SPUS8 Dakota LP v. KNR Contractors LLC

• Decision Date: 16 November 2022
• Docket Number: CV-19-05477-PHX-MTL
• Parties: SPUS8 Dakota LP, et al., Plaintiffs, v. KNR Contractors LLC, et al., Defendants.
• Court: U.S. District Court — District of Arizona

SPUS8 Dakota LP, et al., Plaintiffs,
v.
KNR Contractors LLC, et al., Defendants.

No. CV-19-05477-PHX-MTL

United States District Court, D. Arizona

November 16, 2022

ORDER

MICHAEL T. LIBURDI, UNITED STATES DISTRICT JUDGE

The matter is before the Court on Defendants KNR Contractors LLC (“KNR”), John and Crystal Keener's (the “Keeners”),^[1] Plaintiffs SPUS8 Dakota, LP and SPUS8 Pinnacle, LP's (collectively, “Dakota”), and Defendants Oddonetto Granite and Marble, LLC and John Oddonetto's (collectively, “Oddonetto”) Motions for Summary Judgment (Docs. 194, 195, 198). The Court rules as follows.^[2]

I. BACKGROUND

The Court has previously laid out the factual background of this dispute and will only briefly reiterate it here. (Doc. 171 at 1-3; Doc. 220 at 1-4.) The claims at issue concern a contract dispute between the parties. Dakota owns a multi-family residential apartment complex in Scottsdale, Arizona, known as “Kota.” (Doc. 171 at 1.) Dakota contracted with KNR to renovate Kota. (Id.) The renovation contracts set forth a commencement date of

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September 10, 2018 and a completion date of September 10, 2022. (Doc. 117 at 3.) On October 2, 2018, Dakota paid KNR a total of $1,428,700.72 for a portion of the renovation materials. (Doc. 108 at 3.) While Dakota believed that KNR would source all the renovation materials from Chinese suppliers, KNR actually subcontracted with Oddonetto for granite countertops and sinks. (Id.)

A few months after KNR contracted with Oddonetto to procure, supply, and install the granite countertops and sinks for the Kota project, Dakota suspected that some of its ordered product was missing. (Id. at 3-4.) After disputes regarding payment between KNR and Dakota arose, KNR cancelled the renovation contracts on April 29, 2019. (Id.) After KNR cancelled the contracts, the renovation materials remained in its exclusive control and a final joint inventory of all the materials was conducted. (Id. at 4.) The inventory revealed that all of the granite countertops and sinks were missing. (Id.) In October of 2019, KNR and Dakota contacted Oddonetto to take inventory of the granite countertops and sinks, but Oddonetto stated that it did not have any of them prepared. (Doc. 220 at 2.) In the background, KNR Contractors LLC, a Texas LLC, had its right to transact business forfeited by the state of Texas on September 21, 2018. (Doc. 108 at 5.)

Dakota alleges that it is missing a total of $767,266.28 in pre-paid construction materials-inclusive of the $566,600 for the granite countertops and sinks. The Court previously granted summary judgment in Dakota's favor on its breach of contract claim against KNR - finding that KNR breached its contract with Dakota in so far as the granite countertops and sinks were not delivered and awarding Dakota $566,600 in money damages plus pre-judgment and post-judgment interest. (Doc. 171 at 10.) The Court also previously granted summary judgment in favor of KNR with respect to Oddonetto's crossclaims against it. (Doc. 220 at 10.)

II. LEGAL STANDARD

Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A

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genuine issue of material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party,” and material facts are those “that might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). At the summary judgment stage, “[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [its] favor.” Id. at 255; see also Jesinger v. Nev. Fed. Credit Union, 24 F.3d 1127, 1131 (9th Cir. 1994) (“The court must not weigh the evidence or determine the truth of the matters asserted but only determine whether there is a genuine issue for trial.”). That said, “[w]hen opposing parties tell two different stories, one of which is blatantly contradicted by the record, so that no reasonable jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment.” Scott v. Harris, 550 U.S. 372, 380 (2007).

“[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A party opposing summary judgment must “cit[e] to particular parts of materials in the record” establishing a genuine dispute or “show[] that the materials cited do not establish the absence . . . of a genuine dispute.” Fed.R.Civ.P. 56(c)(1). The Court has no independent duty “to scour the record in search of a genuine issue of triable fact.” Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996). “[W]hen parties submit cross-motions for summary judgment, [e]ach motion must be considered on its own merits,” but the Court must consider all evidence submitted in support of both cross-motions when separately reviewing the merits. Fair Hous. Council of Riverside Cty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001) (internal marks omitted).

III. DISCUSSION

A. KNR's Motion for Summary Judgment

KNR moves for summary judgment on Counts VII, IX, and X of Plaintiffs' Fourth Amended Complaint (the “Complaint”). (Doc. 194 at 2.) That is, KNR asks for summary

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judgment on Dakota's “claims of fraud, fraudulent transfer, and piercing the corporate veil.” (Id.) The Court rules on the motion as follows.

i. Fraud

To maintain an action for fraud under Arizona law, “a plaintiff must sufficiently plead: (1) a representation, (2) its falsity, (3) its materiality, (4) the speaker's knowledge of its falsity or ignorance of its truth, (5) the speaker's intent that it be acted upon by the recipient in the manner reasonably calculated, (6) the hearer's ignorance of its falsity, (7) the hearer's reliance on its truth, (8) the right to rely on it, and (9) a consequent and proximate injury.” Arnold & Assocs., Inc. v. Misys Healthcare Sys., a div. of Misys, PLC, 275 F.Supp.2d 1013, 1027 (D. Ariz. 2003) (citing Nielson v. Flashberg, 101 Ariz. 335, 338-39 (1966) (in division)). In determining whether the elements of fraud are present, “a court looks to the face of the complaint.” Id. (citing Stewart v. Phoenix Nat'l Bank, 49 Ariz. 34, 41 (1937)). “[A]n action for damages cannot be maintained on the ground of fraud in refusing to perform the contract, even though the defendant at the time of making the oral contract may have had no intention of performing it.” Lininger v. Solenblick, 23 Ariz. 266, 269 (Ct. App. 1975) (internal marks and citation omitted). Importantly, “breach of a contract is not fraud.” Trollope v. Koerner, 106 Ariz. 10, 19 (1970).

KNR asserts that it committed no fraud and that Dakota cannot prove that its damages were caused by any fraud. (Doc. 194 at 4.) KNR maintains that there is no evidence that it “ever had any knowledge of any falsity or intent to deceive [Dakota] with regard to any relevant issues or damages,” and that there is “no causation.” (Id. at 5.) Dakota counters that KNR made numerous false representations in inducing Dakota to contract with KNR for the renovation construction materials. (Doc. 207 at 9.) Specifically, Dakota states that it “would have never contracted with KNR but for the numerous representations regarding its national presence, size, license and experience.” (Id.) But as the Court has previously found, there remains a factual dispute as to when KNR was on notice that its right to transact business in Texas had been forfeited. (Doc. 171 at 3.) The Court finds that this, coupled with Dakota's allegations of reliance, creates a genuine issue

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of material fact for trial.

For the first time in its reply brief, KNR argues that the economic loss doctrine prevents Dakota from recovery on its claim for fraud. (Doc. 218 at 2.) The Court has no obligation to consider arguments raised for the first time in a reply brief and declines to do so here. See e.g., Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007) (holding that a “district court need not consider arguments raised for the first time in a reply brief”) (citing Koerner v. Grigas, 328 F.3d 1039, 1048 (9th Cir. 2003)); Bazuaye v. INS, 79 F.3d 118, 120 (9th Cir. 1996) (“Issues raised for the first time in the reply brief are waived.”). Having failed to convince the Court of the absence of any genuine issues of material fact, KNR has not carried its burden with respect to Dakota's fraud claim.

ii. Fraudulent Transfer

The Keeners and Dakota have filed cross-motions for summary judgment on the fraudulent transfer claim.

Arizona has enacted the Uniform Fraudulent Transfer Act (“UFTA”).^[3] See State ex rel. Indus. Comm'n of Ariz. v. Wright, 202 Ariz. 255 (Ct. App. 2002). Under the UFTA, fraudulent transfers are divided into two subcategories: actual and constructive. Hullett v. Cousin, 204 Ariz. 292, 295 (2003). A transfer is constructively fraudulent if the debtor made it “without receiving a reasonably equivalent value in exchange” and “the debtor was insolvent at that time or became insolvent as a result of the transfer.” A.R.S. § 44-1005. Claims of actual fraudulent transfer require a defendant to have acted with “actual intent.” See A.R.S. § 44-1004(A)(1). Although not clearly articulating which subcategory it claims the Keeners violated, Dakota appears to allege both constructive and actual fraudulent transfer. (Doc. 123 at 16.) Dakota alleges that the funds it paid KNR were fraudulently transferred by the Keeners. (Id.)

As to its actual fraud claim, Dakota contends that the transfers were made “[w]ith an actual...