Gqr Enter.s LLC v. Armel Land Investors LLC

• Decision Date: 03 May 2011
• Docket Number: 2 CA-CV 2010-0195
• Parties: GQR ENTERPRISES, LLC, an Arizona limited liability company, Plaintiff/Counterdefendant/Appellee/Cross-Appellant, HALL REALTY, LLC, an Arizona limited liability company; AGNES GABRIEL and JOE DOE GABRIEL, husband and wife; and GENE HALL and QUEZIA HALL, husband and wife, Third-Party Defendants/Third-Party Counterclaimants, Appellees/Cross-Appellants, v. ARMEL LAND INVESTORS, LLC, an Arizona limited liability company, Defendant/Counterclaimant/Third-Party Plaintiff/ Third-Party Counterdefendant/Appellant/Cross-Appellee.
• Court: Arizona Court of Appeals

GQR ENTERPRISES, LLC, an Arizona limited liability company, Plaintiff/Counterdefendant/Appellee/Cross-Appellant, HALL REALTY, LLC, an Arizona limited liability company; AGNES GABRIELand JOE DOE GABRIEL, husband and wife;and GENE HALL and QUEZIA HALL, husband and wife, Third-Party Defendants/Third-Party Counterclaimants, Appellees/Cross-Appellants,

v. ARMEL LAND INVESTORS, LLC, an Arizona limited liability company, Defendant/Counterclaimant/Third-Party Plaintiff/Third-Party Counterdefendant/Appellant/Cross-Appellee.

2 CA-CV 2010-0195

COURT OF APPEALS STATE OF ARIZONA DIVISION TWO DEPARTMENT B

Dated: May 3, 2011

NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24.

MEMORANDUM DECISION

Not for Publication Rule 28, Rules of Civil Appellate Procedure

APPEAL FROM THE SUPERIOR COURT OF NAVAJO COUNTY

Cause No. C20060169

Honorable John N. Lamb, Judge

AFFIRMED IN PART

REVERSED AND REMANDED IN PART

Stoops, Denious, Wilson & Murray, P.L.C.

By Thomas A. Stoops and

Stephanie M. Wilson

Phoenix

Attorneys for Plaintiff/Counterdefendant/

Appellee/Cross-Appellant

Hammond & Tobler, P.C.

By Doug Tobler

Tempe

Attorneys for Defendant/Counterclaimant/

Third-Party Plaintiff/

Third-Party Counterdefendant/

Appellant/Cross-Appellee

VÁSQUEZ, Presiding Judge.

¶1 In this contract action, Armel Land Investors, LLC (Armel) appeals from the trial court's judgment after a jury verdict in favor of GQR Enterprises, LLC (GQR) and Hall Realty, LLC. On appeal, Armel contends 1) the trial court should have resolved certain disputed contract provisions instead of submitting them to the jury for its determination, 2) the jury erred in interpreting the disputed contract provisions, 3) the verdict was not supported by any evidence of damages, and 4) the court erred in denying Armel's motion for new trial. In its cross-appeal, GQR contends the court erred in denying its request for prejudgment interest. For the reasons stated below, we affirm the court's rulings and judgment entered on the jury's verdicts in favor of GQR, but reverse the denial of GQR's request for prejudgment interest.

Factual and Procedural Background

¶2 We view the facts in the light most favorable to sustaining the jury's verdict. See Gonzales v. City of Phoenix, 203 Ariz. 152, ¶ 2, 52 P.3d 184, 185 (2002).Gene and Quezia Hall and their son Shane (the Halls) are real estate developers and co-owners of Hall Realty. Around 1998, they purchased a subdivision known as Frontier Estates in Snowflake, Arizona. They then transferred ownership of the subdivision to an entity they owned, Frontier 6, LLC. By 2003, construction was almost complete in Frontier Estates, and Frontier 6 was in need of additional financing.

¶3 Gene Hall approached Jerry Armel about investing in the development as a partner. After discussing several financing options, Jerry formed Armel Land Investors, LLC (Armel), and the Halls formed GQR Enterprises, LLC. Armel purchased 139 of the lots in Frontier Estates from Frontier 6 as the means for providing capital to complete the project. Armel and GQR, along with Hall Realty, then entered into two agreements—the Reimbursement Agreement and the Marketing Agreement. Under the Marketing Agreement, Hall Realty agreed to broker the sales of Armel's 139 lots in return for a commission. The Reimbursement Agreement provided the mechanism for Armel and GQR to split the proceeds from the sales of Armel's lots after Armel had recouped its initial investment.

¶4 Specifically, the Reimbursement Agreement provided:

If, and only if, Armel has been reimbursed the total aggregate amount of principal and interest [on the purchase price and carrying costs of the 139 lots] from the sale of [those] Lots of the Property (the "Armel Reimbursement Amount") prior to October 1, 2008, and provided Hall Realty... is not in default under its Marketing Agreement..., Armel shall pay GQR fifty percent... of the net proceeds actually received by Armel from the Lots of the Property sold after Armel has been paid the total Armel Reimbursement Amount.¹

"Net proceeds" was defined in the Reimbursement Agreement as

the gross sales price of a Lot of the Property minus the real estate broker commissions and all other closing and transaction costs relating to the sale of such Lot paid by Armel, including, without limitation, recording fees, attorneys' fees, escrow agent fees, title insurance premiums, and Armel's prorations for real property taxes and assessments.

¶5 Language in the Reimbursement Agreement also provided the method for applying the proceeds from the sales of Armel's lots to the Armel Reimbursement Amount. When a lot sold for cash, the entire cash amount would be credited to the Armel Reimbursement Amount. But, when a lot sold for a cash down payment with "the balance of the purchase price payable to Armel under... a seller carryback promissory note," the Reimbursement Agreement provided that "the entire net proceeds of such sale and the portion of the monthly payment under the... promissory note attributable to principal shall be credited [to the Armel Reimbursement Amount]."²

¶6 The Marketing Agreement contained a provision entitled, "Non-Competition Agreement" that stated: "prior to (i) the sale of all Lots of the Property, or (ii) October 1, 2008, whichever is last to occur, [the Halls] shall not market or sell any retail subdivision lots or like kind properties within a ten... mile radius of the Property." The Marketing Agreement defined "Lots" as the "139 residential Lots" owned by Armel and "Property" as "the Frontier Estates Subdivision."

¶7 Pursuant to the Marketing Agreement, Hall Realty began selling Armel's lots and regularly providing Armel with written accountings of the sales and the amountsit was crediting to the Armel Reimbursement Amount. The accountings showed that when a sale had been made for a cash down payment and promissory note, a "carryback transaction," Hall Realty had applied the entire face value of the promissory note to the Armel Reimbursement Amount, essentially treating those transactions the same as cash transactions. For a time, Armel did not object to this method of crediting the Armel Reimbursement Amount. And according to this method, the Armel Reimbursement Amount was paid in full on November 21, 2005, which meant that any net proceeds from sales after that date were to be split with GQR.

¶8 In March 2006, Armel notified GQR that Armel did not agree with Hall Realty's method of crediting carryback transactions and, accordingly, that GQR was not entitled to any profits under the Reimbursement Agreement. Armel stated further that "the most [it was] willing to do [wa]s sign over the last five unsold lots to [GQR]." GQR promptly initiated this lawsuit, seeking declaratory relief and claiming Armel had breached the Reimbursement Agreement by refusing to honor its obligation under the profit-sharing provision despite having been reimbursed the entire Armel Reimbursement Amount.

¶9 In May 2006, Armel notified Hall Realty that it had breached the Non-Competition Agreement by selling other lots in Frontier Estates in addition to those sold for Armel and that therefore Armel was not obligated to pay GQR any amounts under the Reimbursement Agreement. Armel refused Hall Realty's request for an opportunity to cure according to the terms of the Marketing Agreement, instead terminating the relationship. Armel then filed a counterclaim alleging that GQR and Hall Realty hadbreached the Marketing Agreement and that Hall Realty had breached its fiduciary duty to Armel.

¶10 The jury returned a verdict in favor of GQR on its breach of contract claim, implicitly finding GQR had correctly applied the face value of the promissory notes arising from carryback transactions to the Armel Reimbursement Amount and was therefore entitled to share in the proceeds from sales made after November 21, 2005. The jury also found Hall Realty had not breached the Marketing Agreement by selling other lots in Frontier Estates. The jury initially awarded GQR "2.3 million dollars [to be] distributed in the following manner: 1 million dollars cash, and 29 lots, 23 foreclosed and 6 unsold." After a discussion with counsel, the trial court instructed the jury to revise the award because it could not require "specific performance." The jury ultimately awarded GQR one million dollars. The court entered judgment against Armel, and this appeal followed, along with GQR's cross-appeal.

ARMEL'S APPEAL

I. Carryback Provision

¶11 Armel first contends the trial court erred by refusing to interpret the carryback provision of the Reimbursement Agreement as a matter of law, instead ruling the provision's interpretation should be left to the jury. "[T]he interpretation of a contract is a question of law, which this court reviews de novo." Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, ¶ 9, 218 P.3d 1045, 1050 (App. 2009). The purpose of contract interpretation is to effectuate the parties' intent. Id. In determining that intent, we look first to the plain meaning of the words in the context of the contract as a whole. Id. If theintent of the parties is clear from such a reading, there is no ambiguity. See In re Estate of Lamparella, 210 Ariz. 246, ¶ 21, 109 P.3d 959, 963 (App. 2005). But a contract is ambiguous if "it can reasonably be construed to have more than one meaning." Id.

¶12 Determining the existence of an ambiguity is a question of law for the trial court, but the role of determining the parties' intent when faced with an ambiguity is left to the trier of fact. Id.; see also Hartford v. Indus. Comm'n of Ariz., 178 Ariz. 106, 111, 870 P.2d 1202, 1207 (App. 1994) (any ambiguity "is subject to a factual determination concerning the intent of the parties and is to be resolved... by the trier of fact"). Furthermore, the court must avoid an interpretation of a contract provision...