HV & Canal, LLC v. Upper Iowa Univ.
| Decision Date | 20 September 2018 |
| Docket Number | No. 1 CA-CV 17-0621,1 CA-CV 17-0621 |
| Parties | HV & CANAL, LLC, Plaintiff/Appellee, v. UPPER IOWA UNIVERSITY, Defendant/Appellant. |
| Court | Arizona Court of Appeals |
NOTICE: 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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
Appeal from the Superior Court in Maricopa County
The Honorable Dawn M. Bergin, Judge
AFFIRMED
Dickinson Wright PLLC, Phoenix
By Robert A. Shull, Amanda E. Newman
Spiess & Bell, PC, Phoenix
By James O. Bell, Yvonne R. Love
Judge Lawrence F. Winthrop delivered the decision of the Court, in which Presiding Judge Jennifer M. Perkins and Judge Jon W. Thompson joined.
¶1 Upper Iowa University ("UIU") appeals the superior court's judgment in favor of HV & Canal, LLC ("HV") for breach of a commercial lease. For the following reasons, we affirm.
¶2 On November 20, 2012, HV and UIU executed a lease agreement ("the Lease"), pursuant to which UIU would lease 13,389 square feet of space from HV for a period of up to fifteen years and four months. In addition to monthly rent, the Lease obligated UIU to pay other charges to HV, including fees for heating, ventilation, and air conditioning ("HVAC") maintenance and repair.
¶3 Paragraph 1(l) of the Lease required UIU to provide a Letter of Credit ("LOC") to secure its performance:
¶4 The form attached as Exhibit "G" was titled "Form of Letter of Credit" and reflected Wells Fargo Bank, N.A. ("Wells Fargo") as the issuer; however, nothing in the body of the Lease required that Wells Fargo issue the LOC. The only other reference to the security deposit in the Lease appeared in paragraph 4, which required the security deposit to be provided "upon the execution of this Lease" and allowed HV to use it for any damages resulting from any breach, nonperformance, or default by UIU.
¶5 On November 21, 2012, UIU provided HV with a LOC issued by Wells Fargo in the amount of $500,000 with an expiration date of May 1, 2018. Although some spaces on the original Exhibit "G" had been left blank, the blank spaces had been filled in to match the Lease requirements.
¶6 The Lease commenced on May 1, 2013. On May 1, 2014, the LOC was reduced by $100,000 pursuant to the security deposit provision.
¶7 On October 20, 2014, Susan Dusenbery, UIU's Associate Vice President of Finance, sent an email to Jerry Tokoph, President of HV's Managing Member, advising that UIU wanted to substitute a LOC from Bankers Trust for the Wells Fargo LOC. UIU wanted to substitute the Bankers Trust LOC because, unlike Wells Fargo, Bankers Trust did not require UIU to deposit funds to obtain the LOC. Thus, the proposed substitution would have allowed UIU access to the remaining funds on the Wells Fargo LOC; UIU, however, never communicated the reason for the request to HV. Dusenbery requested that HV execute documents to effectuate the substitution.
¶8 Tokoph forwarded the request to Steve O'Connor, HV's Controller, who told Dusenbery the LOC "is security for debt we have on the property," and the request would be sent to HV's lender for review. On October 23, 2014, Dusenbery asked O'Connor for a response to the request by 12:00 p.m. on October 27. O'Connor responded the same day that HV could not accept the transfer and the LOC needed to remain with Wells Fargo. Dusenbery requested an explanation for the denial, and O'Connor responded that it was "[b]ased on the financial strength of Wells Fargo," and that "[t]he lender and partners would prefer to keep the letter of credit with Wells Fargo."
¶9 On October 30, 2014, Christopher Kragnes, UIU's General Counsel and Chief Legal Officer, wrote a letter to O'Connor, arguing that because the Lease required only that the LOC be "substantially in the form attached hereto as Exhibit 'G,'" and the Bankers Trust LOC met those requirements, UIU did not need permission from HV for the substitution. He asserted that HV's refusal to accept the substitute LOC constituted an event of default and was "unreasonable, putative [sic], and an act of bad faith." He demanded that HV execute documents for the substitution by November 3, 2014. HV did not do so, and UIU took no further action until it vacated the premises, ceased making lease payments, and removed from the premises collateral in which HV had a perfected security interest — all on or about June 30, 2015. Meanwhile, as of May 1, 2015, the Wells Fargo LOC was reduced to $300,000 in accordance with the terms of the Lease.
¶10 On July 2, 2015, HV notified UIU that it was in material breach of the Lease, failure to timely tender rent and other payments would trigger an event of default, and HV intended to draw upon the Wells Fargo LOC.
On July 24, HV again notified UIU that it was in material breach of the Lease, by failing to pay rent and return the collateral taken by UIU.
¶11 On August 5, 2015, HV filed a complaint against UIU, alleging breach of the Lease and conversion of collateral. UIU then filed an answer and counterclaim, seeking a declaratory judgment and injunctive relief.
¶12 In November 2015, HV moved for partial summary judgment on liability. UIU responded and cross-moved for summary judgment, arguing that HV's refusal to accept the substitute LOC constituted a material breach, thereby excusing UIU's continued performance under the Lease. HV maintained that its refusal to accept the proposed substitute LOC did not constitute a breach, and even if it did, the breach was not material and did not excuse UIU from performing.
¶13 On January 15, 2016, the superior court held oral argument on the cross-motions and took the matter under advisement. On March 15, 2016, the court issued a minute entry granting HV's motion for partial summary judgment as to liability on HV's claim for breach of the Lease and denying UIU's cross-motion for summary judgment. The court's grant of partial summary judgment left open the issues of damages on HV's breach of Lease claim, as well as any liability and damages for conversion.1
¶14 Before trial, UIU filed a motion in limine to preclude HV from presenting evidence as to various calculated damages, including evidence supporting HV's entitlement to HVAC expenses. The court granted UIU's motion in part, but permitted the admission of evidence regarding the HVAC repair and maintenance costs.
¶15 On February 14, 2017, the superior court held trial on the remaining issues. At conclusion of the trial, the court ordered counsel to file closing arguments and took the matter under advisement. Later, in a minute entry dated June 9, 2017, the court granted judgment as a matter of law, see Ariz. R. Civ. P. 50, in favor of UIU on HV's conversion claim after concluding it would result in an impermissible double recovery, but determined that HV was entitled to additional damages in the amount of $63,921 (including $15,681 for HVAC maintenance) for UIU's breach of the Lease.
¶16 On September 18, 2017, the superior court issued a signed judgment in favor of HV on its breach of contract claim against UIU, awarding HV damages in the principal amount of $63,921 and prejudgment interest in the amount of $4,840.30 as of July 5, 2017, plus accruing interest. The court entered judgment in favor of UIU on HV's conversion claim. Finally, the court awarded HV attorneys' fees in the amount of $133,492 and costs in the amount of $2,573.76, plus interest.
¶17 UIU filed a timely notice of appeal. We have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(A)(1).
¶18 UIU argues the superior court erred in granting HV's motion for partial summary judgment as to UIU's liability for breach of the Lease. In concluding UIU materially breached the Lease, the court concluded HV did not breach an express provision of the Lease, no reasonable juror could find that HV breached the implied covenant of good faith and fair dealing, and even if the court was incorrect about the existence of a breach by HV, the alleged breach was, as a matter of law, immaterial. Thus, the court concluded as a matter of law that UIU's performance was not excused by HV's refusal to allow a substitution of the Wells Fargo LOC.
¶19 We review de novo a superior court's grant of summary judgment, construing the facts and reasonable inferences in the light most favorable to the opposing party. Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12 (2003); Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 482, ¶ 13 (2002). Summary judgment is appropriate if no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Orme Sch. v. Reeves, 166 Ariz. 301, 309 (1990); Ariz. R. Civ. P. 56(a). Further, we will affirm summary judgment if the facts produced in support of the claim or defense have so little probative value, given the quantum of evidence required, that no reasonable person could find for its proponent. Orme Sch., 166 Ariz. at 309. The existence of cross-motions for summary judgment generally underscores the absence of material factual disputes underlying an issue. See United Metro Materials, Inc. v. Pena Blanca Props., L.L.C., 197 Ariz. 479, 480 n.1 (App. 2000); LaBombard v. Samaritan Health Sys., 195...
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