M2 Real Solutions v. Perry

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

M2 REAL SOLUTIONS LLC,
Plaintiff/Appellee,

v.

WILLIAM PERRY,
Defendant/Appellant.

No. 1 CA-CV 17-0321
FILED 3-1-2018

Appeal from the Superior Court in Maricopa County
No. CV2015-003675
The Honorable Randall H. Warner, Judge

AFFIRMED IN PART; REVERSED IN PART; REMANDED

COUNSEL

Al Arpad, Esq., Phoenix
By Alexander R. Arpad
Co-Counsel for Plaintiff/Appellee

The Hallstrom Law Firm, PLLC, Phoenix
By Kyle Hallstrom
Co-Counsel for Plaintiff/Appellee

Jaburg & Wilk, PC, Phoenix
By Neal H. Bookspan, Laura Rogal
Counsel for Defendant/Appellant
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Decision of the Court

MEMORANDUM DECISION

Presiding Judge Diane M. Johnsen delivered the decision of the Court, in
which Judge Kent E. Cattani and Judge Jennifer M. Perkins joined.

J O H N S E N, Judge:

¶1 William Perry appeals the superior court's grant of summary
judgment in favor of M2 Real Solutions, LLC on M2's claim for damages
under the Arizona Residential Landlord Tenant Act and on Perry's
counterclaims for breach of contract and breach of the covenant of good
faith and fair dealing. For the following reasons, we affirm in part, reverse
in part and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

¶2 In June 2014, M2 and Perry entered a one-year lease of a
Phoenix house. Perry, the owner of the house, knew M2 intended to
sublease it to a corporation to use as temporary housing for one of its
executives. The form lease, titled "Residential Lease Agreement," listed
Perry as "Landlord" and M2 as "Tenant." A field designated "Occupancy" –
which further stated that "[t]he Premises shall be used only for residential
purposes and only by the following named persons" – contained the names
of the corporate executive and his companion. The day after the lease was
signed, M2 subleased the house to the corporation for one year.

¶3 The executive and his companion moved into the house. In
mid-August, M2 emailed Perry, requesting repair of a roof leak. In early
November, M2 again emailed Perry, informing him that the roof was still
leaking and needed to be replaced. M2 also informed Perry that the water
heater was leaking.

¶4 In early December, the executive and his companion moved
out of the house. On December 13, M2 sent Perry a "Notice to Terminate
Lease Agreement," asserting that the roof continued to leak and needed
replacement and that Perry had failed to follow through on a promise to
replace the leaking water heater. M2 asserted that Perry's failure to fix these
defects constituted a breach of the lease affecting health and safety under
Arizona Revised Statutes ("A.R.S.") section 33-1361(A) (2018), and warned

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that the lease would terminate five days after receipt of the notice if the
repairs were not made.1

¶5 Under A.R.S. § 33-1313(B) (2018), Perry was deemed to have
received M2's notice of termination on December 18. According to the
declaration Perry submitted on summary judgment, however, he actually
received the notice December 23. That same day, a plumber Perry hired
emailed M2 at 4:43 p.m., requesting access to the house to repair the water
heater. M2 offered to let the plumber into the property later that evening,
but the plumber declined, saying he needed to come the next day instead.
M2 informed the plumber that M2 did not expect to be able to access the
house the next day, and that he should contact Perry to enter the house at
that time.

¶6 Upon hearing back from the plumber, Perry instructed the
guard at the entrance of the gated community to forbid M2's
representatives from entering until Perry could talk to them on the
telephone. In his declaration, Perry explained he gave that instruction "to
try to force" M2 to communicate with him. When M2's representatives
arrived to inspect the house later on December 23, the guard would not
allow them to enter after they refused Perry's demand that they speak with
him. The next day, M2 sent Perry notice that it had terminated the lease on
the grounds of (1) material non-compliance with the lease affecting health
and safety and (2) unlawful exclusion of M2 from the property.

¶7 M2 then sued, alleging Perry breached the lease by failing to
repair the leaks and by excluding M2 from the property on December 23.
M2 sought damages and a declaratory judgment that M2 lawfully
terminated the lease on December 24, 2014. Perry answered and filed a
counterclaim, alleging M2 breached the lease and its implied covenant of
good faith and fair dealing.

¶8 After discovery, the superior court granted M2's motion for
summary judgment on its termination claim, upholding M2's termination
of the lease based on Perry's unlawful exclusion of M2 from the property.
See A.R.S. § 33-1367 (2018). The court awarded M2 the return of its security
deposit, prorated rent for the remainder of December 2014 and double
damages under A.R.S. § 33-132l(E) (2018) for failing to provide an itemized
list of deductions from the security deposit.

1 Absent material change since the relevant date, we cite a statute's
current version.

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¶9 M2 then moved for summary judgment on Perry's
counterclaims, asserting that the superior court's first summary judgment
ruling had "logically and legally foreclose[d]" any possibility that Perry
could succeed on his claims. Over Perry's opposition, the court agreed,
concluding that because M2 had rightfully terminated the lease, it could not
itself be liable for breaching the lease or the implied covenant of good faith
and fair dealing. The court entered judgment in M2's favor for $20,322.57,
plus $2,011.09 in pre-judgment interest, $19,425.00 in attorney's fees and
$2,520.00 in costs – a total of $44,278.66.

¶10 Perry timely appealed. We have jurisdiction pursuant to
Article 6, Section 9, of the Arizona Constitution, and A.R.S. §§ 12-
120.21(A)(1) (2018) and -2101(A)(1) (2018).

DISCUSSION

¶11 We review de novo the superior court's grant of summary
judgment, "view[ing] the facts and any inferences drawn from those facts
in the light most favorable to the party against whom judgment was
entered." Tierra Ranchos Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, 199,
¶ 15 (App. 2007). Summary judgment is appropriate when "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). In ruling on a summary
judgment motion, the court should consider only admissible evidence, such
as admissible statements in an affidavit or deposition testimony. In re 1996
Nissan Sentra, 201 Ariz. 114, 117, ¶ 6 (App. 2001).

A. Summary Judgment on M2's Claim Under the Arizona Residential
Landlord Tenant Act.

¶12 The Arizona Residential Landlord and Tenant Act ("the Act")
creates rights and remedies for tenants whose landlords unlawfully exclude
them from their residences. As relevant here, it provides that "[i]f the
landlord unlawfully . . . excludes the tenant from the premises . . . , the
tenant may . . . terminate the rental agreement and . . . recover an amount
not more than two months' periodic rent or twice the actual damages
sustained by him, whichever is greater." A.R.S. § 33-1367.

¶13 Perry does not dispute that he denied M2 access to the house
on December 23, 2014. He argues only that M2 lacked the right to terminate
the lease under § 33-1367 because M2 was not a "tenant" as defined in A.R.S.
§ 33-1310(16) (2018). That statute defines a tenant as one "entitled . . . to
occupy" a dwelling, and Perry argues that his lease with M2 specified that
the corporate executive and his companion would be the only occupants.

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Although Perry concedes M2 had a right to enter the house, he contends
that because the lease did not list M2 as an "occupant," M2 had no right to
occupy the house.

¶14 Although the Act defines "tenant" with respect to a right to
"occupy," it does not define "occupy." Ordinarily, "occupy" can mean, inter
alia, "[t]o seize or take possession of; esp., to enter and take control of" or
"[t]o hold possession of; to be in actual possession of." Black's Law
Dictionary (10th ed. 2014). See W. Corr. Grp., Inc. v. Tierney, 208 Ariz. 583,
587, ¶ 17 (App. 2004) (approving use of "established and widely used
dictionaries" to ascertain meaning of word in a statute).

¶15 We decline to adopt Perry's argument that, in the
circumstances presented here, the statutory definition of "tenant" provides
rights under the Act only to those listed in the "occupancy" provision in the
lease. In these circumstances, when the designated subtenant has vacated
the property, the fact that the lease specified the subtenant as "occupant"
does not deprive a corporate tenant of the right to "take and hold
possession" of the rental property as its "occupant" under the Act. The Act
defines the tenant as a "person," and defines "person" as "an individual or
organization." A.R.S. § 33-1310(9), (16). Thus, the Act clearly contemplates
that an organization such as M2 may be entitled to "occupy" a dwelling unit
and thereby take advantage of the remedies it grants to a tenant if its right
to access the premises is infringed. See RSP Architects, Ltd. v. Five Star Dev.
Resort Communities, LLC, 232 Ariz. 436, 439, ¶ 13 (App. 2013) ("We must
construe a statute to fulfill legislative intent by considering it as a whole
and giving harmonious effect to all of its sections."). While M2 as an
organization could not occupy the house by living in it like its subtenants
did, it had the right to occupy it in the ways that an organizational tenant
can occupy a house; its representatives were entitled to enter at any time
and remain for as long as desired to inspect, maintain, repair the property,
or otherwise to prepare for a new subtenant. See A.R.S. § 33-1310 (Act's
definitions will control "unless the context otherwise requires").

¶16 Although Perry relies on the "occupancy" provision in the
lease, other lease provisions support M2's contention that, at least as of late
December 2014, M2 had the right to occupy the house. The lease expressly
granted the landlord a remedy in the event that "tenant [defined as M2]
willfully fails to vacate the premises" as required. The duty to vacate that
the lease imposed on the "tenant" must imply a corresponding right to
occupy. The lease likewise required M2, as "tenant," to "maintain the
Premises in a neat and undamaged condition," "dispose of all ashes,
rubbish, garbage and other waste," and "generally conduct [itself] and

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others in [its] charge, including pets, in a manner so as not to disturb their
neighbors." These are not the sort of duties normally imposed on a party
that lacks the right to occupy a rental property. These provisions, along
with the right of M2 to re-sublease the house with Perry's consent after the
corporate executive moved out, are further support for the conclusion that
at the relevant time, M2 had the rights of a "tenant" under A.R.S. § 33-1367.
Indeed, if the rights and obligations the lease granted and imposed on M2
did not encompass a right to occupy, no organization could "occupy" a
dwelling unit – a result that would render ineffective the legislature's choice
to include organizational tenants within the scope of the Act.

¶17 Finally, accepting Perry's argument would mean that after the
subtenants vacated the house (and apparently, for as long as it took M2 to
find and get approval for a new subtenant), no person or entity could
exercise the rights of a "tenant" under the Act. But that would be an absurd
result the parties surely did not intend. See Grunewald & Adams Jewelers, Inc.
v. Lloyds of London, 145 Ariz. 190, 192 (App. 1985) (quoting Hertzka & Knowles
v. Salter, 86 Cal. Rptr. 23, 29 (App. 1970)) ("A contract ought not to be
construed to an absurd conclusion, if a reasonable one is possible.").

¶18 In sum, M2 had the rights of a "tenant" under the Act with
respect to the house at the relevant time. Because Perry unlawfully
excluded M2 from the property, M2 was entitled as a tenant to terminate
the lease under § 33-1367. When M2 terminated the lease, it triggered
Perry's duty under § 33-1321(D) to return the pro-rated rent and the security
deposit, less any allowed offsets, established by an itemized list. His failure
to do so rendered him liable for damages. The superior court therefore did
not err in granting summary judgment to M2 on its termination claim or in
awarding it damages under § 33-1321(E).

B. Summary Judgment on Perry's Counterclaims.

¶19 In his claim for breach of contract, Perry alleged M2 "failed to
meet its payment obligations under the Lease," "failed to adequately
maintain the property," and left the house unclean and damaged, including
a ruined dishwasher and sink and damaged screens and carpets. Perry also
alleged M2 breached the implied covenant of good faith and fair dealing,
asserting that M2 "attempted to manufacture a justification to get out of the
Lease."

¶20 In granting M2's second motion for summary judgment, the
superior court reasoned that the summary judgment on M2's termination
claim disposed of Perry's counterclaims: If the lease had terminated, M2

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could not be liable for breach. On appeal, Perry argues the court erred
because the breaches he alleged occurred before December 23, 2014, when
M2 terminated the lease. We may affirm summary judgment if it is correct
for any reason argued in the superior court. Cook v. Orkin Exterminating Co., 227 Ariz. 331, 333, ¶ 12 (App. 2011).

¶21 In response to M2's motion for summary judgment, Perry
argued M2 breached by failing to pay a November 2014 service call charge
of $75; he also cited an "unexplained" $125 charge on another bill relating
to the water heater. M2 did not dispute that the lease required it to pay any
service call fees, but argued it was not liable for the $75 fee because it did
not know of the charge. M2's owner, Meghan Hartman, testified in her
deposition, however, that she knew the November service call had
occurred, that M2 was responsible for the cost of service calls, and that it
had not paid the $75. This evidence establishes a genuine issue of fact as to
whether M2 breached its contractual obligation to pay the $75 fee.

¶22 Perry did not offer facts sufficient to establish a genuine issue
of material fact as to the $125 charge, however. His response to the motion
for summary judgment did not assert a legal basis for alleging M2 was liable
for the charge. Further, although Perry also argued M2 left the house
damaged and unclean, the court did not err by entering summary judgment
against Perry on that allegation because, by excluding M2 from the
property, Perry interfered with M2's ability to carry out its duty to maintain
the property. See Zancanaro v. Cross, 85 Ariz. 394, 400 (1959) ("[T]he victim
of a material . . . breach is excused from further performance.").

¶23 Nor did Perry establish a material issue of fact on his claim
for breach of the implied covenant of good faith and fair dealing. In that
claim, Perry asserted M2 fabricated the property defects as a basis on which
to threaten termination of the lease. Perry argued that bad faith is evident
from the timeline of events, including M2's "unreasonabl[e] demand[] that
the entire roof be replaced" after it had already been repaired, and M2's
asserted failure to allow repair of the water heater.

¶24 A tenant does not breach the duty of good faith and fair
dealing, however, by asserting its rights under the lease to a roof and a
water heater that do not leak. With its motion for summary judgment, M2
offered a declaration by Hartman that she personally inspected the house
on December 13, discovered that the roof and water heater were still
leaking, and, on that basis, sent Perry notice that M2 would terminate the
lease absent prompt repairs. In her deposition, Hartman provided
additional details, including that she saw a puddle of water under the water

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heater during her December 13 inspection. These statements are sufficient
to support a conclusion that the claimed defects actually existed and were
not merely a subterfuge to get out of the lease. See Ariz. R. Evid. 602; Villas
at Hidden Lakes Condominiums Ass'n v. Geupel Const. Co., 174 Ariz. 72, 81
(App. 1992) (affidavit of moving party can support summary judgment by
stating facts that would be admissible evidence if the affiant has personal
knowledge of those facts and is competent to testify about the matters in
the affidavit).

¶25 To defeat M2's motion for summary judgment, Perry needed
to submit admissible evidence to counter the evidence offered by M2. See
Florez v. Sargeant, 185 Ariz. 521, 526 (1996) ("Self-serving assertions without
factual support in the record will not defeat a motion for summary
judgment.") (citation omitted). Perry, however, provided no admissible
evidence contradicting Hartman's testimony about the leaky roof and water
heater, and no evidence that the roof and the water heater were repaired
before M2 sent its December 13 "notice to terminate." During the events at
issue here, Perry lived in Minnesota and was not regularly in Arizona; his
declaration lacks any averment that he personally inspected the property at
any relevant time. Nor did Perry provide statements from any other person
with personal knowledge or any other evidence that the claimed defects did
not exist when M2 mailed the December 13 notice.

¶26 In his own declaration, Perry stated that he directed a roofer
to repair the roof in "early to mid-December 2014," before M2 sent the
December 24 termination notice. Perry's statement that the exterior roof
defects had been repaired before M2 sent that notice, however, was hearsay,
not based on personal knowledge. See Ariz. R. Evid. 801, 802. Nor did he
offer admissible evidence to support his contention that M2 breached by
denying the plumber access to the house late in the day on December 23.
Finally, Perry argued that M2 breached the covenant of good faith and fair
dealing by failing to alert him to the fact that it had sent the December 13
notice. But he cites no authority for the proposition that a tenant who has
sent such a notice must alert the landlord it is coming.

C. Attorney's Fees.

¶27 The superior court awarded M2 its attorney's fees pursuant to
the lease, which states that "[t]he prevailing party in any dispute or claim
between Tenant and Landlord arising out of or relating to this Lease
Agreement shall be awarded all their reasonable attorney fees and costs."
A court determines the "prevailing party" based on the totality of
circumstances. Bobrow v. Bobrow, 241 Ariz. 592, 598, ¶ 25 (App. 2017). We

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will not disturb an award of attorney's fees if any reasonable basis exists for
it. Id.

¶28 Our reversal of summary judgment against Perry as to a de
minimis $75 breach does not alter the fact that M2 generally "accomplished
the result sought in the litigation," and thus M2 remains the prevailing
party, entitled to its fees and costs. Schweiger v. China Doll Rest., Inc., 138
Ariz. 183, 189 (App. 1983). We therefore affirm the superior court's award
of attorney's fees and costs to M2.

CONCLUSION

¶29 We affirm the superior court's award of summary judgment
in favor of M2 on its claim for statutory damages under A.R.S. §§ 33-1321(E)
and -1367 for Perry's deprivation of M2's right to access the premises. We
also affirm the superior court's award of summary judgment to M2 on
Perry's counterclaims, except that we reverse the judgment entered on
Perry's claim that M2 breached the lease by failing to pay a $75 service call
charge incurred in November 2014. We affirm the superior court's award
of attorney's fees to M2, and, pursuant to the lease and A.R.S. § 12-341.01(A)
(2018), award M2 its reasonable attorney's fees and costs on appeal upon
compliance with Arizona Rule of Civil Appellate Procedure 21. We remand
for further proceedings on Perry's claim that M2 breached the lease by
failing to pay the $75 service call charge.

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

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