Inland Western Avondale McDowell LLC v. Wattles

Filing 42

ORDER that Plaintiff's 22 Motion for Summary Judgment is denied. ORDERED that the parties shall file a joint status report no later than May 6, 2013. Status Conference set for 5/13/2013 at 11:30 AM in Courtroom 601, 401 West Washington Street, Phoenix, AZ 85003 before Senior Judge Paul G Rosenblatt. Signed by Senior Judge Paul G Rosenblatt on 3/25/2013. (LFIG)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8
9
10

Inland Western Avondale McDowell,
L.L.C.,

11

Plaintiff,
12

vs.
13

Mark J. Wattles,
14

Defendant.
15

)
)
)
)
)
)
)
)
)
)
)

No. CV-11-02277-PHX-PGR
ORDER

16

Pending before the Court is Plaintiff’s Motion for Summary Judgment (Doc.

17

22). Having considered the parties’ memoranda in light of the record, the Court finds

18

that the motion should be denied.

19

Plaintiff Inland Western Avondale McDowell, L.L.C. removed this breach of

20

contract action to this Court solely on the basis of diversity of citizenship jurisdiction.

21

The complaint seeks damages from defendant Mark J. Wattles for breach of a

22

personal guaranty (“Guaranty”) he entered into on January 25, 2010, wherein he

23

guaranteed the obligations incurred by Ultimate Acquisition Partners, L.P. d/b/a

24

Ultimate Electronics (“Ultimate”) under a commercial real estate lease.

25

complaint alleges that the defendant has defaulted on his obligations under the

26

Guaranty by failing to make the payments demanded from him after Ultimate

The

1

defaulted on its rent and other payments required of it under its lease.1

2

The Court concludes that summary judgment is not appropriate because the

3

Court cannot determine as a matter of law from the record before it that the plaintiff

4

is a proper party to maintain this action. See American Triticale, Inc. v. Nytco

5

Services, Inc., 664 F.2d 1136, 1141 (9th Cir.1981) (Whether a plaintiff is the real

6

party in interest under Fed.R.Civ.P. 17(a) in a federal diversity suit depends on

7

whether the plaintiff is a proper party to maintain the action under the applicable

8

state law.) The Guaranty provides that it is to be enforced pursuant to the laws of

9

Arizona. Under Arizona law, it is axiomatic that to prevail on a breach of contract

10

claim the initial element that the plaintiff must prove is that a contract existed

11

between it and the defendant. Goodman v. Physical Resource Engineering, Inc., 270

12

P.3d 852, 855 (Ariz.App.2011); Stratton v. Inspiration Consolidated Copper Co., 683

13

P.2d 327, 330 (Ariz.App.1984) (Without privity of contract, a plaintiff has no claim for

14

a personal judgment sounding in breach of contract.)

15

Although the defendant has not raised it as an issue, the record does not

16

establish that the plaintiff is in privity of contract with the defendant for purposes of

17

enforcing the Guaranty. The issue here is that the plaintiff is seeking to enforce a

18

contract to which it is not a named party. The Guaranty, which is part of the record,

19

is solely between the defendant and a non-party to this action, Inland Southwest

20

Management LLC, which is defined in the Guaranty as the “Landlord;” the plaintiff

21
22
23
24
25
26

1

Ultimate only paid the first two months of its rent obligations. It apparently
never opened its store at the leased premises, and it filed for bankruptcy in January,
2011; it formally rejected the lease as part of the bankruptcy proceedings in March
2011. Ultimate’s bankruptcy does not affect the defendant’s obligations under the
Guaranty.
-2-

1

is nowhere mentioned in the Guaranty.2

2

summary judgment memoranda, or its statement of facts makes any reference to the

3

plaintiff being a successor or assign of Inland Southwest Management LLC, or that

4

it is a third-party beneficiary of the Guaranty, or that it is a proper party to bring this

5

action in some other legally cognizable capacity. The plaintiff is thus not entitled to

6

entry of summary judgment in its favor because on the present record it has failed

7

to make a showing sufficient to establish the existence of an essential element on

8

which it bears the burden of proof.

9

Neither the plaintiff’s complaint, its

But even if the plaintiff is deemed to be the proper party to bring this action,

10

based on relevant facts not presented to the Court, the Court further concludes that

11

summary judgment on damages is not appropriate due to the issue of the

12

reasonableness of the plaintiff’s efforts to mitigate its damages. In Arizona, “[a]

13
14
15
16
17
18
19
20
21
22
23
24
25

2

The first sentence of the Guaranty states: “This PERSONAL GUARANTY
(“this Guaranty”), dated as of January 25, 2010, is made by MARK J. WATTLES
(“Guarantor”) in favor of INLAND SOUTHWEST MANAGEMENT LLC, a Delaware
limited liability company (the “Landlord”), and its permitted successors and assigns,
with reference to the facts set forth below.”
All of the defendant’s obligations under the Guaranty are to the Landlord,
i.e. Inland Southwest Management LLC. The Guaranty provides, by way of brief
example, that the defendant was agreeing to guaranty Ultimate’s obligations to the
Landlord under the store lease as an inducement to and in consideration for the
Landlord to enter into the lease with Ultimate, and that the Landlord could bring a
separate action against the defendant under the Guaranty without proceeding
directly against Ultimate.
The Court notes that while the complaint alleges that the lease underlying
the Guaranty was between Ultimate and “Plaintiff, as landlord,” that is not correct.
While the plaintiff is a named party to the lease, it is solely in the capacity as “Owner”
of the shopping center where Ultimate’s store was to be located. The lease
designates the “Landlord” as Inland Southwest Management LLC, acting as agent
for the owner. All of the substantive provisions of the lease are between Inland
Southwest Management, as the landlord, and Ultimate.

26

-3-

1

basic principle of the law of damages is that one who claims to have been injured by

2

a breach of contract must use reasonable means to avoid or minimize the damages

3

resulting from the breach[,]” and the party who fails to do so is precluded from

4

recovering damages that were avoidable. West Pinal Family Health Center, Inc. v.

5

McBryde, 785 P.2d 66, 68-69 (Ariz.App.1989). In the case of a breached lease, this

6

duty to mitigate damages means that the landlord is required to make reasonable

7

efforts to rent the abandoned premises at a fair rent; the landlord is entitled to the full

8

amount of the rent due under the lease if it makes a reasonable effort to relet the

9

premises, even if that effort is unsuccessful. Tempe Corporate Office Building v.

10

Arizona Funding Services, Inc., 807 P.2d 1130, 1135 (Ariz.App.1991).

11

defendant, as the party in breach, has the burden of proving that mitigation of

12

damages was reasonably possible but was not reasonably attempted. Fairway

13

Builders, Inc. v. Malouf Towers Rental Co., 603 P.2d 513, 526 (Ariz.App.1979). The

14

gist of the defendant’s mitigation-related argument is that the plaintiff failed to act

15

reasonably to mitigate its damages because it took at least 16 months to negotiate

16

an agreement with Ross Dress for Less to take over the premises abandoned by

17

Ultimate, while failing to reasonably consider other potentially suitable tenants.3

The

18
3

19
20
21
22
23
24
25
26

The Court notes that the Ninth Circuit has deemed the failure to mitigate
damages to be an affirmative defense notwithstanding that it is not enumerated as
such in Fed.R.Civ.P. 8(c)(1). 999 v. C.I.T, Corp., 776 F.2d 866, 870 n.2 (9th
Cir.1985); Biltmore Bank of Arizona v. First National Mortgage Sources, L.L.C., 2008
WL 564833, at *9 and n.9 (D.Ariz. Feb. 26, 2008). The defendant did not allege
mitigation as a defense in his answer. Normally such a failure would constitute a
waiver of that defense, but the Court will allow it here because the plaintiff has not
objected to the defense on the basis of waiver and because the plaintiff is not
prejudiced given that the defendant raised the issue of mitigation of damages as an
issue in the parties’ Joint Case Management Report (Doc. 10, at 2) (“Defendant
does not concede liability at this time but anticipates the amount of damages, given
Plaintiff’s mitigation requirements, to be an issue in this case.”) See Apache Survival
-4-

1

The issues of whether the plaintiff used reasonable means under the

2

circumstances to avoid or minimize its damages stemming from Ultimate’s breach

3

of the lease and how much its damages could have been minimized by reasonable

4

mitigation efforts is a question of fact, not one of law. Britt v. Red Mesa Unified

5

School Dist. No. 27, 799 P.2d 9,11 (Ariz.App.1990); Biltmore Bank of Arizona v. First

6

National Mortgage Sources, L.L.C., 2008 WL 564833, at *9 (D.Ariz. Feb. 26, 2008)

7

(same). The defendant has submitted some evidence supporting its contention that

8

it was unreasonable for the plaintiff to take more than 90 days to negotiate with a

9

tenant to replace Ultimate and that the plaintiff unduly concentrated on getting Ross

10

Dress for Less as the replacement tenant. The Court concludes that this evidence

11

of record, together with all reasonable inferences supported by that evidence, all

12

construed in the light must favorable to the defendant, is sufficient, albeit marginally

13

so, to show that a genuine dispute of material fact exists regarding the

14

reasonableness of the plaintiff’s mitigation efforts. While the plaintiff argues in its

15

reply that it is “simply not true” that it is unreasonable for a commercial lease to take

16

16 months to negotiate and has submitted some evidence related to its mitigation

17

efforts that may cast significant doubt about the merits of the defendant’s mitigation-

18

related contentions, that is not an issue that the Court can resolve on summary

19

judgment. The Court also cannot resolve on summary judgment the related issue

20

of whether the reasonably mitigated damages owed by the defendant equal or

21
22
23
24
25

Coalition v. United States, 21 F.3d 895, 910 (9th Cir.1994) (Matters raised in
opposition to a summary judgment motion that are outside of the scope of a pleading
are to be construed as request pursuant to Fed.R.Civ.P. 15 to amend the pleading
out of time.)

26

-5-

1

exceed his maximum liability under the Guaranty.4

2

Another reason why the Court is not willing to resolve through summary

3

judgment the issue of the damages the plaintiff may be entitled to is the question of

4

whether the defendant has obtained all of the discovery he may be entitled to on the

5

issue of damages. The Court agrees with the plaintiff that the denial of its summary

6

judgment motion as a discovery-related sanction is not appropriate based on the

7

arguments and evidence submitted by the defendant, given that the discovery-

8

related problems raised by the defendant are partially the result of his own dilatory

9

discovery requests.

10

problems are irrelevant here, despite the defendant’s failure to properly file a motion

11

for discovery-related sanctions or to properly raise a Fed.R.Civ.P. 56(d) issue.

Nevertheless, the Court is not convinced that discovery

12

Because the Court is not granting summary judgment for either party, the

13

Court will set a status hearing wherein the Court will review with counsel the various

14

issues that need to be resolved in this action before a trial date can be set, which

15

include the issues of the plaintiff’s capacity to bring this action and whether all

16

relevant requested discovery has been produced. The Court expects the parties’

17

counsel to personally discuss all remaining issues and to make a reasonable attempt

18

to resolve them prior to the status conference, as well as to discuss a proposed

19
20
21
22
23
24
25
26

4

The Guaranty provides that “[i]n no event shall Guarantor’s obligation
exceed $675,000.00 plus costs of collection (hereinafter defined as “Guarantor’s
Maximum Liability.”) The Court notes that it cannot determine from the record
whether the defendant’s maximum liability is actually $675,000 because that figure
can be reduced given that the immediately following Guaranty provision states that
“Guarantor’s Maximum Liability shall be reduced monthly beginning with the second
(2nd) month following the commencement date of the Lease by an amount equal to
the sum of the monthly Minimum Rent and the monthly Additional Rent then payable
pursuant to the Lease.” The plaintiff does not explain whether this latter provision
has any application to the calculation of the defendant’s maximum liability.
-6-

1

schedule for bringing this action to trial readiness. The Court will also require the

2

parties to file a joint status report prior to the status conference that sets forth the

3

results of their discussions and their proposed schedule.

4

Therefore,
IT IS ORDERED that Plaintiff’s Motion for Summary Judgment (Doc. 22) is

5
6

denied.
IT IS FURTHER ORDERED that the parties shall file a joint status report no

7
8

later than May 6, 2013.
IT IS FURTHER ORDERED that a status conference shall be held on

9
10

Monday, May 13, 2013, at 11:30 a.m., in Courtroom 601.
DATED this 25th day of March, 2013.

11
12
13
14

.

15
16
17
18
19
20
21
22
23
24
25
26

-7-