Eli v. Procaccianti

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

ZADOK ELI, et al., Plaintiffs/Appellants,

v.

PROCACCIANTI AZ II, LP, Defendant/Appellee.

No. 1 CA-CV 22-0760
1 CA-CV 23-0314
(Consolidated)
FILED 07-09-2024

Appeal from the Superior Court in Maricopa County
No. CV2018-014021, CV2018-055021
The Honorable Gary L. Popham, Commissioner Judge Pro Tempore

AFFIRMED

COUNSEL

Wilenchik & Bartness, P.C., Phoenix
By Dennis I. Wilenchik, Ross P. Meyer, John D. Wilenchik
Counsel for Plaintiff/Appellant

Porter Law Firm, Phoenix
By Robert S. Porter
Co-Counsel for Plaintiff/Appellant

Spencer Fane LLP, Phoenix
By Andrew M. Federhar, Jessica A. Gale
Co-Counsel for Defendant/Appellee

Osborn Maledon, P.A., Phoenix
By William J. Maledon, Geoffrey M.T. Sturr
Co-Counsel for Defendant/Appellee
 ELI, et al. v. PROCACCIANTI
Decision of the Court

MEMORANDUM DECISION

Vice Chief Judge Randall M. Howe delivered the decision of the court, in
which Presiding Judge Anni Hill Foster and Judge Brian Y. Furuya joined.

H O W E, Judge:

¶1 Zadok and Hana Eli (the “Elis”) and R.L. Whitmer and
Colleen London (the “Whitmers,” and collectively with the Elis, the
“Homeowners”) appeal the superior court’s grant of summary judgment to
Procaccianti AZ II, LP (“Procaccianti”), Andrew M. Federhar, Spencer Fane,
LLP, Gregory Vickowski, and Ron Hadar (collectively, the “Defendants”)
on their claims of fraud and negligent misrepresentation. We affirm.

FACTS AND PROCEDURAL BACKGROUND

¶2 The Elis and Whitmers are homeowners who lease land from
Procaccianti. The Elis and Whitmers are also members of the Hilton Casitas
Council of Homeowners (the “HOA”). Over the past decade, the
Homeowners and Procaccianti (as well as the HOA and several
homeowners not parties to this appeal) have been mired in litigation. See,
e.g., Eli v. Procaccianti AZ II LP, 1 CA-CV 19-0855, 2021 WL 3088737, at *1 ¶ 3
(Ariz. App. July 22, 2021) (mem. decision) (as amended) (“Eli II”).

¶3 In 2018, Procaccianti and several of the HOA members,
including the Elis, participated in a settlement conference to resolve the
litigation. Before the meeting, Procaccianti emailed the Homeowners that it
would be able to give the HOA’s position at the conference. At the Elis’
insistence, however, the HOA did not itself participate in the conference.
And at the conference, Procaccianti asked the Whitmers to leave, which
they did.

¶4 About an hour before the conference, the HOA’s attorney
emailed Procaccianti’s attorney a non-negotiable settlement offer. But
during the conference, Procaccianti’s representative stated to the Elis that
the HOA had made no settlement offer. No agreement was reached at the
conference. Procaccianti’s attorney took notes but disposed of them soon
after the conference. At subsequent depositions, Procaccianti’s
representatives at the conference, Gregory Vickowski and Ron Hadar,

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testified they had lacked authority to settle but informed the participants
that they were interested in what the Elis had to say.

¶5 The Homeowners then asserted that the parties had reached
an enforceable settlement agreement based on Procaccianti’s attorney’s
notes. Procaccianti filed a declaratory judgment action (the “Declaratory
Action”) to declare that no enforceable agreement was reached. In answer
to Procaccianti’s complaint, the Homeowners filed several counterclaims
alleging, as relevant, fraud and negligent misrepresentation against
Procaccianti and its attorneys for both their lack of disclosure of the HOA’s
offer and their purportedly false intention to make a settlement agreement.
Shortly thereafter, the Homeowners sued Procaccianti, alleging
substantially similar claims as their counterclaims in the Declaratory Action
(the “Tort Action”).

¶6 In the Declaratory Action, the superior court granted
Procaccianti relief, which this court affirmed in Eli v. Procaccianti AZ II LP,
1 CA-CV 20-0476, 2021 WL 3743817 (Ariz. App. Aug. 24, 2021) (mem.
decision) (“Eli I”). However, before the resolution of the appeal in the
Declaratory Action, the superior court denied Procaccianti’s motion for
summary judgment in the Tort Action.

¶7 In Eli I, we determined that the Tort Action asserted
“substantially the same claims as their counterclaims in the Declaratory
Action.” Eli I, 2021 WL 3743817, at *2 ¶ 8. This court determined further that
those counterclaims “were dependent on the court finding an enforceable
agreement was reached at the [settlement] meeting.” Id. at *3 ¶ 19. This
court also determined that the Whitmers were proper parties to the appeal,
even though the Whitmers did not participate in the settlement conference,
explaining that

[i]n their counterclaims, the Whitmers asserted the Hotel had
an obligation to communicate the HOA’s settlement offer to
the Homeowners, and alleged they would have agreed to the
HOA’s offer had the Hotel informed them of the terms. The
Whitmers sought benefit-of-the-bargain damages based on an
alleged missed opportunity to settle with the HOA. However,
the record shows that the HOA had no interest in settling
anything less than all of the outstanding cases with
Homeowners. Instead, the HOA wanted a global settlement
disposing of all claims and all parties. That being the case, to
be entitled to benefit-of-the-bargain damages, the Whitmers
would need to establish that the Hotel and the HOA would

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have settled not only with them, but with all of the
Homeowners.

Id.

¶8 After Eli I was issued, Defendants moved to reconsider the
superior court’s denial of summary judgment, which the court granted. The
court then granted Defendants summary judgment on all claims of the
Homeowners’ Tort Action. The court found the HOA “had no interest in
settling anything less than all of the outstanding cases with the
Homeowners,” and so the Homeowners could not make the necessary
showing on their claims. The court also granted Defendants attorneys’ fees
under A.R.S. § 12-341.01 because it determined the Homeowners’ “tort
claims could not exist absent ‘the breach or avoidance of contract’—the
alleged promise by Defendants to deliver to Plaintiffs the HOA’s settlement
terms.” The Homeowners then moved for a new trial under Arizona Rule
of Civil Procedure (“Rule”) 59, which the court denied, and appealed the
court’s grant of summary judgment and denial of the motion for new trial.

¶9 While this appeal was pending, Defendants and the
Homeowners again entered settlement discussions via email to resolve
outstanding litigation. On January 24, 2023, Defendants emailed the
Homeowners that “until there is a final signed fully executed settlement
agreement, there is no settlement between the parties.” On January 26, 2023,
Defendants emailed the Homeowners, that “my clients propose the
following as settlement terms . . . subject to a suitable settlement agreement.
The offer will remain open only until 3 pm. tomorrow Friday. January 27,
2023 MST.” (Bolding in original.) The Homeowners agreed the next day,
and the parties filed a joint stipulation that “[t]he Parties have reached a
settlement agreement in principle. The Parties are currently working to
draft and execute the settlement agreement.” The Homeowners also
proposed treating the January 26 email as a Rule 80 enforceable agreement,
but Defendants rejected the proposal. After further negotiation, the parties
could not reach a final agreement and Defendants withdrew their offer.

¶10 The Homeowners then moved to enforce settlement
(“Enforcement Action”) based on the terms of the January 26 email, which
the superior court denied. This court stayed the appeal of the Tort Action
pending the outcome of the enforcement motion. The superior court denied
the motion, finding “a necessary, material condition precedent of any
settlement agreement to be reached between the parties—i.e., a final signed,
fully executed settlement agreement—is lacking and, as such, there is no

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settlement agreement to enforce.” The court further explained that “[n]o
agreement beyond the agreement to agree was reached.”

¶11 The Homeowners appealed the denial of its motion to
enforce, which this court consolidated with the appeal from the Tort Action.
This court has jurisdiction under A.R.S. § 12-2101(A)(1), (2), (5)(a).

DISCUSSION

¶12 In their opening brief, the Homeowners argue the superior
court erred by granting Defendants’ motion for summary judgment but do
not address the denial of their motion for new trial. 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). We review a grant of summary judgment de novo and view the
evidence and reasonable inferences in a light most favorable to the
Homeowners as the non-moving party. Zambrano v. M & RC II LLC, 254
Ariz. 53, 58 ¶ 9 (2022).

I. Issue Preclusion

¶13 Defendants argue that the Homeowners’ claims fail because
in Eli I this court determined the Homeowners would have to prove an
enforceable bargain existed to prevail on their tort claims. Defendants
contend that the Homeowners are precluded from arguing they are entitled
to benefit-of-the-bargain damages because “[t]he Homeowners have
already litigated [in Eli I] the issue of whether there was an enforceable
settlement contract and lost.”

¶14 The Homeowners dispute that Eli I required them to
demonstrate the parties agreed to an enforceable bargain to succeed on
their claims or to assert benefit-of-the-bargain damages. Specifically, the
Homeowners argue Eli I lacks preclusive effect because it did not address
their claims alleging the Defendants’ attorneys fraudulently and
negligently misrepresented their authority to settle, i.e., the third and fourth
counts of their third amended complaint in the Tort Action. And as to
damages, they argue the full evidentiary record in the Tort Action was not
before the Eli I court in the Declaratory Action, which would have
“established that a litigation ending agreement would have been reached—
had the HOA offer been disclosed.” They contend that the superior court
wrongly expanded the definition of “Homeowners” from Eli I to include
several legal entities who were not parties to the Tort Action as
Homeowners required to settle.

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¶15 “Issue preclusion is a judicial doctrine that, when applicable,
prevents a party from relitigating an issue of fact decided in a prior
judgment.” Hancock v. O’Neil, 253 Ariz. 509, 512 ¶ 10 (2022). Issue preclusion
applies when “(1) the issue was actually litigated in the previous
proceeding, (2) the parties had a full and fair opportunity and motive to
litigate the issue, (3) a valid and final decision on the merits was entered,
(4) resolution of the issue was essential to the decision, and (5) there is
common identity of the parties.” Campbell v. SZL Props., Ltd., 204 Ariz. 221,
223 ¶ 9 (App. 2003).

¶16 In Eli I this court determined that the Homeowners
“assert[ed] substantially the same claims [in the Tort Action] as their
counterclaims in the Declaratory Action.” Eli I, 2021 WL 3743817, at *2 ¶ 8.
This court determined further that those counterclaims “were dependent
on the court finding an enforceable agreement was reached at the
[settlement] meeting.” Id. at *3 ¶ 19. This holding did not distinguish
between the Homeowners’ various counterclaims. See id. Although the
Homeowners argue Eli I had “nothing to do with” the third and fourth
counts of the Tort Action, these claims are virtually identical to the
Homeowners’ fifth and sixth counterclaims to Procaccianti’s complaint in
the Declaratory Action at issue in Eli I. Because no enforceable agreement
was reached at the settlement conference, the Homeowners are precluded
from relitigating the viability of their claims.

¶17 Eli I also precludes the Homeowners from asserting damages
independently of its preclusive effect on the substantive claims. As this
court explained, because “the HOA had no interest in settling anything less
than all of the outstanding cases with Homeowners . . . to be entitled to
benefit-of-the-bargain damages, the Whitmers would need to establish that
the Hotel and the HOA would have settled not only with them, but with all
of the Homeowners.” Id.

¶18 Because this court decided the Homeowners would need to
establish that Procaccianti, and not just the HOA, would have agreed to
settle to be entitled to benefit-of-the-bargain damages, the definition of
“Homeowners” and additional record are not dispositive issues. Here,
Procaccianti denies it ever would have agreed to a settlement. Accordingly,
the Homeowners are precluded from arguing they are entitled to benefit-
of-the-bargain damages.

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II. Damages

¶19 Defendants argue that even if the Homeowners are not
precluded from arguing an entitlement to benefit-of-the-bargain damages,
to be so entitled they must have had an enforceable bargain. The
Homeowners respond that tort damages for fraud and negligent
misrepresentation do not require an enforceable contract. Because of the
Homeowners’ long history of litigation, we also address the merits of
benefit-of-the-bargain damages to avoid future disputes between the
parties.

¶20 A bargain is “[a]n agreement between parties for the
exchange of promises or performances.” Bargain, Black’s Law Dictionary
(11th ed. 2019); see also Restatement (Second) of Contracts § 3 (1981) (“A
bargain is an agreement to exchange promises or to exchange a promise for
a performance or to exchange performances.”). Actions for fraud and
negligent misrepresentation permit the plaintiff to recover for “the
difference between the real value of the property purchased and the value
it would have had had the representation been true.” Carrel v. Lux, 101 Ariz.
430, 436 (1966) (citing Lutfy v. R. D. Roper & Sons Motor Co., 57 Ariz. 495, 503
(1941)); see also Armiros v. Rohr, 243 Ariz. 600, 606 ¶ 24 (App. 2018); Aspen
Biotech Corp. v. Wakefield, 1 CA-CV 20-0384, 2021 WL 3503399, at *14 ¶ 70
(Ariz. App. Aug. 10, 2021) (mem. decision).

¶21 Whether benefit-of-the-bargain damages require the
existence of an enforceable agreement has not been directly decided in
Arizona. But because benefit-of-the-bargain damages are measured against
the value of property already purchased, however, the existence of an
agreement or contract is implicitly required. In all the cases addressing
benefit-of-the-bargain damages, the plaintiffs sought damages based on an
already existing contract or agreement. See, e.g., Carrel, 101 Ariz. at 436;
Lutfy, 57 Ariz. at 502–03; see also Aspen Biotech, 2021 WL 3503399, at *14 ¶ 70.
Decisions from other states have likewise held that a plaintiff cannot
recover benefit-of-the-bargain tort damages without an enforceable
contract. See, e.g., LCT Cap., LLC v. NGL Energy Partners LP, 249 A.3d 77, 93
(Del. 2021) (as corrected); Goldstein v. Miles, 859 A.2d 313, 327 (Md. App.
2004) (“While our appellate courts have not expressly required the existence
of a ‘bargain’ to obtain benefit-of-the-bargain damages in fraud and
negligent misrepresentation cases, they have done so impliedly by only
recognizing the legitimacy of such damages in fraud and negligent
misrepresentation cases in which there was an actual contract between the
parties.”). The Homeowners do not point to any Arizona decision
permitting a plaintiff to recover benefit-of-the-bargain damages for a

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bargain they failed to enter because of fraud or negligent misrepresentation.
We decline to extend the law here. The superior court thus did not err.

¶22 The Homeowners also argue that they are entitled to
consequential and punitive damages for their fraud claims. But they do not
develop their argument, or cite authority, that they are independently
entitled to consequential or punitive damages in the absence of benefit-of-
the-bargain damages. The Homeowners have therefore waived any claim
to non-benefit-of-the-bargain damages. See Ritchie v. Krasner, 221 Ariz. 288,
305 ¶ 62 (App. 2009) (explaining that failure to present and address
arguments supported by authority can constitute abandonment and waiver
of the claim).

III. Enforcement Action

¶23 The Homeowners argue that the superior court erred by
denying their motion to enforce the purported 2023 settlement. They argue
Defendants were required to (but did not) produce a settlement agreement
containing the terms as outlined in the January 26, 2023 email
correspondence. The superior court denied the Homeowners’ motion
because it found the parties had not signed a final, fully executed agreement
and “as such, there is no settlement agreement to enforce.”

¶24 We review the denial of a motion to enforce de novo. Perry v.
Ronan, 225 Ariz. 49, 52 ¶ 7 (App. 2010). “Construction and enforcement of
settlement agreements . . . are governed by general contract principles.”
Emmons v. Superior Court, 192 Ariz. 509, 512 ¶ 14 (App. 1998).

¶25 The Homeowners argue “there was an agreement on all
terms, not just material terms,” and “the January 26, 2023 email is so
thoroughly written that there are no other terms that would need to be
drafted or determined.” Further, they emphasize that, on January 27, 2023,
the parties filed a joint stipulation that “[t]he Parties have reached a
settlement agreement in principle. The Parties are currently working to
draft and execute the settlement agreement.”

¶26 But the joint stipulation merely confirms that the
Homeowners agreed to the January 26 email. And the full correspondence
between Defendants and the Homeowners demonstrates that Defendants
never intended the January 26 email to represent a final, executed
settlement agreement. On January 24, 2023, Defendants emailed the
Homeowners and explicitly stated, “until there is a final signed fully
executed settlement agreement, there is no settlement between the parties.”
Further, Defendants stated in the January 26 email itself, “my clients

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propose the following as settlement terms . . . subject to a suitable settlement
agreement.” (Emphasis added.) When the Homeowners proposed treating
the January 26 email as a Rule 80 agreement, Defendants again affirmed
that they wanted a final signed agreement. Thus, although the
Homeowners may have viewed the January 26 email as sufficiently
definite, Defendants at most intended the email to constitute an agreement
to agree. See Ripps v. Mueller, 21 Ariz. App. 159, 160 (1973) (“[A]greements
to make an agreement are not specifically enforceable when material terms
are left to future negotiation.”); see also Schade v. Diethrich, 158 Ariz. 1, 9
(1988) (noting that the certainty of terms goes to the “ultimate element of
contract formation—the question whether the parties manifested assent or
intent to be bound”). Because Defendants did not intend the January 26
email to constitute an enforceable agreement, the court did not err by
denying the Homeowners’ motion.

IV. Attorneys’ Fees

A. Arising Out of a Contract

¶27 The superior court awarded Defendants attorneys’ fees under
A.R.S. § 12-341.01 because it found the Homeowners’ “tort claims could not
exist absent ‘the breach or avoidance of contract’—the alleged promise by
Defendants to deliver to Plaintiffs the HOA’s settlement terms.” The
Homeowners argue that the superior court erred in awarding fees because
their claims for fraud and negligent misrepresentation are based on duties
imposed by tort law and not contract. The application of A.R.S. § 12-341.01
is a question of statutory interpretation, which we review de novo. Ramsey
Air Meds, L.L.C. v. Cutter Aviation, Inc., 198 Ariz. 10, 13 ¶ 12 (App. 2000).

¶28 Section 12-341.01(A) permits the award of attorneys’ fees in
actions “arising out of a contract.” The superior court may award fees in a
tort action as long as the action “could not exist but for the breach of the
contract.” Sparks v. Rep. Nat’l Life Ins. Co., 132 Ariz. 529, 543 (1982). In
applying the Sparks test, the court should look not just at the “form of the
pleadings,” but also “the nature of the action and the surrounding
circumstances.” Ramsey Air Meds, 198 Ariz. at 14 ¶ 21 (quoting Marcus v.
Fox, 150 Ariz. 333, 335 (1986)). “The statute does not apply if the contract is
only a factual predicate to the action but not the essential basis of it.”
Kennedy v. Linda Brock Auto. Plaza, Inc., 175 Ariz. 323, 325 (App. 1993).
Further, “[w]hen the duty breached is one implied by law based on the
relationship of the parties, that claim sounds fundamentally in tort, not
contract.” Ramsey Air Meds, 198 Ariz. at 15 ¶ 27. Thus, “[t]he test is whether

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the defendant would have a duty of care under the circumstances even in
the absence of a contract.” Id. at 16 ¶ 27.

¶29 The Homeowners brought two claims of fraud and negligent
misrepresentation against the Defendants in which they alleged the
Defendants falsely represented that the HOA had not made a settlement
offer. The Homeowners claim had the HOA settlement offer been disclosed,
they would have agreed to the offer and have thus suffered pecuniary
losses as a result of the lack of disclosure. Although the Homeowners argue
that tort law imposes the duty not to commit fraud or negligent
misrepresentation, their claims for damages are dependent upon the
creation of a contract—in the absence of the HOA’s offer, by definition,
Defendants would have lacked any offer to disclose. In other words,
Defendants’ alleged duty to disclose would not exist “but for” the existence
of a contract. The superior court did not err by determining the
Homeowners’ claims arose out of a contract.

B. Federhar

¶30 The Homeowners argue that the superior court also erred in
awarding $161,450 in attorneys’ fees for work completed by attorney
Andrew Federhar on his own behalf while he was a defendant in the Tort
Action. The Homeowners also argue the amount awarded for Federhar’s
work was unreasonable because another attorney for Defendants, Geoffrey
Sturr, charged $70,948 for his work during the same period. We review the
amount of an award of attorneys’ fees for an abuse of discretion. Ramsey Air
Meds, 198 Ariz. at 13 ¶ 12.

¶31 The Homeowners do not identify any specific improper time-
entries, and their one record citation to a minute entry denying their motion
to pierce Federhar’s attorney-client privilege does not support that
Federhar’s work was in representation of himself and not Procaccianti. By
contrast, as Defendants note, Federhar submitted a declaration with
Defendants’ fee application stating his law firm was retained as co-counsel
on behalf of Procaccianti. Because Procaccianti’s application for attorneys’
fees included detailed time entries and a supporting affidavit, “the burden
shifted to [the Homeowners] to demonstrate that particular entries were
inappropriate or unreasonable.” Rudinsky v. Harris, 231 Ariz. 95, 102 ¶ 33
(App. 2012). Thus, even if some of Federhar’s representation was on his
own behalf, the Homeowners’ general objection to the fee award fails to
overcome their burden. The trial court thus did not abuse its discretion in
awarding $161,450 in attorneys’ fees to Procaccianti for Federhar’s
representation.

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V. Attorneys’ Fees on Appeal

¶32 Defendants request attorneys’ fees as sanctions under A.R.S.
§ 12-349 and ARCAP 25. Defendants also seek their attorneys’ fees under
A.R.S. § 12-341.01 and costs under A.R.S. § 12-341.

¶33 As discussed, supra ¶¶ 27–29, because the Defendants were
the successful party in a “contested action arising out of a contract,” we
award Defendants their reasonable attorneys’ fees under A.R.S. § 12-341.01.
We also award Defendants, as the successful party, their reasonable costs
upon compliance with ARCAP 21. Because we award Defendants their
reasonable attorneys’ fees under A.R.S. § 12-341.01, we do not address their
request under A.R.S. § 12-349.

CONCLUSION

¶34 We affirm.

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

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