Opinion
No. 1 CA-CV 11-0404
08-30-2012
CHOMPIES BEST AT UNIVERSITY, INC., an Arizona corporation, Plaintiff/Appellee, v. ROY S. LUDLOW INVESTMENT CO., a Utah corporation, Defendant/Appellant.
Aiken Schenk Hawkins & Ricciardi P.C. By Joseph A. Schenk André H. Merrett Attorneys for Plaintiff/Appellee Phoenix Buchalter Nemer By Roger W. Hall Robert P. Rutila Attorneys for Defendant/Appellant Scottsdale
NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED
EXCEPT AS AUTHORIZED BY APPLICABLE RULES.
See Ariz. R. Supreme Court 111(c); ARCAP 28(c);
Ariz. R. Crim. P. 31.24
MEMORANDUM DECISION
(Not for Publication -
Rule 28, Arizona Rules of
Civil Appellate Procedure)
Appeal from the Superior Court in Maricopa County
Cause No. CV2008-017142
CV2008-054924
(consolidated)
The Honorable J. Richard Gama, Judge
The Honorable Douglas Rayes, Judge
AFFIRMED
Aiken Schenk Hawkins & Ricciardi P.C.
By Joseph A. Schenk
André H. Merrett
Attorneys for Plaintiff/Appellee
Phoenix Buchalter Nemer
By Roger W. Hall
Robert P. Rutila
Attorneys for Defendant/Appellant
Scottsdale SWANN , Judge ¶1 Defendant Roy S. Ludlow Investment Co. ("Ludlow") appeals from the judgment awarding Chompies Best at University, Inc. ("Chompies") damages in this breach of contract case. Ludlow contends that the superior court erred by finding that it breached an option agreement contained in the parties' lease agreement. Ludlow also contends that the court should have given more weight to Ludlow's evidence regarding valuation of the subject property than to Chompies' evidence when it determined damages. For the reasons set forth below, we find no error and therefore affirm the judgment.
FACTS AND PROCEDURAL HISTORY
¶2Under a lease agreement dated March 25, 1998 (the "Lease Agreement"), Ludlow leased real property to Chompies (the "Property") that Chompies uses to operate a restaurant. Under section XIV.1 of the Lease Agreement, Ludlow granted Chompies an option (the "Option") to purchase the Property at any time after the lease's eighth year for a price determined pursuant to a formula set forth in section XIV.3. Under section XIV.4 of the Lease Agreement, Ludlow granted Chompies a right of first refusal (the "Right of First Refusal") should Ludlow express its intent to accept a purchase offer for the Property from a third party at any time during the lease. In the event that Chompies exercised either the Option or the Right of First Refusal, the Lease Agreement required Chompies to facilitate a like-kind exchange under 26 U.S.C. § 1031 to complete the transaction. ¶3 On June 24, 2008, Chompies provided Ludlow written notice of its intent to exercise the Option for $1.44 million -- the price prescribed by the Lease Agreement's formula -- and suggested a closing date of July 11, 2008. Ludlow refused to honor the Option and instead offered a purchase price of $2.2 million. On August 20, 2008, Chompies filed a two-count complaint alleging breach of contract and seeking specific performance and damages. ¶4 Ludlow moved to dismiss, arguing that a recently discovered copy of a First Amendment to Lease dated June 2, 2006 (the "Amendment") "eliminated the formulary purchase price for the Property under Section XIV.3 of the Lease and substituted a requirement that the parties now must 'negotiate a price that is fair to both parties.'" In response, Chompies challenged the Amendment's authenticity, noting that Ludlow failed to produce an original document or provide an affidavit from its signer to establish the copy's authenticity. Chompies further maintained that its president had not seen the document until Ludlow produced it, and his signature on the Amendment was forged. The court denied Ludlow's motion to dismiss without addressing the Amendment's authenticity. ¶5 Chompies then moved for partial summary judgment on the issue of liability. For purposes of summary judgment, Chompies assumed the Amendment's authenticity and instead focused on the substance of the Amendment's language, arguing that the Amendment modified the Right of First Refusal -- not the Option. By unsigned minute entry, the court granted partial summary judgment to Chompies. ¶6 On February 24, 2011, the superior court held a one-day bench trial on damages. Chompies provided the testimony of Ms. White, a real estate appraiser employed by the bank that provided Chompies the financing required to exercise the Option. Ms. White opined that as of July 11, 2008, the date Chompies desired to exercise the Option, the Property's fair market value was $1.86 million. Ludlow's principal, Randy Ludlow, disagreed and testified that the Property had a fair market value of $1.55 million. The court found Ms. White's testimony more credible and adopted her fair market valuation in awarding Chompies damages in the amount of $445,174.28. Ludlow timely appeals. We have jurisdiction under A.R.S. § 12-2101(A)(1).
The court later entered a signed order pursuant to Ariz. R. Civ. P. 54(b), and Ludlow appealed. We dismissed the appeal on May 28, 2010, for lack of jurisdiction, finding that though the court included Rule 54(b) language in its order, the court did not make the findings necessary under Bilke v. State of Arizona, 206 Ariz. 462, 80 P.3d 269 (2003), for an interlocutory judgment to be deemed final and appealable.
Pursuant to Chompies' election of remedies at trial, the court dismissed the count seeking specific performance.
DISCUSSION
I. BREACH OF CONTRACT
¶7 Ludlow argues that the superior court misinterpreted the Amendment. We review interpretation of a contract de novo, with the goal of determining the parties' intent. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, 593, ¶ 9, 218 P.3d 1045, 1050 (App. 2009). We will affirm the entry of summary judgment if it is correct for any reason. Hawkins v. State, 183 Ariz. 100, 103, 900 P.2d 1236, 1239 (App. 1995). ¶8 The Amendment states, in relevant part:
Concurrent with the execution of this Amendment the Lease shall be amended to include an additional option of one [1] five [5] year extension at market rates in the area. Lessee shall also have an option to purchase the Premises if Landlord should submit in writing his intent and He and Lessee can negotiate a price that is fair to both parties.¶9 In granting Chompies partial summary judgment on liability, the superior court ruled that the Amendment did not affect the Option, but instead "appears . . . intended to create a right of the lessor to buy the premises should the landlord decide he wants to sell. . . . [and] seems to be more of a right of first negotiation than anything else." ¶10 Ludlow argues that the reference to "an option to purchase" in the Amendment necessarily evidences the parties' intent to alter the Option by empowering only Ludlow to initiate the sale and by deleting the predetermined price in the Option and replacing it with a price that would be negotiated by the parties. Therefore, according to Ludlow, its refusal to honor Chompies' request to purchase the Property for $1.4 million did not constitute a breach of the Option as amended. ¶11 We disagree. First, the terms of the Amendment make it clear that it supplements the original Option rather than modifying or replacing it. The Amendment first describes an "additional option" that is an "extension" and next provides that Chompies shall "also have an option to purchase" under the terms of the Amendment. The Amendment did not purport to rescind any portion of the original lease and expressly provided that "[e]xcept as specifically modified herein, all terms and conditions set forth within the Lease shall remain in full force and effect." ¶12 Second, Ludlow places too much reliance on the Amendment's use of the term "option to purchase." An option is distinct from a right of first refusal:
. . . .
Except as specifically modified herein, all terms and conditions set forth within the Lease shall remain in full force and effect.
An option is defined as '[a] right, which acts as a continuing offer, given for consideration, to purchase or lease property at an agreed upon price and terms, within a specified time.' A right of first refusal, on the other hand, is defined as the '[r]ight to have first opportunity to purchase real estate when such becomes available, or right to meet any other offer.'Martinesi v. Tidmore, 158 Ariz. 53, 54, 760 P.2d 1102, 1103 (App. 1988) (quoting Black's Law Dictionary 986, 1191 (5th ed. 1979)). The Amendment does not define an option. Under a traditional option, one party would normally initiate a transaction by accepting the other's continuing, predefined offer. But under the Amendment, the landlord simply proposes a sale transaction, at a price that it is free to determine. ¶13 The Amendment's use of the term "option to purchase" has no legal significance -- it defines nothing more than an invitation to negotiate in the future. The Amendment describes nothing more than what any willing buyer could do -- strike a deal with a willing seller. It does not create mutual rights or obligations. It is therefore an unenforceable and illusory provision. See Rogus v. Lords, 166 Ariz. 600, 602, 804 P.2d 133, 135 (App. 1991) (enforceable contract requires offer, acceptance, consideration, and sufficient specification of terms); 3 Williston on Contracts § 7:7 (4th ed.) ("[C]onsideration requires a bargained-for benefit or detriment. Where an illusory promise is made, that is, a promise merely in form, but in actuality not promising anything, it cannot serve as consideration. . . . [W]here the promisor may perform or not, solely on the condition of his whim, his promise will not serve as consideration."). ¶14 In responding to Chompies' motion for partial summary judgment, Ludlow presented controverting facts regarding the issue of the Amendment's authenticity only and produced no evidence to create fact issues affecting the Amendment's construction. We conclude, therefore, that the superior court did not err by finding as a matter of law that the Amendment did not affect the Option and that Ludlow breached the Lease Agreement by refusing to honor Chompies' request to exercise the Option. See Orme Sch. v. Reeves, 166 Ariz. 301, 310, 802 P.2d 1000, 1009 (1990) ("If the party with the burden of proof on the claim or defense cannot respond to the motion by showing that there is evidence creating a genuine issue of fact on the element in question, then the motion for summary judgment should be granted."). ¶15 We further conclude that Ludlow has waived its argument that the superior court should have found that Chompies breached the Lease Agreement by providing insufficient time in the Option Notice for Ludlow to effectuate a like-kind exchange under 26 U.S.C. § 1031. Ludlow failed to present this issue to the court when it considered the issue of liability. Instead, Ludlow first attempted to raise the issue at the trial on damages, when it expressly conceded that the previous ruling on liability was binding on the court. Ludlow never requested that the court reconsider its ruling regarding liability, and its assertion that the court sua sponte "chose not to" does not mandate reversal.
Though Ludlow argued in the superior court that Chompies failed to satisfy conditions necessary to exercise the Option (notably, by being arrears in rent), Ludlow has abandoned this argument by not raising it on appeal. Childress Buick Co. v. O'Connell, 198 Ariz. 454, 459, ¶ 29, 11 P.3d 413, 418 (App. 2000). Therefore, the superior court's construction of the Amendment is the dispositive issue regarding liability on the breach of contract claim.
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II. PROPERTY VALUATION TESTIMONY
¶16 Ludlow next contends that the superior court erred by finding Ms. White's fair market value testimony more credible than Randy Ludlow's testimony. Ludlow specifically argues that, as the Property owner with "specific, personal knowledge" of the Property's value, it should have been afforded more deference for its fair market determination as opposed to the testimony provided by Ms. White, who prepared her valuation not for Chompies but for a third-party bank. We conclude that the superior court did not clearly err in finding that Ms. White's testimony was more credible. That court was able to observe the witnesses' demeanor and was entitled to consider factors such as Randy Ludlow's personal interest in the outcome and the inconsistency between his $1.55 million valuation and his $2.2 million demand. See Goats v. A.J. Bayless Mkts., Inc., 14 Ariz. App. 166, 171, 481 P.2d 536, 541 (1971) ("The trial court is in the best position to judge the credibility of the witnesses, the weight of evidence, and also the reasonable inferences to be drawn therefrom."); see also Valley Med. Specialists v. Farber, 194 Ariz. 363, 367, ¶ 11, 982 P.2d 1277, 1281 (1999) (noting that "the trial judge's factual findings are reviewed under a clearly erroneous standard"); Kocher v. Dep't of Revenue, 206 Ariz. 480, 482, ¶ 9, 80 P.3d 287, 289 (App. 2003) ("A finding of fact is not clearly erroneous if substantial evidence supports it, even if substantial conflicting evidence exists.").
CONCLUSION
¶17 We affirm the superior court's ruling granting partial summary judgment in favor of Chompies. Because Ludlow is not the prevailing party, we deny its request for attorney's fees incurred on appeal. Chompies requests its fees and costs on appeal pursuant to section XII.8 of the Lease Agreement. We grant Chompies' request subject to its compliance with ARCAP 21(c).
__________________
PETER B. SWANN, Judge
CONCURRING: __________________
JOHN C. GEMMILL, Presiding Judge
__________________
ANDREW W. GOULD, Judge