Dj North v. Omnisource

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

DJ NORTH 41ST AVENUE, LLC, Plaintiff/Appellee/Cross-Appellant,

v.

OMNISOURCE UNITED, INC., Defendant/Appellant/Cross-Appellee.

No. 1 CA-CV 23-0597
FILED 10-15-2024

Appeal from the Superior Court in Maricopa County
No. CV2020-015278
The Honorable Susan G. White, Judge (Retired)

VACATED AND REMANDED

COUNSEL

Lang Thal King & Hanson PC, Scottsdale
By Michael W. Thal, Mickell J. Summerhays
Counsel for Plaintiff/Appellee/Cross-Appellant

The Kozub Law Group PLC, Phoenix
By William A. Kozub, Richard W. Hundley
Counsel for Defendant/Appellant/Cross-Appellee
 DJ NORTH v. OMNISOURCE
Decision of the Court

MEMORANDUM DECISION

Judge Jennifer M. Perkins delivered the decision of the Court, in which
Presiding Judge Michael S. Catlett and Vice Chief Judge Randall M. Howe
joined.

P E R K I N S, Judge:

¶1 OmniSource United, Inc. (“OmniSource”) appeals from the
superior court’s entry of summary judgment in favor of DJ North 41st
Avenue, LLC (“DJ North”) on a theory of successor liability for breach of a
commercial lease. DJ North cross-appeals the superior court’s decision to
offset its damage award. For the following reasons, we vacate the superior
court’s judgment and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

¶2 In 2013, ITD Arizona, Inc., dba Interstate Tire Distributor, Inc.
(“ITD Arizona”) leased a commercial warehouse in Phoenix from DJ North.

¶3 Three years into the lease, Omni Holdings USA, LLC, which
also owns OmniSource, acquired ITD Arizona. As part of the acquisition,
ITD Arizona merged into Interstate Tire Distributor, LLC.

¶4 A year later, DJ North agreed to a lease amendment that
substituted Interstate Tire Distributor as the tenant under the lease. The
following year, Interstate Tire Distributor sublet the warehouse to a third
party. During the sublease, the subtenant paid rent to OmniSource;
OmniSource in turn paid rent to DJ North.

¶5 The subtenant later abandoned the lease. DJ North demanded
rent payments from OmniSource. OmniSource agreed to pay and did so
from January through June of 2020.

¶6 Shortly after the subtenant abandoned the lease, DJ North
inspected the warehouse and discovered the subtenant had damaged the
property. From February through June 2020, DJ North negotiated with
OmniSource for reimbursement for the cost of repairs.

¶7 When negotiations over repair costs broke down, DJ North
sued Interstate Tire Distributor for breach of contract. DJ North’s second

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 DJ NORTH v. OMNISOURCE
Decision of the Court

amended complaint added OmniSource as a defendant to the breach of
contract suit.

¶8 DJ North moved for summary judgment, arguing
OmniSource was liable under the lease because it was Interstate Tire
Distributor’s successor. The superior court granted summary judgment in
DJ North’s favor but found that OmniSource was entitled to offset. In its
final judgment, the superior court reduced DJ North’s damages award to
account for the offset. The superior court also awarded DJ North fees, costs,
and pre-judgment interest.

¶9 OmniSource timely appealed the final judgment and DJ
North timely cross-appealed. We have jurisdiction. A.R.S. § 12-2101(A)(1).

DISCUSSION

¶10 On appeal, OmniSource argues summary judgment was
improper because the superior court’s finding of successor liability was
based on disputed or erroneous facts. OmniSource also argues DJ North
was not entitled to pre-judgment interest. DJ North cross-appeals that
OmniSource was not entitled to offset. Because we conclude that summary
judgment on successor liability was improper, we do not address
OmniSource’s pre-judgment interest argument or DJ North’s cross-appeal
on offset.

¶11 We review a grant of summary judgment de novo, viewing
evidence in the light most favorable to the non-moving party. Federico v.
Maric, 224 Ariz. 34, 36, ¶ 7 (App. 2010).

¶12 Under the successor liability doctrine, when a corporation
sells or transfers its principal assets to a successor corporation, the successor
corporation will not be liable for the debts and liabilities of its predecessor
unless it (1) expressly or impliedly agreed to assume its predecessor’s
liabilities; (2) is a merger or consolidated version of its predecessor; (3) is a
mere continuation or reincarnation of its predecessor; or (4) transferred the
assets for the fraudulent purpose of escaping debt liability. A.R. Teeters &
Assocs., Inc. v. Eastman Kodak Co., 172 Ariz. 324, 329 (App. 1992).

¶13 The threshold question in successor liability is whether the
predecessor corporation sold or transferred assets to the company alleged
to be a successor. See id. The moving party on summary judgment bears the
burden of production. Nat’l Bank of Ariz. v. Thruston, 218 Ariz. 112, 115, ¶ 15
(App. 2008).

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 DJ NORTH v. OMNISOURCE
Decision of the Court

¶14 DJ North moved for summary judgment that OmniSource
was liable under the lease as the successor corporation to Interstate Tire
Distributor. DJ North thus bore the burden of producing evidence of a
transfer of assets from Interstate Tire Distributor to OmniSource. While the
record contains some evidence of a transfer of assets between OmniSource
and ITD Arizona, nothing shows a transfer of assets between OmniSource
and Interstate Tire Distributor.

¶15 DJ North argues we should infer a transfer from (1)
OmniSource’s admission in separate litigation that it acquired ITD Arizona,
and (2) ITD Arizona’s merger into Interstate Tire Distributor. But this
inference could cut both ways. If the merger occurred before the
acquisition, then OmniSource purchased something that was part of
Interstate Tire Distributor—thus, a transfer of assets from Interstate Tire
Distributor to OmniSource. But if the merger happened after the
acquisition, then OmniSource simply bought something that later turned
into Interstate Tire Distributor—no assets would have transferred from
Interstate Tire Distributor to OmniSource in the process. The record
contains no evidence of the date OmniSource acquired ITD Arizona, and
none of the acquisition or merger documents relating to that acquisition. DJ
North thus failed to meet its burden to show a sale or transfer of assets from
Interstate Tire Distributor to OmniSource.

¶16 Summary judgment was improper. The parties’ arguments on
pre-judgment interest and offset are therefore moot.

ATTORNEY FEES ON APPEAL

¶17 Both parties seek attorney fees under A.R.S. § 12-341.01. DJ
North seeks costs under A.R.S. § 12-341. OmniSource seeks costs under
either A.R.S. § 11-352 or § 12-352, neither of which is a basis for awarding
costs. In our discretion, we decline to award fees or costs to either party.

CONCLUSION

¶18 We vacate the superior court’s judgment and remand for
further proceedings.

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