Spirit Master Funding IV LLC v. Martinsville Corral Inc., CV-14-00720-PHX-GMS
| Decision Date | 14 September 2016 |
| Docket Number | No. CV-14-00720-PHX-GMS,CV-14-00720-PHX-GMS |
| Parties | Spirit Master Funding IV LLC, Plaintiff, v. Martinsville Corral Incorporated, Victor Spina, Amber Spina, William Spina, Beth Spina, Defendants. |
| Court | U.S. District Court — District of Arizona |
On August 11, 2016, this matter was tried to the Court without a jury. Pursuant to Federal Rule of Civil Procedure 52, the Court hereby makes its findings of fact and conclusions of law.
This case arises out of a lease agreement (the "Lease Agreement") between Plaintiff Spirit Master Funding IV LLC ("Spirit Master") and Defendant Martinsville Corral Incorporated ("MCI"). Defendants Victor Spina, Amber Spina, William Spina and Beth Spina are the guarantors of the lease. Plaintiff filed suit in this Court on April 7, 2014, alleging that Defendants had breached the Lease Agreement. Early proceedings in litigation disposed of several of Plaintiff's claims. After competing motions for partial summary judgment, the Court found that MCI had, by failing to submit timely financial statements, committed a breach of the lease that was not sufficiently material to allow foreclosure.
/ / / In the Final Pretrial Order of June 11, 2016, the parties stipulated that the only contested issue of fact was "[w]hether Plaintiff incurred damages as a result of Martinsville's failure to submit timely financial statements." The only contested issue of law was "[w]hether Spirit [Master] is entitled to recover attorneys' fees as damages." The parties disagree as to whether this question should be answered by Arizona or Indiana law.
1. The Lease Agreement contains a choice of law provision providing that "[t]his Lease shall be governed by, and construed with, the laws of the state in which the Property is located, without giving effect to any state's conflict of law principles." (Lease Agreement § 17.19.)
2. The Property to which the Lease Agreement refers is located in the state of Indiana.
3. The Lease Agreement was attached to Plaintiff's Complaint, filed on April 7, 2014.
4. Spirit Master's Response to MCI's Motion to Dismiss, filed on June 16, 2014, contained no references or citations to Indiana law.
5. The Lease Agreement was attached to Plaintiff's Amended Complaint, filed on September 3, 2014.
6. On September 18, 2015, Plaintiff submitted a Motion for Partial Summary Judgment, which included two citations to Indiana cases and, in a footnote, a reference to the Lease Agreement's choice of law provision. (Doc. 79 at 7 & n.2.)
7. On March 21, 2016, this Court ruled that MCI had breached the Lease Agreement by its failure to submit timely financial statements, but that this breach was not a material breach.
8. On March 21, 2016, this Court ruled that Spirit Master's damages as a result of this breach were those, if any, "that accrued as a result of the delay in submission" of the financial statements.
9. On March 21, 2016, this Court ruled that a genuine issue of material factexisted as to whether Spirit Master suffered damages as a result of MCI's failure to submit timely financial statements.
10. On June 10, 2016, Plaintiff submitted Proposed Findings of Fact, which included six citations to Indiana cases and, in a footnote, a reference to the Lease Agreement's choice of law provision. (Doc. 104 at 4 & n.1, 5.)
11. As of August 29, 2016, Spirit Master has not presented evidence as to the amount, if any, of Spirit Master's damages as a result of MCI's failure to submit timely financial statements apart from a claim to recover its attorneys' fees pursuant to the lease.
12. The Lease Agreement provides that: (Lease Agreement § 17.07.)
Plaintiff seeks attorneys' fees as damages in accordance with the terms of the Lease Agreement. Under Indiana law, attorneys' fees may be awarded pursuant to a contractual provision, subject to a judicial determination of reasonableness. Absent a contract, statute, or other exception, however, a court has no discretion to award attorneys' fees to a prevailing party. See Kokomo Med. Arts Bldg. P'ship v. William Hutchens & Assocs., 566 N.E.2d 1093, 1096 (Ind. Ct. App. 1991). Under Arizona law, by contrast, a court may award reasonable attorneys' fees to a prevailing party. Ariz. Rev. Stat. Ann. ("A.R.S.") § 12-341.01(A) (2016). Additionally, Arizona law provides for contractual modification of the default statutory rule. Id. Therefore, while Plaintiff has the potential to recover attorneys' fees pursuant to the Lease Agreement under either state's law, Defendants couldrecover fees under Arizona law if determined to be the prevailing party.
A federal court sitting in diversity applies the choice of law rules of the state in which it sits. Abogados v. AT&T, Inc., 223 F.3d 932, 934 (9th Cir. 2000) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). As this Court sits in Arizona, it applies Arizona choice of law rules.1 In a contract action, Arizona follows the Restatement (Second) of Conflict of Laws ("Restatement"). Swanson v. Image Bank, Inc., 206 Ariz. 264, 266, 77 P.3d 439, 441 (2003). Where, as here, the contract includes a choice of law provision, § 187 of the Restatement provides the test for whether that provision is "valid and effective." Id. (quoting Cardon v. Cotton Lane Holdings, Inc., 173 Ariz. 203, 207, 841 P.2d 198, 202 (1992)). Under § 187, a court must first decide whether the "particular issue"—here, attorneys' fees—"is one which the parties could have resolved by an explicit provision in their agreement directed to that issue." Restatement § 187(1). If the answer to that question is yes, then the choice of law clause is valid and effective. See Cardon, 173 Ariz. at 203-04. If the answer is no, then a court must still find the provision valid and effective unless one of two conditions hold: Either the state chosen in the provision "has no substantial relationship to the parties or the transaction and there is no reasonable basis for the parties' choice," or application of the chosen state's law "would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which . . . would be the state of the applicable law in the absence of the choice of law provision. Restatement § 187(2).
Here, the first step in the Restatement inquiry answers the question. Arizona statutory law on the issue of attorneys' fees expressly allows for contractual provisions tomodify the default statutory rule. See A.R.S. § 12-341.01(A) (2016) (); Bennett v. Appaloosa Horse Club, 201 Ariz. 372, 378, ¶ 26, 35 P.3d 426, 432 (App. 2001).2 The choice of law provision in the Lease Agreement is therefore valid and effective, and in accordance the Court applies Indiana law.
A litigant may be estopped from asserting inconsistent positions in the same or different litigation under the doctrine of judicial estoppel. This doctrine "prohibit[s] parties from deliberately changing positions according to the exigencies of the moment." New Hampshire v. Maine, 532 U.S. 742, 749-50 (2001) (internal quotation marks and citations omitted). In federal court, the federal law of judicial estoppel applies. See Rissetto v. Plumbers & Steamfitters Local 343, 94 F.3d 597, 603 (9th Cir. 1996). Defendants argue that Plaintiff should be estopped from arguing that Indiana law applies, based on Plaintiff's repeated references throughout this lawsuit to Arizona law. Under Ninth Circuit precedent, however, this argument fails.
The Ninth Circuit looks to three factors, originally formulated by the Supreme Court in New Hampshire v. Maine, to determine whether to apply judicial estoppel. See United States v. Kim, 806 F.3d 1161, 1167 (9th Cir. 2015). According to the Ninth Circuit:
When determining whether judicial estoppel is warranted, we look to three factors: (1) "a party's later position must be 'clearly inconsistent' with its earlier position"; (2) whether the party succeeded in its prior position, because "[a]bsent success in a prior proceeding, a party's later inconsistent position introduces no 'risk of inconsistent court determinations'"; and (3) "whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped."
Id. (quoting New Hampshire, 532 U.S. at 750-51) (internal quotation marks and citationsomitted). The Supreme Court cautioned that these factors do not represent a "precise formula," but merely "inform the decision" as to whether to apply judicial estoppel. New Hampshire, 532 U.S. at 743.
Here, although Plaintiff repeatedly cited Arizona law in its motions, Plaintiff never specifically argued that Arizona law, rather than Indiana law, applied. See Gen. Signal Corp. v. MCI Telecomms. Corp., 66 F.3d 1500, 1505 (9th Cir. 1995) (). Indeed, Plaintiff on several occasions throughout the litigation asserted the applicability of Indiana...
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