Vereit Real Estate v. Fitness Int'l ( 2023 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
VEREIT REAL ESTATE, LP, et al., Plaintiffs/Appellees,
v.
FITNESS INTERNATIONAL, LLC, Defendant/Appellant.
No. 1 CA-CV 22-0402
FILED 4-11-2023
Appeal from the Superior Court in Maricopa County
No. CV2020-016464
The Honorable Timothy J. Thomason, Judge
AFFIRMED
COUNSEL
Titus Brueckner Spitler & Shelts PLC, Scottsdale
By Bradley S. Shelts, Casey O. Miller
Co-Counsel for Defendant/Appellant
Klehr Harrison Harvey Branzburg LLP, Philadelphia, Pennsylvania
By A. Grant Phelan
Co-Counsel for Defendant/Appellant
Ballard Spahr LLP, Phoenix
By Craig Solomon Ganz, Katherine E. Anderson Sanchez, Mitchell
Turbenson
Counsel for Plaintiffs/Appellees
VEREIT REAL ESTATE, et al. v. FITNESS INT'L
Opinion of the Court
OPINION
Presiding Judge Samuel A. Thumma delivered the opinion of the Court, in
which Judge Cynthia J. Bailey and Vice Chief Judge David B. Gass joined.
T H U M M A, Judge:
¶1 This appeal addresses whether defendant Fitness
International, LLC (Tenant) is excused from making rent and other
payments to its landlords under long-term commercial leases when the
State of Arizona restricted use of the properties because of the COVID-19
pandemic. Because the applicable force majeure provisions and common
law doctrines, notably the frustration of purpose doctrine, relied on by
Tenant do not excuse those payment obligations, the grant of summary
judgment for plaintiffs is affirmed.
FACTS AND PROCEDURAL HISTORY
¶2 Tenant operates hundreds of fitness centers worldwide, three
of which are at issue here. The properties Tenant leases in Avondale and
Marana are owned by plaintiff VEREIT Real Estate, LP, and are governed
by 15-year commercial leases entered in 2004 and 2011 respectively. The
property Tenant leases in Glendale is owned by plaintiff Cole LA Glendale
AZ, LLC, and was governed by a long-term commercial lease from 2009 to
September 30, 2020. Plaintiffs VEREIT and Cole (collectively, Landlords)
became assignees of the leases after they purchased the properties.
¶3 The three commercial leases are comprehensive. They each
are about 45 pages long, with nearly identical relevant terms, and are
governed by Arizona law. Under the leases, in return for use of the
premises, Tenant had to pay rent and other charges. The landlord-tenant
relationship appears to have continued without significant strife before the
COVID-19 pandemic.
¶4 On March 17, 2020, Tenant notified Landlords that it had
closed its North American fitness centers because of COVID. That written
notice stated Tenant viewed its payment obligations under the leases as
excused, citing various theories, and asked Landlords to excuse those
payments. The record does not contain any written response by Landlords.
On March 20, 2020, Arizona Governor Doug Ducey ordered that all indoor
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Opinion of the Court
gyms and fitness clubs be closed to the public because of COVID. That
closure continued through May 17, 2020, and after a brief suspension, from
June 29, 2020 through August 26, 2020. After that time, occupancy was
limited until early March 2021. Tenant did not make lease payments for
April, May, June and August 2020, totaling more than $900,000.
¶5 After making written payment demands, Landlords filed this
action for payment. Tenant’s answer claimed many affirmative defenses,
including that the force majeure provision in the Marana lease excused its
payment obligations for that property, as well as frustration of purpose,
impracticability and impossibility. After some discovery, Landlords moved
for summary judgment, arguing Tenant’s affirmative defenses did not
apply. Along with opposing Landlords’ motion, Tenant cross-moved for
partial summary judgment, arguing the force majeure provision of the
Marana lease excused Tenant’s payment obligations for that property.
Tenant argued that “[it] is entitled to summary judgment as a matter of law
under the Marana Lease and no additional facts can alter this outcome.”
¶6 After full briefing and oral argument, the superior court
concluded that Tenant’s affirmative defenses were inapplicable, Landlords
had shown no genuine dispute as to any material fact and Landlords were
entitled to judgment as a matter of law. The court granted Landlords’
motion for summary judgment and denied Tenant’s partial cross-motion
for summary judgment. After entry of final judgment, Ariz. R. Civ. P. 54(c)
(2023),1 Tenant timely appealed. This court has appellate jurisdiction under
Article 6, Section 9, of the Arizona Constitution and Arizona Revised
Statutes (A.R.S.) sections 12-120.21(A)(1) and -2101(A)(1).
DISCUSSION
¶7 This court reviews de novo the grant of summary judgment,
“viewing the evidence and reasonable inferences in the light most favorable
to the party opposing the motion,” Andrews v. Blake, 205 Ariz. 236, 240 ¶ 12
(2003), to determine “whether any genuine issues of material fact exist,”
Brookover v. Roberts Enters., Inc., 215 Ariz. 52, 55 ¶ 8 (App. 2007). This court
will affirm the grant of summary judgment if it is correct for any reason.
Hawkins v. State, 183 Ariz. 100, 103 (App. 1995) (citation omitted). The court
reviews Tenant’s various arguments in turn, at times consolidating the
arguments it makes.
1Absent material revisions after the relevant dates, statutes and rules cited
refer to the current version unless otherwise indicated.
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Opinion of the Court
I. The Force Majeure Provisions Did Not Excuse Tenant’s Payment
Obligations.
¶8 The Avondale and Glendale leases contain the following force
majeure provisions:
If either party is delayed or hindered in or
prevented from the performance of any act
required hereunder because of governmental
delays, strikes, lockouts, inability to procure
labor or materials, failure of power, lack of
availability of primary utility service, restrictive
laws, riots, insurrection, war, acts of terrorism,
fire, severe inclement weather such as snow or
ice or other casualty or other reason of a similar
or dissimilar nature beyond the reasonable
control of the party delayed, financial inability
excepted (any “Force Majeure Event”),
performance of such act shall be excused for the
period of the Force Majeure Event, provided,
however, the party so delayed or prevented
from performing shall diligently proceed to
make good faith efforts to remedy the cause of
delay and to resume performance. Delays or
failures to perform resulting from lack of funds
or which can be cured by the payment of money
shall not be Force Majeure Events. Nothing in
this Section shall excuse Tenant from the
prompt payment of any rental or other charges
required of Tenant hereunder.
¶9 The Marana lease contains a nearly identical provision, but
does not include the highlighted sentence that is included in the Avondale
and Glendale leases. Tenant concedes that the force majeure provision in
the Avondale and Glendale leases does not excuse its payment obligations.
Tenant argues, however, that the force majeure provision in the Marana
lease did excuse its payment obligations for that property. No Arizona
appellate decision addresses the effect of a force majeure provision, with
four decisions only mentioning the phrase. See Russo v. Barger, 239 Ariz. 100,
102 ¶ 6 (App. 2016) (mentioning a purported translation of a force majeure
ruling by a Mexican court); Tech. Constr., Inc. v. City of Kingman, 229 Ariz.
564, 567 ¶ 7 (App. 2012) (“’The Court further notes that this Agreement does
not contain a force majeure clause.’”) (quoting superior court’s ruling);
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Stuart v. City of Scottsdale, 1 CA-CV 18-0154, 2020 WL 7230239 at *1–2 ¶ 7
(Ariz. App. Dec. 8, 2020) (mem. dec.) (quoting an amendment to a contract
that included a force majeure provision); Austin Ranch, L.L.C. v. West
Surprise Landowners Grp., L.L.C., 1 CA-CV 08-0837, 2010 WL 363830 at *6
¶19–21 (Ariz. App. Feb 2, 2010) (mem. dec.) (finding arbitrator exceeded
their authority by, among other things, rewriting an agreement to include
a force majeure provision).
¶10 In general, a force majeure provision allows contracting
parties to allocate the risk of unforeseeable events beyond their control.
“Force majeure clauses in commercial contracts are designed to excuse
parties from performance of a contract when an unforeseeable event
beyond their control has frustrated the parties’ contractual purpose, made
it impossible for one or both of the parties to perform or made it
impracticable to do so.” Lisa C. Thompson, 11 ARIZ. LEGAL FORMS, BUS. ORG.
LLC & PART. § 14:17.50 (4th ed. 2022). “[F]orce majeure clauses may bar
some common law defenses to performance so care must be taken in
considering the use and language in a force majeure clause as it will
control.” Id. A force majeure defense can only apply when a contract
contains a force majeure provision; force majeure is not a common law
defense applicable when a contract lacks a force majeure provision. See, e.g.,
Robert W. Emerson & Zachary R. Hunt, Franchisees, Consumers, and
Employees: Choice and Arbitration, 13 Wm. & Mary Bus. L. Rev. 487, 559 & n.
600 (2022) (“There is no right to force majeure protection in common law;
such provisions are creations of contract and are thus considered on their
own precise terms;” adding “[i]f no force majeure clause exists, either party
might be able to invoke the common law doctrine of frustration.”) (citation
omitted). Courts typically use general contract interpretation rules when
applying force majeure provisions. See InterPetrol Bermuda Ltd. v. Kaiser
Aluminum Int’l Corp., 719 F.2d 992, 998–99 (9th Cir. 1983).
¶11 Under Arizona law, “the interpretation of a contract is a
question of law, which this court reviews de novo.” Grosvenor Holdings, L.C.
v. Figueroa, 222 Ariz. 588, 593 ¶ 9 (App. 2009). “A general principle of
contract law is that when parties bind themselves by a lawful contract[,] the
terms of which are clear and unambiguous, a court must give effect to the
contract as written.” Grubb & Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C.,
213 Ariz. 83, 86 ¶ 12 (App. 2006) (citations omitted). These common law
contract interpretation rules drive the analysis here.
¶12 The force majeure provision of the Marana lease states that
“delays or failures to perform resulting from lack of funds or which can be
cured by the payment of money shall not be Force Majeure Events.”
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Landlords argue that this sentence means the force majeure provision does
not excuse Tenant’s missed payments because those obligations could be
cured by the payment of money. Tenant argues that this sentence does not
apply to such payments, because it “is simply stating what shall not be a
Force Majeure Event under the Lease[] -- financial distress or something
that can be cured by paying money.” Contrary to Tenant’s argument,
however, the phrases “lack of funds” and “payment of money” modify
“[d]elays or failures.” Thus, under the provision, specified “[d]elays or
failures” -- those “resulting from lack of funds or which can be cured by the
payment of money” -- are not Force Majeure Events.
¶13 Each party argues that the plain language of the provision
provides the answer. “Force Majeure Events” is a defined term, and such
an event must cause the delay, hindrance or prevention of the performance
of an act otherwise required by the lease. The first sentence of the force
majeure provision quoted above states that the “act” required by the lease
must be “delayed or hindered in or prevented from” being performed
“because of” a Force Majeure Event, not that the “act” required by the lease
is a Force Majeure Event itself. For example, “inclement weather” might
delay one party from performing an act required by the lease and, in that
event, because the required act was “delayed . . . because of” a Force
Majeure Event, the provision could excuse the performance of the required
act. The delay, hinderance or prevention, however, is not a Force Majeure
Event itself. Instead, a delay, hindrance or prevention is caused by (or the
result or consequence of) the Force Majeure Event. Tenant has not shown
why this court should depart from the plain meaning and amend the
provision to provide otherwise. See Emps. Mut. Cas. Co. v. DGG & CAR, Inc.,
218 Ariz. 262, 267 ¶ 24 (2008) (“When the provisions of the contract are plain
and unambiguous upon their face . . . the court will not pervert or do
violence to the language used”) (citation omitted).
¶14 Taking a broader look, and recognizing that “Force Majeure
Events” is a defined term, the provision generally provides that delays,
hindrances and preventions of a required act “because of” Force Majeure
Events can excuse performance of that required act. But the last sentence of
the provision in the Marana lease (starting with “Delays or failures . . .”)
provides an exception to that general rule. As the superior court held, the
sentence provides that Force Majeure Events do not excuse delays or failures
that can be cured by the payment of money. Because the failure to make
lease payments can be cured by the payment of money, it is not excused by
the Force Majeure Event, here the restrictive laws that required the gyms to
close. Thus, the court did not err in concluding the force majeure provision
of the Marana lease did not excuse Tenant’s payments.
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Opinion of the Court
¶15 In addressing the “Nothing in this Section . . .” sentence that
is not included in the Marana lease, the superior court concluded the lack
of that language did not mean “that lease should be construed differently
than the Avondale and the Glendale leases.” Instead, the court noted the
additional sentence in the other leases was a “belt and suspenders”
approach. Tenant argues the court erred in reaching that conclusion
because Landlords “never took the position and never presented evidence
that the ‘nothing in this Section’ provision was just ‘belt and suspenders.’”
In pressing this argument, Tenant misconstrues both Landlords’ arguments
and the court’s ruling.
¶16 Citing Landlords’ reply to support their motion for summary
judgment, Tenant asserts that “Landlords did not argue that the force
majeure provision alone did not excuse payment of rent under the Marana
Lease.” But Landlords argued that the force majeure provision -- stating
that “failures to perform . . . which can be cured by the payment of money”
are not Force Majeure Events -- meant that Tenant’s “failure to pay amounts
owed under the Leases can be cured by the payment of money and, thus,
the force majeure provisions do not apply.” The superior court agreed,
stating that “the language that ‘failures to perform . . . which can be cured
by the payment of money shall not be Force Majeure Events’ demonstrates
an intention that payment of rent was not excused by any ‘restrictive laws,’”
contrary to Tenant’s arguments. Thus, the court’s ruling responded to, and
accounted for, the parties’ arguments.
¶17 The cases cited by Tenant to argue that the superior court’s
ruling “was entirely improper” because it did not track the parties’
arguments do not apply. The unpublished decision in Bessler v. City of Tempe
granted a motion for reconsideration when both parties agreed that they
had not argued a theory the court relied on. See CV-19-04610-PHX-MTL,
2021 WL 4122247 at *3 (D. Ariz. Sept. 9, 2021) (mem. dec.). And the other
case cited by Tenant in arguing error, construed a federal local rule that
does not apply. See Motorola, Inc. v. J.B. Rodgers Mech. Contractors, 215 F.R.D.
581, 583 (D. Ariz. 2003). Here, the superior court explained its reasoning
and why it disagreed with Tenant’s argument. In doing so, the court was
not improperly adopting an undisclosed theory. In raising the argument
that the other two leases provide context to the third lease, Tenant has not
shown the court erred or acted improperly in rejecting that argument.
Tenant has thus shown no error, reversible or otherwise.
¶18 Tenant has not shown that the force majeure provision in the
Marana lease allowed it to suspend payments. Tenant has not shown that
it was “delayed or hindered in or prevented from” paying the required
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amounts under that lease. The act that Tenant seeks to be excused from is
payment under that lease. Based on the plain language of the lease,
payment would be excused only if Tenant could show that it was “delayed,
hindered in or prevented from” performing that act. Tenant made no such
showing. To the contrary, in responding to discovery, Tenant declared that
it “has not claimed any financial inability to pay rent during the closure
periods due to the government mandated closures.” Tenant also objected
to producing any financial information, asserting such documents and
information were irrelevant.
¶19 Finally, Tenant argues that the relevant performance is not the
obligation to pay but, instead, is “[Tenant’s] right to operate the Premises.”
Tenant contends that, because it was hindered in the performance of this
right, its obligations to make payments under the lease are excused. But
under the lease terms, only the act delayed, hindered or prevented from
being performed is excused. To conclude otherwise would impermissibly
modify the lease by “add[ing] something to the contract which the parties
have not put there.” Emps. Mut. Cas. Co., 218 Ariz. at 267 ¶ 24 (citation
omitted). Tenant has shown no error in the court concluding the force
majeure provision in the Marana lease did not excuse Tenant from its
payment obligations.
II. Frustration of Purpose Did Not Excuse Tenant’s Payment
Obligations.
¶20 Apart from the force majeure provision, Tenant argues its
payment obligations were suspended or terminated by the frustration of
purpose doctrine. Generally, “frustration of purpose deals with ‘the
problem that arises when a change in circumstances makes one party’s
performance virtually worthless to the other.’” 7200 Scottsdale Rd. Gen.
Partners v. Kuhn Farm Mach., Inc., 184 Ariz. 341, 345 (App. 1995) (quoting
RESTATEMENT (SECOND) OF CONTRACTS (RESTATEMENT) § 265 (1981)).
Frustration of purpose “is, in appropriate circumstances, a justification for
nonperformance of a contract and is recognized in Arizona.” Mobile Home
Ests., Inc. v. Levitt Mobile Home Sys., Inc., 118 Ariz. 219, 222 (1978). To
establish frustration of performance, a party must show
First, “the purpose that is frustrated must have
been a principal purpose of that party” and
must have been so to the understanding of both
parties. Second, “the frustration must be
substantial . . .; [it] must be so severe that it is
not to be regarded as within the risks assumed .
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. . under the contract.” Third, “the non-
occurrence of the frustrating event must have
been a basic assumption. . . . .” Finally, relief will
not be granted if it may be inferred from either
the language of the contract or the
circumstances that the risk of the frustrating
occurrence, or the loss caused thereby, should
properly be placed on the party seeking relief.
7200 Scottsdale Rd. Gen. Partners, 184 Ariz. at 348 (quoting and citing
RESTATEMENT §§ 261 cmt. b & c and 265 cmt. a & b). To be “substantial,” the
“value of the counter-performance to be rendered by the promisee must be
totally or nearly totally destroyed.” Id. at 349 (citation omitted).
A. Tenant Waived Its Temporary Frustration of Purpose
Argument.
¶21 Tenant argues that this court should adopt temporary
frustration of purpose and apply it here. Although not yet recognized in
Arizona, the RESTATEMENT provides that “frustration of purpose may be
only temporary,” yielding a suspension (not termination) of contract
obligations. See RESTATEMENT § 269 cmt. a. This case provides no reason for
this court to decide whether to adopt temporary frustration of purpose.
¶22 As an alternative basis for its ruling, the superior court stated
that “[e]ven if [it] were to entertain [Tenant]’s invitation to adopt a
‘temporary frustration’ rule, the obligation to pay rent would only be
‘suspended’ while the frustration existed.” Because the alleged temporary
frustration of purpose occurred in 2020, the court continued, “there has
been ample time for [Tenant] to pay the payments it did not pay in 2020.”
Tenant, however, had failed to make those payments.
¶23 Although Tenant argues that the COVID-based restrictions
were a temporary frustration of purpose, it does not challenge in its
opening brief the court’s conclusion that its rental obligations would only
be “suspended” –- not discharged altogether -- while the temporary
frustration of purpose existed. Thus, Tenant waived the issue. See Robert
Schalkenbach Found. v. Lincoln Found., Inc., 208 Ariz. 176, 180 ¶ 17 (2004). In
its reply, Tenant tries to raise the issue, arguing that “suspended” did not
mean that “the rent obligation for the Closure Periods merely deferred to a
later date.” By not raising this argument in its opening brief, however, it is
waived. See Nelson v. Rice, 198 Ariz. 563, 567 ¶ 11 n.3 (App. 2000).
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B. Complete Frustration of Purpose Did Not Excuse Tenant’s
Payment Obligations.
¶24 At oral argument in this court, Tenant conceded that it was
not seeking relief under RESTATEMENT § 265, which defines complete
frustration of purpose. Even absent that concession, Tenant could not
prevail on a complete frustration of purpose theory. Tenant has not shown
that a four-month restriction imposed on 15-year commercial leases
constitutes such a substantial frustration of purpose that the resulting value
of leasing the premises is “totally or nearly totally destroyed.” 7200
Scottsdale Rd. Gen. Partners, 184 Ariz. at 349; see also 9795 Perry Highway
Mgmt., LLC v. Bernard, 273 A.3d 1098, 1106–07 (Pa. Super. Ct. 2022) (78-day
closure during a six-year lease was not a substantial frustration that would
allow the frustration of purpose doctrine to excuse performance).
¶25 Both complete and temporary frustration of purpose also fail
because “the language of the contract” allocated the risk to Tenant when
restrictive laws limited performance. 7200 Scottsdale Rd. Gen. Partners, 184
Ariz. at 348. Under the doctrine of frustration of purpose, performance is
excused only if the risk of loss was not “placed on the party seeking relief.”
Id. Both the Avondale and Glendale leases have explicit clauses stating that
“[n]othing in this [force majeure provision] shall excuse Tenant from the
prompt payment of any rental or other charges required of Tenant
hereunder.” As explained above, the Marana lease requires Tenant to pay
rent even during force majeure events. These clauses provide that Tenant
bears the risk of loss and is still required to make lease payments during
such events. See Lisa C. Thompson, 11 ARIZ. LEGAL FORMS, BUS. ORG. LLC &
PART. § 14:17.50 (4th ed. 2022). Because Tenant bears the risk of loss under
the lease provisions, its performance cannot be excused under the doctrine
of frustration of purpose. See 7200 Scottsdale Rd. Gen. Partners, 184 Ariz. at
348.
III. Tenant Waived Any Failure of Consideration Argument.
¶26 In the superior court, Landlords argued they provided
sufficient consideration and Tenant did not dispute that argument. Tenant
has thus waived any failure of consideration argument. See Odom v. Farmers
Ins. Co. of Ariz., 216 Ariz. 530, 535 ¶ 18 (App. 2007). Even absent waiver,
Tenant has not shown there was a failure of consideration when it received
access to and used each of the properties for years before any COVID-
related restrictions and after those restrictions were lifted.
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IV. Tenant Has Not Shown that Performance of Its Obligations Was
Impracticable.
¶27 Tenant argues that the superior court erred in rejecting its
impossibility and impracticability arguments. Arizona and the
RESTATEMENT treat these concepts as the single defense of impracticality of
performance. See 7200 Scottsdale Rd. Gen. Partners, 184 Ariz. at 345 n.2;
RESTATEMENT § 261 cmt. d. Unlike frustration of purpose, which requires a
showing that the counterparty’s performance has become worthless,
impracticability requires a party to show a substantial impediment to their
performance. 7200 Scottsdale Rd. Gen. Partners, 184 Ariz. at 345. The
RESTATEMENT approach, adopted in Arizona, provides that “[w]here, after
a contract is made, a party’s performance is made impracticable . . . his duty
to render that performance is discharged, unless the language or the
circumstances indicate the contrary.” See RESTATEMENT § 261; 7200 Scottsdale
Rd. Gen. Partners, 184 Ariz. at 345. “Performance may be impracticable
because extreme and unreasonable difficulty, expense, injury, or loss to one
of the parties will be involved.” RESTATEMENT § 261 cmt. d. The
RESTATEMENT recognizes temporary impracticability, see id. § 269, but that
limited aspect of the doctrine has not yet been adopted in Arizona.
¶28 At oral argument in this court, Tenant conceded that it was
not arguing complete impracticability under RESTATEMENT § 261. On the
record presented, Tenant has not shown its payments were impracticable,
under either a complete or temporary impracticability theory. When the
relevant duty is to pay an amount specified in the contract, the party
seeking the doctrine’s protection must show the impracticality of making
that payment. 7200 Scottsdale Rd. Gen. Partners, 184 Ariz. at 345–46. As
discussed above, Tenant has not shown that making the payment was
impracticable. Tenant argues that performance was impracticable because
the COVID restrictions caused an “excessive and unwarranted financial
burden.” But, as discussed above, Tenant provided no evidence supporting
that argument, objected to providing its financial information during
discovery and argued such information was irrelevant. On this record,
Tenant has shown no error in the superior court addressing
impracticability. See id.
V. Tenant Has Not Shown a Breach of the Covenants and Warranties.
¶29 Tenant argues that rent was excused, claiming Landlords
committed the first material breaches of express covenants and warranties
in the leases. Section 2.2(b) of each lease states that “Landlord shall have
good and insurable title . . . free and clear of all tenancies, covenants,
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conditions, restrictions, encumbrances . . . which might in any manner to
any extent prevent or adversely affect the use of the Premises by Tenant.”
Tenant, however, has shown no breach of these provisions. Although, as
Tenant argues, the restrictive laws did affect Tenant’s use of the property,
Tenant has not shown that such restriction resulted from a defect in
Landlords’ title. Nor do Tenant’s arguments about other paragraphs in that
section expand the language of Section 2.2(b) beyond Landlords’
requirement to have good and insurable title. And Tenant has not shown
Landlords did not continuously have good and insurable title in
compliance with these provisions.
¶30 Next Tenant argues that rent was excused based on
Landlords’ failure to provide quiet enjoyment, violating the express terms
of the lease and the common law. Section 22.1 of each lease states that
“Tenant shall quietly enjoy the Building for the Term without hindrance or
interruption by Landlord or any other person or persons lawfully or
equitably claiming by, through or under Landlord, subject to the terms of
this Lease.” Tenants’ arguments fail because both the covenant in Section
22.1 and the common law covenant require acts by Landlords or someone
acting on behalf of Landlords that prevent the quiet enjoyment of the land.
See Thompson v. Harris, 9 Ariz. App. 341, 345 (1969) (“a covenant of quiet
enjoyment . . . does not extend to acts of other tenants or third parties unless
such acts are performed on behalf of the landlord or by one claiming
paramount title”). Tenant has failed to show the COVID-related restrictions
imposed by Arizona’s Governor were done by Landlords or someone
acting on the Landlords’ behalf or claiming paramount title.
¶31 Finally, citing Section 1.9, entitled “Initial Uses” or “Primary
Uses,” Tenant argues that Landlords breached the express guarantee that
“Tenant shall have the right throughout the Term to operate the Building,
or any portion thereof, for uses permitted under this Lease.” The leases,
however, document the rights and responsibilities of Landlords and Tenant
about uses Landlords would allow for the properties. Although Section 1.9
specifies those authorized uses, it does not guarantee that Tenant could use
the properties for those purposes. For example, the leases provide that
Tenant must meet the licensing requirements to operate its business. If
Tenant failed to do so and could not operate as a fitness center, it could not
bring claims against Landlords because of that restriction. Additionally, as
Landlords noted at oral argument in this court, Section 8.2 allows Tenant to
“change the use of the building to any alternate legal use” not otherwise
restricted. Thus, Tenant has not shown Landlords breached the permissible
uses provisions of the leases.
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VI. Tenant Has Shown No Error in the Superior Court’s Consideration
of Their Affirmative Defenses.
¶32 Tenant argues that Landlords did not show a lack of evidence
supporting Tenant’s affirmative defenses necessary to prevail on a motion
for summary judgment. See Nat’l Bank of Ariz. v. Thruston, 218 Ariz. 112, 119
¶28 (App. 2008). Although not required to disprove each affirmative
defense, a party moving for summary judgment is “required to ‘point out,’
by referring to evidence in the record, that insufficient evidence existed to
support the [non-moving party’s] affirmative defenses.” Id. at 119 ¶ 29.
¶33 Tenant’s answer contains 11 pages of “affirmative defenses”
spanning 62 paragraphs. Cf. Ariz. R. Civ. P. 8(d). In their motion for
summary judgment, Landlords addressed force majeure, impracticability,
impossibility, frustration of purpose, failure of consideration,
condemnation and breach of covenants. Landlords then explained that
Tenant’s other affirmative defenses were just “rephrasings of the above-
discussed affirmative defenses.” In doing so, Landlords attached Tenant’s
interrogatory responses, explaining that the bases for the other affirmative
defenses were the same ones raised and addressed in Landlords’ motion.
¶34 On appeal, Tenant has not shown that other affirmative
defenses were not rephrasing the affirmative defenses Landlords addressed
in seeking summary judgment. Tenant did not specify which affirmative
defenses it alleges were not addressed when responding to the motion in
superior court. Nor has Tenant done so on appeal. Thus, any such argument
is waived. See In re Aubuchon, 233 Ariz. 62, 64–65 ¶ 6 (2013) (“We are not
required to look for the proverbial ‘needle in the haystack.’ . . . [A]rguments
not supported by adequate explanation [are waived].”) (citations omitted).
VII. Caselaw from Other Jurisdictions Is Not Binding.
¶35 The parties cite and provide supplemental citations to many
recent conflicting, non-binding, unpublished trial court decisions from
other jurisdictions interpreting similar contractual provisions under the
local law in those jurisdictions.2 The parties, however, have not shown how
2 See, e.g., VEREIT Real Est., L.P. et al. v. Fitness Int’l, LLC, No. DC-20-18444
(14th Jud. Dist. Ct., Dallas Cnty., Tex., Aug. 8, 2022); Fitness Int’l, LLC v.
VEREIT Real Est., L.P., No. 2020-027207-CA-01 (11th Jud. Cir. Ct., Miami-
Dade Cnty., Fla, June 8, 2022); ROIC Four Corner Square, LLC v. Fitness Int’l,
LLC, No. 21-2-04531-8 (Wash. Super. Ct., Oct. 8, 2021); BAI Century LLC v.
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VEREIT REAL ESTATE, et al. v. FITNESS INT'L
Opinion of the Court
citation to these trial court decisions would be allowed in the issuing
jurisdictions, meaning they have not shown how they are properly cited
here. See Ariz. Sup. Ct. R. 111(d). Recognizing that the cases offer no
consensus and, instead, show conflicting outcomes, this court interprets the
leases here under Arizona law.
¶36 Landlords, however, cite two recent published appellate
decisions addressing similar issues that track the analysis in this opinion.
See Fitness Int’l, LLC v. Nat’l Retail Props., LP, --- P.3d --- 2023 WL 2132749(Wash. Ct. App. Feb. 21, 2023); SVAP III Poway Crossings, LLC v. Fitness Int’l,
LLC, 303 Cal.Rptr.3d 863, 866, 87 Cal.App.5th 882 (Jan. 20, 2023). Although
not binding, the analysis in these opinions is instructive, as Poway Crossings
shows.
¶37 In Poway Crossings, the California Court of Appeal affirmed
summary judgment for a landlord against a tenant in a case involving
similar facts and a similar lease. See 303 Cal.Rptr.3d 863, 866, 87 Cal.App.5th
882, 885. In doing so, the court rejected the tenant’s arguments that its
obligation to pay rent was excused due to the COVID-19 pandemic by,
among other things, the landlord’s breach of the lease, a force majeure
provision and the doctrines of impossibility, impracticability and
frustration of purpose. Id. at 875. Poway Crossings, interpreting the same
Fitness Int’l, LLC, No. 2021 L 1322 (Cir. Ct. Cook Cnty., Ill., Sept. 30, 2021);
Fitness Int’l LLC v. DDRM Hill Top Plaza L.P., 2021 U.S. Dist. LEXIS 202670at *8 (C.D. Cal., Oct. 20, 2021); STORE SPE LA Fitness 2013-7 v. Fitness Int’l,
LLC, No. SACV 20-953 JVS (ADSx) (C.D. Cal., June 30, 2021); Capital v.
Fitness Int’l, No. 20STCV47017 (Cal. Super. Ct., Los Angeles, Nov. 19, 2021);
Charlotte Props. v. Fitness Int’l, No. 20CHCV00645 (Cal. Super. Ct., Los
Angeles, Jan. 12, 2022); Kb Salt Lake III, LLC v. Fitness Int’l, LLC, No.
21CHCV00790 (Cal. Super. Ct., Los Angeles, Apr. 5, 2022); Kids from the
Valley IX, LLC v. Fitness Int’l, LLC, No. 21CHCV00657 (Cal. Super. Ct., Los
Angeles, Nov. 15, 2021); SVAP III Poway Crossings LLC v. LA Fitness Int’l
LLC, No. 37-2020-00016039-CU-BC-CTL (Cal. Super. Ct., San Diego, Sept.
16, 2021); Fitness Int’l, LLC v. 93 FLRPT, LLC, No. 2021-CA-3508 (Fla. 12th
Judicial Cir. Ct., Manatee, Mar. 31, 2022); Fitness Int’l, LLC v. VEREIT Real
Estate, Inc., No. 21-CA-74 (Fla. 13th Judicial Circuit Court, Hillsborough,
Aug. 29, 2022). Landlords also provided the unpublished appellate
decision, Fitness Int’l, LLC v. City Center Ventures, LLC, No. A22-1057 (Minn.
Ct. App. 2023). Although a published appellate decision, Highlands
Broadway OPCO, LLC v. Barre Boss LLC, --- P.3d ---, 2023 WL 308999 (Col.
App. Jan. 19, 2023), addresses pandemic-related issues in the context of a
commercial lease containing different provisions.
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VEREIT REAL ESTATE, et al. v. FITNESS INT'L
Opinion of the Court
language found in Section 1.9 in the leases in this case, held that “the
reasonable interpretation of Section 1.9 is that [the landlord] merely agreed
not to restrict Fitness from using the premises in any way permitted under
the lease.” Id. at 871. The court reached that conclusion by also looking to
section 8.2, which allowed the tenant to change use of the premises. Id.
¶38 Poway Crossings also held that a force majeure provision
nearly identical to the Marana lease did not excuse payment of rent. See id.
at 871–72. The court explained that “while [they] agree with [the tenant]
that the closure orders are “restrictive laws,” [they] do not agree that these
laws delayed, hindered, or prevented [the tenant] from performing under
the contract.” Id. Poway Crossings also rejected the tenant’s affirmative
defenses, explaining “[n]othing about the pandemic or resulting closure
orders has made [the tenant’s] performance of its obligation to [the
landlord] -- paying rent -- impossible.” Id. at 872. The court refused to adopt
temporary frustration of purpose and found that a “temporary government
closure of a fitness facility for a period of months when the premises have
been leased for more than 19 years -- and the lease term spans more than 23
years total -- does not amount to the kind of complete frustration required
for the doctrine to apply.” Id. at 874; see also Fitness Int’l, LLC v. Nat’l Retail
Props., LP, --- P.3d --- 2023 WL 2132749 (Wash. Ct. App. Feb. 21, 2023).
VIII. Landlords Are Awarded Their Reasonable Attorneys’ Fees and
Costs Incurred on Appeal.
¶39 Landlords seek their attorneys’ fees and costs under Section
22.7 of each lease. Because Landlords are the successful parties on appeal,
they are awarded their reasonable attorneys’ fees and taxable costs
contingent upon their compliance with ARCAP 21.
CONCLUSION
¶40 The judgment is affirmed.
AMY M. WOOD • Clerk of the Court
FILED: AA
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