Opinion
1 CA-CV 12-0312
03-21-2013
AMERICAN SYSTEMS, LTD., an Arizona limited partnership, dba AMERICAN SYSTEMS MINI STORAGE, Plaintiff/CounterDefendant/Appellee, v. AZ FURNITURE GALLERY, LLC., KOHEI TANAKA and JANE DOE TANAKA aka FUMIKO TANAKA, Defendant/CounterClaimant/Appellant.
Law Firm of Sterling R. Threet By Sterling R. Threet Attorney for Plaintiff/CounterDefendant/Appellee Thomas M. Shaw Attorney for Defendant/CounterClaimant/Appellant
NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED
EXCEPT AS AUTHORIZED BY APPLICABLE RULES.
See Ariz.R.Sup.Ct. 111(c); ARCAP 28(c);
Ariz.R.Crim.P. 31.24
MEMORANDUM DECISION
(Not for Publication -
Rule 28, Arizona Rules
of Civil Appellate
Procedure)
Appeal from the Superior Court in Maricopa County
Cause No. CV2010-090712
The Honorable Colleen L. French, Judge Pro Tem
REVERSED AND REMANDED
Law Firm of Sterling R. Threet
By Sterling R. Threet
Attorney for Plaintiff/CounterDefendant/Appellee
Mesa Thomas M. Shaw
Attorney for Defendant/CounterClaimant/Appellant
Mesa HOWE, Judge ¶1 AZ Furniture Gallery, LLC., ("AFG") appeals the grants of summary judgments in favor of American Systems ("American") in this commercial breach of lease action. AFG contends that the trial court erred in striking the affidavit and exhibits that it submitted to support its opposition to American's motion for partial summary judgment. AFG also contends that the trial court erred in granting American's motion for partial summary judgment on its claim that AFG breached the lease agreement by failing to pay rent, and in granting American's motion for summary judgment on AFG's counterclaim that American breached the lease agreement. For the reasons set forth below, we reverse the court's summary judgment rulings and remand to the trial court for further proceedings.
FACTS AND PROCEDURAL HISTORY
¶2 The undisputed facts are as follows: American owned and rented portions of a storage facility for use as business establishments. In July 2007, AFG, owned by Kohei Tanaka, executed a three-year lease with American for the rental of certain units in American's facility to operate a furniture business. In August 2009, without initial objection from American, AFG attempted to have a third party, Ratliff, substitute for AFG as tenant. AFG moved out of the premises by the end of September 2009. ¶3 On October 5, 2009, agents of American and Tanaka came to the premises to meet Ratliff, but Ratliff never arrived. Tanaka gave the keys to the premises to American's agents at this meeting. ¶4 That day, Tanaka e-mailed an agent of American, stating that American should accept Ratliff as tenant because she was the only potential tenant willing to pay $4,000 in rent per month. The following day, American responded and expressed a willingness to take Ratliff as a subtenant, subject to certain conditions. Later that night, however, American sent a second e-mail contradicting the first and stated that it would not allow Tanaka to sublet to Ratliff and that it required Tanaka to make certain repairs to the property or it would "rent[] out the units that you have vacated to other tenants." Ratliff never entered into a sublease with AFG or American. ¶5 Once AFG realized that Ratliff would not be subletting the property, AFG offered to move back into the property and continue business. On October 9, 2009, AFG wrote to American and proposed to resume occupancy of the premises. On October 14, 2009, AFG again contacted American and alleged that American was in breach of the lease because it would not let AFG re-enter the premises. The following day, American responded and alleged that AFG breached the lease and informed them that American had not accepted AFG's surrender of the premises. AFG had not paid rent for October 2009 and did not pay rent for the remainder of the lease term. ¶6 American sued AFG and Tanaka alleging that AFG's withholding of rent and failure to clean and repair the premises breached the lease agreement. American also alleged that AFG committed waste on the premises. AFG answered and asserted as an affirmative defense that American breached the lease by denying AFG access to the premises and demanding unnecessary repairs and three months' advance rent as a condition for allowing AFG access to the premises. AFG also counterclaimed and alleged that American made it impossible for AFG to comply with the lease terms. ¶7 In November 2010, American moved for partial summary judgment on AFG's breach of payment obligations under the lease for the ten months of unpaid rent from October 2009 to July 2010, the end of the lease term. AFG filed a response and controverting statement of facts, which included an affidavit of Tanaka and several exhibits. ¶8 Tanaka's affidavit stated the same version of the facts above, but further explained his interactions with American's agents. He had asked for American's permission to sell his business and assign his lease to the purchaser of AFG. He gave the keys to the premises to American's agents at the October 5 meeting so that American could give them to Ratliff upon completion of the sale and lease. After one of American's agents stated that he would consider subleasing to Ratliff only if Tanaka remained primarily liable on the lease and made certain repairs to the property, Tanaka asked to meet American's agents to discuss the matter. On October 7, Tanaka met with American's agents, Davis and Bond. Davis informed Tanaka that he would not approve any sublease to Ratliff because he believed her irresponsible for arriving late to the October 5 meeting. Tanaka informed the parties that he would resume occupancy of the premises and continue his business until the termination of the lease in July 2010. Davis and Bond told Tanaka that he could not resume occupancy of the premises until he signed a separate agreement obligating him to complete, at his expense, certain repairs and paid $12,000 as rent for October, November, and December 2009. ¶9 American moved to strike Tanaka's affidavit and three exhibits. American argued that the affidavit (1) contradicted Tanaka's prior testimony, (2) contained hearsay, and (3) attempted to set forth ultimate facts and conclusions of law. American also argued that the exhibits should be struck because they contained hearsay. ¶10 AFG opposed American's motion to strike, arguing that the affidavit did not contradict Tanaka's previous testimony, and that the hearsay in the affidavit was admissible under Arizona Rule of Evidence 803(24). AFG argued that the conclusions of law that appeared in the affidavit were based on Tanaka's personal knowledge and that American did not identify what portions of the exhibits it considered hearsay. The court found no issue of material fact precluding partial summary judgment on the breach of lease claim, and granted American's motion to strike exhibits and the affidavit. ¶11 American then moved for summary judgment on AFG's counterclaim that American made it impossible for AFG to comply with the terms of the lease. American argued that the court's grant of partial summary judgment finding that AFG breached the lease constituted the law of the case and the court could not now find for AFG on the counterclaim. ¶12 AFG responded and argued that American could not rely on the law of the case doctrine as a reason to enter judgment on AFG's counterclaim. On March 6, 2012, the court issued judgment against AFG for breach of contract in the amount of $40,000 and awarded attorneys' fees and costs to American. ¶13 AFG timely appealed from this judgment. This Court has jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") section 12-120.21(A)(1) (West 2013).
American alleged that AFG breached the lease in numerous ways, including failing to pay the rent, taxes and utilities when due, abandonment, and attempted sublet without prior written consent. They also alleged that AFG breached through their use of the premises, alterations, and failure to clean and make repairs to the property.
The court ultimately dismissed the waste claim for failure to prosecute.
We cite the current version of the applicable statutes because no revisions material to this decision have since occurred.
DISCUSSION
¶14 AFG argues that the court erred in striking Tanaka's affidavit and exhibits and in granting American partial summary judgment on its breach of the lease agreement claim and complete summary judgment on AFG's counterclaim. Summary judgment may be granted only when no genuine issue exists regarding any material fact and the moving party is entitled to judgment as a matter of law. Johnson v. Earnhardt's Gilbert Dodge, Inc., 212 Ariz. 381, 385, ¶ 15, 132 P.3d 825, 829 (2006). We determine de novo whether any issues of material fact exist and whether the trial court properly applied the law. Eller Media Co. v. City of Tucson, 198 Ariz. 127, 130, ¶ 4, 7 P.3d 136, 139 (App. 2000). We view the evidence in the light most favorable to the nonmoving party, Tilley v. Delci, 220 Ariz. 233, 236, ¶ 7, 204 P.3d 1082, 1085 (App. 2009), and we review the trial court's ruling on the admissibility of evidence in a summary judgment proceeding for an abuse of discretion and resulting prejudice, Mohave Elec. Coop., Inc. v. Byers, 189 Ariz. 292, 301, 942 P.2d 451, 460 (App. 1997). We find that that trial court erred in striking Tanaka's affidavit and in granting summary judgment. I. The Affidavit ¶15 American argues that portions of Tanaka's affidavit conflicted with his deposition testimony and contained conclusions of law and hearsay. None of these claims warranted striking the entire affidavit.
American also argues that Tanaka's affidavit is defective because it does not state that it was based on personal knowledge. An affidavit in opposition to a motion for summary judgment must be based on an affiant's personal knowledge. Delci, 220 Ariz. at 236, ¶ 9, 204 P.3d at 1085. The absence of a recital that the affidavit is made on the affiant's personal knowledge is not fatal to the granting of summary judgment when its contents show that its material facts are statements of the affiant's personal knowledge. Hay v. Duskin, 9 Ariz. App. 599, 603, 455 P.2d 281, 285 (1969). Tanaka's affidavit sets forth facts that are statements of Tanaka's personal knowledge; therefore, the lack of a recital is not fatal.
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A. Prior Deposition Testimony ¶16 American argues that the trial court properly struck Tanaka's affidavit because it conflicted with his prior deposition testimony. American cites to portions of Tanaka's deposition in which he states that he had moved out of the property and closed business by the end of September. American argues that this conflicts with Tanaka's statement in the affidavit that American had prevented him from resuming business after October 5, 2009. American argues that "[h]e cannot have both moved out and ended the business as of the end of September and also have been deprived of operating the business after October 5." ¶17 Subject to certain exceptions, in deciding a summary judgment motion, a court should disregard a party's affidavit if it contradicts the party's own prior deposition testimony. Allstate Indem. Co. v. Ridgely, 214 Ariz. 440, 442, ¶ 9, 153 P.3d 1069, 1071 (App. 2007). However, Tanaka's affidavit did not conflict with his deposition testimony. Both parties agree that they were considering an arrangement where Ratliff would become the tenant in early October 2009. In the deposition, Tanaka explained that he was attempting to have Ratliff take over his lease and had moved out of the property by the end of September: "My intention was [Ratliff] could move in and start her business immediately." Tanaka explained in his affidavit that he had moved his property from the store in anticipation of the sublease, and that after he learned that American would not allow a sublease to Ratliff, he told American he wished to move back into the property and fulfill the terms of the lease. Tanaka explained in the affidavit that American prevented him from doing so. The affidavit and the deposition testimony thus did not conflict with each other. The affidavit provided additional detail regarding the interactions with American. The additional information did not contradict the limited information that American gave the court in moving for summary judgment. Accordingly, the court abused its discretion by striking the affidavit on this ground. B. Conclusions of Law ¶18 American argues that the following statements in the Tanaka affidavit are conclusions of law: (1) "Tenant did not surrender or abandon nor have the intent to surrender or abandon the Premises," (2) "Tenant used the Premises in accordance with the terms of the lease agreement," and (3) "Tenant made no alterations to the Premises, that were not in accordance with the terms of the lease agreement." ¶19 Of course an affidavit that only sets forth ultimate facts or conclusions of law cannot defeat a summary judgment motion. Florez v. Sargeant, 185 Ariz. 521, 526, 917 P.2d 250, 255 (1996). However, the trial court here was not required to discard the entire affidavit in ruling on the motion. Aside from the statements American argues are conclusions of law, Tanaka's affidavit also contains relevant statements of fact based on his personal knowledge. Further, the statements in question are factual—Tanaka did not believe he surrendered or abandoned the premises, used the premises in conflict with the lease, or made improper alterations to the property. The trial court could have struck any statement that it believed set forth an ultimate fact or conclusion of law and considered the remainder in determining whether a genuine issue of material fact existed that warranted denying summary judgment. The trial court thus abused its discretion in striking the entire affidavit on this ground. C. Hearsay ¶20 American claims that Tanaka's description of his agreement and conversations with Ratliff in his affidavit and the correspondence supporting his statements were inadmissible hearsay. Hearsay is a statement made out of court "offer[ed] in evidence to prove the truth of the matter asserted." Ariz. R. Evid. 801(c). Arizona Rule of Evidence 802 precludes the admission of hearsay unless an exception applies. Arizona Rule of Civil Procedure Rule 56(e) provides that supporting or opposing affidavits must set forth facts that would be admissible in evidence. ¶21 Even if we assume the portions of the affidavit and the exhibits were hearsay and inadmissible, the trial court should not have disregarded the entire affidavit because it contained individual instances of alleged hearsay. The trial court could have struck the challenged statements and considered the remainder of the affidavit in determining whether summary judgment was appropriate. The trial court thus abused its discretion in striking the entire affidavit on this ground. II. The Granting of Summary Judgment ¶22 Even if we disregard the portions of Tanaka's affidavit that American had identified on appeal as setting forth ultimate statements of fact or conclusions of law or constituting inadmissible hearsay, the record nevertheless reveals genuine issues of material fact precluding summary judgment on American's claim and AFG's counterclaim. American sued AFG, claiming that AFG clearly breached the lease because AFG failed to pay rent for October 2009. American pointed to sections of the lease stating that rent was due on or before the first day of each month and that American had the right to "over lock" units if rent was not paid by the sixth day of each month. American argued that because AFG did not pay rent by October 5, American had the right to re-enter the premises and recover lost rent. ¶23 AFG responded that American was cooperating with Tanaka's effort to sublease and sell his business and made no demands for rent at the time because the parties were attempting to sublet to Ratliff. Essentially, AFG argued that the meaning of the parties' actions during October 5 and 6 presented an issue of fact whether any breach for non-payment of rent occurred. Although American presented evidence AFG had not paid the October rent when due, AFG presented evidence that American had demonstrated a willingness to proceed with the proposed sublease, and to continue the lease arrangement with it—albeit with a subtenant—even though it had not paid the October rent. AFG also presented evidence that Tanaka offered to resume occupancy of the premises after American rejected Ratliff as a subtenant, but American refused to allow Tanaka to do so. American's alleged refusal to let AFG resume occupancy was the basis for AFG's counterclaim. ¶24 Questions of material fact are still present if the offending portions of the affidavit are disregarded. A question exists regarding which party materially breached the lease first, and whether AFG abandoned the premises. The question of a tenant's abandonment and intent of landlord in accepting the abandonment, are questions of fact and depend on all surrounding circumstances. Riggs v. Murdock, 10 Ariz. App. 248, 251, 458 P.2d 115, 118 (1969); Lee Dev. Co. v. Papp, 166 Ariz. 471, 477, 803 P.2d 464, 470 (App. 1990). A question of fact also exists whether American made reasonable efforts to rent the premises at fair value upon preventing AFG from occupying the premises and continuing the lease. Moreover, even if AFG did breach the lease agreement, AFG would be liable only for rent due under the balance of the term of the lease subject to American's duty to attempt to mitigate damages by finding another tenant. Stewart Title & Trust of Tucson v. Pribbeno, 129 Ariz. 15, 16, 628 P.2d 52, 53 (App. 1981). ¶25 Because genuine issues of material fact exist in this case, the trial court erred in granting American partial summary judgment on its claim of breach for AFG's failure to pay the rent due under the lease, and in granting American complete summary judgment on AFG's counterclaim.
Attorneys' Fees and Costs
¶26 Both parties request attorneys' fees under A.R.S. § 12-341.01. We decline to award attorneys' fees to either party because the issue of breach is undetermined and this case has not yet been resolved. Because AFG is the prevailing party on appeal, it is entitled to an award of costs upon compliance with ARCAP 21.
CONCLUSION
¶27 We reverse the March 6, 2012 judgment in favor of American and remand for further proceedings consistent with this decision.
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RANDALL M. HOWE, Judge
CONCURRING: ______________________________
PATRICIA K. NORRIS, Presiding Judge
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ANDREW W. GOULD, Judge