Opinion
CV-22-00149-TUC-JAS (MSA)
01-09-2024
Reliance Hospitality LLC, Plaintiff, v. 5251 S Julian Drive LLC, Defendant.
REPORT AND RECOMMENDATION
Honorable Maria Aguilera, United States Magistrate Judge.
Plaintiff Reliance Hospitality LLC moves for summary judgment on its claim of breach of contract against Defendant 5251 S. Julian Drive LLC. The motion has been fully briefed and is suitable for decision without oral argument. For the following reasons, the Court will recommend that the motion be denied.
Background
Defendant is the former owner of a hotel in Tucson, Arizona (the Hotel), and Plaintiff is a hotel management company. In September 2019, Defendant and Plaintiff entered into a hotel management agreement (the Agreement). (PSOF ¶ 1.) The Agreement provided, among other things, that Plaintiff would manage the Hotel's staff and daily operations, and that Defendant would fund those operations (either directly or, if Plaintiff advanced its own funds, through reimbursement). (PSOF ¶¶ 3-10.) It also provided that Defendant was required to follow all laws relating to ownership and operation of the Hotel. (PSOF ¶ 11.) A party could terminate the Agreement immediately because of the other party's “gross negligence, willful misconduct or fraud.” (PSOF ¶ 12.) A party could also terminate because of a “Termination Event,” including the other party's failure to pay any sums due or perform any material obligation, but such termination required advance written notice. (PSOF ¶¶ 13-14.) Termination of the Agreement would not absolve either party of its duty to pay any sums owed to the other party. (PSOF ¶ 22.)
“PSOF” refers to Plaintiff's statement of undisputed facts. (Doc. 93.)
In February 2022, Plaintiff sent Defendant a written notice of default, asserting that Defendant had breached the Agreement by failing to replace or repair the Hotel's fire panel, which had been “red tagged.” (PSOF ¶¶ 18-19.) The notice advised Defendant that it had to begin taking action to cure the breach within ten days and that failure to do so would give Plaintiff the right to terminate the Agreement. (PSOF ¶ 19.) On March 1, 2022, Plaintiff sent Defendant a notice of termination, asserting that Defendant had failed to cure its breach. (PSOF ¶ 21.) Defendant acknowledges that it received these notices, but it denies either breaching the Agreement or failing to cure a breach of the Agreement.
Shortly thereafter, Plaintiff initiated this lawsuit, alleging a single claim of breach of contract. (Doc. 1-4.) Plaintiff alleges that Defendant breached by failing to replace the Hotel's fire panel and by failing to reimburse funds Plaintiff had advanced on Defendant's behalf. (Id. ¶ 26.) Defendant countersued for breach of contract, alleging (among other things) that Plaintiff breached by failing to collect rent from guests staying in the Hotel's extended-stay annex. (Doc. 18 at 23, ¶ 82.)
Plaintiff later tried to file a first amended complaint, but that pleading was stricken because it was untimely and filed without leave of Court. (Doc. 25.) In its motion briefing, Defendant erroneously refers to the stricken pleading as the “operative” complaint. It is not clear how Defendant could have made such an error: the pleading is labeled “STRICKEN,” and the docket says that “[t]he original complaint (Doc. 1-4) remains as the operative pleading.” (Docs. 25, 26.)
Legal Standard
A party is entitled to summary judgment if he “shows that there is no genuine dispute as to any material fact and [that he] is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is “material” if it “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is “genuine” if “a reasonable jury could return a verdict for the nonmoving party.” Id. In determining whether a genuine dispute of material fact exists, “[t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor.” Id. at 255 (citing Adickes v. S. H. Kress & Co., 398 U.S. 144, 158-59 (1970)). “Where, as here, the moving party bears the burden of proof at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial.” Houghton v. South, 965 F.2d 1532, 1536 (9th Cir. 1992) (quoting Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1264-65 (5th Cir. 1991)).
Discussion
Plaintiff's claim has three elements: a contract, breach of that contract, and resulting damages. Graham v. Asbury, 540 P.2d 656, 657 (Ariz. 1975) (citing Clark v. Compania Ganadera de Cananea, S.A., 387 P.2d 235, 238 (Ariz. 1963)). The parties agree that the Agreement was a valid contract. They disagree, however, as to whether summary judgment should be granted as to breach and damages. As discussed below, Plaintiff has not shown that it is entitled to summary judgment on those elements.
I. There is a triable issue as to which party materially breached first.
Plaintiff contends that Defendant breached the Agreement by failing to reimburse Plaintiff and by failing to replace the Hotel's fire panel. Defendant argues that there is a triable issue as to whether it committed those breaches, but it says that the Court need not decide the issue. According to Defendant, Plaintiff materially breached the Agreement first and therefore cannot recover for any subsequent breaches by Defendant. The Court agrees that there is a genuine dispute as to which party materially breached first, and that such dispute precludes summary judgment.
Under state law, a defendant who is sued for breach of contract “should be excused from liability” when the evidence shows that the plaintiff breached first as to a “material” matter. QC Constr. Prods., LLC v. Cohill's Bldg. Specialties, Inc., 423 F.Supp.2d 1008, 1013 (D. Ariz. 2006) (quoting Williston on Contracts § 43:12 (4th ed.)). This is because “the victim of a material or total breach is excused from further performance.” Zancanaro v. Cross, 339 P.2d 746, 750 (1959); see Restatement (Second) of Contracts § 237 cmt. b (1981) (“[W]here performances are to be exchanged under an exchange of promises, each party is entitled to the assurance that he will not be called upon to perform his remaining duties of performance with respect to the expected exchange if there has already been an uncured material failure of performance by the other party.”).
Here, there is a triable issue as to whether Plaintiff committed a material breach when it failed to collect rent from certain long-term guests. Whether a breach is material depends on numerous factors. See Restatement (Second) of Contracts § 241 (1981) (listing relevant factors); Found. Dev. Corp. v. Loehmann's, Inc., 788 P.2d 1189, 1197-98 (Ariz. 1990) (adopting § 241 for landlord-tenant contracts). An extended discussion of all the factors is unnecessary here. The sole purpose of a hotel is to charge people money in exchange for lodgings. Defendant has presented evidence that Plaintiff provided lodgings to 12 to 14 people but did not collect money from them for a period of six to nine months, resulting in approximately $84,000 in damages. (Doc. 106-3 at 5-6, 11; Doc. 106-15.) Plaintiff's alleged misconduct went to the heart of the Agreement, and Plaintiff allegedly waited the better part of a year to take curative action. A reasonable jury could find that that was a material breach. See Restatement (Second) of Contracts § 241 & cmt. b (stating that the injured party's loss of an expected benefit is an “important” factor).
There is also a genuine dispute as to whether Plaintiff breached before Defendant. Plaintiff presents evidence that it began discussing the fire panel with Defendant in April 2021. (Doc. 93-4 at 3-4.) Plaintiff also presents evidence (with its other motion) that the parties explored financing options for the replacement project. (Doc. 91-1 at 57-70.) Those discussions continued through mid-November 2021, when Defendant decided to “put the Fire Panel project on hold.” (Id. at 57.) Finally, Plaintiff submits evidence that, in February 2022, it formally notified Defendant that Defendant had breached by not replacing the fire panel. (Doc. 93-5 at 2.) It appears from this evidence that the parties were working together on the issue up until mid-November 2021. A reasonable jury could find that Plaintiff did not view Defendant as in breach until that time.
As for when Plaintiff might have breached, Defendant's representative, Yaacov Amar, testified that Plaintiff failed to collect rent for six to nine months, and that he had to call and “start screaming” before Plaintiff took action. (Doc. 106-3 at 5-6.) Defendant also presents evidence showing that Plaintiff served the nonpaying guests with a notice of nonpayment in December 2021 and served them with forcible detainer summonses in January 2022. (Doc. 106-10 at 2, 6.) Putting this together, the record suggests that Plaintiff failed to collect rent starting in March 2021 at the earliest (nine months before Amar demanded action) or June 2021 at the latest (six months before). Thus, a reasonable jury could find that Plaintiff committed a material breach before Defendant.
Plaintiff argues that its alleged breach is irrelevant because Defendant never sent formal, written notice to Plaintiff that it had breached by failing to collect rent. But there is no Arizona caselaw holding that a party must serve formal notice to preserve its rights. SiteLock LLC v. GoDaddy.com LLC, 562 F.Supp.3d 283, 304-05 (D. Ariz. 2022). Moreover, as explained in the report and recommendation on Defendant's counterclaim, a reasonable jury could find that Defendant did not waive its right to sue on Plaintiff's breach.
The record does not clearly show which party breached first. Plaintiff has the burden on its claim and its motion for summary judgment. As Plaintiff has given short shrift to this issue (and did so only in its reply brief), it has carried neither burden. Therefore, summary judgment should be denied as to the breach element.
This conclusion makes it unnecessary to determine whether Defendant breached by failing to replace the fire panel. As noted, if Plaintiff committed a material breach first, Defendant would be excused from liability for its later breach.
II. Plaintiff has not carried its burden of production as to the damages element.
To prove damages, Plaintiff presents transaction reports from Paychex (a payroll service) showing that funds were transferred from TD Bank to Paychex. (Doc. 93-7.) These documents do not show that Plaintiff used its own funds to pay the payroll expenses, or that Defendant failed to reimburse Plaintiff; they show only that the expenses were paid. Plaintiff also presents invoices from BlueCross BlueShield, but the invoices are addressed to “New Crescent Investments,” not to Plaintiff. (Doc. 93-8.) Finally, Plaintiff presents an invoice from Best Buy. (Doc. 93-9.) The fact that Plaintiff received a bill does not prove that it paid the bill, let alone that it did so with its own money and was not later reimbursed.Plaintiff has not carried its burden of production. Thus, Defendant has no obligation to produce anything in response, and summary judgment should be denied as to Plaintiff's damages.
Plaintiff's briefing suggests that these missing links were included in a declaration that Plaintiff intended to submit as “Exhibit B,” but Plaintiff's attorney forgot to submit the declaration with Plaintiff's briefing. Defense counsel made the same error. Defendant relies on a certain page of Amar's deposition transcript to dispute Plaintiff's claim concerning the fire panel, but Defendant's attorney did not submit that page to the Court. The carelessness on both sides is stunning.
Conclusion
The Court recommends that Plaintiff's motion for summary judgment (Doc. 92) be denied.
This recommendation is not immediately appealable to the United States Court of Appeals for the Ninth Circuit. The parties have 14 days to file specific written objections with the district court. Fed.R.Civ.P. 72(b)(2). The parties have 14 days to file responses to objections. Id. The parties may not file replies to objections absent the district court's permission. The failure to file timely objections may result in the waiver of de novo review. United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc).