Airfreight Express, Ltd. v. Evergreen Air Center, Inc.

FILED BY CLERK
IN THE COURT OF APPEALS MAY 21 2007
STATE OF ARIZONA COURT OF APPEALS
DIVISION TWO DIVISION TWO

AIRFREIGHT EXPRESS LTD., a United )
Kingdom corporation, ) 2 CA-CV 2006-0149
) DEPARTMENT B
Plaintiff/Appellant, )
) OPINION
v. )
)
EVERGREEN AIR CENTER, INC., an )
Oregon corporation, )
)
Defendant/Appellee. )
)

APPEAL FROM THE SUPERIOR COURT OF PIMA COUNTY

Cause No. C20042309

Honorable Leslie Miller, Judge

REVERSED AND REMANDED

Fennemore Craig, P.C.
By James J. Trimble and David A. Weatherwax Phoenix
Attorneys for Plaintiff/Appellant

Law Offices of Joel L. Herz
By Joel L. Herz and Russell B. Stowers Tucson
Attorneys for Defendant/Appellee

B R A M M E R, Judge.
¶1 Appellant Airfreight Express, Ltd. (“AFX”) appeals from the trial court’s grant

of appellee Evergreen Air Center, Inc.’s (“Evergreen”) motion to dismiss and motion for

summary judgment in AFX’s action arising out of AFX’s contracts with Evergreen for

maintenance and repair of AFX’s Boeing 747 aircraft. AFX asserts on appeal that the

doctrines of claim and issue preclusion do not bar its claims and that summary judgment was

improper. We reverse.

Factual and Procedural Background

¶2 “When a motion to dismiss for failure to state a claim is granted, review on

appeal necessarily assumes the truth of facts alleged in the complaint.” Logan v. Forever

Living Products Int’l, Inc., 203 Ariz. 191, ¶ 2, 52 P.3d 760, 761 (2002). On appeal from a

summary judgment, we view the evidence and all reasonable inferences therefrom in the light

most favorable to the party against whom summary judgment was granted. Walk v. Ring, 202

Ariz. 310, ¶ 3, 44 P.3d 990, 992 (2002).

¶3 In November 2000, AFX contracted with Evergreen for maintenance and

repairs to its Boeing 747 aircraft so that AFX could perform an air cargo contract it had with

Air France. AFX was to pay Evergreen to perform the repairs on a time and materials basis.

Disputes arose between the parties concerning delays in making repairs and the amount of

Evergreen’s charges. In an attempt to complete the repairs and avoid litigation, the parties,

in February 2001, entered a settlement agreement.

2
¶4 That agreement contained a clause releasing Evergreen from “any and all . . .

[c]laims . . . which could arise out of or derive from” the maintenance agreement, “except

for the obligations of Evergreen set forth in this Settlement Agreement.” It also stated,

“[e]xcept as specifically set forth herein, none of the terms of the [maintenance agreement

is] being modified and [that agreement] shall remain in full force and effect.” The settlement

agreement required AFX to make three payments to Evergreen, one on February 23, a second

on February 26, and a final payment “prior to any test flight.” Evergreen, “[u]pon receipt of

the [first] payment from AFX,” was to “recommence work on the Aircraft and make best

efforts to complete the maintenance work requested of Evergreen by March 1, 2001.” The

settlement agreement gave Evergreen “the right to immediately cease working on the

aircraft” should AFX fail to make a required payment.

¶5 AFX president Philip Bowles stated in his declaration that, after the parties

entered the settlement agreement, Evergreen “failed to assign a sufficient number of

mechanics and inspectors to work on the Aircraft” and “perform[ed] only two hours of work

on the aircraft on February 28” and none at all “from March 1 through March 4.” AFX had

timely made the first payment due under the settlement agreement but failed to make the

payment due February 26 until the end of the day Friday, March 2.

¶6 Bowles stated Evergreen completed the repairs on March 15, and Evergreen

“issued a Maintenance Release stating that all of the work that Evergreen had done on the

Aircraft was ‘carried out in accordance with [FAA and CAA regulations]’” and that the

3
Aircraft was “ready for Release to Service.” (Emphasis removed.) Bowles further asserted

that, “[a]fter AFX had received the Aircraft from Evergreen,” AFX discovered that many of

the required repairs had been made improperly and several had been omitted altogether. The

asserted problems included incorrectly calibrated fuel gauges, an improperly repaired “rear

pressure bulkhead,” improper service of a navigational system, and faulty repair of

mechanisms involving the wing flaps.

¶7 In August 2001, AFX filed an action against Evergreen alleging, inter alia,

breach of both the maintenance and settlement agreements, fraud, and “unlawful conduct.”

Evergreen counterclaimed for fraud, unjust enrichment, and breach of contract. Ultimately,

upon Evergreen’s motion to dismiss, the trial court dismissed AFX’s claims without

prejudice and Evergreen prevailed on its breach of contract counterclaim after a bench trial.

¶8 AFX filed the instant action within a week of the trial court’s ruling in favor

of Evergreen on its breach of contract counterclaim in the first action. AFX alleged, as

amended, breach of both agreements, fraud, violation of Arizona’s Consumer Fraud Act,

A.R.S. §§ 44-1521 through 44-1534, unlawful activity pursuant to A.R.S. § 13-2314.04, and

conversion, and also sought rescission of the settlement agreement on the basis of fraud, bad

faith, duress, and a lack of consideration. Evergreen filed a third-party complaint against

Bowles alleging fraud. Evergreen also filed a motion to dismiss the complaint arguing the

doctrine of claim preclusion barred AFX’s claims and the statute of limitations barred AFX’s

claims of conversion, violation of the Consumer Fraud Act, and unlawful activity. The trial

4
court granted the motion to dismiss as to all but AFX’s claim for breach of the settlement

agreement, stating AFX would “be precluded from contesting the amount of charges or

actions of [Evergreen] prior to the signing of the settlement agreement.”

¶9 Evergreen then filed a motion for summary judgment asserting the maintenance

agreement and the release clause in the settlement agreement barred AFX’s claim for lost

profits caused by Evergreen’s alleged delay in completing the aircraft repairs. The trial court

granted the motion “on the issue of timely completion of repair of the aircraft,” but denied

it “as to the adequacy of repair.” The court also clarified its ruling on Evergreen’s motion

to dismiss, stating, “based on [Evergreen’s] judgment for its contract claim in the prior case,

[AFX’s] Breach of Contract Claim shall be limited to events subsequent to the settlement

agreement. Should Evergreen pursue its [third-party complaint against Bowles] for fraud,

evidence of prior workmanship shall be admissible.” 1

¶10 The parties then entered a stipulation and filed a proposed judgment. The

stipulation described the parties’ interpretation of the trial court’s rulings 2 and requested the

1
The trial court later granted Bowles’s motion for summary judgment on Evergreen’s
fraud claim.
2
The stipulation stated, inter alia, that the trial court had ruled AFX could not seek “to
recover any damages arising out of or relating to Evergreen’s failure after [the settlement
agreement was signed] to repair any defects in the Aircraft that were the result of any action
or inaction by Evergreen . . . prior to [the signing of the settlement agreement].” It also
stated AFX could not recover damages from any misrepresentations made by Evergreen
concerning repairs performed before the agreement was signed, and prohibiting AFX from
“offering any evidence . . . relating to any action or inaction by Evergreen prior to [the
agreement] for any purpose whatsoever.” At the hearing discussing the proposed stipulated

5
court enter the proposed judgment because “the parties believe it is in their best interests to

avoid a trial on the remaining claim.” The court signed the proposed judgment in favor of

AFX for $15,000 “to act only as a set-off from the prior Judgment[] entered in [the first

action] in favor of Evergreen.” The stipulated judgment also stated it “shall not limit either

party from making any argument on any issue in the Court of Appeals” and, “[i]f the Court

of Appeals remands this case for any further proceeding before the Trial Court,” then the

judgment would be vacated and have no preclusive effect. This appeal followed.

Discussion

Motion to Dismiss the Complaint

¶11 AFX first contends the trial court erred in granting Evergreen’s motion to

dismiss the complaint. We review a trial court’s grant of a motion to dismiss for an abuse

of discretion, but review issues of law de novo. Dressler v. Morrison, 212 Ariz. 279, ¶ 11,

130 P.3d 978, 980 (2006). “We will ‘uphold dismissal only if the plaintiff[] would not be

entitled to relief under any facts susceptible of proof in the statement of the claim.’” Id.,

quoting Mohave Disposal, Inc. v. City of Kingman, 186 Ariz. 343, 346, 922 P.2d 308, 311

(1996) (modification in Dressler). Evergreen argued in its motion to dismiss that the

judgment in Evergreen’s favor in the first action barred all AFX’s claims under the doctrine

judgment, the court stated it “ma[d]e a record regarding the extent of the prior rulings to
which counsel agree.” That record, however, is not before us.

6
of res judicata, also known as claim preclusion.3 The trial court granted the motion as to all

but AFX’s claim for breach of the settlement agreement but did not explain the reason for

its ruling, a practice we discourage. See Hawkins v. Allstate Ins. Co., 152 Ariz. 490, 495 n.3,

733 P.2d 1073, 1078 n.3 (1987) (“We urge trial judges to articulate their reasoning so

appellate courts can determine on appeal whether the ruling was erroneous.”).

¶12 AFX first contends the doctrine of claim preclusion does not apply “because

all of [its] claims in the first lawsuit were dismissed without prejudice before the

counterclaim trial.” “Under the doctrine of claim preclusion, a final judgment on the merits

in a prior suit involving the same parties or their privies bars a second suit based on the same

claim.” Dressler, 212 Ariz. 279, ¶ 15, 130 P.3d at 981.

¶13 In the first action, the trial court granted Evergreen’s motion to dismiss and

dismissed AFX’s complaint “without prejudice.” Under Rule 41(b), Ariz. R. Civ. P.,

16 A.R.S., Pt. 1, an involuntary dismissal “operates as an adjudication on the merits” unless

“the court in its order . . . otherwise specifies.” A dismissal without prejudice, however, is

not an adjudication on the merits and does not bar a second action under the doctrine of claim

preclusion.4 See Union Interchange, Inc. v. Van Aalsburg, 102 Ariz. 461, 464, 432 P.2d 589,

3
We use the more modern terms “claim preclusion” instead of “res judicata” and
“issue preclusion” instead of “collateral estoppel.” See Circle K Corp. v. Indus. Comm’n,
179 Ariz. 422, 425, 880 P.2d 642, 645 (App. 1993); see also In re Gen. Adjudication of All
Rights to Use Water In Gila River Sys. & Source, 212 Ariz. 64, ¶ 14, n.8, 127 P.3d 882, 887,
888 n.8 (2006).
4
Accordingly, we do not address the parties’ argument whether the trial court
“reserved” AFX’s claims for a second action. See, e.g., Heinig v. Hudman, 177 Ariz. 66, 71,

7
592 (1967) (“A dismissal without prejudice does not go to the merits of the plaintiff’s cause

and does not bar plaintiff from later filing on the same cause of action.”); cf. Phillips v. Ariz.

Bd. of Regents, 123 Ariz. 596, 598, 601 P.2d 596, 598 (1979) (order not specifying whether

involuntary dismissal was with prejudice is adjudication on the merits).

¶14 Evergreen argues, although the trial court in the first action dismissed AFX’s

claims without prejudice, claim preclusion applies because AFX, in the first action, “re-

asserted the same claims [the court had dismissed without prejudice] in the form of a reply

to Evergreen’s counterclaim” as affirmative defenses. The doctrine of claim preclusion,

however, does not bar a later action asserting claims alleged as affirmative defenses in a prior

action because affirmative defenses are not claims. Cf. Norman A. Koglin Assocs. v. Valenz

Oro, Inc., 680 N.E.2d 283, 288 (Ill. 1997) (“A counterclaim differs from an . . . affirmative

defense. A counterclaim is used when seeking affirmative relief, while an . . . affirmative

defense seeks to defeat a plaintiff’s claim.”). Instead, in that circumstance, issue preclusion

may bar certain issues from being re-litigated in a subsequent proceeding. See Restatement

(Second) of Judgments § 22 cmt. c (1982) (“Where the same facts constitute a ground of

defense to the plaintiff’s claim and also a ground for a counterclaim, the defendant alleges

those facts as a defense but not as a counterclaim, and after litigation . . . judgment is given

865 P.2d 110, 115 (App. 1993) (“[An] exception [to claim preclusion] applies when a court
expressly reserves the plaintiff’s right to bring a second action.”). As AFX correctly notes,
because there was no judgment on AFX’s claims in the first lawsuit, there was no need for
the trial court to reserve any of AFX’s claims for a future action.

8
for the plaintiff, the rules of issue preclusion apply.”); see also Jesik v. Maricopa County

Cmty. Coll. Dist., 125 Ariz. 543, 546, 611 P.2d 547, 550 (1980) (in absence of contrary

Arizona authority, appellate court may follow Restatement).

¶15 As our supreme court stated in Hullet v. Cousin, 204 Ariz. 292, ¶ 27, 63 P.2d

1029, 1034-35 (2003),

Collateral estoppel, or issue preclusion, applies when an
issue was actually litigated in a previous proceeding, there was
a full and fair opportunity to litigate the issue, resolution of the
issue was essential to the decision, a valid and final decision on
the merits was entered, and there is common identity of parties.

Evergreen, however, did not raise issue preclusion as a defense in its motion to dismiss the

second action, nor does it assert it on appeal as a valid basis for the trial court’s grant of that

motion.5 See Casillas v. Ariz. Dep’t of Econ. Sec., 153 Ariz. 579, 581, 739 P.2d 800, 802

(App. 1986) (“As an affirmative defense, [issue preclusion] is waived if not properly

asserted.”). And a party asserting that an issue is precluded “has the burden of proving that

an issue was in fact litigated and determined and that determination was necessary [to the

decision].” Bayless v. Indus. Comm’n, 179 Ariz. 434, 439, 880 P.2d 654, 659 (App. 1993);

see also Restatement (Second) of Judgments § 27 cmt. f (1982) (“The party contending that

5
Evergreen contended at oral argument that, because Rule 8(c), Ariz. R. Civ. P., 16
A.R.S., Pt. 1, does not specifically include issue preclusion in its list of affirmative defenses,
it could not have waived this defense by its failure to raise it in its motion to dismiss. The
list of affirmative defenses in Rule 8(c), however, also includes “any other matter
constituting an avoidance or affirmative defense,” such as issue preclusion. See Casillas v.
Ariz. Dep’t of Econ. Sec., 153 Ariz. 579, 581, 739 P.2d 800, 802 (App. 1986).

9
an issue has been conclusively litigated and determined in a prior action has the burden of

proving that contention.”). At oral argument, Evergreen cited to comments the trial court had

made at a hearing on a later motion as an indication the court had considered issue preclusion

in ruling on the motion to dismiss. In that transcript, however, AFX asked the court to make

“a ruling on the record clearly” on the issues of claim preclusion, issue preclusion, and the

settlement agreement. The court expressly declined to do so, stating, it had “already

determined that there was . . . res judicata on this.” The portions of the transcript Evergreen

cites do not demonstrate that the court ruled on the question of issue preclusion, but instead

show nothing more than AFX’s counsel’s apparent confusion as to the basis of the court’s

ruling. Because Evergreen did not attempt to meet its burden to demonstrate which issues

should be precluded, it has waived this issue on appeal.6

¶16 In its order granting Evergreen’s motion to dismiss, the trial court stated AFX

was “precluded from contesting the amount of charges or actions of [Evergreen] prior to the

signing of the settlement agreement.” It later clarified that ruling at a status conference,

stating AFX’s “Breach of Contract Claim shall be limited to events subsequent to the

settlement agreement. Should Evergreen pursue its claim for fraud, evidence of prior

6
AFX discussed issue preclusion in its response to Evergreen’s motion to dismiss. In
Evergreen’s reply in support of its motion, however, it did not address issue preclusion,
asserting the final judgment in the first action applied to “every issue raised by the record that
could have been decided”; a rule that applies to claim preclusion, not issue preclusion. See
4501 Northpoint LP v. Maricopa County, 212 Ariz. 98, ¶ 26, 128 P.3d 215, 220 (2006)
(“Issue preclusion, in contrast [to claim preclusion], applies only as to issues that have in fact
been litigated and were essential to a prior judgment.”).

10
workmanship shall be admissible.” AFX contends this ruling improperly limited its claim

for breach of the settlement agreement “only to defective work that was done after the date

of the Settlement Agreement.” The trial court based its ruling “on [Evergreen’s] judgment

for its contract claim in the prior case.” As we have explained, claim preclusion does not bar

any of AFX’s claims, and, therefore, a ruling limiting its claims on that basis was error.

¶17 Evergreen argues the release clause of the settlement agreement is a complete

bar to all of AFX’s claims, and thus supports the trial court’s grant of Evergreen’s motion

to dismiss. AFX asserts Evergreen raised this argument for the first time on appeal and,

consequently, has waived it. See Englert v. Carondelet Health Network, 199 Ariz. 21, ¶ 13,

13 P.3d 763, 768 (App. 2000) (court of appeals generally does not address issues raised for

first time on appeal). Evergreen did not raise this argument in its motion to dismiss. And,

although it raised the argument in its motion for summary judgment on AFX’s remaining

claim for breach of the settlement agreement, it limited its argument to whether the contracts

barred AFX from receiving damages for lost profits stemming from Evergreen’s alleged

delays in conducting the repairs. “[A] party must timely present his legal theories to the trial

court so as to give the trial court an opportunity to rule properly.” Payne v. Payne, 12 Ariz.

App. 434, 435, 471 P.2d 319, 320 (1970). In other words, the court must have had the

opportunity to address the issue on its merits. Cf. Crown Life Ins. Co. v. Howard, 170 Ariz.

130, 132, 822 P.2d 483, 485 (App. 1991) (declining to find argument waived when trial court

considered merits of argument first raised in motion for reconsideration). Raising this

11
argument after the trial court had already granted the motion to dismiss did not give the court

an opportunity to address the merits of the argument as it applied to all of AFX’s claims.

Therefore, we agree with AFX that Evergreen has waived this argument on appeal.7

Motion for Summary Judgment

¶18 AFX next contends the trial court erred in granting Evergreen’s motion for

summary judgment “barr[ing] AFX from recovering damages caused by Evergreen’s failure

to timely complete the repairs.” Evergreen’s motion for summary judgment argued the

limitation of damages clause in the maintenance contract prevented AFX from recovering

lost profits caused by Evergreen’s alleged delay in repairing the aircraft. That clause reads:

“In no event shall Evergreen be liable to [AFX] for . . . special, incidental, or consequential

damages, such as lost revenues, lost profits, or loss of prospective economic advantage,

resulting from the delay in performance or failure to perform.”

¶19 A trial court properly grants summary judgment if there are no genuine issues

of material fact and the moving party is entitled to judgment as a matter of law. Ariz. R. Civ.

P. 56(c), 16 A.R.S., Pt. 2; Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008

(1990). “On appeal from a summary judgment, we must determine de novo whether there

are any genuine issues of material fact and whether the trial court erred in applying the law.”

Bothell v. Two Point Acres, Inc., 192 Ariz. 313, ¶ 8, 965 P.2d 47, 50 (App. 1998). A trial

7
Accordingly, we need not address AFX’s argument that the release clause is
unenforceable as a matter of public policy and void because Evergreen breached the
settlement agreement.

12
court should only grant a motion for summary judgment “if the facts produced in support of

the claim or defense have so little probative value, given the quantum of evidence required,

that reasonable people could not agree with the conclusion advanced by the proponent of the

claim or defense.” Orme Sch., 166 Ariz. at 309, 802 P.2d at 1008.

¶20 AFX argues “Evergreen’s fraud and bad faith made the contractual limitation

of damages unenforceable,” relying on Long Island Lighting Co. v. Transamerica Delaval,

Inc., 646 F. Supp. 1442, 1458 (S.D.N.Y. 1986), and 15 Grace McLane Giesel, Corbin on

Contracts § 85.18 at 471 (2003). Section 85.18 states, in relevant part: “A party may

contract to limit liability in damages for nonperformance of promises. . . . Such a provision

is not effective, however, if that party acts fraudulently or in bad faith.” AFX cites no

Arizona authority, and we find none, adopting this rule. Evergreen, however, does not argue

this rule should not be adopted, only that AFX failed to provide sufficient evidence to

overcome summary judgment on the question of bad faith.

¶21 Furthermore, we find several courts have approved of this or a similar rule and

none has rejected it.8 See, e.g., Valve Corp. v. Sierra Entertainment Inc., 431 F. Supp. 2d

1091, 1101 (W.D. Wash. 2004) (“A limitation of liability clause may not apply where the

8
In Potlatch Corp. v. Beloit Corp., 979 P.2d 114, 117-18 (Idaho 1999), the Idaho
Supreme Court distinguished Long Island Lighting Co., stating it “provide[d] no support for
[the plaintiff’s] argument seeking to allege bad faith in soliciting the contract as a basis for
recovery of contract damages.” But cf. Amer. Elec. Power Co. v. Westinghouse Elec. Corp., 418 F. Supp. 435, 460 (S.D.N.Y. 1975) (“The defendant cannot be heard to rely on the
provisions of a contract which was entered into as a result of fraudulent actions on
defendant’s part.”).

13
party relying on the clause acted in ‘bad faith.’”); Colonial Life Ins. Co. of Amer. v. Elec.

Data Sys. Corp., 817 F. Supp. 235, 242-43 (D.N.H. 1993) (“[A] contractual limitation of

liability is not enforceable . . . if plaintiff’s claim of fraud, bad faith and/or ‘total and

fundamental’ breach is proven at trial.”); Long Island Lighting, 646 F. Supp. at 1458 (“A

defendant may be estopped from asserting a contractual limitation of consequential damages

if the defendant has acted in bad faith.”); City of Dillingham v. CH2M Hill Nw., Inc., 873

P.2d 1271, 1275 (Alaska 1994) (“Liability for ‘knowing,’ or ‘bad faith’ breaches can never

be limited.”); J.A. Jones Constr. Co. v. City of Dover, 372 A.2d 540, 545 (Del. Super. Ct.

1977) (“Even if a contract purports to give a general exoneration from ‘damages,’ it will not

protect a party from a claim involving its own fraud or bad faith.”); Jewish Hosp. of St. Louis

v. Boatmen’s Nat’l Bank of Belleville, 633 N.E.2d 1267, 1280 (Ill. App. Ct. 1994) (“Although

exculpatory provisions such as this are not given special favor in the law, they are generally

held effective except as to reckless or intentional breaches or those committed in bad faith.”);

Corinno Civetta Constr. Corp. v. City of New York, 493 N.E.2d 905, 910 (N.Y. 1986) (clause

limiting liability for delay in construction contract not enforceable if delay caused by bad

faith); Psaty & Fuhrman v. Hous. Auth. of City of Providence, 68 A.2d 32, 36 (R.I. 1949) (“If

a party to a contract with such a [limitation of damages] clause acts honestly within the fair

and legal import of its terms, he cannot be deprived of the benefit thereof unless his conduct

indicates bad faith . . . , as every contract implies fair dealing between the parties.”).

14
¶22 Moreover, the purpose of the rule AFX proposes is consistent with § 195 of the

Restatement (Second) of Contracts (1981), which prohibits contracts exempting parties from

intentional or reckless tort liability, and A.R.S. § 47-2719(C) of Arizona’s Uniform

Commercial Code, which states: “Consequential damages may be limited or excluded unless

the limitation or exclusion is unconscionable.” And Arizona has long recognized parties to

a contract have a duty to act in good faith. See, e.g., Beaugureau v. Beaugureau, 11 Ariz.

App. 234, 236, 463 P.2d 540, 542 (1970). As a matter of public policy, a party should not

benefit from a bargain it performed in bad faith. Accordingly, in the absence of any contrary

argument or authority, we adopt this sensible rule.

¶23 The Restatement (Second) of Contracts § 205 (1981) describes the duty of

good faith and fair dealing in contract and comment (d) states:

[B]ad faith may be overt or may consist of inaction, and fair
dealing may require more than honesty. A complete catalogue
of types of bad faith is impossible, but the following types are
among those which have been recognized in judicial decisions:
evasion of the spirit of the bargain, lack of diligence and
slacking off, willful rendering of imperfect performance, abuse
of a power to specify terms, and interference with or failure to
cooperate in the other party’s performance.

See also Rawlings v. Apodaca, 151 Ariz. 149, 153, 726 P.2d 565, 569 (1986) (“The essence

of th[e] duty [of good faith] is that neither party will act to impair the right of the other to

receive the benefits which flow from their agreement or contractual relationship.”).

¶24 The record shows Air France cancelled its air cargo contract with AFX on

March 8, 2001, because AFX was unable to perform—its 747 aircraft was not yet airworthy.

15
AFX asserts Evergreen acted in bad faith by intentionally failing “to complete the Repairs

on time, so that its sister company (Evergreen International) could try to steal AFX’s business

away from Air France.” 9 The only evidence supporting this assertion is the signed

declaration of an AFX employee, Ian Fairman, which states:

On March 6, 2001, I met with Jacques Cliquet of Air France to
discuss the problems that had arisen because of the delay in
obtaining the Aircraft. During that meeting, Mr. Cliquet told me
that Air France had been contacted by Pierre Van Der Stichele
of Evergreen International Aviation (“Evergreen International”),
an affiliate of Evergreen. Mr. Van Der Stichele told Air France
that AFX’s Aircraft would not be ready to fly for Air France,
and that Air France should consider negotiating a deal to have
Evergreen International provide air cargo service instead of
AFX.

¶25 Evergreen asserts on appeal that this statement, and Bowles’s declaration, are

insufficient to preclude summary judgment because they contain hearsay and are unsigned

and unsworn.10 See Ariz. R. Civ. P. 56(e), 16 A.R.S., Pt. 2 (affidavits supporting or opposing

summary judgment “shall set forth such facts as would be admissible in evidence”); In re

9
Evergreen asserts in its answering brief that “Bowles admitted below [during his
deposition] that AFX itself had no [evidence of Evergreen’s bad faith].” Evergreen reads
Bowles’s testimony too broadly; he stated only that he could not “specifically recall” any
agreements AFX could not meet due to delays in the delivery of the aircraft.
10
Evergreen also argues AFX must provide clear and convincing evidence of fraud or
bad faith. Although a fraud claim must be proven by clear and convincing evidence, Rhoads
v. Harvey Publ’ns, Inc., 145 Ariz. 142, 146, 700 P.2d 840, 844 (App. 1984), a bad faith claim
need only be proved by a preponderance of the evidence. See Wells Fargo Bank v. Ariz.
Laborers, Teamsters & Cement Masons Local No. 395, 201 Ariz. 474, n. 18, 38 P.3d 12, 31
n. 18 (2002) (“Proof of a breach of the implied covenant of good faith and fair dealing
requires a preponderance of the evidence.”).

16
Wetzel, 143 Ariz. 35, 43, 691 P.2d 1063, 1071 (1984) (“An ‘affidavit’ is a signed, written

statement, made under oath before an officer authorized to administer an oath or affirmation

in which the affiant vouches that what is stated is true.”). Although the declarations by

Bowles, Fairman, and AFX employee Leigh Abbot attached to AFX’s response to

Evergreen’s summary judgment motion were unsigned, AFX later submitted signed copies

of those declarations. The signed declarations stated they were made under penalty of

perjury. See Ariz. R. Civ. P. 80(i), 16 A.R.S., Pt. 2 (any matter that rules require or permit

to be supported by affidavit “may, with like force and effect, be supported . . . by the

unsworn written declaration . . . subscribed by such person as true under penalty of perjury,

and dated”). The declarations, however, were not dated and thus do not meet the

requirements of Rule 80(i).

¶26 Despite Evergreen’s assertion to the contrary in its answering brief, however,

we are unable to find any contemporaneous objection made by Evergreen or motion to strike

any of the signed declarations.11 Neither Evergreen’s reply in support of its motion for

summary judgment nor its objection to AFX’s statement of facts contains any evidentiary

objection or objection to the sufficiency of the documents. Although Evergreen did object

to the contents of the affidavits in response to AFX’s later motion for summary judgment,

those objections were not timely because the trial court had already ruled on Evergreen’s

11
Evergreen did move to strike the purported declaration of Cliquet. Although the trial
court apparently never ruled on that motion, AFX does not rely on that document on appeal.

17
motion for summary judgment. Cf. Estate of Reinen v. N. Ariz. Orthopedics, Ltd., 198 Ariz.

283, ¶ 9, 9 P.3d 314, 317 (2000) (“An objection to proffered testimony must be made either

prior to or at the time it is given, and failure to do so constitutes a waiver.”). Moreover,

Evergreen’s objections were to those specific portions of the declarations relevant to

Evergreen’s defective repair of the aircraft, not to the timeliness of its repairs or AFX’s

allegations of bad faith. And Evergreen never moved to strike any of the declarations AFX

relies on in this appeal. Thus, we conclude Evergreen has waived on appeal any argument

the declarations are insufficient, contain inadmissible evidence, or that the declarations are

“suspect” because the signature pages “appear to have been generated long after the

declarations were filed, and the filed signature pages did not match those of the original

declarations.” See Johnson v. Svidergol, 157 Ariz. 333, 335, 757 P.2d 609, 611 (App. 1988)

(“[d]eficiencies in supporting documents attached to summary judgment pleadings can be

waived” by failure to move to strike or object); see also A. Uberti & C. v. Leonardo, 181

Ariz. 565, 568, 892 P.2d 1354, 1357 (1995) (evidentiary objections to affidavits filed in

summary judgment proceeding waived on appeal when not made to trial court). “Objection

to insufficient documentation is required so that the offering party may have an opportunity

to cure the alleged defects.” Johnson, 157 Ariz. at 335, 757 P.2d at 611.

¶27 Fairman’s statement regarding the Air France contract, if we assume its

admissibility, would permit a jury to infer Evergreen had acted in bad faith if Evergreen were

also at fault in the delay in the repair of AFX’s aircraft. In support of that contention, Bowles

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stated in his declaration that Evergreen had “failed to assign a sufficient number of

mechanics and inspectors to work on the Aircraft” and “perform[ed] only two hours of work

on the aircraft on February 28” and none at all “from March 1 through March 4.” Abbot,

who served as AFX’s “technical representative at Evergreen” during the repair of the aircraft

testified Evergreen “never assigned enough mechanics to the job in order to complete the

work on time.” Evergreen responds that AFX’s failure to make timely payments and

promptly provide parts required for the repairs caused any delay.

¶28 AFX does not dispute it failed to make the payment due February 26 until the

end of the day Friday, March 2. Thus, under the terms of the settlement agreement,

Evergreen was not obligated to continue working on the aircraft until AFX made the

payment. Evergreen vice president Michael Melvin testified “Evergreen immediately

recommenced work” on “the following Monday, March 5.” Abbot testified, however, that

Evergreen customarily “work[ed] full shifts on the weekends and Evergreen’s mechanics

were available to do the work on March 3 and 4.” 12

12
Evergreen does not argue on appeal, and did not argue below, that AFX’s failure to
make timely payments was a material breach of the settlement agreement permitting
Evergreen to cease work on the aircraft past the time AFX made the payment due
February 26. Cf. Allan v. Martin, 117 Ariz. 591, 593, 574 P.2d 457, 459 (1978) (“When time
for performance is material to a contract and one party fails to perform by the contract
deadline date, the other party may treat the contract as ended.”); Zancanaro v. Cross, 85
Ariz. 394, 399, 339 P.2d 746, 749 (1959) (“One of the remedies available at common law
upon a material breach of contract is the right to cease performance and recover the profits
which would have been made had the entire contract been performed.”). Therefore, we do
not address this issue.

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¶29 Melvin also identified several parts required for the repairs that he asserted

AFX had failed to timely order and deliver. Abbot stated AFX delivered those parts

promptly after Evergreen requested them, and, “[i]f Evergreen had properly staffed the job,

it would have identified the needed parts well before March 1, 2001, and AFX could have

provided the parts in time for Evergreen to complete the work.” Abbot and Melvin’s

conflicting testimony clearly creates a factual dispute as to whether Evergreen caused the

delays in its repair of the aircraft. Consequently, AFX has presented sufficient facts to

preclude summary judgment on whether Evergreen performed the contract in bad faith.13 See

Orme Sch., 166 Ariz. at 309, 802 P.2d at 1008.

Attorney Fees

¶30 Both parties request attorney fees on appeal pursuant to A.R.S. § 12-341.01.

In our discretion, we decline to award fees without prejudice to either party to again request

them below. AFX also requests fees “pursuant to the terms of the Maintenance Agreement

[and] the Settlement Agreement.” Although the maintenance agreement provides “the

prevailing party . . . shall be awarded costs and reasonable attorney’s fees as part of the

judgment in such action,” there has been no such judgment. Accordingly, its request for fees

is denied, but such fees may be included in any future attorney fee award if there is a

13
Evergreen also asserts “AFX’s warranty claims were barred as a matter of law.”
Evergreen made this argument below in its motion for summary judgment and the trial court
apparently denied the motion as to that ground. Because we dismissed Evergreen’s cross-
appeal we do not address this issue. See Manic v. Dawes, 213 Ariz. 252, ¶ 5, 141 P.3d 732,
733 (App. 2006).

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judgment based on the maintenance agreement. The settlement agreement, however, does

not provide for an award of attorney fees; it instead requires each party to bear its own fees

and costs in “all matters arising out of or connected” with the “negotiation, drafting and

execution of this Agreement.”

¶31 Evergreen’s request for costs pursuant to A.R.S. § 12-341 is denied because

it is not “[t]he successful party to [this] civil action.” And we deny its request for attorney

fees and expenses pursuant to A.R.S. § 12-349. Nothing in the record suggests AFX’s claims

were brought “without substantial justification” or for the purpose of harassment, nor that

AFX sought to “unreasonably expand[] or delay[] the proceeding.” A.R.S. § 12-349(A).

Disposition

¶32 We reverse the trial court’s grant of Evergreen’s motion to dismiss and motion

for summary judgment. We remand the case to the trial court for proceedings consistent with

this decision.

J. WILLIAM BRAMMER, JR., Judge

CONCURRING:

PETER J. ECKERSTROM, Presiding Judge

PHILIP G. ESPINOSA, Judge

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