Duncan v. Public Storage

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

SALLY SCHNEIDER DUNCAN, et al., Plaintiffs/Appellees,

v.

PUBLIC STORAGE, INC., Defendant/Appellant.

No. 1 CA-CV 24-0598
FILED 05-06-2025

Appeal from the Superior Court in Maricopa County
Nos. CV2020-010440, CV2020-010510
The Honorable Stephen F. McCarville, Judge

VACATED AND REMANDED

COUNSEL

Lewis Brisbois Bisgaard & Smith LLP, Phoenix
By Sean P. Healy, Stefan Palys, Kathryn A. Honecker
Counsel for Defendant/Appellant

Hagens Berman Sobol Shapiro LLP, Phoenix
By Robert B. Carey, John M. DeStefano, E. Tory Beardsley
Counsel for Plaintiff/Appellee Tiffany Roberts
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Decision of the Court

Osborn Maledon P.A., Phoenix
By Geoffrey M.T. Sturr
Counsel for Plaintiffs/Appellees Sally Schneider and David Duncan

MEMORANDUM DECISION

Judge Paul J. McMurdie delivered the Court’s decision, in which Presiding
Judge Anni Hill Foster and Judge Michael J. Brown joined.

M c M U R D I E, Judge:

¶1 Public Storage, Inc. appeals from the superior court’s denial
of its motion to compel arbitration after this court, in a previous appeal,
ordered the superior court to determine whether Public Storage
fraudulently induced renters to agree to arbitration clauses. Duncan v. Pub.
Storage, Inc. (Duncan I), 253 Ariz. 15 (App. 2022). Because the appellees
failed to prove the arbitration agreements were fraudulently induced by
clear and convincing evidence, we vacate the superior court’s order and
remand for the appropriate orders consistent with this decision.

FACTS AND PROCEDURAL BACKGROUND

¶2 In 2018, the two unrelated plaintiffs (“Renters”), Sally
Schneider Duncan (whose husband, David Duncan, is also a party in this
appeal) and Tiffany Roberts, signed identical storage-unit rental contracts
with Public Storage. Duncan I, 253 Ariz. at 18, ¶ 2. The contracts included
arbitration clauses stating the parties agreed to “arbitrate any and all
disputes or claims . . . relating to the relationship between” Renters and
Public Storage. Id. at ¶ 3. Both contracts also stated the arbitration provision
was optional and gave Renters the option to decline the agreement to
arbitrate by sending a signed notice within 30 days of signing the rental
agreement.

¶3 Later that year, a thief entered the Renters’ units and removed
their possessions, including furniture, family heirlooms, historical gifts,
photo albums, and other belongings. Duncan I, 253 Ariz. at 18, ¶ 7.
According to Renters, the thief used a “generic auctioneer code” to enter
the Public Storage facilities and then unlocked the rear doors to both units
using a master key. Id. Renters separately sued Public Storage for consumer
fraud and negligence, alleging its website had promised prospective renters
they would “keep the only key to [their] unit.” Id. at ¶¶ 5, 8. The superior

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court consolidated Renters’ cases and heard oral arguments on Public
Storage’s motion to compel arbitration. Id. at ¶ 8. The superior court found
that Public Storage met its initial burden by providing the signed
arbitration clauses but denied Public Storage’s motion to compel, finding
that Renters had proved the contract defense of fraudulent inducement.1 Id.
at 18-19, 20, ¶¶ 8, 19.

¶4 Public Storage appealed, claiming the superior court
misconstrued the separability doctrine. Duncan I, 253 Ariz. at 19, ¶¶ 8, 9.
We vacated the order, finding that the superior court had misapplied the
separability doctrine. Id. at 23, ¶ 32. We ordered the court to narrowly
analyze whether Public Storage fraudulently induced Renters to agree to
the arbitration clauses. Id. at 21, 23, ¶¶ 22, 32.

¶5 On remand, the superior court held an evidentiary hearing
about the arbitration clauses.2 Renters each testified they only agreed to the
arbitration clauses because of Public Storage’s only-key promise. The
superior court then issued an order denying Public Storage’s motion to
compel, finding Public Storage fraudulently induced Renters to agree to the
arbitration clauses. Public Storage appealed. This court has jurisdiction
under Article 6, Section 9, of the Arizona Constitution, and Arizona Revised
Statutes (“A.R.S.”) §§ 12-120.21(A)(1) and -2101.01(A)(1).

1 Another renter, Keven Brown, also sued Public Storage arising out
of the same theft which was previously consolidated with the Duncans’ and
Roberts’s case. While Brown was a party in the original appeal, the motion
to consolidate his case with this case was denied, and so he is not a party to
this appeal.

2 Public Storage later sought special action review of a superior court
decision denying its notice of change of judge under Arizona Rule of Civil
Procedure 42.1(e). Pub. Storage, Inc. v. Georgini, 1 CA-SA 22-0222, 2023 WL
1830384, at *1, ¶¶ 5-6 (Ariz. App. Feb. 9, 2023) (mem. decision). We denied
Public Storage relief. Id. at ¶ 1. While that case is cited in the parties’ briefs,
it is not relevant to our analysis here.

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DISCUSSION

A. We Review the Enforcement of An Arbitration Agreement De
Novo.

¶6 Courts have “repeatedly analogized a trial court’s duty in
ruling on a motion to compel arbitration to its duty in ruling on a motion
for a summary judgment.” Ruesga v. Kindred Nursing Ctrs., L.L.C., 215 Ariz.
589, 596, ¶ 23 (App. 2007); Gullet ex rel. Est. of Gullet v. Kindred Nursing Ctrs.
W., L.L.C., 241 Ariz. 532, 535, ¶ 6 (App. 2017) (The enforceability of an
arbitration clause is a mixed question of law and fact.). We review the
superior court’s denial of a motion to compel arbitration de novo. Sun Valley
Ranch 308 Ltd. P’ship ex rel. Englewood Props., Inc. v. Robson, 231 Ariz. 287,
291, ¶ 9 (App. 2012). But we defer to the superior court on findings of fact
unless clearly erroneous. Austin v. Austin, 237 Ariz. 201, 204, ¶ 2 (App.
2015).

B. The Separability Doctrine as Applied to the Arbitration Clause.

¶7 The general goal of arbitration is to provide an alternative to
litigation so the parties can obtain an inexpensive and speedy final
disposition. Hamblen v. Hatch, 242 Ariz. 483, 491, ¶ 34 (2017). When the
parties have agreed to arbitration, they may not later reinstate judicial
tribunals to resolve the controversy, as doing so would undermine these
fundamental policies. Id.

¶8 To that end, federal and Arizona law applies the separability
doctrine to agreements to arbitrate. Prima Paint Corp. v. Flood & Conklin Mfg.
Co., 388 U.S. 395, 403-04 (1967); Hamblen, 242 Ariz. at 487, ¶ 16; see also A.R.S.
§§ 12-1501, -1502 (Arizona courts have limited authority to inquire into the
existence or validity of an arbitration agreement, except when it is revocable
as a contract would be.). Under the doctrine, a court may only adjudicate a
claim for fraud in the inducement “if the claim is fraud in the inducement
of the arbitration clause itself—an issue which goes to the ‘making’ of the
agreement to arbitrate.” Prima Paint, 388 U.S. at 403-04. Thus, if the claim is
fraud in the inducement of the arbitration clause itself—an issue that goes
to the “making” of the agreement to arbitrate—a court may adjudicate it.
But the statutory language does not permit a court to consider claims of
fraud in the inducement of the contract—that decision is left to the
arbitrator. See id.; see also Three Valleys Mun. Water Dist. v. E.F. Hutton & Co.,
925 F.2d 1136, 1139-40 (9th Cir. 1991) (A court “may consider a defense of
fraud in the inducement of a contract only if the fraud relates specifically to
the arbitration clause itself and not to the contract generally.”). The United

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States Supreme Court first developed this doctrine in Prima Paint, and the
Arizona Supreme Court later adopted it, relying on support from the
Arizona Uniform Arbitration Act and A.R.S. §§ 12-1501 and -1502. See
Hamblen, 242 Ariz. at 487, ¶ 16.

¶9 Simply put, a party’s challenge to the contract does not
invalidate an arbitration clause unless that provision is specifically
challenged. Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 70-71 (2010). But
if the arbitration clause is challenged, a court may invalidate it “on a ground
that exists at law or in equity for the revocation of a contract.” A.R.S.
§ 12-3006.

¶10 In Duncan I, Renters claimed Public Storage had fraudulently
induced them to enter rental contracts. Duncan I, 253 Ariz. at 20, ¶ 20. The
superior court did not mention what Public Storage did to induce Renters
to agree to the arbitration clause. Id. at 21, ¶ 23. Even so, we found Renters
had preserved the argument by “the thinnest of margins.” Id. at 21-22, ¶ 24.
We ordered the superior court to determine whether the only-key promise
“necessarily represented [Public Storage] would not have a master key, and
such representation fraudulently induced each of the renters to agree to
arbitration.” Id.

¶11 A claim of fraudulent inducement requires proof of these
elements:

(1) a representation; (2) its falsity; (3) its materiality; (4) the
speaker’s knowledge of its falsity or ignorance of its truth;
(5) the speaker’s intent that it be acted upon by the recipient
in the manner reasonably contemplated; (6) the hearer’s
ignorance of its falsity; (7) the hearer’s reliance on its truth;
(8) the hearer’s right to rely on it; [and] (9) the hearer’s
consequent and proximate injury.

Comerica Bank v. Mahmoodi, 224 Ariz. 289, 291-92, ¶ 14 (App. 2010). And a
party relying on fraudulent inducement must prove it by clear and
convincing evidence. Rice v. Tissaw, 57 Ariz. 230, 237 (1941).

¶12 On remand, the superior court denied Public Storage’s
motion to compel, finding the plaintiffs proved they were falsely induced
into agreeing to arbitration by clear and convincing evidence. The superior
court analyzed all nine fraudulent inducement elements in its ruling, but
Renters argued that the only issue for the superior court to decide was
whether they relied on the only-key promise in agreeing to arbitration. As
support, Renters cited our statement in Duncan I that “[t]he parties dispute

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why the renters agreed to arbitration.” Duncan I, 253 Ariz. at 21, ¶ 24.
Renters claimed on remand the only burden Renters bore was proving that
the representations were false, Public Storage knowingly made the
representations, and Renters detrimentally relied on the representations in
agreeing to the arbitration provision. But, read as a whole, our decision
supports a different conclusion.

¶13 In Duncan I, this court ordered the superior court to determine
“whether Public Storage fraudulently induced [] renters to agree to
arbitration.” Duncan I, 253 at 22, ¶ 25 (emphasis added). We cannot find, nor
do Renters point to, any statement in Duncan I concluding the element
related to the speaker’s intent was previously satisfied. And given that
Duncan I stated Renters “preserved this argument [] only by the thinnest of
margins,” we do not believe this court left such a conclusion to be inferred.
Id. at 21, ¶ 24. We, therefore, turn our analysis to the remaining elements of
fraudulent inducement.

¶14 While the superior court noted the purpose of the evidentiary
hearing was to determine whether the arbitration clause, not the contract,
was fraudulently induced, its analysis focused solely on the rental contract.
For example, the superior court wrote, “the intent of Public Storage was to
encourage [Renters] to rent a storage unit from them,” and “the promise [of
no master key] . . . was material in [Renters’] decision to rent the unit from
[Public Storage].” Thus, in our de novo review, we look at the record to see
if Renters supplied sufficient facts by clear and convincing evidence to
support a ruling that Public Storage fraudulently induced Renters to
arbitrate. Ariz. Republican Party v. Richer, 257 Ariz. 237, 244, ¶ 17 (2024) (An
appellate court may affirm the superior court’s ruling if it is correct for any
apparent reason in the record.).

¶15 Renters failed to prove Public Storage’s intent that Renters act
on the representation in the manner reasonably contemplated. Renters
testified that had they known the only-key promise was false, they would
not have agreed to the arbitration agreement specifically. But they failed to
show Public Storage made the only-key promise to induce Renters to agree
to the arbitration clause. Several key facts show otherwise. The Public
Storage salesperson did not mention the arbitration agreement when
making the only-key promise or reviewing the contract. And Public Storage
allowed Renters to opt out of the arbitration clause without voiding the
contract. And Renters point to no evidence that supports an inference that
by making the only-key promise, Public Storage intended to induce Renters
to agree to the arbitration clause. Renters’ claim fails because they must
prove this element in a contract rescission action by clear evidence. See

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Strategic Diversity, Inc. v. Alchemix Corp., 666 F.3d 1197, 1210 (9th Cir. 2012)
(Under Arizona law, a party seeking rescission of a contract must prove all
nine elements of fraud.); see also Lundy v. Airtouch Commc’ns, Inc., 81 F. Supp.
2d 962, 968 (D. Ariz. 1999); cf. Lenhardt v. City of Phoenix, 105 Ariz. 142, 144
(1969). The arbitration clause is enforceable.

CONCLUSION

¶16 The protracted state of litigation has already undermined the
general policy of arbitration. See Hamblen, 242 Ariz. at 491, ¶ 34. Renters are
barred from litigating their claims against Public Storage in the superior
court. See id. We vacate the superior court’s denial of Public Storage’s
motion to compel arbitration and remand to the superior court to enter the
appropriate orders compelling arbitration.

MATTHEW J. MARTIN • Clerk of the Court
FILED: JR

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