Trade Printers v. Pdf Print

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

TRADE PRINTERS, INC.,
Plaintiff/A ppellee,

Vv.

PDF PRINT COMMUNICATIONS, INC.,
Defendant/Appellant.

No. 1 CA-CV 21-0356
FILED 7-21-2022

Appeal from the Superior Court in Maricopa County
No. CV2019-010079
The Honorable Danielle J. Viola, Judge

REVERSED AND REMANDED

COUNSEL

Jannitelli Marcolini, PC, Phoenix
By Claudio Eduardo Iannitelli, Jason Kelly Thomas
Counsel for Plaintiff/A ppellee

Blythe Grace, PLLC, Phoenix
By Robert S. Reder
Co-Counsel for Defendant/A ppellant

Levitt Law, APC, Seal Beach, CA
By Scott L. Levitt
Co-Counsel for Defendant/A ppellant

Schiffer & Buus, APC, Costa Mesa, CA
By Eric Schiffer
Co-Counsel for Defendant/A ppellant
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Decision of the Court

MEMORANDUM DECISION

Presiding Judge David D. Weinzweig delivered the decision of the Court,
in which Judge Brian Y. Furuya and Judge Jennifer M. Perkins joined.

WEINZWEIG Judge:

q1 This is an appeal between two parties to an imprecise
contract, each of whom extracts a reasonable yet incompatible meaning
from their favorite parts. The superior court found one interpretation more
persuasive and entered summary judgment for its proponent. That was
error. When the words of a contract are susceptible to more than one
reasonable interpretation, the court must then examine parol evidence of
the parties’ intent. And if the ambiguity lingers, a jury must hear the
evidence. We reverse and remand.

FACTS AND PROCEDURAL BACKGROUND

q2 PDF Print Communications, Inc. (“Buyer”) is a printing
company located in California. Trade Printers, Inc. (“Seller”) is a business
forms distributor located in Arizona.

I, Asset Purchase Contract

q3 In June 2018, after months of negotiations, Buyer and Seller
entered an Asset Purchase Contract (“Contract”). According to the
Contract, Buyer agreed to purchase “certain assets of Seller used in
connection with its business,” comprising “[a]ll tangible assets used in the

operation of the Business,” including “items of inventory” like “raw
materials, stock-in-trade, work-in-process, and finished goods.”

A. Purchase Price; Allocation of Price

q4 The purchase price had two parts, including $165,000 on
closing, “plus an amount equal to the value of inventory of goods and
supplies owned by Seller on the date of Closing (‘Inventory’).” The
inventory payment itself had two parts: $25,000 at closing, and “the balance
monthly for a period not to exceed six (6) months as used beginning on the
fifteenth day of the month following the month in which the Closing occurs
with a final payment [six months after closing] of the remaining unpaid
balance.” Formed just three weeks before the closing date, the Contract
identified “the value of the Inventory” as $240,693.
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q5 Attached to the Contract was a chart named “ Allocation of
Purchase Price,” which broke the price into five separate asset classes,
including two inventory classes (Part #1 and Part #2). For the bulk of
inventory (Part #2), the chart listed a variable price and stated: “Balance to
be paid as used.” As highlighted in this screenshot, that variable price
ranged from a “sure” price to a “potential[]” price:

Physical Assets

Class I (Cash & Cash Equivalents) $0.00

Class II (Other Liquid Assets) $0.00

Class IH (Accounts Receivable): $0.00

Class IV (Inventory-Part #1 $25,000 (Paid at Closing):

Class IV (Inventory-Part #2) ~$215,693 (Balance to be paid as ised)
Class V (Fixtures, Equipment, ete.) $130,000

“Total Physical Assets $155,000 sure ($370,693 potentially)

Contract, Ex. 3.02 (highlights supplied). According to the chart, the
difference between the “sure” and “potential[]” prices was $215,693.

B. Lease Agreement
q6 The Contract included an “ancillary” one-paragraph lease
agreement for Buyer “to remain at [Seller’s office] . . . for a period not to

exceed six months” at $10,000 per month, and “allow[ed] time for
production transition and removal of equipment.” Buyer moved out after
four months, however, and stopped paying rent. Buyer also left some of its
equipment behind.

Il. This Lawsuit

q7 This lawsuit followed in June 2019. Seller sued Buyer for
breach of contract and more, alleging that Buyer never paid for all the
inventory as valued on closing, and also owed three months’ unpaid rent.
Buyer countersued for breach of contract and more, alleging it had
performed under the Contract.

q8 Seller and Buyer later moved for summary judgment on the
contract claims. The parties disagreed over the terms of purchase for
inventory. Each offered a distinct and irreconcilable interpretation of the
relevant language. Seller argued that Buyer was required to pay for all the
inventory under the Contract, whether or not Buyer used the inventory in
the first six months. Buyer argued it was only required to pay for the
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inventory it used in the first six months, plus $25,000 at closing. Much of
the summary judgment arguments focused on parol evidence and whether
the court should have considered such evidence at summary judgment.
Beyond that, the parties disagreed on whether Buyer had to pay more rent
and how much.

q9 The superior court heard oral argument and later entered
summary judgment for Seller on its breach of contract claims, awarding
Seller its damages and attorney fees. The court found the Contract’s
“inventory payment provision” was “unambiguous,” and required a
“fixed” price from Buyer for “the total amount of inventory ... as it was
used for a six-month period|[,] but the remaining unpaid balance was due
January 15, 2019.” The court thus declined to consider parol evidence,
reasoning it would represent “an additional term” not found in the
Contract. It also found Buyer responsible for unpaid rent because “[Buyer]
failed to return the property to a clean, ready to lease condition until
approximately January 30, 2019.” Buyer timely appealed. We have
jurisdiction. See A.R.S. § 12-2101(A)(1).

DISCUSSION

710 Buyer argues the superior court erroneously granted
summary judgment to Seller because the inventory sales price was
ambiguous under the contract, and Buyer presented no evidence that it
mitigated damages upon breach of the lease agreement. We consider each
argument below.

q11 We_ review de novo the superior court’s grant
of summary judgment, Jackson v. Eagle KMC LLC, 245 Ariz. 544, 545, 4 7
(2019), construing the facts in the light most favorable to the non-moving
party, Wells Fargo Bank, N.A. v. Allen, 231 Ariz. 209, 213, § 14 (App.
2012). We likewise review de novo an issue of contract interpretation. ELM
Ret. Ctr., LP v. Callaway, 226 Ariz. 287, 290, § 15 (App. 2010).

q12 Summary judgment is appropriate when “the moving party
shows that there is no genuine dispute as to any material fact and [it] is
entitled to judgment as a matter of law.” Ariz. R. Civ. P. 56(a). For plaintiffs
to secure summary judgment, they must prove the elements of their claim
based on “undisputed admissible evidence that would compel any
reasonable juror to find in [their] favor.” Wells Fargo Bank, 231 Ariz. at 213,
{ 18 (citation omitted). “[T]he mere absence of a genuine dispute of
material fact does not automatically entitle a plaintiff to [summary]
judgment.” Id. at § 16.
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q13 Buyer and Seller each asserted a breach of contract claim,
which has three elements: (1) a contract, (2) breach, and (3) damages. First
Am. Title Ins. Co. v. Johnson Bank, 239 Ariz. 348, 353, 4 22 (2016). The second
and third elements are contested here.

I, Inventory Purchase Price (Contract Interpretation)

q14 When interpreting a contract, this court aims to determine
and enforce the parties’ intent upon entering the contract, see Taylor v. State
Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 152-53 (1993), first looking to “the
plain meaning of the words” in the contract as a whole, Grosvenor Holdings,
L.C. v. Figueroa, 222 Ariz. 588, 593, § 9 (App. 2009). Our supreme court has
warned judges not to indulge “the often irresistible temptation to
automatically interpret contract language as he or she would understand
the words” because “what appears plain and clear to one judge may not be
so plain to another.” Taylor, 175 Ariz. at 152-53 (“This natural tendency is
sometimes disguised in the judge’s ruling that contract language is
‘unambiguous.””) (citation omitted).

q15 The first issue on appeal is whether the Contract is
ambiguous. That is a question of law for the court. Taylor, 175 Ariz. at 158-
59. A contract is ambiguous under Arizona law when its terms are
reasonably susceptible to more than one interpretation. Id. at 154, 158-59.

716 The court may resolve the issue at summary judgment if a
contract is unambiguous. See Leikvold v. Valley View Cmty. Hosp., 141 Ariz.
544, 548 (1984). Ifa contract is ambiguous, however, the court then turns to
parol or external evidence of intent. See In re Est. of Lamparella, 210 Ariz.
246, 250, §] 22 (App. 2005).

q17 At that point, the court has another chance to enter summary
judgment, but only if the parol evidence was so favorable to one party that
no reasonable person could find against that party. See, e.g., Mason v.
Telefunken Semiconductors Am., LLC, 797 F.3d 33, 38 (1st Cir. 2015) (“Tf the
extrinsic evidence is so one-sided that no reasonable person could decide
the contrary, the meaning of the language becomes evident and the
erstwhile ambiguity will not preclude summary judgment.”) (citation
omitted).

718 But if the contract remains unclear after considering parol
evidence, there must bea trial. See State v. Mabery Ranch, Co., LLC, 216 Ariz.
233, 239, § 23 (App. 2007) (“Where a contract’s language is reasonably
susceptible to more than one meaning, the interpretation of the contract
should be submitted to the jury.”).
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q19 Against that procedural backdrop, we turn here and ask
whether the Contract is susceptible to more than one reasonable
interpretation. Seller insists it is not. Seller contends the Contract
unambiguously required Buyer to purchase Seller’s complete inventory for
a single price as valued at closing. For that interpretation, Seller stresses its
favorite parts of the Contract. It points to Section 3.01(a), which required
Buyer to pay a “purchase price” of $165,000 “plus an amount equal to the
value of inventory of goods and supplies owned by Seller on the date of
Closing.” It touts Section 4.01(B), which required Buyer to make a final
payment after six months “of the remaining unpaid balance,” implying that
more would be due. Last, it agrees with the superior court, which held that
Section 1.01(a) required Buyer to purchase the inventory for the
“potential[]|” price in Schedule 3.01 (a).

20 That is a reasonable interpretation. It’s just not the only
reasonable interpretation.

q21 Buyer contends the Contract is reasonably susceptible to a
second interpretation— that Buyer only agreed to purchase the inventory it
actually used in the first six months. For that interpretation, Buyer, like
Seller, presses its favorite parts of the Contract. It points to the “as-used”
language in Section 4.01(b) and Exhibit 3.02. Buyer also relied on Exhibit
3.02 to “show that the inventory amount allocated to the purchase price was
an amount to be determined as used, rather than a flat fee amount for
inventory, irrespective of use.”

q722 And that, too, is a reasonable interpretation. Without the
benefit of parol evidence, the Contract is ambiguous because the inventory
purchase price is susceptible to either of two dueling reasonable
interpretations. As a result, summary judgment was inappropriate, and the
court should have accepted and reviewed any parol evidence to determine
the parties’ intent. See Lamparella, 210 Ariz. at 250, { 22.

q23 Our conclusion is confirmed by two more points. First, the
superior court never even mentioned the “sure/potentially” contract
language or examined its meaning. And second, at oral argument before
this court, Seller argued that summary judgment was proper because all the
parol evidence supported its interpretation, and Buyer presented no
evidence to support Buyer’s interpretation. This confusion over what was
or was not even considered at summary judgment just confirms our
decision to reverse and remand.
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q24 We reverse and remand for the court to consider any parol
evidence. If that evidence is so favorable to one party’s position that no
reasonable person could find otherwise, the court may enter summary
judgment. Mason, 797 F.3d at 38. But if the contract still yields two
reasonable interpretations, even with the benefit of parol evidence, the case
must proceed to trial. See Mabery Ranch, 216 Ariz. at 239, § 23.

IL. Forfeiture

q25 The superior court also reasoned that summary judgment
was required because Buyer’s interpretation would create a forfeiture. But
we are unsure whether or how forfeiture principles would apply here. See
Oracle Foothills Ests., Inc. v. Smira, Oliver & Assocs., 146 Ariz. 529, 531 (App.
1985) (“Even though the courts abhor a forfeiture, a valid contract will be
enforced according to its terms.”). When interpreting a contract, we strive
to enforce the parties’ intent, and the court has yet to consider parol
evidence on that issue.

III. Disputed Inventory Value

426 The superior court found “[t]here is no dispute that the
agreed upon value [of Seller’s inventory on closing] [w]as $245,281.23.”
This was error because the valuation was disputed. Seller alleged in its
supporting statement of facts that the “Inventory Amount was $245,281.23”
upon closing. Buyer then “[clontested” this allegation in its opposing
statement of facts. Buyer alleged the value of inventory on closing was
“~215,693,” citing the “allocation of purchase price” used in Exhibit 3.01.
Summary judgment was thus improper. Ariz. R. Civ. P. 56(a).

IV. Damages: Unpaid Rent

27 Lastly, Buyer contends the court erroneously granted Seller
summary judgment on rent because a question of fact remained on whether
Seller mitigated its damages. See Next Gen Cap., LLC v. Consumer Lending
Assocs., LLC, 234 Ariz. 9, 13, 4 16 (App. 2013) (breaching party has burden
to show failure to mitigate). Buyer relies on evidence, in particular, that
Seller waited three months to act after learning that Buyer had left the
premises and stopped paying rent.

28 We agree the superior court should have determined whether
Seller took reasonable measures to mitigate its damages. “A basic principle
of the law of damages is that one who claims to have been injured by a
breach of contract must use reasonable means to avoid or minimize the
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damages resulting from the breach.” W. Pinal Fam. Health Ctr., Inc. 0.
McBryde, 162 Ariz. 546, 548 (App. 1989).

q29 Moreover, the lease agreement only required Buyer to pay
$10,000 in rent per month for the right to remain on the premises for up to
six months. And Buyer paid rent for each of the four months it used the
property. Because the proper calculation of damages “depend[ed] upon
factual resolutions, which the record does not reflect as capable of being
resolved as a matter of law,” summary judgment was inappropriate. Nelson
v. Phoenix Resort Corp., 181 Ariz. 188, 196 (App. 1994); see also Dushoff v.
Phoenix Co., 22 Ariz. App. 445, 446-47 (1974) (summary judgment improper
in action by landlord against tenant where questions of fact existed on
whether adequate notice of default was given, as to abandonment, and on
landlord’s duty to mitigate damages).

CONCLUSION

30 We reverse the superior court’s entry of summary judgment
to Seller, vacate its award of attorney fees and remand for further
proceedings consistent with this opinion. Both parties request their
attorney fees on appeal, which we deny in our discretion, but we grant
Buyer its reasonable costs on appeal contingent upon Buyer’s compliance
with ARCAP 21.

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