Cft v. Le

NOTICE: NOT FOR PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT
PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

CFT DEVELOPMENTS, LLC, an Arizona limited liability company,
Plaintiff/Appellee,

v.

MICHAEL LE and AMY LE, husband and wife, Defendants/Appellants.

No. 1 CA-CV 13-0574
FILED 1-6-2015

Appeal from the Superior Court in Maricopa County
No. CV2011-015921
The Honorable Mark H. Brain, Judge

AFFIRMED

COUNSEL

Ballard Spahr LLP, Phoenix
By Brian Schulman and Craig C. Hoffman
Counsel for Plaintiff/Appellee

Berens Kozub Kloberdanz & Blonstein PLC, Scottsdale
By Daniel L. Kloberdanz
Counsel for Defendants/Appellants
 CFT v. LE
Decision of the Court

MEMORANDUM DECISION

Judge Andrew W. Gould delivered the decision of the Court, in which
Presiding Judge Margaret H. Downie and Judge Samuel A. Thumma
joined.

G O U L D, Judge:

¶1 Michael and Amy Le (“Guarantors”) appeal from the trial
court’s grant of summary judgment in favor of CFT Developments, LLC
(“CFT”). For the reasons discussed below, we affirm.

FACTS AND PROCEDURAL HISTORY

¶2 Through a closely held limited liability company, Guarantors
own and operate several nail and hair salons in the Phoenix area. In
December 2008, two of Guarantors’ businesses, “Fab Cuts” and “Amazing
Nails and Spa,” leased spaces from CFT and signed written leases. Each
lease was for a term of five years. Guarantors personally guaranteed the
rent payments for both businesses in written guarantees.

¶3 In April 2009, Guarantors informed CFT that the two
businesses were struggling financially and, as a result, Guarantors were
seeking to reduce the rent payments. The parties eventually signed written
amendments to the original leases reducing the rent for both businesses.
The terms of the written amendments were retroactive to June 1, 2009, and
extended until January 31, 2010.

¶4 Although the written amendments expired at the end of
January 2010, Guarantors continued making reduced rent payments after
that time. In the spring of 2010, the parties met to discuss the lease
payments. Guarantors contend that during this meeting CFT orally agreed
to continue the reduced rent agreements. Following the meeting,
Guarantors continued to make reduced rent payments for a period of
fifteen months; all of these payments were accepted by CFT.

¶5 In April, 2011, CFT notified Guarantors’ businesses they were
in default for non-payment of the full rent due under the original leases.
When Guarantors did not pay on their guarantees, CFT filed a complaint
against Guarantors for breach of contract and enforcement of their personal
guarantees.

2
 CFT v. LE
Decision of the Court

¶6 CFT filed a motion for summary judgment, which was
granted by the trial court. Judgment was entered in favor of CFT, and
Guarantors timely appealed.

DISCUSSION

¶7 A court “shall grant summary judgment if the moving party
shows that there is no genuine dispute as to any material fact and the
moving party is entitled to judgment as a matter of law.” Ariz. R. Civ. P.
56(a). On appeal from a grant of summary judgment, we review the court’s
determination de novo. Badia v. City of Casa Grande, 195 Ariz. 349, 352, ¶ 11,
988 P.2d 134, 137 (App. 1999). We view the facts in the light most favorable
to the party opposing summary judgment in the trial court. Walls v. Ariz.
Dep’t of Pub. Safety, 170 Ariz. 591, 596, 826 P.2d 1217, 1222 (App. 1991).

¶8 The trial court did not resolve whether the parties entered into
an oral agreement to extend the reduced rent payments. Rather, the trial
court assumed that even if there was an oral agreement, it was barred by
the statute of frauds. We similarly confine our review to the issue of
whether, assuming there was an oral agreement, it was barred by the statute
of frauds.

¶9 The Arizona statute of frauds states, in relevant part:

No action shall be brought in any court for the following cases
unless the promise or agreement upon which the action is
brought, or some memorandum thereof, is in writing and
signed by the party to be charged, or by some person by him
thereunto lawfully authorized:

…

Upon an agreement for leasing for a longer period than one
year.

Ariz. Rev. Stat. (“A.R.S.”) section 44-101(6) (West 2014).

¶10 There is no dispute that the original leases fell within the
statute of frauds. A.R.S. § 44-101(6). As a result, the alleged oral
agreements, as material modifications of the underlying leases, must
comply with the statute of frauds. Best v. Edwards, 217 Ariz. 497, 501-02, ¶¶
18-19, 176 P.3d 695, 699-700 (App. 2008) (holding that when an original
agreement falls within the statute of frauds, any material modification of
the original agreement is also subject to the statute of frauds); see Exec.

3
 CFT v. LE
Decision of the Court

Towers v. Leonard, 7 Ariz. App. 331, 332-33, 439 P.2d 303, 304-05 (1968);
Restatement (First) of Contracts § 232(2) (1932).

¶11 Guarantors contend, however, that CFT is precluded from
asserting the statute of frauds as a defense because they fully performed
their obligations under the oral agreement. In support of this argument,
Guarantors correctly note that an oral agreement is “removed from the
statute of frauds when one party fully performs” its obligations under the
agreement. Long v. City of Glendale, 208 Ariz. 319, 329, ¶ 35, 93 P.3d 519, 529
(App. 2004).

¶12 However, “one cannot claim full performance of a contract,
such as a lease, which would be, if performed, concededly executory on
both sides.” Trollope v. Koerner, 106 Ariz. 10, 17, 470 P.2d 91, 98 (1970); See
Arnold and Assocs., Inc. v. MISYS Healthcare Sys., 275 F.Supp. 2d 1013, 1022
(D. Ariz. 2003). Here, the original leases were executory and could not be
fully performed until they expired in 2013. The written amendments in
2009 and the alleged oral amendments in 2010 solely addressed the amount
of rent paid by Guarantors under the original lease; none of these later
agreements addressed or altered the term of the original lease. Indeed,
when Guarantors stopped making reduced rent payments in August 2011,
approximately two years remained on the terms of the leases. Guarantors’
performance was, therefore, incomplete at the time the alleged oral
amendments expired because they had neither possessed the two
properties for the full term of the leases nor paid the amount of rents owed
for the remainder of the lease terms.

¶13 Guarantors’ reliance on In re MacDonald, 4 Ariz. App. 94, 417
P.2d 728 (1966), to support their full performance claim is misplaced
because the facts of that case are distinguishable from the present case. The
tenant in MacDonald sought a set-off against his rent based on an oral
agreement with the decedent prior to her death. Id. at 96, 417 P.2d at 730.
The tenant asserted that he and the decedent had orally agreed the tenant
would receive a set-off if he made certain improvements to the leased
property. Id. The tenant contended that he had made all of the subject
improvements, and therefore fully performed his part of the oral
agreement. Id. at 99, 417 P.2d at 733. Under these circumstances, the court
held that because the tenant had “made the expenditures for the benefit of
the leased land pursuant to the contract, his part of the ‘contract’ was fully
performed and he was entitled to receive the offset against the rents for the
lessor in spite of the fact that the agreement was not evidenced by writing.”
Id.; see Cavanagh v. Kelly, 80 Ariz. 361, 363-64, 297 P.2d 1102, 1103-04 (1956)
(holding that alleged oral contract between purchaser and real estate broker

4
 CFT v. LE
Decision of the Court

was removed from the statute of frauds because the real estate broker’s oral
agreement to accept payment of his commission from the purchaser,
thereby enabling purchaser to make requisite down payment to purchase
home, was fully performed by the broker when the purchase of the home
was completed).

¶14 In contrast to the tenant in MacDonald, Guarantors did not
complete their performance under the original leases by making the fifteen
reduced rent payments. Rather, once Guarantors made the last reduced
payments, they remained contractually obligated to make two years of
additional rent payments. Accordingly, the alleged oral agreements are not
removed from the statute of frauds based on full performance.

¶15 Guarantors also argue that because they partially performed
their contractual obligations under the alleged oral agreements, the
agreements were not barred by the statute of frauds. Guarantors contend
that their payments of reduced rent for fifteen months “unquestionably”
show the existence of the oral agreements, and that those payments were
made in reliance on the agreements.

¶16 Part performance is a well-established exception to the statute
of frauds, and is grounded on the equitable principle of estoppel. Owens v.
M.E. Schepp Ltd. P’ship, 218 Ariz. 222, 226, ¶ 15, 182 P.3d 664, 668 (2008).
Thus, a party seeking to remove an agreement from the statute of frauds
based on part performance must show it suffered a detriment, or loss, based
on acts “undertaken in reliance on the agreement.” Id. However, a party
may not avoid the statute of frauds simply by claiming he undertook some
act in reliance on an alleged agreement. Id. at 228, ¶ 24, 182 P.3d at 670.
The doctrine of part performance also serves “an important evidentiary
function” by excusing “the writing required by the statute [of frauds]”
because the relevant acts “provide convincing proof that the contract
exists.” Id. at 226, ¶ 16, 182 P.3d at 668. To this end, “the acts of part
performance take an alleged contract outside the statute [of frauds] only if
they cannot be explained in the absence of the contract” and are
“unequivocally referable” to the alleged contract. Id. at 226-27, ¶¶ 16, 18,
182 P.3d at 668-69. Stated another way, “any alleged act of part
performance [must] be consistent only with the existence of a contract and
inconsistent with other explanations such as ongoing negotiations . . . or an
existing relationship between the parties.” Id. at 227, ¶ 18, 182 P.3d at 669.

¶17 Our review of the record shows that the reduced rent paid by
Guarantors is not “unequivocally referable” to the alleged oral agreements.
The meeting in the spring of 2010 and Guarantors’ subsequent reduced rent

5
 CFT v. LE
Decision of the Court

payments may be viewed as part of ongoing negotiations between CFT and
Guarantors and good faith efforts by Guarantors to comply with a portion
of their lease obligations to avoid eviction. Id. Moreover, the reduced rent
payments may also be explained in the context of the parties’ existing
landlord/tenant relationship; Guarantors, due to their financial struggles,
were in default and simply could not pay the full amount of rent due under
the leases. Id. Given these possible alternative explanations, the trial court
properly concluded that Guarantors failed to show that their reduced
payments were “unequivocally referable” to the alleged oral agreements.

¶18 Guarantors have also failed to show detrimental reliance
based on the alleged oral agreements. In seeking to equitably estop CFT
from asserting the statute of frauds, Guarantors must show their
detrimental reliance was more “than mere loss of the benefit of the alleged
agreement.” Best, 217 Ariz. at 503, ¶ 25, 176 P.3d at 701; Del Rio Land, Inc. v.
Haumont, 118 Ariz. 1, 7, 574 P.2d 469, 475 (App. 1977); cf. Cress v. Switzer, 61
Ariz. 405, 406-07, 411, 150 P.2d 86, 87, 89 (1944) (detrimental reliance shown
where plaintiffs spent substantial sums in remodeling the business
premises in reliance on an oral agreement); Diamond v. Jacquith, 14 Ariz. 119,
125, 125 P. 712, 714 (1912) (detrimental reliance was established, thereby
removing a verbal agreement for sales commissions from the statute of
frauds, based on the fact plaintiff moved his family to Arizona and
refrained from seeking other employment in reliance on the agreement).

¶19 Here, Guarantors have shown nothing more than the loss of
the alleged rent reduction under the oral agreements. Guarantors do not
contend, for example, that they made any improvements to the properties
or lost other business opportunities in reliance on the oral agreements.
Accordingly, Guarantors have made an insufficient showing of detrimental
reliance. Best, 217 Ariz. at 503, ¶ 25, 176 P.3d at 701; Del Rio, 118 Ariz. at 7,
574 P.2d at 475.

¶20 Finally, Guarantors appear to argue that the oral agreements
may be enforced based on promissory estoppel. We disagree. “In Arizona,
the doctrine of promissory estoppel applies to a contract otherwise barred
by the Statute of Frauds only ‘where a promise has been made not to rely
on the Statute,’ that is, where the party asserting the Statute of Frauds
defense has misrepresented that the statute's requirements have been met
or promises to put the agreement in writing.” Mullins v. So. Pac. Trans. Co.,
174 Ariz. 540, 542, 851 P.2d 839, 841 (App. 1992), quoting Tiffany Inc. v.
W.M.K. Transit Mix, Inc., 16 Ariz. App. 415, 421, 493 P.2d 1220, 1226 (1972).
Thus, “[p]romissory estoppel is applied to defeat the Statute of Frauds only
where there is a second promise not to rely on the statute.” Mullins, 174

6
 CFT v. LE
Decision of the Court

Ariz. at 542, 851 P.2d at 841. Here, Guarantors have offered no evidence
that CFT made such an oral promise.

¶21 Because we affirm the trial court’s grant of summary
judgment in favor of CFT, we do not reach the remaining arguments raised
by CFT in their answering brief. See Helmericks v. AiResearch Mfg. Co. of
Ariz., 88 Ariz. 413, 416-17, 357 P.2d 152, 154 (1960).

ATTORNEYS’ FEES

¶22 CFT seeks attorneys’ fees pursuant to section 20.13 of the
leases. The provision states that the prevailing party in any action or
proceeding relating to the enforcement of the leases is entitled to an award
of reasonable attorneys’ fees. Based on this fee provision, and because CFT
has prevailed in this appeal, we grant CFT’s request for attorneys’ fees.
Bennett v. Appaloosa Horse Club, 201 Ariz. 372, 378, ¶ 26, 35 P.3d 426, 432
(App. 2001). CFT is directed to submit an attorneys’ fee application and
affidavit in compliance with Arizona Rule of Civil Appellate Procedure
21(c) in support of its claim for fees.

CONCLUSION

¶23 For the foregoing reasons, we affirm the judgment of the trial
court.

:ama

7