Opinion
No. 1 CA-CV 18-0108 No. 1 CA-CV 18-0626 (Consolidated)
06-09-2020
CHEF TIAN LLC, Plaintiff/Appellant/Cross-Appellee, v. 668 NORTH LLC, Defendant/Appellee/Cross-Appellant.
COUNSEL Saddleworth Law, PLLC, Phoenix By Craig W. Broadbent Counsel for Plaintiff/Appellant/Cross-Appellee Payne Law Office, Phoenix By Christopher D. Payne Counsel for Defendant/Appellee/Cross-Appellant
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
Appeal from the Superior Court in Maricopa County
No. CV2018-000295
The Honorable Christopher Whitten, Judge
The Honorable David W. Garbarino, Judge Pro tempore
AFFIRMED IN PART; REVERSED IN PART; REMANDED
COUNSEL
Saddleworth Law, PLLC, Phoenix
By Craig W. Broadbent
Counsel for Plaintiff/Appellant/Cross-Appellee
Payne Law Office, Phoenix
By Christopher D. Payne
Counsel for Defendant/Appellee/Cross-Appellant
MEMORANDUM DECISION
Judge Jennifer M. Perkins delivered the decision of the Court, in which Presiding Judge Maria Elena Cruz and Judge Kent E. Cattani joined.
PERKINS, Judge:
¶1 Chef Tian, LLC ("Tenant") appeals from the superior court's order dismissing its application for a temporary restraining order seeking injunctive relief against 668 North LLC ("Landlord") and from the court's grant of summary judgment to Landlord on its forcible retainer claim. Landlord cross-appeals. For the following reasons, we affirm the dismissal of Tenant's injunctive relief claim, but reverse the grant of summary judgment and remand for further proceedings.
FACTUAL AND PROCEDURAL HISTORY
¶2 Tenant, a limited liability company solely managed by Mr. Hong Lei Tian, leased space from Landlord's predecessor in a commercial center in Phoenix known as the Chinese Cultural Center to operate its restaurant Beijing Garden. The lease term was for five years ending in January 2018. Landlord acquired the property in June 2017. For the entire five-year term of the lease, the property was managed by COFCO Management and property manager Robert Reblin. The lease provided Tenant with an option to extend the lease term:
26. Option to Extend Term. Provided Tenant is not then in default under any terms of this Lease and no event has occurred which, with the giving of notice or passage of time would cause a default hereunder, Tenant shall have the right to extend the term of this Lease for One five (5) year term. Tenant shall exercise the option by giving Landlord notice of exercise no later than one hundred eighty (180) days prior to the scheduled expiration date. All of the terms and conditions of this Lease shall remain the same, the Minimum Rent shall be determined by the parties at the time of the extension and not to exceed 5% of current rent per year.
(Emphasis Added). The lease also provided that "[a]ll notices, requests, authorizations, approvals, consents and other such communications required under this Lease shall be in writing . . . ."
¶3 In June 2017, before the option deadline, Tenant delivered a letter to Landlord in an attempt to renew the lease. The letter stated:
RE: Lease Renewal
. . .
My lease agreement will expire on January 31, 2018. I wish to extend the rental for a further term of three or five years. I hereby request no increase in my rent for this extended period. We would appreciate your response and look forward to hearing from you. I can be reached at Phone 480-***-****
¶4 Landlord took no action on Tenant's letter. In January 2018, Tenant sent a letter requesting that Landlord acknowledge it would renew the lease. Landlord responded that it believed Tenant failed to properly exercise the option to renew and requested that Tenant vacate the premises by February 1, 2018.
¶5 Tenant filed a multi-count complaint against Landlord, which included claims for breach of contract, breach of the implied covenant of quiet enjoyment, breach of the duty of good faith and fair dealing, and declaratory judgment. Tenant also filed a motion for a temporary restraining order seeking to enjoin a lockout.
¶6 Landlord responded to Tenant's motion for a temporary restraining order, which the trial court treated as a motion to dismiss. After oral argument, the court found that Tenant had waived its right to pursue equitable relief because a provision of the lease agreement specifically stated that none of Landlord's obligations under the lease would be subject to specific performance or injunctive remedies. The court further found that Tenant had not established that the contract provision was unconscionable. The court denied Tenant's request for a temporary restraining order. Tenant filed a notice of appeal from the court's order denying injunctive relief.
¶7 Meanwhile, Landlord filed its answer to Tenant's amended complaint, as well as counterclaims for forcible detainer, trespass, breach of contract, conversion, civil conspiracy, and declaratory judgment, plus
several third-party claims. Landlord also filed an emergency motion for a temporary restraining order and for preliminary injunction requesting, inter alia, an order that Tenant vacate the premises.
¶8 The trial court transferred Landlord's eviction claim to the court division handling forcible entry and detainer actions. Both sides filed motions for summary judgment. After oral argument, the court found that although the option provision in the lease was enforceable, Tenant's attempt to exercise the option was ineffective because Tenant's June 2017 letter requesting a term of "three or five years" did not match the lease's option term of five years. The court found that Tenant was guilty of forcible detainer and that Landlord was entitled to possession of the property.
¶9 Tenant timely appealed, and Landlord filed a cross-appeal. We consolidated the appeals from the court's order denying Tenant injunctive relief and the court's grant of summary judgment for Landlord on the forcible detainer claim. We have jurisdiction under A.R.S. sections 12-2101(A)(1) and (A)(5)(b).
DISCUSSION
I. Injunctive Relief
¶10 Tenant argues that the trial court erred by dismissing its claims for injunctive relief because the provision in the lease that prohibited injunctive relief was unconscionable. Section 20.2 of the lease provides, "None of Landlord's obligations under this lease shall be subject to specific performance or injunctive remedies, and Tenant waives all rights with respect to such remedies." We review a trial court's order granting or denying an injunction for a clear abuse of discretion. Shoen v. Shoen, 167 Ariz. 58, 62 (App. 1990). But "[u]nconscionability is a question of law for the court to decide." Angus Med. Co. v. Dig. Equip., 173 Ariz. 159, 167 n.3 (App. 1988).
¶11 Tenant claims that Mr. Tian spoke limited English when he negotiated the lease. It argues that because the lease prevented him from obtaining specific performance or injunctive relief from the court the lease provision was unconscionable and void as Tenant had no legal way to protect itself. Landlord argues that (1) Mr. Tian represented Tenant and he is a capable business person, (2) the lease contemplated that Tenant could obtain a monetary judgment against Landlord for any breach of its obligations, and (3) Tenant's request for injunctive relief is moot because Landlord has already taken possession of the premises.
¶12 In determining that Tenant had not established unconscionability, the trial court "accepted (Tenant's) avowal that Mr. Tian 'barely speaks English,' and . . . accept[ed] that the operative language was not specifically read or explained to Mr. Tian." The court also accepted "certain facts offered by (Landlord)—that Mr. Tian's English was proficient enough to negotiate the lease in English with (Landlord)," and that Mr. Tian had participated in the lease negotiations by giving Landlord's representative hand-written notes which included his demands regarding rent and rent increases. The court also found that Mr. Tian had successfully negotiated with Landlord for landlord improvements and for used restaurant equipment, and that Mr. Tian had previously negotiated another lease with Landlord's predecessor. The court found that the parties' intent was "made perfectly clear in the language of Section 20.2 . . . ."
¶13 We find no error in the trial court's decision to dismiss Tenant's claim for injunctive relief. "Unconscionability includes both procedural unconscionability, i.e. something wrong in the bargaining process, and substantive unconscionability, i.e. the contract terms per se." Pac. Am. Leasing v. S.P.E. Bldg. Sys., 152 Ariz. 96, 103 (App. 1986). "Our law generally presumes, especially in commercial contexts, that private parties are best able to determine if particular contractual terms serve their interests." 1800 Ocotillo, LLC v. WLB Grp., Inc., 219 Ariz. 200, 202, ¶ 8 (2008); see also Salt River Project Agr. Imp. and Power Dist. v. Westinghouse Elec. Corp., 143 Ariz. 368, 374 (1984) (stating that findings of unconscionability are rare in commercial settings), abrogated on other grounds by Phelps v. Firebird Raceway, Inc., 210 Ariz. 403 (2005). Nothing in the record here shows that Tenant, an entity represented by an experienced businessperson, did not enter into the lease freely and voluntarily, despite Mr. Tian's asserted difficulties understanding English. The waiver provision in Section 20.2 of the lease was straightforward. A waiver of remedies is not unconscionable even when an entire category of remedies is waived. Angus Med. Co., 173 Ariz. at 167. The lease provided that Tenant could seek monetary damages against Landlord for breach of the lease, so Tenant was not entirely without a remedy. Moreover, the issue of injunctive relief is moot because Tenant sought to prevent a lock out and interference with the premises; after the forcible detainer finding Landlord acquired possession of the premises and locked Tenant out.
II. Forcible Detainer
¶14 Tenant appeals from the trial court's ruling that Tenant's attempt to exercise the option was ineffective and that Landlord was therefore entitled to summary judgment on the issue of forcible detainer.
Landlord cross-appeals, arguing that the court erred by ruling that the option provision in the lease was enforceable. We review de novo whether summary judgment is warranted, including whether genuine issues of material fact exist and whether the trial court properly applied the law. Dreamland Villa Cmty. Club, Inc. v. Raimey, 224 Ariz. 42, 46, ¶ 16 (App. 2010). We construe all facts in favor of appellants as the non-moving parties. Melendez v. Hallmark Ins. Co., 232 Ariz. 327, 330, ¶ 9 (App. 2013). We interpret contract language de novo. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, 593, ¶ 9 (App. 2009) (citation omitted). We will affirm a summary judgment even if the trial court reached the right result for the wrong reason. Guo v. Maricopa Cty. Med. Ctr., 196 Ariz. 11, 15, ¶ 15 (App. 1999).
¶15 Landlord argues that the option was void because it lacked a material term—a definable rental amount for the lease term. The option provision states, "All of the terms and conditions of this lease shall remain the same, the Minimum Rent shall be determined by the parties at the time of the extension and not to exceed 5% of current rent per year." During oral argument on appeal, counsel for Landlord acknowledged that "not to exceed 5% of current rent per year" meant the rent would not increase by more than five percent.
¶16 Landlord points to prior cases such as Cecil Lawter Real Estate Sch., in which this court noted, "an option clause providing that future rent is to be 'subject to negotiation and mutual agreement' is too uncertain and indefinite to be enforceable under Arizona law." Cecil Lawter Real Estate Sch., Inc. v. Town & Country Shopping Ctr. Co., 143 Ariz. 527, 538 (App. 1984), disapproved on other grounds by Gust Rosenfeld v. Prudential Ins., 182 Ariz. 586 (1985). But Cecil Lawter Real Estate Sch. and similar cases involve situations in which an option agreement simply recognized an agreement to negotiate, with no parameters within which a landlord could be bound. We agree with Landlord that an "agreement to agree" does not create a binding option agreement. Under those circumstances, there is no basis to conclude that an offer in any amount would bind the landlord and require acceptance of the offer. But here, the option agreement provided a range (somewhere between the current rent and a five percent increase) within which the rent for a renewed term would be set. In other words, an exercise of the option at 105% of the contract lease rate would bind Landlord under the clear terms in the option. We, therefore, agree with the superior court that the option was valid and enforceable.
¶17 The superior court concluded that, while the option was enforceable, Tenant's offer to renew was invalid because it was not an offer to renew for five years, as specified in the option agreement. Tenant's offer
to renew, however, was for "either three or five years," which signaled a willingness to renew for five years. And Tenant submitted evidence that it offered to renew for either three or five years because the property manager, Robert Reblin, had suggested that Landlord might prefer renewing for a shorter time period. In light of this evidence, giving Landlord the option of a three-year renewal did not establish that Tenant was unwilling to renew for five years—particularly given the express language in his letter showing a willingness to renew for either three or five years. Therefore, the superior court erred by ruling that Tenant's offer to renew for "either three or five years" was not a valid offer and that Landlord was entitled to summary judgment.
¶18 The lease began on February 1, 2013, making the expiration date February 1, 2018, and the deadline to renew August 5, 2017. On June 13, 2017, Mr. Tian met with Landlord's management company and expressed a desire to exercise the option. On June 21, 2017, Mr. Tian's wife delivered a letter to Landlord stating, "My lease agreement will expire on January 31, 2018. I wish to extend the rental for a further term of three or five years. I hereby request no increase in my rent for this extended period. We would appreciate your response and look forward to hearing from you. I can be reached at Phone [ ]."
¶19 Despite this correspondence, and despite multiple conversations with Reblin in which Mr. Tian conveyed his desire to renew the lease, Landlord did not respond in any way to the letter between its June 2017 receipt of the letter and the August deadline to renew. Landlord instead waited until six months after receiving the letter to communicate to Mr. Tian for the first time that it did not consider the letter to be a valid exercise of the option, and that the lease would therefore expire on January 31, 2018.
¶20 Mr. Tian's written request to renew did not offer to pay the maximum increase under the option. And nothing would have required Landlord to accept anything less than the maximum increase permitted under the option agreement. There is therefore no basis from which the superior court could have concluded that Tenant exercised the option in a manner that bound Landlord to accept. But the record likewise does not establish that Tenant would not have agreed to a five percent increase in the rent, and the record in fact suggests that Landlord deliberately stalled to avoid any opportunity for Tenant to make a "full price" renewal offer.
¶21 In Arizona, "[t]he law implies a covenant of good faith and fair dealing in every contract." Rawlings v. Apodaca, 151 Ariz. 149, 153 (1986).
Tenant presented evidence from which a factfinder could conclude that Landlord breached that covenant by failing to communicate in any way with Mr. Tian after receiving his June 2017 correspondence expressing an interest in renewing the lease.
¶22 Given the parties' existing contractual relationship and the option's provision that minimum rent for lease extension "shall be determined by the parties at the time of the extension," this case presents a straight-forward good faith and fair dealing question: Did that provision create a duty to negotiate to "determine" the rent amount once Tenant expressed a desire to renew? The answer is yes. If Landlord was unwilling to renew the lease on the same terms as the existing agreement, it had an obligation to communicate that to Tenant. An agreement that the parties "shall determine" the rental rate for an extension imposed—at a minimum—a duty to timely respond to Tenant's proposal. Even assuming Landlord was unwilling to renew at the same rental rate, communicating that fact to Tenant would have allowed Tenant to decide whether to offer to renew with a five percent rent increase, which would have created a binding offer to renew.
¶23 Because there was an enforceable option, and because Tenant presented evidence from which a fact-finder could conclude that Landlord violated the covenant of good faith and fair dealing relating to that option, we reverse the decision of the superior court. We also reverse the court's award of $20,000 in attorneys' fees to Landlord.
III. Damages and Attorneys' Fees
¶24 Landlord raises two other issues in its cross-appeal: (1) whether the trial court failed to award damages pursuant to A.R.S. § 1178(A), and (2) whether the court abused its discretion by awarding it $20,000 in attorneys' fees. Because we reverse the court's ruling on summary judgment and the court's ruling awarding fees, we need not reach these issues.
IV. Attorneys' Fees on Appeal
¶25 Landlord requests its attorneys' fees and costs on appeal under the lease, A.R.S. § 12-1178(A), and A.R.S. § 12-341.01. Tenant requests its attorneys' fees and costs under the lease, A.R.S. § 12-341 and A.R.S. § 12-341.01. We award Tenant reasonable attorneys' fees on appeal subject to its compliance with ARCAP 21.
CONCLUSION
¶26 For the foregoing reasons, we affirm the trial court's order dismissing Tenant's request for injunctive relief but reverse its order granting summary judgment to Landlord on its forcible detainer claim and remand for further proceedings consistent with this decision.