Duncan v. Pub. Storage, Inc.

• Decision Date: 08 March 2022
• Docket Number: 1 CA-CV 21-0283
• Citation: Duncan v. Pub. Storage, Inc., 253 Ariz. 15, 507 P.3d 509 (Ariz. App. 2022)
• Parties: Sally Schneider DUNCAN, et al., Plaintiffs/Appellees, v. PUBLIC STORAGE, INC., Defendant/Appellant. Keven Brown, Plaintiff/Appellee, v. Public Storage, Inc., Defendant/Appellant. Tiffany Roberts, Plaintiff/Appellee, v. Public Storage, Inc., Defendant/Appellant.
• Court: Arizona Court of Appeals

253 Ariz. 15

507 P.3d 509

Sally Schneider DUNCAN, et al., Plaintiffs/Appellees,

v.PUBLIC STORAGE, INC., Defendant/Appellant.

Keven Brown, Plaintiff/Appellee,

v.Public Storage, Inc., Defendant/Appellant.

Tiffany Roberts, Plaintiff/Appellee,

v.Public Storage, Inc., Defendant/Appellant.

No. 1 CA-CV 21-0283

Court of Appeals of Arizona, Division 1.

FILED March 8, 2022

Lewis Brisbois Bisgaard & Smith LLP, Phoenix, By Sean P. Healy, Robert C. Ashley, Counsel for Defendant/Appellant Public Storage, Inc.

Hagens Berman Sobol Shapiro LLP, Phoenix, By Robert B. Carey, John M. DeStefano, E. Tory Beardsley, Counsel for Plaintiff/Appellee Tiffany Roberts

Osborn Maledon P.A., Phoenix, By Geoffrey M.T. Sturr, Counsel for Plaintiffs/Appellees Duncan

Guidant Law, PLC, Tempe, By Samuel Saks, Counsel for Plaintiff/Appellee Keven Brown

Vice Chief Judge David B. Gass delivered the opinion of the court, in which Presiding Judge Paul J. McMurdie and Judge Angela K. Paton joined.

GASS, Vice Chief Judge:

¶1 Public Storage, Inc., a self-storage facility, appeals the superior court's denial of its motion to compel arbitration. Because the superior court failed to apply the separability doctrine, we vacate the order and remand for further proceedings consistent with this decision.

FACTUAL AND PROCEDURAL HISTORY

¶2 At different times between 2016 and 2018, Public Storage contracted with three unrelated renters—Keven Brown (2016), Sally Schneider Duncan (together with her husband, David Duncan) (2018), and Tiffany Roberts (2018). The Duncan and Roberts rental contracts were identical. The Brown rental contract was not identical but included some of the same terms.

¶3 To begin, each rental contract contained an arbitration clause stating the parties agreed to "arbitrate any and all disputes or claims ... relating to ... the relationship between" the renter and Public Storage. The arbitration clauses specifically included consumer fraud and negligence claims. Each rental contract required the renter to acknowledge the arbitration clause by initialing it. And each told the renter the arbitration clause was optional and explained how to reject it.

¶4 Each rental contract also included an entirety clause, which (1) told the renter the written contract was the entire agreement, (2) disavowed any prior statements, and (3) explained subsequent changes would need to be in writing. Each rental contract required the renter to provide, at the renter's expense, a lock the renter deemed sufficient to secure the unit. And each said the renter would not give Public Storage or any of its employees a key or combination to the lock.

¶5 In their complaints, the renters alleged Public Storage's website stated prospective renters would "keep the only key to [their] unit." The Duncans further alleged a Public Storage representative repeated the only-key promise to them while standing outside their rental unit. The Duncans’ complaint, however, does not make it clear whether that conversation occurred before or after the Duncans signed their rental contract.

¶6 The rental contracts differed in some respects. The Duncan and Roberts rental contracts said Public Storage would "not have possession, care, custody, or control over [their] stored property." Brown's rental contract did not.

¶7 In September 2018, a thief accessed the three units. The complaints alleged the thief used a "generic auctioneer code" to enter the gate outside Public Storage's facilities. The thief then unlocked the rear doors to each rental unit and removed the renters’ possessions, including furniture, family heirlooms, historic gifts, photo albums, and other property. The thief entered the units using Public Storage's master key or keys obtained through the internet.

¶8 The renters separately sued Public Storage, alleging consumer fraud and negligence. Public Storage moved to dismiss each case and compel arbitration. The superior court consolidated the three cases for oral argument. After argument, the superior court denied Public Storage's motion, finding the rental contracts void because Public Storage fraudulently induced the renters to enter them. Public Storage timely appealed. This court has jurisdiction under article VI, section 9, of the Arizona Constitution, and A.R.S. §§ 12-120.21.A.1 and 12-2101.01.A.1.

ANALYSIS

¶9 Public Storage argues the superior court erred by denying its motion to compel arbitration because (1) it misconstrued the separability doctrine, and (2) the renters did not show the arbitration clause was fraudulently induced or unconscionable. The renters maintain (1) Public Storage fraudulently induced them into agreeing to arbitrate disputes and (2) the contracts are so unconscionable that no meeting of the minds occurred.

¶10 On review, this court treats a motion to compel arbitration like a motion for summary judgment. Gullett v. Kindred Nursing Ctrs. W., L.L.C. , 241 Ariz. 532, 540, ¶ 27, 390 P.3d 378, 386 (App. 2017) (citing Ruesga v. Kindred Nursing Ctrs. W., L.L.C. , 215 Ariz. 589, 596, ¶ 23, 161 P.3d 1253, 1260 (App. 2007) ). This court reviews de novo a denial of a motion to compel arbitration. Allstate Prop. & Cas. Ins. Co. v. Watts Water Tech., Inc. , 244 Ariz. 253, 256, ¶ 9, 418 P.3d 1026, 1029 (App. 2018). But this court defers to any findings of fact the superior court made in ruling on the motion unless they are "clearly erroneous or unsupported by any credible evidence." See Federoff v. Pioneer Title & Tr. Co. of Ariz. , 166 Ariz. 383, 388, 803 P.2d 104, 109 (1990).

¶11 Here, no party asked for an evidentiary hearing, and the superior court did not hold one. This court, therefore, assumes the superior court summarily determined any relevant disputed fact issues. See Ruesga , 215 Ariz. at 596, ¶ 24, 161 P.3d at 121260 (discussing A.R.S. § 12-1502.A). If the superior court rules on an incorrect ground involving disputed fact issues and the correct ground involves different disputed fact issues, this court remands the case to the superior court to consider the relevant factual issues. Miller v. Bd. of Supervisors of Pinal Cnty. , 175 Ariz. 296, 301, 855 P.2d 1357, 1362 (1993) (declining to adjudicate the issue on appeal not addressed in the superior court findings because a "final decision without findings was impossible without transforming this court into a factfinder resolving disputed issues of fact"); Aida Renta Tr. v. Ariz. Dep't of Revenue , 197 Ariz. 222, 233, ¶ 29, 3 P.3d 1142, 1153 (App. 2000) (as corrected).

I. The Separability Doctrine

¶12 All parties agree the "separability doctrine" governs arbitration clauses but disagree about how to apply that doctrine. To begin, we need not resolve whether state or federal law controls because "the same analysis is mandated by both sets of statutes." See WB, The Bldg. Co. v. El Destino, LP , 227 Ariz. 302, 306, ¶ 10, 257 P.3d 1182, 1186 (App. 2011) ; see also Hamblen v. Hatch , 242 Ariz. 483, 487–88, ¶¶ 16–17, 398 P.3d 99, 103-04 (2017) ; 9 U.S.C. § 2 ; A.R.S. § 12-3006.

¶13 Under the separability doctrine, an "arbitration clause is considered to be an agreement independent and separate from the principal contract." U.S. Insulation, Inc. v. Hilro Constr. Co. , 146 Ariz. 250, 253, 705 P.2d 490, 493 (App. 1985). "[C]ourts must place arbitration agreements on equal footing with other contracts ... and enforce them according to their terms." AT&T Mobility LLC v. Concepcion , 563 U.S. 333, 339, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011) (internal citation omitted). Accordingly, a challenge to "the contract as a whole, either on a ground that directly affects the entire agreement (e.g. , the agreement was fraudulently induced), or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid" is insufficient to render the arbitration clause unenforceable. Rent-A-Center, W., Inc. v. Jackson , 561 U.S. 63, 70, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) (quoting Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 444, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) (emphasis in original)). "[A] court may only stay arbitration if there is a challenge to the arbitration clause itself." WB , 227 Ariz. at 306, ¶ 11, 257 P.3d at 1186. Nevertheless, "the same grounds may be used to challenge both an arbitration agreement and the underlying contract so long as an arbitration agreement itself is separately and distinctly challenged on those grounds." Id. at 307, ¶ 13, 257 P.3d at 1187.

¶14 In their responses to Public Storage's motions to compel arbitration, the renters did not raise a defense consistent with the separability doctrine. Except for a few different factual allegations, the renters’ responses were nearly identical. The Duncans alone hinted at, but never developed, an arbitration-specific defense, saying: "The very [rental contract] itself and all of its terms including the arbitration [clause] are void because they were procured by due process violations and induced by the lie [Public Storage] told [the renters]." Beyond that, the renters’ responses did not suggest the arbitration clauses were distinctly induced by fraud or unconscionable. Instead, they argued the entire rental contracts were substantively unconscionable because of terms outside the arbitration clauses.

¶15 Then, at oral argument, the Duncans briefly developed an arbitration-specific theory premised on fraudulent inducement, and the other renters adopted those arguments by reference. Though the renters did not adequately raise the appropriate theory in their responses, we exercise our discretion to address the merits because the renters advanced a theory consistent with the separability doctrine both during oral argument in the superior court and on appeal. See State v. Aleman , 210 Ariz. 232, 240, ¶ 24, 109 P.3d 571, 579 (App. 2005) (waiver is a procedural concept this court does not "rigidly employ in mechanical fashion").

II. The Enforceability of the Arbitration Clauses

¶16 An arbitration clause "is valid, enforceable and...