Franchise Holding II LLC v. Huntington Restaurants Group Incorporated et al

Filing 86

ORDER denying 72 Defendants' Motion for Summary Judgment and granting 74 Plaintiff's Motion for Summary Judgment. Plaintiff will be awarded damages in the amount of $12,800,000, with prejudgment interest at ten percent per annum. Plaintiff shall lodge a proposed form of judgment with the Court on or before January 15, 2014. See PDF document for details. Signed by Judge David G Campbell on 1/8/14.(LSP)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Franchise Holding II LLC, Plaintiff, 10 11 ORDER v. 12 No. CV-12-01363-PHX-DGC Huntington Restaurants Group Incorporated, et al., 13 Defendants. 14 15 16 Defendants Richard and Michelle Beattie, Huntington Restaurant Group, and 17 Golden Management have filed a motion for summary judgment. Doc. 72. Plaintiff 18 Franchise Holding II, LLC has also moved for summary judgment. Doc. 74. The 19 motions are fully briefed. For the reasons that follow, the Court will deny Defendants’ 20 motion and grant Plaintiff’s motion.1 21 I. Background Facts. 22 On January 27, 2003, Plaintiff obtained a judgment for $24,874,870.09 plus 23 interest against Defendants. The Ninth Circuit affirmed the judgment on July 20, 2004. 24 Plaintiff thereafter made efforts to collect on the judgment, including garnishing two 25 bank accounts totaling $355,737.95 and seizing various items of personal property, 26 including a 43-foot boat in Florida. 27 1 28 Plaintiff’s request for oral argument is denied because the issues have been fully briefed and oral argument will not aid the Court’s decision. See Fed. R. Civ. P. 78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). 1 On January 11, 2006, Plaintiff and Defendants entered into a contract titled 2 “Agreement for Stay of Execution Upon Judgment” (“the Stay Agreement”). The Stay 3 Agreement established a schedule under which Defendants would make payments 4 totaling $13,000,000 by June 1, 2013, at which time Plaintiff agreed to release the 5 remainder of the judgment debt. As part of the Stay Agreement, Defendants agreed that 6 they would “not further contest the Arizona Judgment in any manner and . . . withdraw 7 and dismiss all pending motions or other challenges” to the judgment. Doc. 75-2 at 3. 8 The Defendants also agreed to advise Plaintiff of the creation of any entities controlled by 9 Defendants, to withhold all compensation to Richard Beattie from “BFLP, Quality 10 Restaurants Northwest, Inc., Huntington Restaurant Group, Inc., Golden Management, 11 Inc. or any other affiliated entity or person affiliated or related in any way to any of the 12 Beattie parties” without Plaintiff’s approval, and to allow Plaintiff reasonable access to 13 the financial records of entities controlled by Defendants. Id. at 4-5. In the event 14 Defendant defaulted, the Stay Agreement provided that the stay would immediately cease 15 and Plaintiff would be entitled, without notice, to enforce the judgment. Defendants made payments totaling $200,000, but missed a $1,000,000 payment 16 17 on June 1, 2008. Defendants have refused to make any additional payments. 18 II. Legal Standard. 19 A party seeking summary judgment “bears the initial responsibility of informing 20 the district court of the basis for its motion, and identifying those portions of [the record] 21 which it believes demonstrate the absence of a genuine issue of material fact.” Celotex 22 Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate if the 23 evidence, viewed in the light most favorable to the nonmoving party, shows “that there is 24 no genuine dispute as to any material fact and the movant is entitled to judgment as a 25 matter of law.” Fed. R. Civ. P. 56(a). Summary judgment is also appropriate against a 26 party who “fails to make a showing sufficient to establish the existence of an element 27 essential to that party’s case, and on which that party will bear the burden of proof at 28 trial.” Celotex, 477 U.S. at 322. Only disputes over facts that might affect the outcome -2- 1 of the suit will preclude the entry of summary judgment, and the disputed evidence must 2 be “such that a reasonable jury could return a verdict for the nonmoving party.” 3 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 4 III. Analysis. 5 Arizona law governs the Stay Agreement. Doc. 75-2 at 5. The elements for a 6 breach of contract claim under Arizona law include the existence of a contract, a material 7 breach of the contract, and resulting damages. Frank Lloyd Wright Found. v. Kroeter, 8 697 F. Supp. 2d 1118, 1125 (D. Ariz. 2010). Defendants do not dispute that they entered 9 into the Stay Agreement with Plaintiff. Defendants also acknowledge that they 10 materially breached the Stay Agreement and that their breach damaged Plaintiff in the 11 amount of $12.8 million. 12 summary judgment for two reasons: (1) the Stay Agreement is unenforceable because it 13 lacked consideration, and (2) the sole remedy available under the Stay Agreement is 14 enforcement of the original $24,874,870.09 judgment, which has now expired under 15 Arizona law. The Court will address each of these arguments. Defendants maintain, however, that they are entitled to 16 A. Lack of Consideration. 17 Defendants assert that the Stay Agreement did not impose any obligation that they 18 did not already have, and did not give Plaintiff any right it did not already possess. 19 Doc. 78 at 2. Defendants argue that the Stay Agreement lacks consideration. Id. 20 “[A] promise must be supported by consideration or some substitute in order to be 21 legally enforceable.” Yarbro v. Neil B. McGinnis Equip. Co., 420 P.2d 163, 167 (Ariz. 22 1966). 23 consideration to legally support a promise.” Id. The Court concludes that the Stay 24 Agreement is legally enforceable because both parties tendered consideration. “[A] benefit to a promisor or a loss or detriment to the promisee is good 25 Plaintiff furnished consideration by promising to forebear on enforcement of the 26 $24,874,870.09 judgment. See Id. at 166-67; 3 Williston on Contracts § 7:44 (4th ed.) 27 (“Forbearance from exercising a right or doing an act which one has a right to do is legal 28 consideration.”). -3- 1 Defendants also furnished consideration. Although the Court previously 2 suggested in dicta that Defendants’ promise not to “contest the Arizona Judgment any 3 further” and to “withdraw and dismiss all pending motions or other challenges to the 4 Arizona Judgment” (Doc. 75-2 at 3) did not constitute consideration (Doc. 28 at 6), upon 5 reconsideration, the Court reaches the opposite conclusion. Arizona courts follow the 6 Restatement (Second) of Contracts. See Bank of Am. V. J. & S. Auto Repairs, 694 P.2d 7 246, 248 (Ariz. 1985) (“In the absence of contrary authority Arizona courts follow the 8 Restatement of the Law.”). As the Restatement explains, “[t]he execution of a written 9 instrument surrendering a claim or defense by one who is under no duty to execute it is 10 consideration if the execution of the written instrument is bargained for even though he is 11 not asserting the claim or defense and believes that no valid claim or defense exists.” 12 Restatement (Second) of Contracts § 74(2). Defendants also promised that Beattie would 13 receive no compensation from various entities without Plaintiff’s prior written consent 14 constituted consideration. Doc. 75-2 at 5. Defendants argue that this promise granted 15 Plaintiff no new rights because judgment creditors such as Plaintiff already have the right 16 to garnish compensation. Doc. 78 at 5. But the Stay Agreement eliminated 100% of 17 Beattie’s prospective compensation from the designated entities, a much more significant 18 benefit than the 25% garnishment rate for wages. 19 1598.10(F). In addition, Defendants promised to advise Plaintiff of the creation of any 20 new entities and to grant Plaintiff access to their financial records. These promises also 21 constituted valid consideration: “Monetary compensation is not needed; any benefit to 22 the promisor or detriment to the promisee is sufficient.” USLife Title Co. of Ariz. v. 23 Gutkin, 732 P.2d 579, 584 (Ariz. Ct. App. 1987) (emphasis added; citation omitted). See A.R.S. §§ 33-1131(B), 12- 24 In sum, both parties furnished consideration. The Court concludes that there is no 25 genuine dispute of fact that would preclude the Court from entering summary judgment 26 for Plaintiff on this issue. 27 B. Available Remedies. 28 Defendants argue that even if the Stay Agreement is enforceable, the sole remedy -4- 1 under the agreement is execution upon the now-expired judgment. Paragraph five of the 2 Stay Agreement provides in relevant part: 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In the event any of the payments . . . is not timely made, the stay of execution . . . shall immediately cease and [Plaintiff] may, without notice, seek to collect or otherwise enforce the Arizona Judgment to the full extent of the judgment . . . together with interest thereon[.] Docs. 73-1 at 4; 75-2 at 4. Defendants argue that the “sole remedy available to [Plaintiff] is execution upon the judgment.” Doc. 72 at 3. Under Arizona law, “parties to a contract may specify certain remedies which may be used in case of a breach. They may in addition make such a provision the exclusive remedy or remedies, barring all others which would otherwise be available. To obtain this result, however, the intent of the parties must be made clear.” Zancanaro v. Cross, 339 P.2d 746, 750 (Ariz. 1959); see also Hadley v. Sw. Properties, Inc., 570 P.2d 190, 193 (Ariz. 1977) (en banc) (“The clear intent of the parties here was that the only remedy the plaintiffs would have in the event of breach was forfeiture. That remedy was exercised; plaintiffs can seek no further damages against either defendant.”); 17 A Am. Jur. 2d, Contracts, § 709 (2004) (“Although the parties may, in their contract, specify a remedy for a breach, that specification does not exclude other legally recognized remedies. An agreement to limit remedies must be clearly expressed in the contract. A contract will not be construed as taking away a common-law remedy unless that intention is clear[.]”). The Court concludes that the parties did not clearly intend to designate enforcement of the judgment as the sole remedy available under the Stay Agreement. As quoted above, the Stay Agreement provided that Plaintiff “may, without notice, seek to collect or otherwise enforce” the judgment. Docs. 73-1 at 4; 75-2 at 4 (emphasis added). The Stay Agreement thus provided that Plaintiff may, at its option, seek to enforce the judgment, but the Stay Agreement did not provide that Plaintiff may not do anything else. Zancanaro clearly holds that contractual language providing that a party may pursue one remedy does not show that the parties intended to preclude all other remedies available -5- 1 for breach. 339 P.2d at 750 (“The clause provides that the plumbing contractor ‘may, at 2 his option’ do certain things, but it does not provide that he may not do anything else. . . . 3 [T]here is no provision absolving the owner or builder of liability for damages[.] The 4 ordinary common-law remedies were retained, and plaintiff was entitled to sue for profits 5 on the entire contract.”). Thus, rather than identifying an exclusive remedy, the language 6 of the Stay Agreement adds enforcement of the judgment to the panoply of remedies 7 available under Arizona law for breach of contract. 8 Defendants rely on a number of cases to bolster their argument that enforcement 9 of the judgment is the exclusive remedy under the Stay Agreement, but each of these 10 cases involved contract language that revealed the parties’ intent to designate an 11 exclusive remedy. In Green v. Snodgrass, 289 P.2d 191 (Ariz. 1955), the contract 12 specified that “[i]n event the . . . purchaser failes [sic] to comply with his part of this 13 contract, then the earnest money (of $5000) receipted for herein shall be forfeited and 14 divided equally between the Seller and Green Realty Co., Real Estate Broker.” Id. at 192 15 (emphasis added). The court explained that such mandatory language “provide[d] what 16 the rights of the parties to the contract shall be in the event of breach.” Id. at 193. 17 Defendant cites Deuel v. McCollum, 400 P.2d 859 (Ariz. Ct. App. 1965), for the 18 proposition that “[w]here a contract provides for the remedy or the amount of damages in 19 the event that there is a breach, the terms of the contract will control.” Id. at 862. But the 20 contract in Deuel used the same mandatory language as was used in Green, stating that 21 “the Owner shall pay to the Architect” the amount specified. 400 P.2d at 861. The 22 contract in Motorola, Inc. v. Fairchild Camera & Instrument Corp., 366 F.Supp. 1173 23 (D. Ariz. 1973), also contained mandatory language, stating that breach “shall have the 24 results provided for herein[.]” Id. at 1179 (emphasis added). And although the lease in 25 Wilson v. Pate, 498 P.2d 535 (Ariz. Ct. App. 1972), used the word “may,” it provided 26 very specific alternative remedies: “lessor may, at his election, either distrain for said rent 27 due, or declare this lease at an end[.]” Id. at 536. The court found that this language 28 provided “a very clear statement of alternative remedies available to the lessor following -6- 1 a breach by the lessee.” Id. No similar clear limitation is found in the Stay Agreement. 2 Defendants argue that the exclusive nature of the enforcement remedy is indicated 3 by use of the word “shall” in the remedy provision of the Stay Agreement, but “shall” 4 appears in that provision only to indicate that the stay provided by the agreement “shall 5 immediately cease” upon default and to require that Plaintiff give Defendants notice of 6 the default. Doc. 75-2 at 4. ¶ 5. The word does not limit the available remedies. 7 Defendants argue that Timothy Cesarek, the person who negotiated the Stay 8 Agreement for Plaintiff, testified in his deposition that enforcement of the judgment is the 9 only remedy available under the agreement. Mr. Cesarek did not give such testimony. 10 He acknowledged that enforcement of the judgment is the only remedy mentioned in the 11 Stay Agreement, but he specifically stated that “it’s not the complete remedy.” Doc. 73-2 12 at 4. The deposition transcript also makes clear that Mr. Cesarek was asked only about 13 remedies mentioned in the Stay Agreement, not about remedies available under Arizona 14 law for breach of contract. Id. 15 Finally, Defendants argue that the only remedy available is execution of the 16 judgment because “[w]hatever injury [Plaintiff] suffered from Beattie’s breach is already 17 wholly subsumed within the judgment.” Doc. 72 at 4. This argument is clearly incorrect. 18 Arizona permits parties to enter into an accord and satisfaction. See Best Choice Fund, 19 LLC v. Low & Childers, P.C., 269 P.3d 678, 686 (Ariz. Ct. App. 2011). An accord and 20 satisfaction is an agreement between two contracting parties to accept alternate 21 performance to discharge a preexisting duty. See id. Breach of the accord does not limit 22 the parties to enforcement of the prior duty; the accord itself is a new contract, and a 23 party may sue for breach of that new agreement and damages flowing from the breach. 24 Restatement (Second) of Contracts § 281(2). The Stay Agreement provided alternative 25 performance for the duty established by the judgment, and Plaintiff can sue for breach of 26 the Stay Agreement. 27 Because the Court finds that the Stay Agreement does not provide an exclusive 28 remedy in the event of breach, the Court concludes that Plaintiff may pursue a traditional -7- 1 damages remedy for breach of the agreement. No genuine dispute of fact precludes the 2 Court from entering summary judgment for Plaintiff. 3 C. Damages. 4 Plaintiff asserts that “[b]ecause the amounts totaling $12.8 million that Defendants 5 failed to pay are liquidated sums, Plaintiff is entitled to pre-judgment interest on those 6 amounts.” Doc. 74 at 8. Defendants do not dispute that Plaintiff’s claim for $12.8 7 million is liquidated or that Plaintiff is entitled to prejudgment interest if it prevails on the 8 merits. Doc. 78 at 7. The parties disagree, however, on the interest rate that applies. 9 The Stay Agreement does not specify an interest rate. The Court therefore must 10 look to Arizona law to determine what interest rate applies. Plaintiff cites A.R.S. § 44- 11 1201(A), which provides that “[i]nterest on any loan, indebtedness or other obligation 12 shall be at the rate of ten per cent per annum, unless a different rate is contracted for in 13 writing, in which any rate of interest may be agreed to.” Defendants argue that Plaintiff 14 is relying on a superseded version of Arizona’s interest statute, yet Defendants cite to 15 subpart (B) of the same statute. Doc. 78. Subpart (B) applies only where an interest rate 16 is not “provided for in statute” or when “a different rate is [not] contracted for in 17 writing.” A.R.S. § 44-1201(B). The interest rate in this case is “provided for in statute” 18 – in A.R.S. § 44-1201(A) – because it is interest on “indebtedness or other obligation” 19 within the meaning of that provision. The Court will award prejudgment interest at a rate 20 of ten per cent per annum. 21 IT IS ORDERED: 22 1. Defendants’ motion for summary judgment (Doc. 72) is denied. 23 2. Plaintiff’s motion for summary judgment (Doc. 74) is granted. Plaintiff 24 will be awarded damages in the amount of $12,800,000, with prejudgment interest at ten 25 percent per annum. Plaintiff will be awarded post-judgment interest in accordance with 26 28 U.S.C. § 1961. Plaintiff shall lodge a proposed form of judgment with the Court on or 27 before January 15, 2014. Defendants may provide written comments on the proposed 28 judgment on or before January 22, 2014, and Plaintiff may reply on or before -8- 1 2 January 29, 2014. 3. Plaintiff may file a motion for attorneys’ fees on or before 3 January 29, 2014. Plaintiff shall provide all supporting materials with its motion, rather 4 than waiting to file such materials as provided in the Court’s local rules. 5 Dated this 8th day of January, 2014. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -9-

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