Kelly v. Kino Springs Golf, L.L.C., 2 CA-CV 2012-0072

CourtCourt of Appeals of Arizona
PartiesALAN KELLY and WANDA KELLY, husband and wife, Plaintiffs/Appellants/Cross-Appellees, v. KINO SPRINGS GOLF, L.L.C., an Arizona limited liability company; KINO SPRINGS RANCH, L.L.C., an Arizona limited liability company, Defendants/Appellees/Cross-Appellants.
Docket Number2 CA-CV 2012-0072
Decision Date04 June 2013

ALAN KELLY and WANDA KELLY, husband and wife, Plaintiffs/Appellants/Cross-Appellees,
v.
KINO SPRINGS GOLF, L.L.C., an Arizona limited liability company; KINO SPRINGS RANCH, L.L.C.,
an Arizona limited liability company, Defendants/Appellees/Cross-Appellants.

2 CA-CV 2012-0072

COURT OF APPEALS STATE OF ARIZONA DIVISION TWO DEPARTMENT A

FILED: June 4, 2013


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Not for Publication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 SANTA CRUZ COUNTY

Cause No. CV08044

Honorable James A. Soto, Judge

AFFIRMED AS MODIFIED

James F. Miller

Nogales

and

José M. Lerma

Nogales
Attorneys for Plaintiffs/
Appellants/Cross-Appellees

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Sanders & Parks, P.C.
By G. Gregory Eagleburger

Phoenix
Attorneys for Defendants/
Appellees/Cross-Appellants

ECKERSTROM, Presiding Judge.

¶1 This appeal concerns a contract action stemming from a real estate development project. After the jury returned a verdict in favor of the plaintiffs Alan and Wanda Kelly and awarded them damages of $2,000,000, the trial court granted the motion for a new trial filed by defendants Kino Springs Golf, L.L.C., and Kino Springs Ranch, L.L.C. (collectively "Kino"), finding the Kellys had "failed to establish . . . damages with reasonable certainty as required by Arizona law." On appeal, the Kellys maintain this determination was erroneous. In its cross-appeal, Kino contends the court erred by refusing to grant judgment as a matter of law (JMOL) on the issue of damages. Kino additionally argues in the alternative that the court erred by ordering retrial only as to damages, not liability. For the reasons that follow, we affirm the court's grant of Kino's motion for new trial, but we modify the court's order by removing the restriction limiting the new trial to the issue of damages. See Ehman v. Rathbun, 116 Ariz. 460, 464, 569 P.2d 1358, 1362 (App. 1977).

Factual and Procedural Background

¶2 We view the evidence presented below in the light most favorable to upholding the jury's verdict. See Earle M. Jorgensen Co. v. Tesmer Mfg. Co. (Jorgensen), 10 Ariz. App. 445, 446, 459 P.2d 533, 534 (1969).

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¶3 After establishing and running an "eco resort" in Montana for over a decade, the Kellys moved to Arizona in search of other development opportunities. In 2002, they acquired nearly 170 acres of land in Santa Cruz County through a land swap agreement with Kino, which was an adjacent landowner. The agreement required Kino "to reasonably cooperate with" the Kellys "in obtaining any appropriate zoning, abandonment, amendments to CC&Rs and replatting" for the Kellys' new planned resort. The agreement also called for Kino to "expeditiously" supply the Kellys' property with an electrical power line. The evidence suggested, however, that Kino failed to cooperate in reconfiguring the Kellys' land, and Kino did not provide a power line to the property until 2008.

¶4 The Kellys filed a complaint that year for breach of contract seeking, inter alia, consequential damages in the form of expenses and lost profits. The Kellys' development plans had included building and operating a resort called Vermilion Mountain Ranch, as well as constructing and selling five "lodge homes" on their property. They built one of these lodge homes in 2008, after power became available. Alan Kelly and a general contractor who served as a consultant on the project, Hector Ruvalcaba, testified it cost approximately $400,000 to construct the lodge home, which was consistent with Alan's ledger of expenses admitted as an exhibit. A real estate broker, Lois Cooper, testified that the value of the lodge homes in 2005 would have been $660,000 each. Alan thus testified the lost profits from the five lodge homes were at least $750,000.

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¶5 In addition to seeking lost profits from these sales, the Kellys sought to recover their actual expenses incurred in developing the lodge home and in making other improvements that would not have been made unless the new resort could have been built as planned. According to Alan's testimony, these costs totaled $90,000, and they included the costs for water lines, a water well, a barn, corrals, and fencing.

¶6 With respect to the resort, Alan provided much of the testimony related to its lost profits based on his own expertise and past experiences. For nearly fifteen years, during the 1980s and 1990s, the Kellys had owned and operated a luxury resort in Montana called Eagle's Nest Lodge. Before starting this business, Alan had received a bachelor's degree in biology and had worked as a fishery biologist and project leader with the United States Fish and Wildlife Service. The Montana resort he operated with Wanda catered to an "exclusive clientele" and offered its guests the chance to fish along the Bighorn River, which Alan described as "the number one trout stream in the world." The resort also provided guests with opportunities to see the natural habitat, tribal lands, and wildlife in the area.

¶7 For twelve years during this same period of time, Alan also served in a partnership with a company known as Orvis. In this capacity, he evaluated the accommodations, activities, and dining offered by other luxury resorts in various states and countries for the purpose of providing Orvis's endorsement. He also developed the criteria for making such evaluations.

¶8 In regard to the Arizona resort, the Kellys apparently planned on funding it themselves, and Alan estimated his initial costs to construct the resort would be

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$2,405,000. He testified the resort would offer its clients horseback riding, hiking, and astronomy. Given his past experiences, Alan believed his planned ranch would attract similar clients as his Montana lodge because such clients primarily desire a new experience in different surroundings, and the "high-desert country" offered a unique habitat. Alan testified that he could have charged $1,000 per night for each guest, half of which would have been profit. He planned for the resort to accommodate up to twenty-four guests and to operate five days per week for six months of the year. Assuming varying occupancy rates between twenty-five and one-hundred percent between the years 2004 and 2007, Alan thus calculated his operating profits at $3,240,000, for a total of $835,000 in net profits that were never realized from the resort.

¶9 Kino had filed a pretrial motion, which the trial court denied, seeking to preclude much of this evidence of damages on the grounds that it was speculative and lacked an adequate evidentiary basis. Kino then raised unsuccessful challenges and objections during trial to the evidentiary foundation of the damages. Before the case was submitted to the jury, Kino challenged the evidence supporting the Kellys' damages in a motion for JMOL filed pursuant to Rule 50(a), Ariz. R. Civ. P., which the trial court denied. After the jury returned its verdict in favor of the Kellys, Kino filed a renewed motion for JMOL or, in the alternative, a motion for a new trial pursuant to Rule 59(a), Ariz. R. Civ. P. The court again denied the JMOL motion, but it granted a new trial on the issue of damages.

¶10 In the trial court's written ruling, it noted that Alan "did not compare or contrast [the anticipated profits from the Vermilion Mountain Ranch] with any

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specificity, either in his testimony or by way of documentation, to the revenues, expenses, profits, or profit margins he earned or presumably earned at Eagle's Nest Lodge." The court further observed that Alan's work with Orvis only involved assessing the quality of services provided by various resorts, not analyzing their expenses or profitability. The court also found there was no evidence presented as to the revenues, expenses, or profitability of any businesses comparable to what Alan envisioned operating in Arizona. Based on these and other findings, the court concluded the evidence of damages lacked foundation and was not proven with "reasonable certainty" as required by the law. The Kellys filed a timely notice of appeal from the ruling. See A.R.S. § 12-2101(A)(5)(a); Ariz. R. Civ. App. P. 9(a); Ariz. R. Civ. P. 54(a), 58(a). Kino's timely cross-appeal followed.

New Trial

Grant of New Trial

¶11 The Kellys maintain their damages were properly proven and the trial court erred in setting aside the jury's verdict. We review an order granting a new trial for a clear abuse of discretion. Koepnick v. Sears Roebuck & Co., 158 Ariz. 322, 325, 762 P.2d 609, 612 (App. 1988). A court abuses its discretion if it commits an error of law in the process of making a discretionary determination. Romer-Pollis v. Ada, 223 Ariz. 300, ¶ 12, 222 P.3d 916, 918-19 (App. 2009).

¶12 As noted above, the court granted a new trial here based upon its finding that the Kellys had "failed to establish . . . damages with reasonable certainty as required by Arizona law." The legal sufficiency of evidence is a question of law we review de

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novo. See McBride v. Kieckhefer Assocs., Inc., 228 Ariz. 262, ¶¶ 8, 10, 265 P.3d 1061, 1063-64 (App. 2011); see also A...

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