Brazee-Revocable Trust v. Phz-Msc

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

ELIZABETH M. BRAZEE
REVOCABLE TRUST, Plaintiff/Appellee,

v.

PHZ-MSC, LLC, Defendant/Appellant.

No. 1 CA-CV 21-0364
FILED 6-21-2022

Appeal from the Superior Court in Maricopa County
No. CV2018-009594
The Honorable Timothy J. Thomason, Judge

AFFIRMED

COUNSEL

MacQueen & Gottlieb, PLC, Phoenix
By Benjamin L. Gottlieb, Brandon P. Bodea, Devin M. Tarwater
Counsel for Plaintiff/Appellee

Francis J. Slavin, PC, Phoenix
By Francis J. Slavin, Daniel J. Slavin
Counsel for Defendant/Appellant

MEMORANDUM DECISION

Vice Chief Judge David B. Gass delivered the decision of the court, in which
Presiding Judge Paul J. McMurdie and Judge Angela K. Paton joined.
 BRAZEE-REVOCABLE TRUST v. PHZ-MSC
Decision of the Court

G A S S, Vice Chief Judge:

¶1 PHZ-MSC, LLC (PHZ) appeals the superior court’s order
granting summary judgment on its breach of contract counterclaim. PHZ
argues the Elizabeth M. Brazee Revocable Trust (the Trust) breached an
implied promise in their lease to provide a legally operable business to
PHZ. Because the lease’s express terms neither contain nor infer such a
promise, we affirm.

FACTUAL AND PROCEDURAL HISTORY

¶2 On appeal of an order granting summary judgment, this court
views the facts in the light most favorable to the non-movant—here, PHZ.
See Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12 (2003).

¶3 In 1994, Elizabeth Brazee purchased a property at 3613 E. Van
Buren Street in Phoenix to open an adult-entertainment club. In 2003, she
leased the property to a prior tenant who later assigned the lease to Diesel
01, LLC (Diesel) to operate an adult-entertainment club called the Pink
Rhino Cabaret (Pink Rhino). In 2011, Ms. Brazee conveyed the property to
the Trust.

¶4 Though the property was originally zoned for general
commercial purposes—allowing adult entertainment—a 2012 amendment
to Phoenix’s relevant zoning ordinances rendered the property’s adult-
oriented entertainment business a legal, nonconforming use. In July 2015,
the Phoenix police department seized Diesel’s liquor license for the owner’s
alleged crimes. Under Phoenix City Code, the operator of an adult-
entertainment cabaret must possess either a cabaret license or a liquor
license. Phoenix City Code § 10-133.A (cabaret license), .G (liquor license).
Even so, the Pink Rhino continued operating in 2015 without one of the
required licenses. After Diesel told the Trust about Phoenix seizing its
license, the Trust allowed Diesel time to find a buyer for the business. But
in January 2016, when Diesel’s lease expired and it had not found a buyer,
the Trust “padlocked and re-keyed” the property.

¶5 Because, under Phoenix City Code, a legal nonconforming
use lapses if not used, the Trust sought a new tenant with a liquor license
to continue operating an adult-entertainment club on its property. See
Phoenix Zoning Ordinance § 903.A. In January 2016, the Trust leased the
property to Barton Holloway Arizona, LLC (Barton)—which possessed a
Series 6 liquor license. Barton sold its license and assigned its lease to PHZ.

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The Trust and PHZ signed a new lease in May 2016. During this time, the
Pink Rhino remained closed.

¶6 PHZ quickly pursued an administrative determination
regarding the property’s nonconforming-use rights. Phoenix’s zoning
administrator issued an informal determination finding the
nonconforming-use rights had lapsed under Phoenix Zoning Ordinance
§ 903.A because of 180-days non-use. PHZ unsuccessfully appealed that
finding to the zoning adjustment hearing officer, the board of adjustment,
and ultimately the superior court. Meanwhile, PHZ stopped paying rent,
and the Trust declined PHZ’s request to defer rental payments pending the
nonconforming-use determination.

¶7 In July 2018, the Trust sued PHZ, alleging PHZ breached the
lease by not paying property expenses and monthly rent. The Trust sought
damages for PHZ’s non-payment and declaratory relief terminating the
lease and PHZ’s possessory rights in the property. PHZ counterclaimed for
promissory estoppel, breach of the covenant of good faith and fair dealing,
and breach of the covenant of quiet enjoyment. After the superior court
dismissed the promissory estoppel counterclaim, PHZ amended its answer
and replaced the promissory estoppel counterclaim with a breach of
contract counterclaim, arguing the Trust breached the lease by failing to
provide a property “which could lawfully be used as an adult oriented
entertainment facility.” PHZ’s amended answer also raised several
affirmative defenses, including estoppel, frustration of purpose, lack of
consideration, and impossibility.

¶8 The Trust moved for summary judgment on PHZ’s
counterclaims, which the superior court granted. PHZ timely appealed.
Though the superior court also granted summary judgment in favor of the
Trust on its claims for declaratory relief and breach of contract, PHZ
appeals only the dismissal of its breach of contract counterclaim. This court
has jurisdiction under article VI, section 9, of the Arizona Constitution, and
A.R.S. §§ 12-120.21.A.1 and 12-2101.A.1.

ANALYSIS

¶9 PHZ argues the superior court erred in granting the Trust’s
motion for summary judgment on its breach of contract counterclaim
because (1) the lease “necessarily implies that the Pink Rhino club could
legally be operated by PHZ when it took possession” and (2) certain parol
evidence supports that implied term.

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¶10 This court reviews de novo the grant of a motion for summary
judgment. Tierra Ranchos Homeowners Ass’n v. Kitchukov, 216 Ariz. 195, 199,
¶ 15 (App. 2007). The superior court may grant summary judgment when
no genuine issue of material fact exists and the moving party is entitled to
judgment as a matter of law. Orme Sch. v. Reeves, 166 Ariz. 305, 309 (1990);
Ariz. R. Civ. P. 56(a).

I. Implied Term

¶11 This court reviews the interpretation of contracts de novo.
Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, 593, ¶ 9 (App. 2009). “The
purpose of contract interpretation is to determine the parties’ intent and
enforce that intent.” Id. To determine intent, this court considers “the plain
meaning of the words in the context of the contract as a whole.” See Dunn
v. FastMed Urgent Care PC, 245 Ariz. 35, 38, ¶ 10 (App. 2018). If the terms of
a contract are “clear and unambiguous, a court must give effect to the
contract as written.” Grubbs & Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C.,
213 Ariz. 83, 86, ¶ 12 (App. 2006).

¶12 Two lease provisions are at issue here—paragraphs 12 and 13.
They provide in relevant part:

12. Use. Lessee shall use the Premises solely as an adult
oriented entertainment facility, providing for dancing and
musical entertainment, including the service of alcoholic
beverages permitted under Lessee’s liquor license(s) issued
by the State of Arizona, and food service. Lessee shall occupy
the Premises promptly following the Effective Date and,
except as set forth below, Lessee shall at all times during the
Lease Term diligently operate its business on the Premises.

....

13. Compliance with Laws, Restrictions, Covenants, and
Encumbrances.

A. Lessee’s use and occupation of the Premises, and the
condition thereof, shall, at Lessee’s sole cost and expense,
comply fully with (i) all applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders and approvals of
any governmental agencies, departments, commissions,
bureaus, boards or instrumentalities of the United States, the
state in which the Premises are located and all political
subdivisions thereof . . . .

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¶13 Both provisions identify obligations assigned exclusively to
PHZ as the lessee. Paragraph 12 requires PHZ to use the property “solely
as an adult oriented entertainment facility,” and requires PHZ to occupy
the property and operate its business diligently. Paragraph 13 assigns PHZ
“all” responsibility for legal compliance—including permitting and zoning.
These paragraphs do not impose any express obligations on the Trust.

¶14 Despite the lease’s express terms, PHZ argues paragraphs 12
and 13 necessarily imply the Trust was obligated to provide a club capable
of operating as an adult-entertainment facility on the day the lease was
signed. We disagree.

¶15 “[T]erms which are plainly or necessarily implied in the
language of a contract are as much a part of it as those which are expressed.”
Demand v. Foley, 11 Ariz. App. 267, 272 (1970). But implied-in-fact covenants
are generally disfavored, and this court has recognized them only in limited
circumstances. See Walgreen Ariz. Drug Co. v. Plaza Ctr. Corp., 132 Ariz. 512,
515 (App. 1982) (listing factors to consider when reviewing for an implied-
in-fact covenant); Smith v. Phlegar, 73 Ariz. 11, 18 (1951) (“courts will declare
implied covenants to exist only when there is a satisfactory basis in the
express contract of the parties which makes it necessary to imply certain
duties and obligations in order to effect the purposes of the parties to the
contract made”) (citation omitted).

¶16 Adopting PHZ’s interpretation would countermand the lease
by introducing an implied term at odds with the lease’s express provisions.
To begin, the lease does not require an implied term because its provisions
are in harmony when viewed as a whole. See Nichols v. State Farm Fire &
Cas. Co., 175 Ariz. 354, 356 (App. 1993) (a contract “must be read as a whole
in order to give a reasonable and harmonious meaning and effect to all of
its provisions”) (citation omitted). Paragraph 12 restricts the property’s use
to adult entertainment and requires prompt occupation, which reasonably
follows from the potential lapse in a nonconforming use. Paragraph 13
assigns PHZ all responsibility for legal compliance. At the lease’s outset,
the property was not incapable of ever being used for adult entertainment.
Instead, the nonconforming-use issue was yet to be determined by a zoning
authority, and PHZ agreed to assume an obligation to pursue it—and did.

¶17 The remaining lease provisions on which PHZ relies do not
support the exceptional remedy PHZ requests. Paragraph 24 says the Trust
relied on PHZ’s “business experience and creditworthiness” and the adult-
entertainment purpose for which PHZ intended to use the property. Those
terms comport with paragraph 12’s exclusive-use provision. Similarly,

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paragraph 3.B.i makes renewal contingent upon continuous occupation.
But the occupation of a property is not tantamount to the operation of a
business. Those paragraphs each repeat the exclusive-use and occupation
provisions of paragraph 12, respectively. The terms do not impose a
warranty on the Trust to ensure operability at the lease’s inception.

¶18 The sole term discussing operability is paragraph 12’s
requirement PHZ operate its business diligently. But diligent business
operation, standing alone, does not presuppose business operation must be
viable on the day of signing. Instead, a harmonious reading of that term in
the context of the entire lease would require PHZ to operate its business
diligently, to the extent such operation is legally compliant. See Aztar Corp.
v. U.S. Fire Ins. Co., 223 Ariz. 463, 477, ¶ 48 (App. 2010) (“It is the duty of the
court to adopt a construction of a contract which will harmonize all of its
parts, and apparently conflicting parts must be reconciled, if possible, by
any reasonable interpretation.” (quoting U.S. Insulation, Inc. v. Hilro Constr.
Co., 146 Ariz. 250, 259 (App. 1985))). Indeed, a harmonious reading of
business diligence may well include PHZ’s obligation to pursue legal
compliance, which PHZ agreed to do at its own expense in paragraph 13.

¶19 As a final matter, PHZ argues paragraph 13 does not control
because it involves general terms. See ELM Ret. Ctr., LP v. Callaway, 226 Ariz.
287, 291, ¶ 18 (App. 2010) (“because specific contract provisions express the
parties’ intent more precisely than general provisions, specific provisions
qualify the meaning of general provisions”). We disagree. If anything,
paragraph 13 specifically addresses the issue of legal compliance,
unequivocally assigning “all” compliance responsibility to PHZ. See id. at
¶ 20. Though it is written broadly, paragraph 13 squarely addresses the core
issue at stake in this appeal—which party bore the burden of legal
compliance. By assigning compliance responsibility to PHZ, paragraph 13
forecloses PHZ’s resort to an implied term. See Smith, 73 Ariz. at 18 (implied
covenants “can arise only where there is no expression on the subject”). In
short, we must “give effect to the contract as written.” See Grubbs, 213 Ariz.
at 86, ¶ 12.

II. Parol Evidence

¶20 PHZ also argues the parties’ contemporaneous actions and
beliefs, established by affidavits, support the Trust’s implied obligation to
provide an operable club at the lease’s outset.

¶21 In determining whether to consider parol evidence in
interpreting a contract, Arizona follows the “Corbin view of contract

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interpretation.” Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 153
(1993) (citing Burkons v. Ticor Title Ins. Co. of Cal., 168 Ariz. 345, 350–51
(1991)). Under that view, a court must first “consider[] the offered evidence
and, if [the court] finds that the contract language is ‘reasonably
susceptible’ to the interpretation asserted by its proponent, the evidence is
admissible to determine the meaning intended by the parties.” Id. at 154
(citations omitted). Though the parol-evidence rule permits consideration
of extrinsic evidence when a contract is reasonably susceptible to more than
one meaning, it prohibits such proof if it varies or contradicts express
contractual terms. Id. at 152; see also Roe v. Austin, 246 Ariz. 21, 26, ¶ 17 (App.
2018); ELM Ret. Ctr., 226 Ariz. at 291, ¶ 15.

¶22 PHZ identifies only two sources of extrinsic evidence on
appeal: (1) the declaration from the trustee (Elizabeth Brazee), and (2) the
affidavit from PHZ’s principal (Patrick Zanzucchi).

¶23 First, though consistent with the lease, the trustee’s
declaration does not aid PHZ’s interpretation. PHZ relies on several of the
trustee’s avowals about (1) an earlier lease with a different group requiring
that group use the property for adult-entertainment purposes, (2) the
importance to the trustee of PHZ resuming and continuing those purposes,
and (3) the value the trustee placed on the experience of PHZ’s members.
None of those statements contextualize—let alone overcome—paragraph
13 of the lease, which requires PHZ to bear all responsibility for legal
compliance. Indeed, the lease expressly says the exclusive use of the
property was “as an adult-oriented entertainment facility” and PHZ had to
ensure legal compliance at its “sole cost and expense.”

¶24 Second, Mr. Zanzucchi’s affidavit directly contravenes the
lease’s express terms. His affidavit stated, “PHZ’s sole purpose for entering
into the Lease was to operate [the Pink Rhino]” and he “clearly understood
[the Trust] intended to provide PHZ with a legally operable strip club.” But,
as discussed above, his assumption of an implied promise of operability is
inconsistent with paragraph 13, which allocates all responsibility for legal
compliance to PHZ. See supra ¶¶ 15–19. PHZ cannot use Mr. Zanzucchi’s
purported antecedent understanding to contradict the parties’ express
written agreement. See Taylor, 175 Ariz. at 152.

¶25 Third, PHZ’s subsequent conduct—including its independent
request for a nonconforming-use determination and its pursuit of a zoning
appeal—also confirmed the lease’s plain language imposing all
responsibility for legal compliance on PHZ. PHZ does not present
admissible parol evidence sufficient to create a genuine issue of material

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fact or alter our interpretation of the lease’s express terms. See Orme Sch.,
166 Ariz. at 309.

ATTORNEY FEES

¶26 The Trust requests its reasonable attorney fees and costs
under paragraph 43 of the lease and A.R.S. § 12-341.01. PHZ does not
contest an attorney-fee award. Paragraph 43 of the lease provides “the
prevailing party [in any judicial proceeding] shall be entitled to recover all
of its reasonable attorneys’ fees and costs.” Accordingly, as the successful
party on appeal, we award the Trust its reasonable attorney fees and costs
upon compliance with ARCAP 21. See A.R.S. §§ 12-341, -341.01.A.

CONCLUSION

¶27 We affirm.

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

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