Opinion
2 CA-CV2023-0007
01-29-2024
Congress Street Clubs LLC, an Arizona limited liability company, Plaintiff/Appellee, v. 111-121 E. Congress LLC, an Arizona limited liability company, Defendant/Appellant.
Farhang &Medcoff PLLC, Tucson By Timothy M. Medcoff, Adam T. Peterson, and Michael P. Harnden Counsel for Plaintiff/Appellee Shein Phanse Adkins P.C., Scottsdale By David E. Shein and Erik D. Smith Counsel for Defendant/Appellant
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Pima County No. C20204097 The Honorable D. Douglas Metcalf, Judge The Honorable Christopher Browning, Judge
Farhang &Medcoff PLLC, Tucson By Timothy M. Medcoff, Adam T. Peterson, and Michael P. Harnden Counsel for Plaintiff/Appellee
Shein Phanse Adkins P.C., Scottsdale By David E. Shein and Erik D. Smith Counsel for Defendant/Appellant
Judge O'Neil authored the decision of the Court, in which Vice Chief Judge Staring and Judge Sklar concurred.
MEMORANDUM DECISION
O'NEIL, JUDGE
¶1 This case involves a contract dispute between a landlord and a commercial tenant that arose during the unique circumstances of the COVID-19 pandemic in 2020. The dispute turns on an allegedly misprinted lease agreement and an email from the landlord, both of which the tenant argued at trial excused payment of rent during the forced shutdown of the tenant's business. The landlord, 111-121 E. Congress LLC, appeals from the jury's verdict in favor of the tenant, Congress Street Clubs LLC. We refer to the landlord as "Congress." To limit confusion due to the similarity of the parties' names, we refer to the tenant by the name of the business it operated: "Zen Rock." We affirm.
Background
¶2 We view the evidence in the light most favorable to sustaining the jury's verdict. See Warrington v. Tempe Elementary Sch. Dist. No. 3, 197 Ariz. 68, ¶ 4 (App. 1999). Beginning in February 2009, Zen Rock leased commercial property from Congress to operate a bar in downtown Tucson. In March 2020, in response to the pandemic, the governor issued an executive order that required all bars to close. Ariz. Exec. Order 2020-09 (Mar. 19, 2020). Zen Rock closed its doors. On March 28, Congress's bookkeeper sent an email to all of its tenants, including Zen Rock, proposing for "unpaid rent to be disbursed over an agreed upon time frame after [tenants'] businesses are up and running again." Zen Rock did not pay rent in April or May.
¶3 In June, after receiving a loan, Zen Rock paid one month of rent. A few days later, Zen Rock emailed Congress a proposed plan to reopen. When the reopening proved unsuccessful, Zen Rock again did not pay rent and sent another email indicating that it "w[ould] not be opening again for some time." Congress sent a notice of default in July. At the end of that month, Congress locked Zen Rock out of the premises.
¶4 Zen Rock sued for breach of contract and breach of the covenant of good faith and fair dealing. It asserted that Congress had breached the lease by "refusing to honor the Force Majeure clause" of the lease, which provided: "Any prevention, delay or stoppage due to . . . governmental restrictions, governmental regulations, governmental controls . . . beyond the control of the party obligated to perform shall excuse the performance by such party of a period equal to any such prevention, delay or stoppage, except the obligations[.]" The clause ended there, without specifying any obligations that should be excepted from its provisions. Zen Rock therefore claimed the clause excused its obligation to pay rent.
¶5 Citing the March 28 email from Congress's bookkeeper, Zen Rock also raised separate theories of relief based on Congress's "offer" "to refrain from demanding rent during the temporary shutdown." Further, Zen Rock asserted that it was impossible and impractical for Zen Rock "to remain open from the time of the first executive order imposing the government's shutdown to the time of [Congress]'s lockout."
¶6 Congress filed an answer and counterclaims against Zen Rock including breach of contract. Congress asserted that the force majeure clause, as it appeared in the lease, was the result of a mutual mistake. According to Congress, the lease was based on a "commercial lease template," which included additional missing language specifying rent payment as an exception to the force majeure clause. Congress alleged that a "mutual mistake occurred in the printing of the Lease such that the force majeure clause from the Template did not print completely but was instead accidentally cut short." Thus, Congress alleged that Zen Rock "materially breached the Lease by . . . failing to pay rent."
¶7 The parties each moved for summary judgment. The trial court denied the motions. At a jury trial, Congress moved for judgment as a matter of law on all of Zen Rock's claims. The court denied the motion. The jury returned a general verdict in favor of Zen Rock and awarded damages relating to equipment and improvements to the property and for the "fair market value of the remainder of the Lease minus the agreed rent." Congress filed a combined motion for renewed judgment as a matter of law and a new trial. The court denied Congress's motions. Congress appealed. We have jurisdiction under A.R.S. §§ 12-120.21(A)(1) and 12-2101(A)(1).
Discussion
¶8 Congress argues that neither the lease nor the email excused Zen Rock from paying rent. Congress contends its "lockout was proper and [Zen Rock]'s good faith and fair dealing claims fail as a matter of law." Congress also argues that Zen Rock "failed to establish a basis for impracticability or frustration of the Lease" as a matter of law, and the trial court, not the jury, should have decided whether these doctrines applied. Finally, Congress challenges the jury's damages award.
¶9 Although identifying these substantive issues for appeal, for several of these issues, Congress's opening brief does not identify a particular challenged ruling by the trial court and does not cite the applicable standard of review. See Ariz. R. Civ. App. P. 13(a)(7)(B) (argument section must contain, "[f]or each contention, references to the record on appeal where the particular issue was raised and ruled on, and the applicable standard of appellate review with citation to supporting legal authority"). We could therefore deem several of Congress's arguments waived for failure to comply with our rules, including its argument that the adopted force majeure clause did not excuse Zen Rock from paying rent. See Ritchie v. Krasner, 221 Ariz. 288, ¶ 62 (App. 2009) (appellant waives claim by failing to provide "significant arguments, supported by authority" as required by rule governing opening brief). Instead, in our discretion, we review this argument as a challenge to the denial of Congress's post-trial motion. See A.R.S. § 12-2102(C) (appellate court "shall not consider the sufficiency of the evidence to sustain the verdict or judgment in an action tried before a jury unless a motion for a new trial was made"). Congress argued in its renewed motion for judgment as a matter of law, brought under Rule 50(b), Ariz. R. Civ. P., that the evidence was insufficient for a reasonable jury to find the force majeure clause excused Zen Rock from paying rent. This preserved the issue for appeal and permits our review. See § 12-2102(C); Marquette Venture Partners II, L.P. v. Leonesio, 227 Ariz. 179, ¶ 9 (App. 2011) (renewed motion for judgment as matter of law satisfies § 12-2102(C) requirement for new trial motion). To the extent Congress may have intended to separately challenge other rulings on this issue either before, during, or after trial, these arguments are waived. See Ariz. R. Civ. App. P. 13(a)(7)(B); see also Ritchie, 221 Ariz. 288, ¶ 62.
¶10 At trial, the jury heard evidence to support multiple independent theories of relief, most arising from either the force majeure clause in the lease or the March 28 email. The jury returned a general verdict in favor of Zen Rock and was not asked to specify a prevailing theory of relief. We review the denial of a Rule 50(b) motion for judgment as a matter of law for abuse of discretion, and we will uphold a jury's verdict whenever substantial evidence could lead a reasonable jury to reach that verdict. See Gonzales v. City of Phoenix, 203 Ariz. 152, ¶ 2 (2002). When reviewing a general verdict, like this one, we will affirm if the evidence is sufficient to sustain the verdict on any one of the theories presented to the jury. See Reese v. Cradit, 12 Ariz.App. 233, 238 (1970).
¶11 The trial court did not abuse its discretion by denying the motion here. The evidence was sufficient to support the jury's verdict either on a theory of promissory estoppel based on the March 28 email or through reasonable interpretation of the ambiguous language of the force majeure clause in the adopted lease. Because these theories suffice to support the verdict, we need not reach Congress's challenges to the alternative theories of relief, including whether the email constituted a new or amended contract, whether Congress breached the covenant of good faith and fair dealing, and whether Zen Rock was excused from paying rent under the doctrines of impracticability or frustration of purpose. See Reese, 12 Ariz.App. at 238.
I. The March 28 Email
¶12 Congress argues that the email failed to satisfy the requirements for a contract as a matter of law, in part, because the offer extended in the email was not supported by consideration and was not "in writing and signed by the parties." But Congress does not appear to challenge two additional theories related to the email, each of which would have provided independent support for the jury's verdict: promissory estoppel and waiver of the right to demand rent while Zen Rock was closed. Nor did Congress preserve any argument concerning the sufficiency of the evidence as to these theories by raising it before the trial court, either in its post-trial motions or elsewhere. See § 12-2102(C). Congress has therefore waived any argument as to either theory. See Lunney v. State, 244 Ariz. 170, n.3 (App. 2017). Regardless of that waiver, there was substantial evidence for the jury to find that Zen Rock was entitled to relief under a theory of promissory estoppel. See Gonzales, 203 Ariz. 152, ¶ 2.
¶13 To establish promissory estoppel, a plaintiff must show that the defendant "made a promise and should have reasonably foreseen that [plaintiff] would rely on that promise" and that plaintiff justifiably "relied on the promise to [its] detriment." Higginbottom v. State, 203 Ariz. 139, ¶ 18 (App. 2002). Reliance is "not justified when knowledge to the contrary exists." Id. (quoting Carondelet Health Servs. v. Ariz. Health Care Cost Containment Sys. Admin., 187 Ariz. 467, 470 (App. 1996)).
¶14 In this case, Zen Rock was prohibited from opening for business from March 2020 until Congress terminated the lease in July. The March 28 email sent on behalf of Congress reads:
With the issue that we are facing [Congress] would like to maintain a good working relationship with everyone. This being said the govern[]ment has offered a stimulus package for those effected by the shutdown.... The link posted above is where you would need to go to file for the relief funds. David is aware that this will take some time to get approved and get you the funds that your business needs to survive these times, so he would like to offer a proposal. The proposal would be for the unpaid rent to be disbursed over an agreed upon time frame after your businesses are up and running again. This is a working effort to help so your input will be welcome.
Zen Rock could have reasonably interpreted the email as a promise that Congress would not demand rent until pandemic-related restrictions were lifted such that Zen Rock was legally permitted to reopen. Indeed, the jury heard testimony that Congress's "proposal" to delay rent until "after your businesses are up and running again" meant "when the governor lifts the restrictions and allows you to reopen your doors." And Zen Rock presented evidence that it relied on the email when it did not pay rent. The jury, therefore, could have concluded that Congress "made a promise and should have reasonably foreseen that [Zen Rock] would rely on that promise" and that Zen Rock "relied on the promise to [its] detriment." Id. Substantial evidence supports the jury's verdict under a theory of promissory estoppel. See Gonzales, 203 Ariz. 152, ¶ 2; Reese, 12 Ariz.App. at 238; see also Larriva v. Widmer, 101 Ariz. 1, 6-7 (1966).
II. The Force Majeure Clause
¶15 Although the promissory estoppel claim is sufficient to uphold the jury's verdict, the verdict is also supported by Zen Rock's breach of contract theory according to a reasonable interpretation of the force majeure clause. The apparently missing language rendered that clause ambiguous. "Where a contract's language is reasonably susceptible to more than one meaning, the interpretation of the contract should be submitted to the jury." State v. Mabery Ranch, Co., 216 Ariz. 233, ¶ 23 (App. 2007). The jury may consider extrinsic evidence to interpret ambiguous contractual language. Leo Eisenberg &Co. v. Payson, 162 Ariz. 529, 532 (1989). "[W]hether a contract is reasonably susceptible to more than one interpretation is a question of law, which we review de novo." Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, ¶ 9 (App. 2009).
A. Ambiguity of Contractual Language
¶16 The force majeure clause, which appears to end midsentence, provides as follows:
Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefore, governmental restrictions, governmental regulations, governmental controls, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the control of the party obligated to perform shall excuse the performance by such party of a period equal to any such prevention, delay or stoppage, except the obligations
Because the clause ends with the words "except the obligations," Congress contends that "the express language of the . . . provision does not excuse any party from any obligation." Further, Congress argues that the clause did not excuse the payment of rent because it applies only in the event of a "prevention, delay or stoppage," and the pandemic "did not 'prevent, delay, or stop' [Zen Rock] from paying rent." Congress also argues that other provisions of the lease preclude application of the force majeure clause to the rent payment obligation. Namely, the lease treats payment of rent as "an independent covenant under the terms of this Lease [that] shall not be dependent upon, or construed as dependent upon, any other agreement, clause, condition or covenant contained herein." And the lease elsewhere provides that "[a]ny interruption or stoppage in the use and occupancy of the Leased Premises shall not affect the rental terms, conditions and covenants contained in this Lease."
¶17 There is little doubt that the contract is reasonably susceptible to Congress's interpretation. That interpretation, however, is not the only permissible reading. The incomplete language of the force majeure clause created an ambiguity that the jury could have resolved differently. Most importantly, Congress's interpretation would nullify the force majeure clause by reading the missing exception so broadly as to wipe out the entire clause. It would "excuse the performance" of a "party obligated to perform . . . except the obligations[.]" Under Congress's interpretation, therefore, it would excuse nothing. The jury might have reasonably rejected that interpretation, concluding instead that because the clause did not identify any obligations as falling under the exception, no obligations were excepted.
¶18 Congress cites VEREIT Real Estate, LP v. Fitness International, LLC, 255 Ariz. 147 (App. 2023), to support its argument that the COVID-19 pandemic was not a force majeure event because it did not preclude Zen Rock from making payments. But that case interpreted different contractual language. The force majeure clause in VEREIT excused a party from performing "any act" only if it "is delayed or hindered in or prevented from the performance . . . because of" a force majeure event. Id. ¶ 8. The language is broader here. It simply provides that "[a]ny prevention, delay or stoppage due to" a force majeure event "shall excuse the performance by such party of a period equal to any such prevention, delay or stoppage." Unlike the clause addressed in VEREIT, the force majeure clause here does not specify that the force majeure event must hinder or prevent a particular act in order to excuse performance of that act. It does not define whether the "prevention, delay or stoppage" must apply to a particular act or to business operations generally. The clause is reasonably susceptible to Congress's interpretation that the "prevention, delay or stoppage" must prevent, delay, or stop performance of the specific act to be excused. But the language might also be reasonably interpreted to "excuse the performance" of a party more generally whenever a force majeure event causes a broader "prevention, delay or stoppage" of business operations.
¶19 Nor do the other provisions cited by Congress resolve the ambiguity as a matter of law. At best, they demonstrate a plausible interpretation of the force majeure clause's applicability to the obligation to pay rent. The treatment of rent payment as an "independent covenant" does not preclude the possibility that the parties might have intended to excuse performance of even that obligation under the provision of the force majeure clause. And although the contract provided generally that an "interruption or stoppage" in the property's use would "not affect the rental terms, conditions and covenants," the force majeure clause is itself a term of the contract. Where contractual language is susceptible to more than one plausible interpretation, the jury must determine the parties' intent. Leo Eisenberg, 162 Ariz. at 52; see also Newmont Expl. Ltd. v. Siskon Corp., 125 Ariz. 267, 269 (App. 1980) (error to grant summary judgment when agreement was subject to multiple reasonable interpretations).
¶20 Zen Rock presented testimony to support its understanding that under the force majeure clause, it "was relieved of all [its] obligations under the lease," and that protection from paying rent was "the reason the force majeure exists." Congress presented evidence to the contrary, but we will not reweigh that evidence on appeal. See Zimmer v. Peters, 176 Ariz. 426, 429 (App. 1993) (credibility is a question for jury). The evidence was sufficient to support the jury's verdict on Zen Rock's breach of contract theory.
B. Mutual Mistake
¶21 As an alternative, Congress argues the force majeure clause was a product of mutual mistake because it "lacks certainty and assent to its terms," and therefore, "[t]he trial court should have stricken and severed the Force Majeure provision from the Lease." A mutual mistake is a defense to an alleged breach of contract. Hall v. Elected Offs.' Ret. Plan, 241 Ariz. 33, ¶ 25 (2016). The party relying on mutual mistake must "prove that (1) the parties made a mistake about a basic assumption on which they made the contract, (2) the mistake had a material effect on the exchange of performances, and (3) the party seeking avoidance does not bear the risk of the mistake." Id. The party raising the defense must prove it by clear and convincing evidence. Nelson v. Rice, 198 Ariz. 563, ¶ 7 (App. 2000).
¶22 Congress presented evidence at trial that the force majeure clause was originally drafted to provide an exception for "the obligations imposed with regard to rental and other monies to be paid by tenant pursuant to this Lease." But even if the omission of that language was a mistake on Congress's part as a result of a "printing failure," the jury could have concluded that Congress failed to prove the mistake was mutual by clear and convincing evidence. See id. As noted, the jury also heard evidence that Zen Rock understood the force majeure clause to excuse payment of rent. Resolving this conflicting evidence was a task for the jury, and we will not reweigh the evidence on appeal. See Sandretto v. Payson Healthcare Mgmt., Inc., 234 Ariz. 351, ¶ 52 (App. 2014).
III. Damages
¶23 Congress argues Zen Rock failed to mitigate its damages and its "failure to mitigate its damages is an absolute bar to its Rent Damages." Congress also argues that Zen Rock's closing argument concerning damages was prejudicial because Zen Rock "suggest[ed] to the jury that [Congress] should be punished for the alleged breach of contract." Thus, Congress contends, the damages award and the "trial court's refusal to grant a new trial constitute[] a fundamental error in the law." Because Congress has raised these arguments for the first time on appeal, we deem them waived. Orfaly v. Tucson Symphony Soc'y, 209 Ariz. 260, ¶ 15 (App. 2004).
Attorney Fees
¶24 Zen Rock is the prevailing party on appeal. We therefore deny Congress's request for attorney fees and costs. See A.R.S. §§ 12-341, 12-341.01. As required under the lease, we award Zen Rock its reasonable attorney fees and costs upon compliance with Rule 21, Ariz. R. Civ. App. P. See also § 12-341.
Disposition
¶25 We affirm the jury's verdict.