failed to timely acquire an aquifer permit as required by ADEQ, thereby entitling the County to terminate the Agreement. Yakima responds, among other arguments, that sufficient evidence supported a jury finding that Yakima complied with ADEQ regulations and timely obtained the permit.

¶ 29 The Agreement does not specify the time by which Yakima must obtain a required permit. Consequently, Yakima implicitly had a reasonable time in which to obtain the aquifer permit; what constitutes a “reasonable time” is ordinarily a question for the jury. See Zancanaro v. Cross, 85 Ariz. 394, 398, 339 P.2d 746, 749 (1959); Dutch Inns of Am., Inc. v. Horizon Corp., 18 Ariz. App. 116, 119, 500 P.2d 901, 904 (1972). We are satisfied that sufficient evidence supported a finding that Yakima obtained the permit within a reasonable time frame.

¶ 30 In October 2001, Willett notified ADEQ of Yakima’s plans to operate a sludge-drying facility and asked whether an aquifer permit was required for the site. ADEQ first informed him that a permit was required in a letter dated January 29, 2004, which Willett received in May 2004. Thereafter, Yakima and ADEQ “exchanged quite a bit ... of information back and forth leading up to [the permit] application” filed in September 2004. ADEQ accepted the application for review and simultaneously informed Yakima it was allowed to operate while ADEQ considered the application as long as Yakima remained responsive to ADEQ’s requests. After ADEQ initially reviewed the application, it changed Yakima’s application category to “complex,” thereby effectively extending the review period.

¶ 31 ADEQ preliminarily granted Yakima’s application in October 2005, but then denied the application in September 2006 after receiving public comments, including those from the County opposing issuance of a permit to Yakima for various reasons. In a letter addressed to Willett, ADEQ stated the reason for the denial as follows:

La Paz County (the zoning authority in this matter) has indicated that the applicant is not in compliance with zoning requirements [for operating a composting facility], When determining if an applicant demonstrates zoning in accordance with the state statute and rule, the Department relies on the decision of the zoning authority.

According to Willett, Yakima never composted at the facility, and the County never cited Yakima for any zoning violations. On this basis, Yakima successfully appealed ADEQ’s decision, and ADEQ finally issued an aquifer permit to Yakima on June 26, 2007.

¶ 32 In light of the above record, sufficient evidence supported a finding that Yakima obtained the aquifer permit within a reasonable time frame and therefore did not breach the Agreement. As a result, the trial court correctly denied the motion for JMOL on this issue.

4. Absolute immunity

¶ 33 Yakima’s counterclaim alleged the County breached the Agreement, including the covenant of good faith and fair dealing, by (1) refusing to approve the closure plan, (2) failing to diligently pursue a permanent site, (3) opposing issuance of the aquifer *603 permit by ADEQ, (4) terminating the Agreement after three years, and (5) engaging in acts to frustrate Yakima’s enjoyment of the Agreement. The County argues the trial court erred by denying its motion for JMOL or a new trial because the County enjoyed absolute immunity for these acts and omissions pursuant to A.R.S. § 12-820.01 (2003). 8

¶ 34 Section 12-820.01(A), A.R.S., shields a public entity from liability for acts or omissions that constitute the exercise of (1) “a judicial or legislative function” or (2) “an administrative function involving the determination of fundamental governmental policy.” Because the public policy of Arizona is to hold public entities liable for the acts and omissions of employees in accordance with the law and immunity is the exception, we narrowly construe § 12-820.01. Doe ex rel. Doe v. State, 200 Ariz. 174, 176, ¶ 4, 24 P.3d 1269, 1271 (2001).

¶ 35 The County argues the acts underlying the counterclaim were either legislative or administrative functions and, therefore, the County was immune from liability. The County exercises its “legislative function” by creating, defining, or regulating rights. See In re Marriage of Waldren, 217 Ariz. 173, 177, ¶ 20, 171 P.3d 1214, 1218 (2007); cf. Emmett McLoughlin Realty, Inc. v. Pima County, 212 Ariz. 351, 355, ¶ 18, 132 P.3d 290, 294 (App.2006) (“passage of a zoning ordinance is the exercise of a legislative function”); State v. Wagstaff, 164 Ariz. 485, 490, 794 P.2d 118, 123 (1990) (“Defining crimes and fixing penalties are legislative ... functions.”). The County’s administrative functions are absolutely immune from suit if they constitute policymaking rather than implementation of a policy. Kohl v. City of Phoenix, 215 Ariz. 291, 295, ¶ 19, 160 P.3d 170, 174 (2007). We agree with Yakima that none of the County’s acts and omissions underlying the counterclaim fell within these categories.

¶ 36 The County does not explain, nor do we understand, how its decisions to perform or not perform obligations imposed by the Agreement constituted either a legislative or protected administrative function. Although the County’s decision to enter into the Agreement was arguably a legislative or administrative decision protected by absolute immunity, the County cites no authority, and we are not aware of any, that would shield the County from liability for decisions amounting to a breach of its obligations under the Agreement. See Myers v. City of Tempe, 212 Ariz. 128, 130-31, ¶¶ 10-13, 128 P.3d 751, 753-54 (2006) (holding city’s decision to enter automatic aid agreement and its actions that automatically flowed from that agreement protected by absolute immunity but recognizing that implementing decisions under agreement would not be immune). Rather, the County’s discretionary acts under the Agreement were flawed operational acts made to implement the County’s policy-making decision to enter the Agreement with Yakima. Consequently, they were not absolutely immune from liability. See Doe ex rel. Doe, 200 Ariz. at 177, ¶ 9, 24 P.3d at 1272 (recognizing that state’s requirement for teacher certification immune as policymaking decision but decision to certify a particular teacher an operational decision and therefore not immune); Fidelity Sec. Life Ins. Co. v. State Dep’t of Ins., 191 Ariz. 222, 225-26, ¶¶ 10-12, 954 P.2d 580, 583-84 (1998) (concluding that insurance department’s decision to grant company’s application for transfer of domicile not entitled to absolute immunity, even though it involved some discretion, because decision only implemented policy). Indeed, sections 16 and 21 of the Agreement acknowledged that the County could be held liable for breach of the Agreement. For these reasons, and because we narrowly construe the reach of A.R.S. § 12-820.01, we decide the trial court correctly denied the County’s motion for JMOL and new trial on this issue.

*604 5. Implied covenant of good faith and fair dealing

¶ 37 The County next argues it was entitled to JMOL on the counterclaim because the County merely acted in furtherance of its own contractual interests and therefore did not breach the covenant of good faith and fair dealing. Yakima responds the County’s argument is flawed because it assumes an interpretation of the Agreement the jury discarded. The trial court rejected the County’s argument, ruling the issue was a factual one for the jury to decide; because evidence supported the jury’s decision, the court deferred to its judgment.

¶ 38 The law implies a covenant of good faith and fair dealing in every contract. Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 490, ¶ 59, 38 P.3d 12, 28 (2002). Among other things, a party breaches this covenant by exercising discretion afforded under the contract f