Colonial Tri-City Ltd. Partnership v. Ben Franklin Stores, Inc.

• Decision Date: 16 December 1993
• Docket Number: TRI-CITY,Nos. 1,CA-CV,s. 1
• Citation: 880 P.2d 648,179 Ariz. 428
• Parties: COLONIALLIMITED PARTNERSHIP, an Arizona partnership, Plaintiff-Appellee, v. BEN FRANKLIN STORES, INC., a Delaware corporation, Defendant-Appellant. 91-108, 1 92-006.
• Court: Arizona Court of Appeals

Page 648

880 P.2d 648

179 Ariz. 428

COLONIAL TRI-CITY LIMITED PARTNERSHIP, an Arizona partnership, Plaintiff-Appellee, v. BEN FRANKLIN STORES, INC., a Delaware corporation, Defendant-Appellant.

Nos. 1 CA-CV 91-108, 1 CA-CV 92-006.

Court of Appeals of Arizona Division 1, Department A.

Dec. 16, 1993.

Review Denied Sept. 20, 1994.

[179 Ariz. 429] Murphy & Associates by Joseph A. Herbert and Michael L. Murphy, Phoenix, for plaintiff-appellee.

Broening, Osberg & Woods by Terrence P. Woods, Donald Wilson, Jr., Kenneth C. Miller and Neal B. Thomas, Phoenix, for defendant-appellant.

OPINION

MICHAEL J. O'MELIA, Judge ^*.

This case requires us to decide whether a plaintiff may use the summary proceeding for recovery of possession of leased premises, Ariz.Rev.Stat.Ann. ("A.R.S.") section 33-361 (1990), to litigate whether, in the first instance, the parties have created a landlord and tenant relationship. We hold that plaintiff was not entitled to use the section 33-361 summary proceedings to establish that defendant exercised its option to reassume a lease previously assigned to defendant's franchisee. Consequently, because defendant established that plaintiff and defendant did not have an existing landlord and tenant relationship when the section 33-361 action was filed, the trial court erred by not dismissing the action. Because our decision disposes of this appeal, we do not address defendant's remaining arguments.

FACTS AND PROCEDURE

On June 19, 1989, Colonial Tri-City Limited Partnership ("plaintiff") leased to Ben Franklin Stores, Inc. ("defendant") certain retail space located in Tri-City Mall for a term of ten years. Paragraph 26 of the lease contains an assignment clause and a reassumption clause. Under paragraph 26, defendant, with plaintiff's prior written consent, may assign all its rights and obligations under the lease to a franchisee. From the effective date of any such assignment, defendant "shall be relieved of all liability and/or responsibility under [the] lease." If a franchisee later terminates the franchise, defendant can reassume the lease "by paying all amounts past due ... and [by serving] written notice upon [plaintiff]." The effective date of any such reassumption is the effective date of termination of the franchise.

Plaintiff, defendant, and Dub & Sal's, Inc. ("Dub & Sal's") later executed an agreement entitled First Assignment and Assumption of Lease and Landlord's Consent. In this agreement, defendant, with plaintiff's consent, assigned all defendant's rights and obligations under the lease to Dub and Sal's. The agreement further provided that Dub & Sal's "assumes the Lease and agrees to pay rent and all other payments required ... and to faithfully perform all of the covenants, stipulations and agreements contained therein and ... agrees to hold [defendant] harmless therefrom." Dub & Sal's took possession of and operated a store in the leased premises until roughly May 25, 1990, when they vacated the premises.

Some time in the latter part of May 1990, Tri-City Mall security personnel observed that Dub & Sal's had ceased operations and that "closed for inventory" signs were posted in the windows of the vacant store. The security personnel also saw defendant's employees removing the remaining inventory from the store. After learning of defendant's presence on the premises, plaintiff notified defendant by letter that defendant was in default under the June 19, 1989 lease. The letter requested that defendant cure this default by promptly paying all overdue rent and charges. In its reply, defendant denied it owed back rent and claimed that it had "no current interest in that certain lease dated June 19, 1989," because it had assigned its entire interest to Dub & Sal's on August 15, 1989.

On June 26, 1990, plaintiff filed an action under A.R.S. section 33-361(A) (1990) (as governed by the summary forcible entry and detainer statute, sections 12-1171 through 12-1183 (1982 and Supp.1992)) in Maricopa County Superior Court No. 90-17669. The complaint did not allege that defendant reassumed the June 1989 lease or otherwise reestablished a landlord and tenant relationship with plaintiff following the assignment to Dub & Sal's. Plaintiff alleged only that defendant had no right of possession of the premises because defendant failed to cure its breach of the lease by paying the overdue rent and other charges. In its prayer for relief, plaintiff sought immediate possession of the premises and all unpaid rent since June of 1990.

Defendant filed a motion to dismiss pursuant to Rule 12(b)(6), Arizona Rules of Civil Procedure, contending that plaintiff failed to state a claim for relief. Defendant argued that by completely assigning its rights and obligations under the June 1989 lease to Dub & Sal's, defendant and plaintiff were no longer landlord and tenant, and thus plaintiff's section 33-361 action was precluded. Defendant also argued that the trial court lacked jurisdiction under the forcible entry and detainer statute to hear the action because defendant had no possessory interest in the premises. Finally, defendant argued that the trial court was deprived of jurisdiction by plaintiff's failure to make a written demand for possession of the premises, pursuant to A.R.S. section 12-1171(3) (1982). The trial court, however, denied defendant's motion to dismiss and commenced a trial by jury later that same day.

At the close of plaintiff's case, defendant moved for a directed verdict, which the trial court denied. The jury found that defendant (1) reassumed the lease on May 25, 1990, (2) failed to pay rent owed to plaintiff, and (3) committed a forcible entry and detainer. The jury awarded plaintiff immediate possession of the premises and $18,820.66 in unpaid rent. The court entered judgment consistent with the jury's verdict on August 30, 1990.

Defendant challenged the jury's verdict with a motion for judgment notwithstanding the verdict. Defendant argued that the trial court lacked jurisdiction to litigate the case because plaintiff's right of possession was not at issue. The trial court denied the motion and defendant appealed. ²

Following plaintiff's summary proceeding, plaintiff filed a general civil action for breach of lease against defendant on January 15, 1991, in Maricopa County Superior Court No. CV 90-25424. The complaint alleged that defendant reassumed the June 1989 lease on May 25, 1990, and later breached the lease by failing to pay rent from August 1990, through November 1990. The trial court found that because plaintiff obtained a judgment against defendant in the section 33-361 summary proceeding, defendant's defenses in CV 90-25424 were precluded under the doctrines of res judicata and collateral estoppel. Consequently, the court granted plaintiff's motion for summary judgment in CV 90-25424 and entered judgment for plaintiff for $85,822.54 in unpaid rent. On October 17, 1991, defendant appealed. We consolidated defendant's appeals by order dated January 10, 1992.

ANALYSIS

We hold that a plaintiff may not maintain an action under section 33-361 where a defendant establishes that the parties do not have an existing landlord and tenant relationship. Here, we conclude that plaintiff did not establish that defendant reassumed the lease previously assigned to defendant's franchisee. Consequently, the trial court erred by not dismissing the section 33-361 action. We therefore reverse the judgment in the summary proceedings (cause No. 90-17669), vacate the judgment in the civil action (cause No. 90-25424), and remand for a new trial in the latter action.

We begin by considering defendant's motion to dismiss the section 33-361 summary proceeding. On a motion to dismiss for failure to state a claim under Rule 12(b)(6), Arizona Rules of Civil Procedure, ³ if the trial court considers matters presented outside the complaint, the motion is regarded as one for summary judgment, provided all parties are given a reasonable opportunity to present their factual claims to the court. Parks v. Macro-Dynamics, Inc., 121 Ariz. 517, 519-20, 591 P.2d 1005, 1007-08 (App.1979). Here, defendant's motion to dismiss complied with the requirements of Rule 12(b)(6). The trial court considered defendant's attached copy of the assignment agreement, and plaintiff had a reasonable opportunity to present all pertinent factual claims in its response. Consequently, the trial court should have considered defendant's motion as one for summary judgment.

We now turn to section 33-361. That section presupposes that an action brought under its provisions arises out of a lease relationship between the parties. The language of section 33-361(A) itself states, "[w]hen a tenant neglects or refuses to pay rent ... or when tenant violates any provision of the lease, the landlord ... may re-enter and take possession ... or ... commence an action for recovery of possession of the premises." (Emphasis added.) To proceed summarily under section 33-361(A), a landlord and tenant relationship must exist between a plaintiff and a defendant at the time the complaint is filed. In other words, section 33-361(A) is a summary proceeding available to a landlord who has an existing lease with a tenant. The statute is designed to determine whether the existing landlord and tenant relationship should be terminated for failure to pay rent or for breach of lease.

Here, defendant attached a copy of the First Assignment and Assumption of Lease and Landlord's Consent Agreement to its motion to dismiss. That agreement indicates that shortly after signing the June 1989 lease, defendant, with plaintiff's written consent, assigned the lease to Dub & Sal's with "all [of] Defendant's rights and obligations under the lease." Defendant thus made a prima facie case that because it assigned its obligations under the lease agreement to Dub & Sale's, no landlord and tenant relationship existed between defendant and plaintiff.

In plaintiff...