Cathay Enterprises, Inc. v. Design Trend International Interiors Ltd. (In Re Cathay Enterprises, Inc.) , 566 F. App'x 590 ( 2014 )

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT MAR 31 2014
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
In the Matter of: CATHAY No. 12-15650
ENTERPRISES, INC.,
D.C. No. 2:10-cv-01079-NVW
Debtor,
MEMORANDUM*
CATHAY ENTERPRISES, INC., an
Arizona corporation,
Appellant,
v.
DESIGN TREND INTERNATIONAL
INTERIORS LIMITED, an Arizona
corporation,
Appellee.
Appeal from the United States District Court
for the District of Arizona
Neil V. Wake, District Judge, Presiding
Argued and Submitted March 11, 2014
San Francisco, California
Before: WALLACE, McKEOWN, and GOULD, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Cathay Enterprises, Inc. (“Cathay”) appeals from the district court’s reversal
of the bankruptcy court’s judgment. The district court found that Cathay had
waived any material breach by Design Trend International Interiors, Ltd. (“Design
Trend”) based on timeliness of performance on a construction contract for
renovations to a hotel owned by Cathay. We have jurisdiction under 28 U.S.C. §§
158(d), 1291, and we affirm the district court’s decision as to waiver and
substantial performance in favor of Design Trend, but reverse and remand the
issues of prejudgment interest calculation and attorneys’ fees.
This case has an extensive history that we will not recount. We simply note
that after Design Trend missed the final completion date of the construction
contract, Cathay repeatedly insisted that it continue to perform, communicating
through letters and two administrative enforcement actions enlisting the help and
authority of the Arizona Registrar of Contractors. An ALJ found that Design
Trend had substantially completed the project, but the bankruptcy court relieved
Cathay of responsibility to pay the amount outstanding because Design Trend had
materially breached the contract with its untimely performance. The district court
reversed the bankruptcy court, but offset the amount owed to Design Trend with
expenses incurred by Cathay.
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The district court correctly addressed the issue of waiver because it was
raised to the bankruptcy court, which implicitly rejected the waiver argument when
it ruled against Design Trend. See Vance v. Am. Hawaii Cruises, Inc., 789 F.2d
790, 792–93 (9th Cir. 1986); Carr v. Yokohama Specie Bank, Ltd., 200 F.2d 251,
255 (9th Cir. 1952) (“It is sufficient if the special affirmative facts found by the
court, construed as a whole, negat[e] each rejected contention.”).
Under Arizona law, “once a material breach in a partially-performed
construction contract has occurred, the non-defaulting party must elect to . . . waive
the breach and continue performance, or terminate the contract and sue for
damages; and if the innocent party elects to continue performance he thereby
waives the breach and he may not recover damages therefor.” Hunter Contracting
Co. v. Sanner Contracting Co., 492 P.2d 735, 740 (Ariz. Ct. App. 1972). We agree
with the district court that Cathay’s repeated insistence that Design Trend continue
to work after the contractual deadlines for performance had passed acted as a
waiver of Cathay’s right to sue Design Trend for a material breach based on
untimely performance. Further, Cathay offers insufficient evidence to show that
the district court erred in concluding that Design Trend substantially performed the
contract. See Cracchiolo v. Carlucci, 157 P.2d 352, 356 (Ariz. 1945); Homes &
Son Constr. Co., Inc. v. Bolo Corp., 526 P.2d 1258, 1262–63 (Ariz. Ct. App.
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1974). The district court correctly applied the remaining damages sustained by
Cathay to offset some of the amount owed to Design Trend.
However, the district court erred in using the equitable remedy of nunc pro
tunc to backdate its order for the purpose of calculating prejudgment interest.
Nunc pro tunc should be applied in limited circumstances when it is necessary to
“mak[e] the record reflect what the district court actually intended to do at an
earlier date, but which it did not sufficiently express or did not accomplish due to
some error or inadvertence.” United States v. Sumner, 226 F.3d 1005, 1009–10
(9th Cir. 2000). There is no indication here that the district court meant to include
prejudgment interest in its original order dated March 28, 2011, and so we reverse
its application of nunc pro tunc and remand for recalculation of prejudgment
interest.
While a trial court may award the prevailing party reasonable attorneys’ fees
at its “broad discretion” under Arizona law, A.R.S. § 12-341.01; State Farm Mut.
Auto. Ins. Co. v. Arrington, 963 P.2d 334, 340 (Ariz. Ct. App. 1998), at the very
least there must be proof supporting what is “reasonable,” Crouch v. Pixler, 320
P.2d 943, 946 (Ariz. 1958). The district court did not give enough information to
determine whether the attorneys’ fees award was reasonable. Further, there is no
indication that the district court excluded fees that could be attributed to work
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performed during the bankruptcy proceedings unrelated to the contract dispute.
See Zeagler v. Buckley, 219 P.3d 247, 249 (Ariz. Ct. App. 2009). For these
reasons, we reverse the award of attorneys’ fees to Design Trend and remand for
further explanation and, if necessary, recalculation.
AFFIRMED IN PART, REVERSED AND REMANDED IN PART.
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