S & S Holdings, LLC v. Am. Green, Inc.

• Decision Date: 23 August 2022
• Docket Number: 1 CA-CV 21-0433
• Court: Arizona Court of Appeals
• Parties: S & S HOLDINGS, LLC, Plaintiff/Appellant/Cross-Appellee, v. AMERICAN GREEN, INC., Defendant/Appellee/Cross-Appellant.

S & S HOLDINGS, LLC, Plaintiff/Appellant/Cross-Appellee, v. AMERICAN GREEN, INC., Defendant/Appellee/Cross-Appellant.

No. 1 CA-CV 21-0433

Court of Appeals of Arizona, First Division

August 23, 2022

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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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 No. CV2020-016733 The Honorable David W. Garbarino, Judge

Dorsey & Whitney LLP, Phoenix By Isaac M. Gabriel, Julie P Walters Counsel for Plaintiff/Appellant/Cross-Appellee

Wilenchik & Bartness PC, Phoenix By Dennis I. Wilenchik John D. Wilenchik, Ross P. Meyer Counsel for Defendant/Appellee/Cross-Appellant

Judge Randall M. Howe delivered the decision of the court, in which Presiding Judge Jennifer B. Campbell and Judge James B. Morse Jr. joined.

MEMORANDUM DECISION

HOWE JUDGE

¶4Appellant S & S Holdings, LLC ("S&S") challenges the superior court's ruling finding its commercial tenant, American Green, Inc. ("American Green"), not guilty of forcible detainer. S&S also challenges the denial of its motion for summary judgment. American Green cross-appeals, contending the court's attorney fee award was insufficient. We affirm on all issues except for the court's determination of rent under the parties' extension agreement for the current and future option terms, which we vacate.

FACTUAL AND PROCEDURAL HISTORY

¶5Shane Howell, the owner of S&S, operates a swimming pool rebar company under the trade name "Scholz Rebar." Howell bought Scholz Rebar in 2007; at that time, the company operated out of a Phoenix building with a "Scholz Rebar" sign on it (the "Building"). S&S now owns the Building.

¶6In November 2014, S&S and American Green entered into a one-year commercial lease for the Building (the "Lease"). The Lease provided that the Scholz Rebar sign remain in place on the Building and that American Green not unilaterally alter the roof without S&S's prior written approval and use a contractor S&S chose or approved. Under section 13.1 of the Lease, the "Lessee" defaults on the Lease if it fails to "comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease." It also stated that a breach of the Lease included "[a] Default by Lessee as to the terms, covenants, conditions or provisions of this Lease . . . where such Default continues for a period of 30 days after written notice." Lastly, the Lease's waiver provision, section 12.2 said that "[n]o waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof."

¶7Shortly before the Lease expired, the parties entered a "Lease Extension" (the "Extension") effective December 1, 2015. The Extension called for an initial five-year term with three tenant options to renew and gave American Green "the first option to purchase this building in the event [S&S] chooses to sell this property." The Extension also allowed S&S to "remain/occupy [its] current office area for up to 8 months" and provided that the Scholz Rebar sign would "remain in place on [the] [B]uilding."

¶8In 2017, American Green had some work done to improve the roof. In that same year, either American Green or a contractor it retained removed the Scholz Rebar sign. The parties exchanged text messages in May 2017 in which Howell told American Green the sign was "part of the [L]ease" and that he needed it. In June 2017, American Green told Howell that the Scholz Rebar sign had been "scrapped so we need to revisit about how to replace it." The parties disputed whether they had further discussions about the sign, but American Green never replaced it.

¶9On June 5, 2020, American Green exercised the first Extension option. In August 2020, a storm damaged the roof. American Green retained the same contractor it had used earlier to repair the roof. S&S reimbursed American Green and filed a claim with its insurer, who paid the claim. Shortly thereafter, Howell, while reviewing photographs of the August 2020 roof damage, discovered the previous roof work.

¶10 On October 15, 2020, S&S sent a notice of default to American Green alleging it had violated the Lease provision "requiring the Scholz [Rebar] sign to remain in place on the [B]uilding" and the roof provision. S&S demanded that American Green "(i) cure the Sign Default, and (ii) reimburse Landlord $11,000 for the damages sustained relating to the Roof Default." It cited section 39.4 of the Lease, which stated that "[a]n Option shall terminate and be of no further force and effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase . . . (ii) if Lessee commits a Breach of this Lease."

¶11 S&S also claimed that American Green's exercise of the first Extension option would not be effective unless the parties agreed on "the amount of rent to be paid for the next 5 years." The letter also said that because the Lease expressly provided that "Option shall terminate and be of no further force or effect . . . if Lessee commits a Breach of this Lease," if the Defaults were not timely cured, the option would be deemed automatically terminated, and S&S would require American Green to vacate the Building "no later than November 30, 2020." American Green did not cure the defaults and S&S sent a second letter in December 2020 demanding that American Green vacate the Building. American Green refused.

¶12 S&S sued for forcible entry and detainer ("FED"). In its motion for summary judgment, S&S argued that American Green breached the Lease when it removed the sign and altered the roof. Although S&S notified American Green that it had defaulted under the Lease and explained how it could cure the defaults, American Green did not cure the defaults, which meant that any potential option had been automatically terminated and it had no right to possess the Building. American Green responded that any alleged default was de minimis and also moved for summary judgment.

¶13 On the first day of the bench trial on the FED action, the court expressed reluctance to grant summary judgment to either side because fact questions remained: (1) whether the sign and roof issues S&S identified were material breaches of the Lease; and (2) "what the intent was with respect to the Option." At trial, Howell testified that American Green's roof work in 2017 caused or exacerbated the August 2020 roof damage. He admitted, however, that S&S' insurer paid for the whole roof except for a $1,000 deposit. He further testified that he expected the sign to remain, which is why it was a material term in the Lease and why he had continued conversations with American Green about the sign. Conversely, American Green's chairman, David Gwyther, testified that 2017 roof work did not substantially alter or modify the roof. And both Howell and American Green's Chief Operating Officer, Jonathon Green, testified to what rent would be for Extension. No one disputed that American Green had invested over $3 million dollars into the property.

¶14 The court found American Green not guilty of forcible detainer and denied both summary judgment motions as moot. It found that S&S had "waived its rights to pursue return of possession of the premises based upon the removal of the sign." It then applied Restatement (Second) of Contracts § 241 to find that American Green had not materially breached the roof provision. The trial court found that American Green validly exercised its option and then determined that "[t]he current monthly rate in effect for the month of November 2020" - $6,000 plus triple net-would be "the operable monthly rate for the options going forward."

¶15 American Green requested attorney fees totaling $67,433.02 under A.R.S. § 12-341.01(A), the Lease, and the Extension. S&S objected to the fee application on numerous grounds. The court awarded American Green $30,000 in fees. S&S then timely appealed from the court's final judgment, and American Green filed a timely notice of cross-appeal. We have jurisdiction over the appeal and cross-appeal under A.R.S. § 12-2101(A)(1).

DISCUSSION

¶16S&S argues that the court erred in finding American Green had validly exercised its option and therefore had right to possess the Building and that the court erred in denying it summary judgment. American Green cross-appeals the trial court's reduction in attorney fees. We review the trial court's legal conclusions, including its summary judgment ruling, de novo but will defer to its finding of fact unless they are clearly erroneous. Town of Marana v. Pima Cnty., 230 Ariz. 142, 152 ¶ 46 (App. 2012). A fact finding is not clearly erroneous if substantial evidence supports it even if the evidence is conflicting. Castro v. Ballesteros-Suarez, 222 Ariz. 48, 51-52 ¶ 11 (App. 2009). We review the trial court's fee award for an abuse of discretion. Iverson v. Nava, 248 Ariz. 443 451 ¶ 27 (2020).

I. Summary Judgment

¶17S&S argues that the court should have granted it summary judgment because American Green did not file a controverting statement of facts with its response, citing Ariz. R. Civ. P. 56(e). Although an order denying summary judgment typically is not appealable even after entry of a final judgment, Cal X-Tra v. W.V.S.V. Holdings, L.L.C., 229 Ariz. 377, 409 n. 50 ¶ 105 (App. 2012), we may review a purely legal issue where "the facts are not merely undisputed but immaterial," Ryan v. San Francisco Peaks Trucking Co., 228 Ariz. 42, 48 ¶ 20 (App....