S S Holdings v. American Green ( 2022 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
S & S HOLDINGS, LLC, Plaintiff/Appellant/Cross-Appellee,
v.
AMERICAN GREEN, INC., Defendant/Appellee/Cross-Appellant.
No. 1 CA-CV 21-0433
FILED 8-23-2022
Appeal from the Superior Court in Maricopa County
No. CV2020-016733
The Honorable David W. Garbarino, Judge
AFFIRMED IN PART; VACATED IN PART
COUNSEL
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
S & S HOLDINGS v. AMERICAN GREEN
Decision of the Court
MEMORANDUM DECISION
Judge Randall M. Howe delivered the decision of the court, in which
Presiding Judge Jennifer B. Campbell and Judge James B. Morse Jr. joined.
H O W E, Judge:
¶4 Appellant 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
¶5 Shane 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.
¶6 In 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.”
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¶7 Shortly 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.”
¶8 In 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.
¶9 On 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
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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
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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
¶16 S&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
¶17 S&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. 2011) (internal quotation marks
omitted). Because the law is clear that “failure of the opposing party to file
controverting affidavits does not in and of itself make the granting of the
summary judgment appropriate,” N. Contracting Co. v. Allis-Chalmers Corp.,
117 Ariz. 374, 377 (1977) (internal quotation marks omitted), and the alleged
facts are material and do not raise a pure question of law, see Ryan, 228 Ariz.
at 48 ¶ 20, S&S cannot appeal the denial of summary judgment. Id.
II. The Trial
¶18 A forcible entry and detainer proceeding is a summary and
speedy statutory remedy for obtaining possession of premises by one
entitled to actual possession. Bank of N. Y. Mellon v. Dodev, 246 Ariz. 1, 10 ¶
31 (App. 2018). Whether the option is effective controls whether American
Green is entitled to possession. See A.R.S. § 12–1171(3); Heywood v. Ziol, 91
Ariz. 309, 311 (1962) (noting that the issue of possession “can only be
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determined after a presentation of the facts and attending circumstances
upon which the right to possession is claimed”).
¶19 In June 2020, American Green exercised its first option. S&S
does not argue this method was improper; it argues instead that American
Green’s default in removing the sign and making additions to the roof and
failure to cure after the notice of default, constituted a material breach of
the Lease rendering the exercise invalid under section 39.4 of the Lease. The
trial court found the exercise valid because S&S waived its right to
forfeiture for the sign provision and, even assuming no waiver, both the
sign and roof default were immaterial and therefore did not warrant
forfeiture.
A. The court did not err in determining that S&S has waived
American Green’s default under Lease’s sign provision.
¶20 A landlord may waive the right to declare a forfeiture. See,
e.g., Chadwick v. Winn, 101 Ariz. 533, 535 (1966). “Waiver is either the
express, voluntary, intentional relinquishment of a known right or such
conduct as warrants an inference of such an intentional relinquishment.”
Am. Cont’l Life Ins. Co. v. Ranier Const. Co., 125 Ariz. 53, 55 (1980). A party
waives its rights by conduct when the party engages in “acts inconsistent
with an intent to assert the right.” Id. At 55. Inasmuch as forfeitures are not
favored, slight acts will be construed as a waiver of the forfeiture. Chadwick,
101 Ariz. at 535. Whether a party has waived a right is a question of fact
reviewed for an abuse of discretion and will not be overturned unless
clearly erroneous. See N. Arizona Gas Serv., Inc. v. Petrolane Transp., Inc., 145
Ariz. 467, 477 (App. 1984). The court did not err in finding S&S waived the
right to declare a forfeiture.
¶21 S&S does not dispute that it knew that the sign had been
removed in 2017. It also concedes that it did not contend the sign removal
was a default under the Lease until October 2020. While Howell testified
that he had multiple conversations with American Green about the sign,
the court was free to discredit his vague testimony about these
conversations and we will not second-guess its determination on appeal.
See Double AA Builders, Ltd. V. Grand State Const. L.L.C., 210 Ariz. 503, 511
¶ 41 (App. 2005) (“Our duty on review does not include re-weighing
conflicting evidence.”). Furthermore, continual conversation about the sign
for three years rather than asserting a right to declare a default is a “slight
act” waiving the right to forfeiture of the Lease. See Chadwick, 101 Ariz. at
535.
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¶22 S&S nevertheless argues that because section 12.2 of the Lease
provides that no waiver “shall be deemed a waiver . . . of any subsequent
Default or Breach by Lessee of the same . . . term, covenant or condition
hereof,” it did not waive its right raise default and breach in 2020. Section
12.2 acknowledges, however, that S&S can waive a default or breach and
precludes waiver only based on a “subsequent” default or reach, which is
not what occurred here. Accordingly, the court did not err in finding that
S&S has waived forfeiture under the sign provision.
B. American Green’s purported roof default was not a material
breach.
¶23 “[A] tenant’s right to possession may not be conditioned on
perfect performance of a commercial lease, but may be forfeited only upon
a material breach.” Maleki v. Desert Palms Prof’l Properties, L.L.C., 222 Ariz.
327, 332 ¶ 24 (App. 2009). Arizona has adopted Restatement (Second) of
Contracts § 241 for determining whether a breach of a lease is trivial or
material. In determining whether a failure to render performance is
material, courts look at the extent that (1) a party will be deprived of a
reasonably expected benefit; (2) a party can be adequately compensated for
a deprived benefit; (3) a party will suffer forfeiture; (4) a party likely will
cure any failure, analyzing the totality of circumstances including any
reasonable assurances; and (5) the behavior of the party failing to perform
comports with good faith and fair dealing. Restatement (Second) of
Contracts § 241; Found. Dev. Corp. v. Loehmann’s, Inc., 163 Ariz. 438, 446
(1990). Whether a breach is sufficiently material to warrant forfeiture of a
leasehold is a question of fact. Id. at 446.
¶24 S&S did not identify any issues that would require curative
action to the roof beyond the 2020 repairs. Although S&S contended that
the roof breach forced it “to undertake a costly roof repair to ensure the
integrity of his building,” the record proves otherwise. First, the record is
unclear whether the 2017 roof work resulted in any “roof penetrations” or
whether anything was installed on the roof. Indeed, Gwyther testified that
the modification did not substantially alter or modify the roof. While
Howell opined that the earlier repairs American Green undertook caused
or exacerbated the August 2020 roof damage, the trial court was free to
weigh or reject his testimony as self-serving. See Graham v. Vegetable Oil
Products Co., 1 Ariz.App. 237, 241 (1965) (“[T]he trial court is not bound to
accept as true the uncontradicted testimony of an interested party.”).
Second, Howell admitted that S&S’s insurer “paid for the whole roof” and
that only $1,000 remained as an unreimbursed cost.
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¶25 Even assuming deprivation, S&S could pursue those damages
for any uncured, immaterial breaches in a separate lawsuit. See Colonial Tri-
City Ltd. P’ship v. Ben Franklin Stores, Inc., 179 Ariz. 428, 434 (App. 1993)
(“[C]laims and counterclaims for damages for breach of a lease . . . are not
issues to be determined in a forcible entry and detainer action. . . . Those
issues are properly resolved in a general civil action.”). Indeed, S&S
concedes on appeal that it could be compensated for any damages it
suffered because of the roof issue. See, e.g., Gangadean v. Erickson, 17
Ariz.App. 131, 134 (1972) (“The forcible entry and detainer proceeding is
not a bar to a subsequent action for waste, damage, rent, or breach of the
lease.”).
¶26 On the other hand, the court found, based on undisputed
testimony, that American Green invested approximately $3 million into
making improvements to the Building. S&S does not address this factor in
its opening brief. In its reply it merely contends that American Green “knew
it committed the Defaults when it was making its purported investments in
the [B]uilding” but cites no evidence to support this contention. But S&S
did not inform American Green of an alleged default under the Lease until
October 2020. By then, American Green had already renovated the
Building. S&S cites no evidence to show that American Green acted in bad
faith at any time when making the renovations. Even assuming American
Green’s 2017 roof work constituted a default and breach of the Lease, such
failure to perform was immaterial. See Restatement (Second) of Contracts §
241; Loehmann’s, 163 Ariz. at 446. Accordingly, the trial court did not err in
finding that American Green had the right to possess the Building.
C. The trial court erred in determining the rent amount.
¶27 S&S next argues that the trial court erred in determining rent.
The only issue in a forcible entry and detainer trial is who is entitled to
actual possession. A.R.S. § 12–1177(A); Iverson, 248 Ariz. at 448 ¶ 11. While
the Extension included a rent schedule for the initial five-year term, it said
nothing about rent for any of the three options. Both Howell and Miller
testified that the parties intended to renegotiate the rental rate as each
option arose. As a result, rent was not critical to determining whether
American Green had exercised its option and therefore had a right to
possess the Building and should therefore be resolved in a general civil
action. See, e.g., United Effort Plan Tr. V. Holm, 209 Ariz. 347, 351 ¶ 21 (App.
2004) (“The only issue to be decided in [an FED] action is the right of actual
possession. Thus, the only appropriate judgment is the dismissal of the
complaint or the grant of possession to the plaintiff.”). We therefore vacate
that portion of the trial court’s ruling.
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III. American Green’s Attorney Fees
¶28 American Green contends in its cross-appeal that the court
erred by not awarding all its claimed fees under the Lease and A.R.S.
§ 12–341.01(A). We review an attorney fee award for an abuse of discretion.
Iverson, 248 Ariz. at 451 ¶ 27. To successfully challenge an award of attorney
fees, the opposing party must do so with specificity. Cook v. Grebe, 245 Ariz.
367, 370 ¶ 11 (App. 2018). The Lease provides for an award of “reasonable
attorneys’ fees” to the prevailing party “in an action or proceeding
involving the Premises.” It further provides that any such award “shall not
be computed in accordance with any court fee schedule but shall be such as
to fully reimburse all attorneys’ fees reasonably incurred.” American Green
claims that the latter provision “constricts the Superior Court’s discretion
in determining whether the attorneys’ fees incurred were reasonable . . .
and instead require[s] a determination of whether the prevailing party
acted reasonably in incurring such fees.” But American Green does not
explain what difference, if any, exists between determining whether
incurred fees are reasonable and determining whether one acted reasonably
in incurring fees. Indeed, S&S objected to nearly $50,000 of the claimed fees
as excessive, duplicative, or otherwise unreasonably incurred. On this
record and briefing, the trial court did not abuse its discretion.
¶29 American Green nevertheless argues that the court did not
make “a proper finding that [the unawarded fees] were not reasonably
incurred.” But it cites no authority suggesting any such findings are
required. Next, it contends that all fees are reasonable because its counsel’s
declaration, which was submitted with its fee application, said so. But this
contention overlooks S&S’s response and objections to the fee application.
Because American Green has failed to make further specific challenges
about how the court erred in its reductions, including challenging S&S’s
objections, see Cook, 245 Ariz. at 370 ¶ 11, it has abandoned the arguments
on appeal, see Robert Schalkenbach Found. v. Lincoln Found., Inc., 208 Ariz. 176,
180 ¶ 17 (App. 2004) (this court considers an issue not raised in an
appellant’s opening brief as abandoned or conceded).
IV. Attorney Fees and Costs on Appeal
¶30 Both parties request reasonable attorney fees and costs on
appeal and cross-appeal. First, the Lease authorizes an award of
“reasonable attorneys’ fees” to the prevailing party “in an action or
proceeding involving the Premises.” It defines “Prevailing Party” to mean
“a Party . . . who substantially obtains or defeats the relief sought.” Because
both parties are partially successful under the definition, we decline to
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award either party fees. Second, the Lease does not call for an award of
costs, A.R.S. § 12–341 states that “[t]he successful party to a civil action shall
recover from his adversary all costs expended or incurred therein unless
otherwise provided.” Because American Green is successful on the primary
issue of this FED case—possession of the Building—it may recover its
taxable costs incurred in this court. Tucson Estates Prop. Owners Ass’n, Inc. v.
McGovern, 239 Ariz. 52, 57 ¶ 17 (App. 2016).
CONCLUSION
¶31 For the reasons stated, we vacate that portion of the trial court
judgment determining the rental rate for the three option periods under the
Extension and affirm the remainder of the judgment.
AMY M. WOOD • Clerk of the Court
FILED: AA
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