Dig Agave v. Pacific Financial

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

DIG AGAVE CENTER LLC, Plaintiff/Appellee,

v.

PACIFIC FINANCIAL GROUP LLC, et al., Defendants/Appellants.

No. 1 CA-CV 17-0295
FILED 3-22-2018

Appeal from the Superior Court in Maricopa County
No. CV2015-050433
The Honorable Susan M. Brnovich, Judge

AFFIRMED

COUNSEL

Buchalter PC, Scottsdale
By Nancy K. Swift
Counsel for Plaintiff/Appellee

William R. Mettler, Jr., Attorney at Law, Scottsdale
By William R. Mettler, Jr.
Counsel for Defendants/Appellants
 DIG AGAVE v. PACIFIC FINANCIAL, et al.
Decision of the Court

MEMORANDUM DECISION

Presiding Judge Michael J. Brown delivered the decision of the Court, in
which Judge Maria Elena Cruz and Chief Judge Samuel A. Thumma joined.

B R O W N, Judge:

¶1 In this appeal we review the superior court’s ruling, on cross-
motions for summary judgment, regarding the enforceability of a late fee
provision in a commercial lease guaranty. Finding no error, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 Pacific Financial Group, LLC (“Tenant”) entered into a
commercial lease (the “Lease”) with Agave Property Center, LLC in 2012.
Ken Schenter and Todd Bure (“Guarantors”) personally guaranteed the
Lease through December 31, 2014 (the “Guaranty”).

¶3 Agave Property Center, LLC assigned the Lease to Dig Agave
Center, LLC (“Landlord”) in 2014, and Pacific defaulted later that year.
Landlord sued Tenant and Guarantors (collectively “Defendants”) for
breach of the Lease and the Guaranty. After briefing and oral argument on
cross-motions for summary judgment, the superior court entered summary
judgment against Guarantors in the amount of $57,726.44, which included
$30,500 in late fees assessed under Article 25.6 of the Lease:

Tenant acknowledges that, in addition to interest costs, the
late payment by Tenant to Landlord of any Rent will cause
Landlord to incur costs not contemplated by this Lease, the
exact amount of such costs being extremely difficult and
impractical to fix. Such other costs include, without
limitation, processing, administrative and accounting charges
and late charges that may be imposed on Landlord by the
terms of any mortgage, deed of trust or related loan
documents encumbering the Premises. Accordingly, if any
payment of Rent is not received by Landlord within three (3)
days of the date upon which such payment is due, Tenant
shall pay to Landlord as a late charge an additional sum equal
to the greater of (a) $250.00 per day overdue or (b) five percent
(5%) of the overdue amount. The parties agree that such late

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 DIG AGAVE v. PACIFIC FINANCIAL, et al.
Decision of the Court

charge represents a fair and reasonable estimate of the costs
that Landlord will incur by reason of any late payment by
Tenant, and the payment of late charges and interest are
distinct and separate in that the payment of a late charge is to
compensate Landlord as a result of Tenant’s delinquent
payments.

Additionally, the court found Defendants jointly and severally liable for
“reasonable attorneys’ fees” in the amount of $29,431.50 under Arizona
Revised Statutes (“A.R.S.”) section 12-341.01. Defendants timely appealed
following the entry of final judgment.

DISCUSSION

¶4 The only issue raised in this appeal is whether the late fee
provision quoted above is enforceable against Guarantors.1 Generally,
contracting parties may agree to liquidated damages in a contract. Dobson
Bay Club II DD, LLC v. La Sonrisa de Siena, LLC, 242 Ariz. 108, 110, ¶ 8 (2017).
But courts will not enforce such provisions as a matter of public policy if
they provide for an unreasonably large amount of liquidated damages. Id.
at ¶ 9. We review de novo whether a liquidated damages clause is
enforceable and whether summary judgment on this issue was proper. Id.
at 111, ¶ 18; Dreamland Villa Cmty. Club, Inc. v. Raimey, 224 Ariz. 42, 46, ¶ 16
(App. 2010).

A. Enforceability of Late Fee Provision

¶5 Defendants first contend summary judgment was improper
because Landlord presented “no facts upon which to determine what [its]
anticipated damages were upon the execution [of] the lease, or what [its]
actual administrative costs were resulting from this breach.” But
Defendants bore the burden to show the late fee provision imposed an
unenforceable penalty. Dobson Bay, 242 Ariz. at 112, ¶ 17. They presented
no such evidence. Indeed, the only evidence they offered in briefing before
the superior court related to a security deposit that is not at issue in this
appeal. Accordingly, Defendants failed to meet their burden to show that,
on this record, material issues of disputed fact meant the superior court

1 Although Tenant is an appellant, it does not allege any issues other
than the enforceability of the $30,500 late fee award, which only concerns
the liability of the Guarantors. As such, we do not separately review the
portion of summary judgment entered against Tenant.

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could not enter summary judgment for Landlord regarding the
enforceability of the late fee provision. See Ariz. R. Civ. P. 56(e).

¶6 Defendants next contend the late fee provision was
unreasonable because it may have compensated Landlord for costs that
never materialized. A liquidated damages provision is reasonable if “it
approximates either the loss anticipated at the time of contract creation
(despite any actual loss) or the loss that actually resulted (despite what the
parties might have anticipated in other circumstances).” Dobson Bay, 242
Ariz. at 111, ¶ 14.

¶7 The late fee provision was, by its terms, designed to
compensate for “costs not contemplated by th[e] Lease,” including
“processing, administrative and accounting charges and late charges that
may be imposed on Landlord by the terms of any mortgage, deed of trust
or related loan documents encumbering the Premises.” It also reflected the
parties’ agreement that the late fees “represent[ed] a fair and reasonable
estimate of the costs that Landlord will incur by reason of any late payment
by Tenant.” Defendants presented no evidence to show the $250 per day
late fee did not reasonably reflect Landlord’s estimated damages at the time
the parties agreed to enter the Lease and Guaranty. See Roscoe-Gill v.
Newman, 188 Ariz. 483, 485 (App. 1996) (“The primary purpose of
contractual liquidated damage provisions is to avoid the parties having to
litigate, and courts or juries having to decide, what would be a fair and
reasonable damage award in the event of a breach.”).

¶8 Finally, Defendants contend the late fee provision was
redundant because Landlord could recover costs, interest, and attorneys’
fees under other Lease provisions, citing Dobson Bay, 242 Ariz. at 113, ¶ 25.
Unlike the provision at issue in Dobson Bay, the late fee provision here
expressly states that “the payment of late charges and interest are distinct
and separate in that the payment of a late charge is to compensate Landlord
for Landlord’s processing, administrative and other costs incurred . . . as a
result of Tenant’s delinquent payments.” See Dobson Bay, 242 Ariz. at 112-
13, ¶¶ 16, 25 (explaining the loss categories identified in the late fee clause
were covered by other parts of the loan documents that provided for
recovery of collection costs, attorneys’ fees, trustee’s fees and costs, and
interest in connection with a late payment). Again, Defendants presented
no evidence to refute this language or show any actual or potential overlap
between the late fee provision and any other Lease provision.

¶9 For these reasons, the superior court did not err in granting
summary judgment in favor of Landlord. See Mining Inv. Group, LLC v.

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Decision of the Court

Roberts, 217 Ariz. 635, 640, ¶ 20 (App. 2008) (“When liquidated damages are
specified in a contract, the terms of the contract generally control.” (quoting
Roscoe-Gill, 188 Ariz. at 485)); Grubb & Ellis Mgmt. Services, Inc. v. 407417
B.C., L.L.C., 213 Ariz. 83, 86, ¶ 12 (App. 2006) (stating general principle that,
“when parties bind themselves by a lawful contract the terms of which are
clear and unambiguous, a court must give effect to the contract as written”).

B. Attorneys’ Fees on Appeal

¶10 Both Defendants and Landlord request an award of attorneys’
fees and costs incurred in this appeal, including pursuant to A.R.S.
§ 12-341.01. Because Defendants are not the successful parties, their request
is denied. As to Landlord, because the superior court awarded attorneys’
fees under § 12-341.01, and Landlord requests fees under that authority gain
on appeal, in our discretion we award Landlord reasonable attorneys’ fees
and taxable costs upon compliance with Arizona Rule of Civil Appellate
Procedure 21.

CONCLUSION

¶11 The superior court’s judgment is affirmed.

AMY M. WOOD • Clerk of the Court
FILED: AA

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