Opinion
No. 1 CA-CV 12-0804
01-16-2014
BANK OF AMERICA, N.A., an Arizona limited liability company, Plaintiff/Appellee, v. SPORT COLLECTORS GUILD, INC., an Arizona corporation, Defendant/Appellant.
Bettwy & Wolfinger, Phoenix By Maria B. Wolfinger Counsel for Defendant/Appellant Poli & Ball, P.L.C., Phoenix By Michael N. Poli and Kesha A. Hodge Counsel for Plaintiff/Appellee
NOTICE: NOT FOR PUBLICATION.
UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT
AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.
Appeal from the Superior Court in Maricopa County
No. CV2010-014385
The Honorable Mark H. Brain, Judge
VACATED AND REMANDED
COUNSEL
Bettwy & Wolfinger, Phoenix
By Maria B. Wolfinger
Counsel for Defendant/Appellant
Poli & Ball, P.L.C., Phoenix
By Michael N. Poli and Kesha A. Hodge
Counsel for Plaintiff/Appellee
MEMORANDUM DECISION
Judge Michael J. Brown delivered the decision of the Court, in which Presiding Judge Andrew W. Gould and Judge Donn Kessler joined. BROWN, Judge: ¶ Sport Collectors Guild, Inc. ("Sport") appeals the trial court's order granting summary judgment in favor of Bank of America, N.A. ("Bank"). Because Sport has not repudiated its right to arbitrate, we vacate the court's order and remand for further proceedings.
Although Patrice Lagnier is listed on the notice of appeal, he is not represented on appeal and has not submitted briefing. Additionally, in light of Lagnier's discharge under the bankruptcy code, Bank requests that we affirm the judgment only as to Sport. We therefore amend the caption to reflect that Sport is the only party appealing the trial court's judgment.
BACKGROUND
¶2 Sport received a $150,000 line of credit from Bank in 2003. In addition to executing a promissory note, Sport and Bank entered into a Commercial Security Agreement granting Bank a security interest in Sport's assets to secure payment. As further assurance, Patrice Lagnier executed a Commercial Guaranty. The promissory note stated that "[a]t the request of any party to this agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act, (Title 9, U.S. Code) (the "Act")."
¶3 The parties extended the line of credit by amendment in 2006. The amendment reiterated the applicability of the Act, and stated that the American Arbitration Association rules and procedures for financial services disputes would apply. It further provided that the arbitration provision
concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this agreement (including anyThe dispute resolution provision was a "material inducement for the parties entering into this agreement."
renewals, extensions or modifications); or (ii) any document related to this agreement[.]
¶4 In March 2009, Bank demanded payment of Sport's outstanding balance of $146,798.61. After a flurry of correspondence, Sport wrote to Bank's counsel in October 2009, stating that if Bank intended to move forward with its demand for payment, then Bank should adhere to the arbitration provision set forth in the promissory note.
¶5 Bank subsequently informed Sport, in a March 1, 2010 letter, that it was willing to consider restructuring the Loan, but that Sport would have to provide updated financial information. Sport supplied this information on March 31, 2010. In an accompanying letter to Bank's counsel of the same date, Sport again noted that the parties' loan contract included a binding arbitration provision.
¶6 Bank filed suit against Sport and Lagnier ("Defendants,"except as otherwise noted) for breach of contract/guaranty and replevin on June 11, 2010. In their answer, signed only by Lagnier in both his individual capacity and as a representative of the company, Defendants did not mention arbitration. Sport petitioned for a Chapter 11 bankruptcy on July 1, 2010, but the bankruptcy court dismissed the case without a discharge on August 3, 2010. Lagnier petitioned for Chapter 7 bankruptcy on July 2, 2012 and was granted a discharge on October 16, 2012.
¶7 None of the parties conducted discovery or exchanged Rule 26.1 disclosure statements. In February 2011, Bank moved for summary judgment. In response, through counsel, Defendants alleged Bank materially breached the loan agreement by failing to pursue arbitration. Alternatively, Defendants argued that Bank was equitably estopped by prior representations, and the commercial frustration doctrine discharged Defendants' obligation to perform. On the same date, Defendants filed an amended answer, raising the binding arbitration provision as an affirmative defense and alleging that Bank's failure to abide by the provision constituted a breach.
¶8 Bank replied that Defendants had waived and repudiated the right to the arbitration term by failing to raise it in the answer, and then failing to invoke it for several months thereafter. The trial court agreed, characterizing the arbitration request as the "only issue" of "any potential merit," but finding Sport's invocation of the arbitration clause untimely. The court therefore granted summary judgment. It then filed a signed judgment, without Rule 54(b) language, holding Defendants jointly and severally liable for breach of contract. Defendants moved for a new trial. Before the trial court denied that motion, Defendants filed a notice of appeal. This court dismissed the appeal, citing the judgment's failure to resolve the replevin claim and lack of Rule 54(b) language. On remand, Bank agreed to the dismissal of its replevin claim, and the trial court issued a signed order. Defendants timely filed a notice of appeal.
DISCUSSION
¶9 A party may lose the right to arbitrate by failing to timely assert it. Forest City Dillon, Inc. v. Super. Ct. (Carruth), 138 Ariz. 410, 412, 675 P.2d 297, 299 (App. 1984); see generally Cox. v. Ocean View Hotel Corp., 533 F.3d 1114, 1121 (9th Cir. 2008) (applying state law and determining whether repudiation had occurred in a case governed by the FAA). The untimely assertion of the right to arbitration raises three potential scenarios: (1) a repudiation/waiver; (2) the failure of a procedural condition; or (3) the failure of a condition precedent to activating the clause. City of Cottonwood v. James L. Fann Contracting, Inc., 179 Ariz. 185, 189, 877 P.2d 284, 288 (App. 1994).
A condition precedent must be performed before the contract becomes effective. Fann, 179 Ariz. at 189 n.4, 877 P.2d at 288 n.4. The condition must expressly and clearly appear in the contract. Id. Bank has not argued that a condition precedent exists here.
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¶10 The parties focus upon whether Sport has repudiated the right to arbitrate. "Because repudiation calls into question the existence of the arbitration agreement, repudiation is an issue for the court." Id. at 190, 877 P.2d at 289; see Bolo Corp. v. Homes & Son Constr. Co., 105 Ariz. 343, 345-46, 464 P.2d 788, 790-91 (1970). We review this issue de novo. In re Estate of Cortez, 226 Ariz. 207, 210, ¶ 3, 245 P.3d 892, 895 (App. 2010).
¶11 Repudiation occurs when a party engages in "conduct preventing arbitration, proceeds at all times in disregard of arbitration, expressly agrees to waive arbitration, or unreasonably delays requesting arbitration." In re Noel R. Shahan Irrevocable & Inter Vivos Trust, 188 Ariz. 74, 77-78, 932 P.2d 1345, 1348-49 (App. 1996). A claim of repudiation based upon unreasonable delay must be supported by "clear evidence of 1) prejudice suffered by the other party and 2) a demand for arbitration so egregiously untimely and inconsistent with an intent to assert the right to arbitrate that an intentional relinquishment can be inferred." Fann, 179 Ariz. at 192, 877 P.2d at 291. Thus, Bank bears a "heavy" burden in establishing that Sport repudiated its right to arbitration. Id. at 192 n.10, 877 P.2d at 291 n.10 (citing Rancho Pescado, Inc. v. Nw. Mut. Life Ins. Co., 140 Ariz. 174, 181, 680 P.2d 1235, 1242 (App. 1984)).
¶12 Bank contends that Sport waived its right to arbitrate by filing its answer without raising arbitration as an affirmative defense. We disagree.
¶13 The answer Defendants submitted on July 6, 2010 was signed only by Lagnier. He purported to sign it on behalf of Sport, but was not authorized to do so. See Ramada Inns, Inc. v. Lane & Bird Advertising, Inc., 102 Ariz. 127, 128, 426 P.2d 395, 396 (1967) (explaining that, absent statutory authority, a company "cannot practice law even in its own behalf" and "cannot appear in court by an officer who is not an attorney"). Thus, the answer was invalid as to Sport.
¶14 Because Sport did not file an answer to the complaint at the time Lagnier submitted his answer, the first time Sport made an appearance in the litigation was on March 23, 2011, when its attorney filed her notice of appearance. Sport then filed its response to the summary judgment motion and its "amended" answer, both of which raised the arbitration issue. Moreover, as reflected in the record before us, at the time Lagnier filed his answer, the automatic bankruptcy stay was in effect and the litigation was therefore on hold. See 11 U.S.C. section 362(a) (stating an automatic stay goes into effect at the time a debtor files a bankruptcy petition).
¶15 Given these circumstances, we conclude that the trial court erred in granting summary judgment on the basis that the arbitration issue was not timely raised. There was no unreasonable delay and no conduct inconsistent with the intent to arbitrate. Fann, 179 Ariz. at 191-92, 877 P.2d at 291-92. Therefore, Bank has not met its burden of proving waiver through repudiation.
¶16 Both parties have requested attorneys' fees on appeal. Bank has not prevailed and therefore we deny its request. Sport has failed to cite any authority and we likewise deny its request. See ARCAP 21(a)(2) (requiring a party requesting attorneys' fees to "specifically state the statute, rule, decisional law, contract, or other provision authorizing an award of attorneys' fees"). Sport is entitled, however, to an award of costs incurred on appeal subject to compliance with Arizona Rule of Civil Appellate Procedure 21(a).
CONCLUSION
¶17 Based on the foregoing, we vacate the trial court's judgment entered on September 12, 2011, and remand for further proceedings consistent with this decision.