NOT FOR OFFICIAL PUBLICATION

UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

MEMORANDUM DECISION

SWANN, Judge.

¶1 This lawsuit was filed in the aftermath of a series of disputes between the Maricopa County Board of Supervisors and the Maricopa County Attorney's Office. After plaintiff Lisa Aubuchon, a high-ranking Maricopa County prosecutor,1 was terminated from her employment, she and former Maricopa County Sheriff's deputy David Hendershott brought a number of claims seeking damages against the county, various public officials and a law firm that the county had retained. The superior court dismissed the action, and awarded sanctions against the plaintiffs.

¶2 This appeal requires us to decide whether the superior court erred by determining that claims set forth in the plaintiffs' proposed second amended complaint were futile, and by imposing attorney's-fees awards against the plaintiffs as sanctions. We affirm the court's determination of futility with respect to the majority of the claims but conclude that the claims for breach of contract and breach of the covenant of good faith and fair dealing were sufficiently pled. We further hold that while the plaintiffs clearly engaged in sanctionable conduct, the final calculation of the amount of sanctions in favor of the county must await the conclusion of the case on remand. Finally, we hold that while the court properly awarded sanctions in favor of a self-represented law firm, the measure of those sanctions that the trial court employed conflicts with recent case law, and the sanctions must therefore be recomputed.

FACTS AND PROCEDURAL HISTORY

¶3 In August 2011, Aubuchon, Hendershott, and their spouses (collectively, "Plaintiffs") commenced an action against multiple defendants: Maricopa County ("the County"); the Maricopa County Board of Supervisors ("the MCBOS"); the Maricopa County Attorney's Office ("the MCAO"); County officials, employees, or contractors Fulton Brock, Andrew Kunasek, Donald Stapley, Mary Rose Wilcox, Max Wilson ("M. Wilson"), Richard Romley, William Montgomery, David Smith, Sandi Wilson ("S. Wilson"), Paul Ahler, Mark Faull, and Katherine Baker (collectively, "the County officials and employees"); the State of Arizona ("the State"); State officials Terry Goddard and Thomas Horne (collectively, "the State officials"); and the law firm of Polsinelli Shughart, P.C., and its members Edward Novak and Thomas Irvine (collectively, "the Polsinelli defendants"). Plaintiffs were represented in the action by the law firm of Moriarity, Badaruddin & Booke, LLC ("the Moriarity Firm"), and all of their pleadings and proposed pleadings were signed by Moriarty Firm attorney Edward P. Moriarity.

¶4 All of the defendants moved to dismiss Plaintiffs' first amended complaint, arguing that it violated the basic pleading standards of Rule 8 and was subject to dismissal under Rule 12(b)(6) for failure to state claims. Some of the defendants argued that the complaint also violated the pleading standard prescribed by Rule 10(b). The MCBOS and the MCAO further argued that they were immune from suit as non-jural entities, and the Polsinelli defendants argued that dismissal was warranted under A.R.S. § 12-752. The Polsinelli defendants also stated that they intended to seek sanctions under Rule 11 and A.R.S. §§ 12-349 and -752.

¶5 Plaintiffs disputed that the first amended complaint was deficient, but posited that they would be able to cure any defects if granted leave to amend. At oral argument on the motions to dismiss, Plaintiffs' counsel did not argue the merits of the motions. Instead, he simply stated:

¶6 In response to this statement, the court explained that it agreed with the defendants that the first amended complaint violated Rules 8 and 10, and that it was concerned that dismissal might be warranted under Rule 12(b)(6). Specifically, the court indicated that it was skeptical about claims of legal malpractice in the absence of allegations of an attorney-client relationship, as well as about claims of defamation arising out of privileged complaints filed with the State Bar of Arizona. The court allowed Plaintiffs to file a motion seeking leave to amend, but warned that the motion and proposed second amended complaint would need to comply with the rules of civil procedure. The court further stated that it was "not ready to make th[e] decision" regarding whether sanctions were warranted, explaining that "depending on what happens there may or may not be sanctions that are appropriate" and that "[i]f there is a violation of Rule 11, and I have given due process warning as far as I'm concerned, sanctions can attach to any further action." The court granted the MCBOS and the MCAO's request for dismissal based on their non-jural status but otherwise denied the defendants' motions to dismiss, without prejudice.

¶7 In February 2012, Plaintiffs filed their motion for leave to file a second amended complaint. The proposed second amended complaint attached to the motion eliminated several of the remaining defendants from the caption, namely: Faull, Baker, the State, the State officials, and the Polsinelli defendants. The defendants who remained in the proposed second amended complaint objected to the motion for leave to amend, arguing that the motion did not comply with Rule 7.1, that the proposed amendments did not comply with the applicable pleading standards, and that the proposed amendments were futile. The Polsinelli defendants filed a renewed motion to dismiss the first amended complaint (alternatively styled a motion for judgment on the pleadings) and requested sanctions under Rule 11 and A.R.S. § 12-349.

¶8 In May 2012, after holding oral argument, the court denied Plaintiffs' motion for leave to amend. The court found that Plaintiffs' motion did not comply with Rule 7.1 and that "even if filed in compliance with the Arizona Rules of Civil Procedure, [a]mendment would be futile because the claims are not legally viable." The court specifically found that "Montgomery was not in office at the time the claims arose and/or the claims are futile," and that there was "no legal basis" for the defamation and intentional infliction of emotional distress ("IIED") claims related to Kunasek even assuming the truth of the allegations. The court also granted the Polsinelli defendants' motion for dismissal and sanctions, ordering dismissal with prejudice and directing the defendants to file an application for attorney's fees. The court found that such sanctions were appropriate because "[n]o legal or factual basis ever existed to file a Complaint against these defendants" and "the Complaint was filed for vexatious purposes."

¶9 The County and the County officials and employees (with the exception of Faull and Baker) subsequently requested attorney's fees as sanctions. The court granted these requests, ordered the dismissal with prejudice of "ALL named Defendants," and awarded the Polsinelli defendants the full amount of fees and costs they requested.

¶10 Before the court entered any appealable orders, Plaintiffs filed a motion for reconsideration regarding the court's award of fees and costs to the Polsinelli defendants, arguing that these defendants were not entitled to recover fees because they had represented themselves in the action. The court promptly set oral argument on the motion, but before the date set for argument, Plaintiffs filed a notice of appeal. This court dismissed the appeal as premature. Plaintiffs then filed an unsuccessful motion in the superior court for a change of judge for cause.

¶11 In May 2013, the court ultimately entered final, appealable Rule 54(b) judgments awarding approximately $185,000 in attorney's fees and costs to the Polsinelli defendants; approximately $35,000 in fees to the County; approximately $18,000 in fees to Montgomery; and approximately $17,000 in fees to Brock, Kunasek, Stapley, Wilcox, M. Wilson, Romley, Smith, S. Wilson, and Ahler.2 Each of the judgments specified that the fees were awarded jointly and severally against Plaintiffs, the Moriarity Firm, and Moriarity. Plaintiffs, the Moriarity Firm, and Moriarity timely appeal.

DISCUSSION

I. PROPOSED SECOND AMENDED COMPLAINT

¶12 Plaintiffs do not challenge the dismissal of the first amended complaint except as it relates to the award of sanctions. They argue only that they should have been allowed to file the proposed second amended complaint because not all of its claims were futile.

¶13 We review the denial of a motion to amend for abuse of discretion. Hall v. Romero, 141 Ariz. 120, 124, 685 P.2d 757, 761 (App. 1984). It is within the court's discretion to deny a motion to amend based on futility in the proposed amendment. Bishop v. State, Dep't of Corrs., 172 Ariz. 472, 474-75, 837 P.2d 1207, 1209-10 (App. 1992). The determination of futility, however, is a question of law that we review de novo. Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 893 (9th Cir. 2010). An amendment is futile if the proposed amended pleading would be subject to dismissal under Rule 12(b)(6) for failure to state a claim. Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988). Accordingly, in considering futility, all well-pled factual allegations and reasonable inferences in the proposed pleading must be taken as true. See Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417, 419, ¶ 7, 189 P.3d 344, 346 (2008).

¶14 We consider in turn each of the claims set forth in Plaintiffs' proposed second amended complaint and not otherwise waived.3 We conclude that the superior court's determination of futility was correct with respect to Plaintiffs' claims for defamation, IIED, constructive fraud, and constitutional violations. But we hold that certain of Plaintiffs' contract-related claims were not futile, and we therefore reverse and remand with respect to these claims.

A. The Proposed Second Amended Complaint's Defamation Claims Were Futile.

¶15 Plaintiffs' proposed second amended complaint purported to set forth claims for defamation based on statements attributed to Kunasek, Smith, and S. Wilson.4 The claim regarding Kunasek was futile because his alleged statements were not actionable as a matter of law. The claim regarding Smith and S. Wilson was futile because the statements attributed to them were not sufficiently pled.

1. The Statements Attributed to Kunasek Were Not Actionable.

¶16 Plaintiffs alleged that in a widely published letter, Kunasek made false statements regarding their involvement in an investigation of him. Specifically, Plaintiffs alleged that Kunasek wrote:

Plaintiffs further alleged that during a television broadcast, Kunasek supplemented the letter with the following oral statement:

¶17 A defendant is subject to liability for defamation if he, with requisite scienter,5 publishes a false and defamatory communication concerning the plaintiff to a third party. Peagler v. Phoenix Newspapers, Inc., 114 Ariz. 309, 315, 560 P.2d 1216, 1222 (1977); Dube v. Likins, 216 Ariz. 406, 417, ¶ 36, 167 P.3d 93, 104 (App. 2007). "To be defamatory, a publication must be false and must bring the defamed person into disrepute, contempt, or ridicule, or must impeach plaintiff's honesty, integrity, virtue, or reputation." Turner v. Devlin, 174 Ariz. 201, 203-04, 848 P.2d 286, 288-89 (1993) (citation omitted). The defamed person need not be specifically named, but his identity must be reasonably clear. Hansen v. Stoll, 130 Ariz. 454, 458-59, 636 P.2d 1236, 1240-41 (App. 1981).

¶18 Whether the publication is capable of bearing a defamatory meaning is a question of law for the court to decide. Yetman v. English, 168 Ariz. 71, 79, 811 P.2d 323, 331 (1991). In assessing the publication, the court must consider the totality of the circumstances and take the viewpoint of the average reader or listener. Phoenix Newspapers, Inc. v. Church, 103 Ariz. 582, 587, 447 P.2d 840, 845 (App. 1968). If the court determines that the publication is capable of defamatory meaning, it may either find as a matter of law that such meaning was actually conveyed or, if the question is one on which reasonable people might differ, submit the matter to the finder of fact. Yetman, 168 Ariz. at 79, 811 P.2d at 331. But if the court determines that the publication is incapable of defamatory meaning, the claim is subject to dismissal. Id.; see Reynolds v. Reynolds, 231 Ariz. 313, 317-18, ¶¶ 9-12, 294 P.3d 151, 155-56 (App. 2013).

¶19 A publication is not actionable if it is comprised of "loose, figurative, or hyperbolic language" that cannot reasonably be interpreted as stating or implying facts "susceptible of being proved true or false." Milkovich v. Lorain Journal Co., 497 U.S. 1, 21 (1990). The crucial inquiry is whether the finder of fact could employ an objective criteria to determine the statement's truth or falsity. Id. at 22; Turner, 174 Ariz. at 207, 848 P.2d at 292. This limitation "provides assurance that public debate will not suffer for lack of `imaginative expression' or the `rhetorical hyperbole' which has traditionally added much to the discourse of our Nation." Milkovich, 497 U.S. at 19. "[V]igorous epithet[s]," Greenbelt Cooperative Pub. Ass'n v. Bresler, 398 U.S. 6, 14 (1970), personal characterizations of manner, Turner, 174 Ariz. at 207-08, 848 P.2d at 292-93, and "rhetorical political invective [or] opinion," Burns v. Davis, 196 Ariz. 155, 165, ¶ 39, 993 P.2d 1119, 1129 (App. 1999), therefore are not actionable. The proposed second amended complaint did not allege that any specific objectively verifiable statement was false.

¶20 Here, Kunasek's statements identified and generally disparaged Plaintiffs in connection with their legal and political disputes — indeed, the entire body of statements was aimed at convincing the public that Aubuchon had misused her power as a prosecutor to political ends.6 The disparaging portions of the statements did not, however, assert or imply statements of fact capable of being proved true or false. Kunasek's description of Plaintiffs as "demented minds," and his characterization of conduct in which they participated as abusive, criminal, and unsupported name-smearing, could not reasonably be construed as anything more than hyperbolic invective reflecting his view of a disputed issue — issues that raised passions but were incapable of objective verification. The statement on which much of the invective was based — that the grand jury had refused to indict Kunasek and had terminated the investigation — was capable of being proved true or false. But nothing about that statement was either false or defamatory as a matter of law.

¶21 Likewise, Kunasek's statements that he believed Aubuchon had tried to extort him by threatening to ruin his life, and that she would be indicted and possibly found guilty, were incapable of being proved true or false. Kunasek's characterization of Aubuchon's behavior as extortive was a personal assessment of her manner and a characterization of his own reaction to the prospect of criminal charges that he maintained would have been unwarranted. His reference to the outcome of hypothetical criminal proceedings was nothing more than his prediction about what he believed might happen in the future — he did not state that Aubuchon had actually been charged with any crime.7 To be sure, his description of some of the events on which his prediction was based were capable of being proved true or false. But these factual representations were offered as background for Kunasek's political rhetoric, and were not themselves defamatory.

¶22 We conclude that Kunasek's statements were not actionable as a matter of law, and that the superior court correctly determined that the defamation claims related to him were futile.8

2. The Statements Attributed to Smith and S. Wilson Were Not Sufficiently Alleged.

¶23 Plaintiffs alleged that Smith provided "information . . . [that] was defamatory" to the Arizona Peace Officer Standards and Training Board, that Smith "threatened Hendershott during a budget meeting," and that Smith and his subordinates (a group that included S. Wilson) made disparaging public comments.

¶24 Plaintiffs made no attempt to identify or even describe the content of the statements made to the Board or the threat made at the budget meeting. Nor did they identify the language used in the public comments. They instead generally characterized the comments as statements that: "berat[ed] Chief Hendershott and his performance to put him in a false light and disparage him and his family and accuse him of a crime"; accused Hendershott of having "committed crimes"; accused Hendershott of being "unethical and dangerous a criminal and lost his mental stability [sic]"; "falsely stated Hendershott had ordered the seizure of court computers, records and emails and that he had ordered deputies to take the items at gunpoint"; and described efforts to prepare testimony against Hendershott "for `abuse of power.'"

¶25 Under Rule 8, a pleading must give the opposing party fair notice of the nature and basis of the claim by setting forth a short and plain statement that demonstrates entitlement to relief. Cullen, 218 Ariz. at 419, ¶ 6, 189 P.3d at 346. And though the court must take as true all well-pled factual allegations and reasonable inferences, id. at ¶ 7, it may not speculate about hypothetical facts, id. at 420, ¶ 14, 189 P.3d at 347. The context and language of an allegedly defamatory statement is crucial to the court's analysis of a defamation claim. See Church, 103 Ariz. at 587, 447 P.2d at 845. Plaintiffs' vague summations of the allegedly defamatory statements were insufficient to allow either the defendants or the court to conduct a meaningful assessment. Further, based on the summaries, the majority of the statements appear to have been nothing more than hyperbolic invective. The court's determination of futility therefore was appropriate.

B. The Proposed Second Amended Complaint's IIED Claims Were Futile.

¶26 Plaintiffs' proposed second amended complaint purported to set forth IIED claims based on a variety of conduct. First, the complaint purported to set forth IIED claims based on Kunasek, Smith, and S. Wilson's allegedly defamatory statements. Next, the complaint purported to set forth IIED claims based on conduct of "defendants" that "include[d but wa]s not limited to": the appointment of Richard Romley as interim County Attorney of the MCAO; Romley's statement at a press conference and other defendants' "tout[ing]" of that statement; "[f]eeding false information to the media relating to investigations into Plaintiffs"; and Aubuchon's "demotion" and "termination" from her position as an employee of the MCAO.

¶27 A defendant is subject to liability for IIED if he engages in "extreme and outrageous" conduct, he intends the conduct to cause emotional distress or recklessly disregards the near certainty that the conduct will cause emotional distress, and the conduct does in fact cause the plaintiff to suffer severe emotional distress. Watts v. Golden Age Nursing Home, 127 Ariz. 255, 257, 619 P.2d 1032, 1035 (1980). Whether conduct is capable of being found "extreme and outrageous" is a question for the court to decide in the first instance. Cluff v. Farmers Ins. Exch., 10 Ariz.App. 560, 562, 460 P.2d 666, 668 (1969), overruled on other grounds by Godbehere v. Phoenix Newspapers, Inc., 162 Ariz. 335, 783 P.2d 781 (1989). This inquiry requires a case-by-case analysis. Midas Muffler Shop v. Ellison, 133 Ariz. 194, 197, 650 P.2d 496, 499 (App. 1982). If the court determines that the conduct is not, as a matter of law, "extreme and outrageous," judgment must be entered for the defendant. See, e.g., Watts, 127 Ariz. at 258, 619 P.2d at 1035.

¶28 "Extreme and outrageous" conduct is conduct "so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious and utterly intolerable in a civilized community." Cluff, 10 Ariz. App. at 562, 460 P.2d at 668 (quoting Restatement (Second) of Torts (hereinafter "Restatement") § 46 cmt. d (1965)). Conduct qualifies as "extreme and outrageous" only if it "completely violate[s] human dignity . . . [and] strike[s] to the very core of one's being, threatening to shatter the frame upon which one's emotional fabric is hung." Pankratz v. Willis, 155 Ariz. 8, 15, 744 P.2d 1182, 1189 (App. 1987) (citation omitted). This category of conduct is that which "falls at the very extreme edge of the spectrum of possible conduct." Watts, 127 Ariz. at 258, 619 P.2d at 1035. It does not include "mere insults, indignities, threats, annoyances, petty oppressions, or other trivialities." Duhammel v. Star, 133 Ariz. 558, 561, 653 P.2d 15, 18 (App. 1982) (quoting Restatement § 46 cmt. d), overruled on other grounds by Godbehere, 162 Ariz. 335, 783 P.2d 781. Further, harsh or unfair conduct that falls within the realm of acceptable business practices is not "extreme and outrageous." Patton v. First Fed. Savs. & Loan Ass'n of Phoenix, 118 Ariz. 473, 476, 578 P.2d 152, 155 (1978); see also Nelson v. Phoenix Resort Corp., 181 Ariz. 188, 199, 888 P.2d 1375, 1386 (App. 1994).

¶29 Accordingly, it is "extremely rare to find conduct in the employment context that will rise to the level of outrageousness necessary to provide a basis for recovery." Mintz v. Bell Atlantic Sys. Leasing Int'l, 183 Ariz. 550, 554, 905 P.2d 559, 563 (App. 1995) (citation omitted). In Mintz, for example, we held that an employer's failure to promote an employee did not provide grounds for an IIED claim even though the conduct was motivated by sexual discrimination or retaliation. Id. See also Wallace v. Casa Grande Union High School District No. 82 Board of Governors, 184 Ariz. 419, 423-24, 428, 909 P.2d 486, 490-91, 495 (App. 1995) (affirming summary judgment for employer on IIED claim based on employee's reassignment and demotion by supervisor with whom she had conflicts); but see Ford v. Revlon, 153 Ariz. 38, 43, 734 P.2d 580, 585 (1987) (affirming jury verdict for employee on IIED claim based on employer's prolonged failure to address employee's claims of sexual harassment by supervisor).

¶30 Plaintiffs' allegations could not support a finding of "extreme and outrageous" conduct. At most, the comments attributed to Kunasek, Smith, and S. Wilson (as described above) constituted hyperbolic rhetoric. Similarly, the statement attributed to Romley — that "he falsely told the public . . . that the grand jury [convened to consider charges levied against those whom Plaintiffs had investigated] had found no evidence" — was, at most, an indirect expression of criticism. And even a generous construction of Plaintiffs' allegations that "defendants" made "false public comments" designed to "make it appear Hendershott was crazy and that Aubuchon and Hendershott were incompetent and evil" merely reveals pejorative commentary. As a matter of law, such criticisms do not meet the standard of "extreme and outrageous" conduct required for recovery under an IIED claim. Further, Plaintiffs' allegations that Romley was appointed for the purpose of firing Aubuchon, and that he unfairly conducted her termination proceedings, do not describe "extreme and outrageous" conduct. Even unjustified termination of employment cannot, without more, support an IIED claim. See Mintz, 183 Ariz. at 554, 905 P.2d at 563. The superior court properly deemed the IIED claims futile.

C. The Proposed Second Amended Complaint's Constructive Fraud Claim Was Futile.

¶31 Plaintiffs' proposed second amended complaint purported to set forth a constructive fraud claim. Plaintiffs alleged that they were owed a legal or equitable duty by virtue of their employment as county employees, and that the duty was breached by "all of the facts" alleged.

¶32 Constructive fraud requires the "breach of a legal or equitable duty which, without regard to moral guilt or intent of the person charged, the law declares fraudulent because the breach tends to deceive others, violates public or private confidences, or injures public interests." Lasley v. Helms, 179 Ariz. 589, 591, 880 P.2d 1135, 1137 (App. 1994). Though the defendant need not have acted with intent to deceive, the duty breached must be based on a fiduciary or confidential relationship that induced justifiable and detrimental reliance by the claimant. Dawson v. Withycombe, 216 Ariz. 84, 107, ¶ 72, 163 P.3d 1034, 1057 (App. 2007).

¶33 Under Rule 8, all claims must be supported with well-pled facts; conclusory statements are insufficient. Cullen, 218 Ariz. at 419, ¶¶ 6-7, 189 P.3d at 346. Moreover, under Rule 9(b), all claims of fraud, including constructive fraud, must be pled with particularity. Green v. Lisa Frank, Inc., 221 Ariz. 138, 155-56, ¶¶ 53-54, 211 P.3d 16, 33-34 (App. 2009). "Magic language" is not required, but bare allegations of fraud are insufficient. Hall v. Romero, 141 Ariz. 120, 124, 685 P.2d 757, 761 (App. 1984). Here, Plaintiffs' claim fell far short of those pleading standards. Plaintiffs failed to allege any facts that would support a finding of a fiduciary or confidential relationship that induced their detrimental reliance. Their conclusory allegation that a duty was owed based on their employment was insufficient. Further, their general allegation that "all of the facts" demonstrated a breach of duty was precisely the opposite of what Rule 9(b) required. Accordingly, the superior court properly determined that the constructive fraud claim was futile.

D. The Proposed Second Amended Complaint's Constitutional Claims Were Futile.

¶34 Plaintiffs' proposed second amended complaint purported to set forth a claim for violation of constitutional rights, presumably under 42 U.S.C. § 1983. Plaintiffs alleged that they were entitled to due process and equal protection, and that "all of the Defendants," acting under color of law, deprived them of these rights through their "acts and omissions." These vague and conclusory allegations were insufficient under Rule 8, and the superior court correctly deemed the claim futile.

E. Certain of the Proposed Second Amended Complaint's Contract-Related Claims Were Sufficiently Alleged.

¶35 Plaintiffs' proposed second amended complaint purported to set forth several claims related to Aubuchon's employment contract: breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and intentional interference with contractual relations. We hold that the breach claims were not, at least in theory, futile.

1. The Proposed Second Amended Complaint Sufficiently Alleged Claims Against the County for Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing.

¶36 Plaintiffs' proposed second amended complaint set forth claims for breach of Aubuchon's employment contract and the covenant of good faith and fair dealing implied in the contract. Plaintiffs alleged that Aubuchon worked as a County employee for the MCAO and that her employment contract provided for "payment of attorneys' fees to defend against any bar complaints made against her for her actions while she was employed as a deputy county attorney." Plaintiffs further alleged that this contractual duty was breached when MCAO officials and employees Romley, Montgomery, and Ahler failed to provide or pay for an attorney to represent her in disciplinary proceedings before the State Bar of Arizona, and that she was damaged in the amount of the costs and fees incurred for these proceedings.9

¶37 A breach of contract claim requires the existence of a contract, breach of the contract, and resulting damages. Chartone, Inc. v. Bernini, 207 Ariz. 162, 170, ¶ 30, 83 P.3d 1103, 1111 (App. 2004). An employment relationship is contractual in nature. A.R.S. § 23-1501(A)(1). The law implies a covenant of good faith and fair dealing in all contracts. Rawlings v. Apodaca, 151 Ariz. 149, 153, 726 P.2d 565, 569 (1986). The covenant is breached when a party "exercise[s] express discretion in a way inconsistent with a party's reasonable expectations . . . [or] act[s] in ways not expressly excluded by the contract's terms but which nevertheless bear adversely on the party's reasonably expected benefits of the bargain." Bike Fashion Corp. v. Kramer, 202 Ariz. 420, 424, ¶ 14, 46 P.3d 431, 435 (App. 2002).

¶38 The proposed second amended complaint alleged sufficient facts to support all of the elements of a claim for breach of contract, and of a claim for breach of the covenant of good faith and fair dealing. We reject the County's contention that it was not included in the breach claims. Though the allegations referred to actions taken by individual County officials and employees and though the claims were titled with a parenthetical identifying these individuals, the proposed second amended complaint made clear that liability was sought only against the County. At the outset of the proposed pleading, Plaintiffs alleged that the acts and omissions of individual defendants "were taken under the guise of their elected office, or employment as public employees . . . in their official capacity," except when they acted "outside the scope of their employment or elected office . . . or in excess of their official capacity." Plaintiffs further alleged that "[a]ll of these actions by the Defendants described in this Complaint constitute actions of Maricopa County; therefore, Maricopa County is vicariously and directly liable for their wrongful conduct, as alleged herein." None of the allegations underlying the breach claims stated that the individual County employees and officials acted outside of the scope of their County employment. The proposed second amended complaint therefore gave the County fair notice that those claims were directed at it, and not at the actors personally.

¶39 We hold that the allegations were sufficient to state claims against the County for breach of contract and the implied covenant of good faith and fair dealing. We express no opinion concerning the defenses available to these claims, nor do we imply that the claims are viable as a matter of fact. The record does not reveal the terms of Aubuchon's contract of employment, but the proposed second amended complaint alleges the existence of a term which, if breached, could give rise to an action for damages.

¶40 We reverse the superior court's determination that the proposed second amended complaint's breach of contract claims against the County were futile, and remand for proceedings consistent with this decision. We hold, however, that Plaintiffs' request for punitive damages is barred by A.R.S. § 12-820.04.

2. The Court Properly Determined That the Unjust Enrichment Claims Were Futile.

¶41 An unjust enrichment claim requires "(1) an enrichment; (2) an impoverishment; (3) a connection between the enrichment and the impoverishment; (4) the absence of justification for the enrichment and the impoverishment; and (5) the absence of a legal remedy." Trustmark Ins. Co. v. Bank One, Ariz., 202 Ariz. 535, 541, ¶ 31, 48 P.3d 485, 491 (App. 2002). Plaintiffs alleged that the County was enriched and that Aubuchon was damaged as a result of the County's failure to pay for her attorney's fees in the disciplinary proceedings, and that this result was unjustified based on her reasonable expectations regarding promises made to her. At bottom, this claim depends on the same facts as the breach of contract claim. Assuming that Plaintiffs are able to establish those facts, there would by definition be an adequate legal remedy — the remedy for breach of contract. The only reasons for which the breach of contract claim could fail would also cause the unjust enrichment claim to fail. Because there are no circumstances in which the unjust enrichment claim could exist independent of the contract claim, we conclude that the unjust enrichment claim was futile.

3. The Proposed Second Amended Complaint's Claim for Intentional Interference with Contractual Relations Was Futile.

¶42 Plaintiffs' proposed second amended complaint claimed "tortious interference of contract," "inducing breach of contract," and "interference with contractual relations" related to Aubuchon's employment contract. Construing the complaint liberally, as we must, we treat these allegations as an assertion of a claim for intentional interference with contractual relations. This tort requires "the existence of a valid contractual relationship or business expectancy; the interferer's knowledge of the relationship or expectancy; intentional interference inducing or causing a breach or termination of the relationship or expectancy; . . . resultant damage to the party whose relationship or expectancy has been disrupted . . . [and] `improper . . . motive or means.'" Wallace, 184 Ariz. at 427, 909 P.2d at 494. The interferer must be a third party to the contractual relationship or business expectancy. Ulan v. Vend-a-Coin, Inc., 27 Ariz.App. 713, 717, 558 P.2d 741, 745 (1976). A claim for intentional interference with a plaintiff's employment contract therefore cannot be based on the actions of a fellow employee or supervisor acting within the scope of his or her employment. See Barrow v. Ariz. Bd. of Regents, 158 Ariz. 71, 78, 761 P.2d 145, 152 (App. 1988); Mintz, 183 Ariz. at 555-56, 905 P.2d at 564-65.

¶43 As we explained above, Plaintiffs' second amended complaint alleged that the County was vicariously liable for conduct taken by individual defendants within the scope of their employment, and Plaintiffs did not allege that the breach of Aubuchon's employment contract was caused by actions taken outside of the scope of employment. On this ground alone, Plaintiffs failed to state a claim for intentional interference with contractual relations. The superior court correctly concluded that the claim was futile.10

II. SANCTIONS

¶44 Plaintiffs and their trial counsel, the Moriarity Firm and Moriarity,11 challenge the superior court's assessment of attorney's fees against them as sanctions under Rule 11 and A.R.S. § 12-349. All of the defendants to whom fees were awarded moved for sanctions under both Rule 11 and A.R.S. § 12-349, and some of the County employees and officials also moved under former A.R.S. § 12-341.01(C). With respect to the County and the County officials and employees, the court specifically found that fees were warranted under both Rule 11 and § 12-349. With respect to the Polsinelli defendants, the superior court granted the motion for sanctions based on findings that could support an award under either Rule 11 or § 12-349, directed the defendants to prepare an application for fees "pursuant to A.R.S. § 12-349," and approved the application under "[t]he Rules and statutes." Importantly, the Polsinelli defendants maintained at oral argument that the award in their favor was issued under A.R.S. § 12-349 only.

¶45 Both Rule 11 and § 12-349 are designed to discourage wasteful litigation. Phoenix Newspapers, Inc. v. Dep't of Corrs., 188 Ariz. 237, 244, 934 P.2d 801, 808 (App. 1997). We review all aspects of an order imposing sanctions under Rule 11 for abuse of discretion. James, Cooke & Hobson, Inc. v. Lake Havasu Plumbing & Fire Protection, 177 Ariz. 316, 319, 868 P.2d 329, 332 (App. 1993). We review the applicability of § 12-349 de novo but review the superior court's findings (required by § 12-350) for clear error, viewing the facts in the light most favorable to sustaining the award under a preponderance-of-the-evidence standard of proof. Dep't of Corrs., 188 Ariz. at 243-44, 934 P.2d at 807-08.

¶46 Rule 11(a) provides:

Under Rule 11(a), the test to determine whether a document is reasonably grounded is one of objective reasonableness — subjective good faith provides no safe harbor. Wright v. Hills, 161 Ariz. 583, 589, 780 P.2d 416, 422 (App. 1989), overruled in part on other grounds by James, 177 Ariz. 316, 868 P.2d 329. The objective standard is violated when: "(1) there was no reasonable inquiry into the basis for a pleading or motion; (2) there was no chance of success under existing precedent; and (3) there was no reasonable argument to extend, modify, or reverse the controlling law." Smith v. Lucia, 173 Ariz. 290, 297, 842 P.2d 1303, 1310 (App. 1992). The reasonableness of a factual inquiry depends on the totality of the circumstances, which may change as the case progresses. Boone v. Superior Court (Croddy), 145 Ariz. 235, 241, 700 P.2d 1335, 1341 (1985); Wright, 161 Ariz. at 590, 780 P.2d at 423. With respect to the reasonableness of a legal position, the court's mere rejection of an argument regarding the applicability of precedent does not, in itself, provide grounds for sanctions. See Fritz v. City of Kingman, 191 Ariz. 432, 435-36, ¶ 22, 957 P.2d 337, 340-41 (1998). But sanctions may be imposed when an argument is plainly contrary to well-established case law or clear statutory language. Villa de Jardines Ass'n v. Flagstar Bank, 227 Ariz. 91, 97, ¶¶ 16-19, 253 P.3d 288, 294 (App. 2011); Linder v. Brown & Herrick, 189 Ariz. 398, 408, 943 P.2d 758, 768 (App. 1997).

¶47 Section 12-349(A) provides that the court shall assess attorney's fees and expenses, and may assess certain limited damages, against parties and attorneys who "[b]ring[] or defend[] a claim without substantial justification[,] . . . [b]ring[] or defend[] a claim solely or primarily for delay or harassment[,] . . . [or u]nreasonably expand[] or delay[] the proceeding." At the time relevant to this appeal, § 12-349(F) defined "without substantial justification" as "mean[ing] that the claim or defense is groundless and is not made in good faith." An objective standard is used to determine groundlessness, and a subjective standard is used to determine good faith and whether there was an intent to harass. Dep't of Corrs., 188 Ariz. at 244, 934 P.2d at 808. A claim or defense is groundless when it is contrary to facts that were known or that should have been known, and when it is based on arguments contrary to settled law. See Harris v. Reserve Life Ins. Co., 158 Ariz. 380, 383, 762 P.2d 1334, 1337 (App. 1998). Sanctions under § 12-349 are not appropriate, however, when a party or attorney's position was unsuccessful but nonetheless fairly debatable. See City of Casa Grande v. Ariz. Water Co., 199 Ariz. 547, 556, ¶ 30, 20 P.3d 590, 599 (App. 2001).

¶48 Here, the superior court acted well within its discretion when it determined that the appellants had engaged in sanctionable conduct. But because we have concluded that not all of the claims proposed against the County were futile, we defer consideration of the amount of sanctions in favor of the County until the case is resolved on remand. Further, the computation of the sanctions on the basis of attorney's fees was error with respect to the Polsinelli defendants because these defendants, as self-represented parties, were legally ineligible to recover fees. We therefore vacate the award of sanctions to the County without prejudice to their recalculation, and we vacate the award of sanctions to the Polsinelli defendants for recalculation under the "expenses" prong of § 12-349.

A. The Award of Attorney's Fees to the County Officials and Employees Was Proper, but the Award to the County Was Premature in View of Our Decision on Appeal.

¶49 The court awarded attorney's fees to the County, and to the County officials and employees who requested sanctions, under Rule 11 and A.R.S. § 12-349 based on findings that the first amended complaint was "unintelligible"; that "notwithstanding the Court's warnings, Plaintiffs again failed to comply with the Arizona Rules of Civil Procedure when they filed their Motion for Leave to File Second Amended Complaint"; and that the proposed second amended complaint set forth "groundless claims" with "no factual or legal basis." The appellants contend that the imposition of sanctions was error because the first amended complaint was based on a good-faith investigation of the facts and merely "lacked quality in draftsmanship," and because the claims asserted in the proposed second amended complaint were viable.12

¶50 The court's findings described grounds for the imposition of sanctions under both Rule 11 and § 12-349, and were well-founded. The first amended complaint completely failed to comply with Rule 8, Rule 10, and Cullen, 218 Ariz. at 419, ¶¶ 6-7, 189 P.3d at 346. The pleading was not merely an example of substandard draftsmanship — it objectively failed to state any claims upon which relief could be granted. And as we have explained above, all of the proposed claims against the County officials and employees were futile, and most of the proposed claims against the County were futile.

¶51 The record therefore supports the court's findings and award of sanctions to the County officials and employees.13 But because the award of sanctions to the County was based in part on an erroneous determination of futility, we vacate the award to the County without prejudice to its reimposition at the conclusion of the case. We note that nothing in our decision prevents the superior court from awarding sanctions in the same or different amount. See Corbett v. Manorcare of Am., Inc., 213 Ariz. 618, 630, ¶ 43, 146 P.3d 1027, 1039 (App. 2006) ("In view of our reversal of summary judgment . . . insufficient evidence supports the award of fees as a Rule 11 sanction. The trial court may, however, revisit the issue of attorney fees when the trial court proceedings have concluded.").

B. The Award of Sanctions to the Polsinelli Defendants Was Proper, But the Form of the Award Was Not.

1. The Polsinelli Defendants Were Entitled to Receive Sanctions.

¶52 The court awarded sanctions to the Polsinelli defendants under § 12-349 based on findings that "[n]o legal or factual basis ever existed to file a Complaint against these defendants" and "the Complaint was filed for vexatious purposes." Again, the appellants contend that the first amended complaint was based on a good-faith investigation of the facts. We conclude that the record amply supported the court's determination that sanctions were warranted.

¶53 The first amended complaint's failure to comply even with Arizona's generous pleading standards makes it difficult to discern the nature of the claims intended to be asserted against the Polsinelli defendants. In general, however, the first amended complaint alleged that the Polsinelli defendants had a conflict of interest, unlawfully interfered with Plaintiffs' attempts to examine and disclose that conflict, and retaliated by instituting or encouraging groundless investigations against Plaintiffs. In response to the Polsinelli defendants' initial motion to dismiss, Plaintiffs asserted that their allegations supported two claims: (1) breach of fiduciary duty by the Polsinelli defendants as evidenced by legal malpractice, and (2) defamation by the Polsinelli defendants based on information that they provided to the State Bar of Arizona in connection with its investigation of Aubuchon. Both purported claims are devoid of factual or legal support.

¶54 Legal malpractice based on breach of fiduciary duty requires, inter alia, an attorney-client relationship and a breach of the attorney's fiduciary duty to the client. Cecala v. Newman, 532 F.Supp.2d 1118, 1135 (D.Ariz. 2007). Plaintiffs did not allege any facts suggesting that they shared an attorney-client relationship (or any other kind of fiduciary relationship) with the Polsinelli defendants. In asserting the defamation claim, Plaintiffs ignored the plain language of Ariz. R. Sup. Ct. 48(l), which provides that "[c]ommunications to the . . . state bar . . . relating to lawyer misconduct, lack of professionalism or disability . . . shall be absolutely privileged conduct, and no civil action predicated thereon may be instituted against any complainant or witness." (Emphases added.) The appellants' contention that the defamation claim was based on a reasonable argument for the extension of Rule 48(l) is unpersuasive. Though the appellants argue that "whether the rule is constitutional is something that Appellants could claim," they make no attempt to identify grounds on which a constitutional challenge plausibly could be based, and no such grounds appear to us. And their assertion that attorneys who provide false information to the State Bar may face professional discipline is immaterial to a claim for damages.

¶55 The superior court did not err by finding that the claims asserted against the Polsinelli defendants were unreasonable. Sanctions were warranted under A.R.S. § 12-349.14

2. The Polsinelli Defendants Were Ineligible to Receive Attorney's Fees as Sanctions.

¶56 The appellants next contend that the nature of the sanctions imposed — an award of attorney's fees — was inappropriate because the Polsinelli defendants, as self-represented parties, were ineligible to recover fees. This argument was first raised in a motion for reconsideration. We generally do not consider arguments raised for the first time in a motion for reconsideration, in part because in such circumstances the prevailing party is often deprived of the opportunity to respond. Evans Withycombe, Inc. v. W. Innovations, Inc., 215 Ariz. 237, 240, ¶ 15, 159 P.3d 547, 550 (App. 2006). Here, however, the court expressly authorized the Polsinelli defendants to file a response to the motion for reconsideration, and they did so. On this record, we find no waiver. We hold that the court erred by awarding sanctions to the Polsinelli defendants in the form of attorney's fees.

¶57 Prerequisite to the recovery of attorney's fees is the existence of an attorney-client relationship. Connor v. Cal-AZ Props., Inc., 137 Ariz. 53, 56, 668 P.2d 896, 899 (App. 1983). Because "[o]ne who acts only for himself in legal matters is not considered to be engaged in the practice of law," a self-represented party has no attorney-client relationship and therefore no right to recover fees — even if he or she is an attorney. Id. This rule serves to discourage self-represented attorneys from strategically protracting litigation to gain unfair advantage. Id. It also prevents self-represented attorneys from receiving unjustified windfalls. Lisa v. Strom, 183 Ariz. 415, 419, 904 P.2d 1239, 1243 (App. 1995). To be sure, self-represented attorneys may suffer lost opportunity costs in the form of time that they could have spent representing paying clients. Id. But self-represented non-attorneys incur similar lost opportunity costs, and it would be "palpably unjust" to allow one category of self-represented litigants to recover for such costs based solely on the nature of their profession. Id. Fees may be recovered only if there is an attorney-client relationship and a genuine financial obligation to pay for the legal services. Id. at 419-20, 904 P.2d at 1243-44; see also Moedt v. Gen. Motors Corp., 204 Ariz. 100, 103, ¶ 11, 60 P.3d 240, 243 (App. 2003).

¶58 The Polsinelli defendants — a law firm and two of its attorneys — contend that they were nonetheless eligible to recover attorney's fees because they had "intertwined defenses," "the sanctions awarded will go to Polsinelli, not the individual attorneys,"15 and there is "no authority . . . that precludes a court from awarding sanctions measured by attorney's fees to a law firm . . . that used its employee-attorneys as in-house counsel to defend itself and its employees in litigation." They argue that they were entitled to recover fees because they were "incurring fees by virtue of paying in-house counsel salaries."

¶59 The Polsinelli defendants rely primarily on Hunt Investment Co. v. Eliot, 154 Ariz. 357, 742 P.2d 858 (App. 1987). In Hunt, a general partnership was represented in litigation by an attorney who was one of the partnership's general partners. 154 Ariz. at 359, 742 P.2d at 860. The partnership's other general partner was a trust for which the attorney was trustee as well as one of several beneficiaries. Id. We affirmed an award of attorney's fees to the partnership, holding that the partnership could not represent itself and that the attorney did not represent only himself in the litigation because he acted for the benefit of the trust's other beneficiaries as well as for his own benefit. Id. at 362-63, 742 P.2d at 863-64. The Polsinelli defendants contend that "[l]ike the partnership in Hunt, the Polsinelli law firm has interests beyond those of its individual shareholders and it cannot appear pro per." But unlike the partnership in Hunt, the Polsinelli firm could represent itself. Munger Chadwick, P.L.C. v. Farwest Dev. & Constr. of the Sw., LLC, 235 Ariz. 125, 127, ¶ 7, 329 P.3d 229, 231 (App. 2014). And there is "no logical reason to draw any distinction between a law firm that represents itself and a sole practitioner that does so." Id. at 128, ¶ 10, 329 P.3d at 232. The mere fact that a law firm's self-representation requires its members or employees to devote time to the representation does not justify an award of fees. See id. at ¶ 11; Lisa, 183 Ariz. at 420, 904 P.2d at 1244. The policies underlying the rule disallowing fees for self-represented attorneys who incur no financial obligation are equally applicable when a law firm "hires" its own attorneys. Munger, 235 Ariz. at 128, ¶ 12, 329 P.3d at 232.

¶60 The Polsinelli defendants also rely on Farmers Ins. Exchange v. Law Offices of Conrado Joe Sayas, Jr., 250 F.3d 1234 (9th Cir. 2001). In concluding that fees were recoverable by two law firms that represented each other in a collection action against a former client, Farmers cited California cases holding that when an attorney was represented by other members of his law firm, and when a corporation was represented by its in-house counsel, attorney's fees were warranted because expenses were incurred in the form of salaries paid. Id. at 1238-39. We are not bound by Farmers or the cases it cites. Moreover, we do not find those cases persuasive. In Lisa, we explained that an attorney-litigant was not entitled to recover attorney's fees for work performed by his firm's employees because he paid the employees a salary regardless of what matters they worked on, and therefore did not incur a specific obligation to pay fees for the work done on his behalf. 183 Ariz. at 420, 904 P.2d at 1244. See also Munger, 235 Ariz. at 128, ¶ 11, 329 P.3d at 232 (holding that law firm members' work in representing law firm "in their spare time" did not provide grounds for attorney's fees award).

¶61 Under Arizona law, the Polsinelli defendants were not eligible for an award of attorney's fees. The imposition of sanctions in the form of attorney's fees therefore was error, and we must vacate the fee-based portion of the award.16 But because sanctions were warranted, see supra Section II.B.1, and because A.R.S. § 12-349 does not limit sanctions to attorney's fees awards, we remand so that the court may impose a proper sanction. Under § 12-349(A) the court may award "double damages of not to exceed five thousand dollars," in addition to "reasonable . . . expenses." The calculation of such an award may naturally bear some relation to the amount of legal work that the Polsinelli defendants were reasonably required to undertake as a result of the sanctionable conduct. See Taliaferro v. Taliaferro, 188 Ariz. 333, 341, 935 P.2d 911, 919 (App. 1996) ("As a general rule, the sanction for a Rule 11 violation should bear some relationship to the expenses directly caused by the sanctionable conduct."). In this sense, the application for attorney's fees may be relevant to the inquiry. We caution, however, that an analysis related to fees should focus on the expenses actually incurred, and that such detriment will naturally be less than the market rates reflected in the fee application. The Polsinelli defendants are entitled to a compensatory sanction that does not include the profit that its billing rates include.

CONCLUSION

¶62 For the reasons set forth above, we reverse the superior court's determination that Plaintiffs' proposed second amended complaint failed to sufficiently plead claims for breach of contract and breach of the covenant of good faith and fair dealing, and we remand for further proceedings. We vacate the court's award of sanctions to the County and vacate and remand its award of sanctions to the Polsinelli defendants. We otherwise affirm.

¶63 All of the appellees request awards of attorney's fees on appeal. The County, Montgomery, and the Polsinelli defendants request fees under Rule 11 and A.R.S. § 12-349, and the remaining County officials and employees request fees under Rule 11, § 12-349, and ARCAP 25. Rule 11 does not provide grounds for an award of fees on appeal. Villa de Jardines, 227 Ariz. at 99 n.10, ¶ 26, 253 P.3d at 296 n.10. In our discretion, we decline to award fees under § 12-349 and ARCAP 25.