Russo v. Barger ( 2016 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
MICHAEL RUSSO, Plaintiff/Appellant,
v.
STEVEN E. BARGER and CAROL BARGER, husband and wife; ALAN R.
MISHKIN and CAROL MISHKIN, husband and wife,
Defendants/Appellees.
No. 1 CA-CV 14-0588
FILED 1-26-2016
Appeal from the Superior Court in Maricopa County
No. CV 2009-018954
The Honorable J. Richard Gama, Judge
VACATED AND REMANDED
COUNSEL
Escolar Law Office, Phoenix
By M. Philip Escolar
Counsel for Plaintiff/Appellant
The Law Offices of Mary T. Hone, PLLC, Scottsdale
By Mary T. Hone
Counsel for Defendants/Appellees
OPINION
Judge Margaret H. Downie delivered the opinion of the Court, in which
Presiding Judge Andrew W. Gould and Judge John C. Gemmill joined.
RUSSO v. BARGER, et al.
Opinion of the Court
D O W N I E, Judge:
¶1 Michael Russo appeals the dismissal of his civil claims
against Steven Barger, Carol Barger, Alan Mishkin, and Carol Mishkin
(collectively, “Appellees”) based on a forum selection clause that
designates Mexico as the appropriate venue for litigation. Because we
conclude that Appellees waived reliance on the forum selection clause by
actively participating in the state court litigation for more than three years
before moving to dismiss on that basis, we vacate the superior court’s
judgment and remand for further appropriate proceedings.
FACTS AND PROCEDURAL HISTORY
¶2 Russo spoke with a representative of Abigail Properties,
LLC, and Las Palomas Resort, S.A. de C.V. about purchasing a
condominium in Puerto Penasco, Mexico. Russo was advised that the
ongoing construction project was being supervised, managed, and
developed by American citizens Alan Mishkin and Steve Barger.
¶3 On April 15, 2006, Russo entered into an agreement with The
Worldwide Group, S.A. de C.V. (“Worldwide”) to purchase a unit at the
Las Palomas Seaside Golf Community (“the Condo”). Russo paid
deposits totaling $136,150 and signed a purchase contract that included a
forum selection clause stating:
In case of any conflict or controversy that may arise as
regards the interpretation or compliance hereof, the parties
irrevocably subject themselves to the applicable laws and the
jurisdiction of the competent courts of the city of Hermosillo,
Sonora, United Mexican States expressly waiving any
present or future jurisdiction or venue that could correspond
to them due to their domiciles or any other cause.
¶4 The purchase contract stated that the Condo would be
completed and delivered to Russo by March 31, 2008. When that did not
occur, Russo demanded rescission of the purchase contract and a refund
of his deposits. He received neither.
¶5 Alan Mishkin wrote to Russo on October 13, 2008, calling
himself the “spokesperson” for Worldwide, and stating, in pertinent part:
Because of the continuing deterioration of the lending
market in the United States, and the significant slow-down
in funding for the project, [Worldwide] applied to the civil
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RUSSO v. BARGER, et al.
Opinion of the Court
courts in the State of Sonora, Mexico, and submitted a
Motion for Declaratory Ruling requesting relief on the basis
of force majeure.
The concept of force majeure is an equitable legal principle
pursuant to which a party to a contract whose performance
has been made physically and/or economically impossible
(or at least impracticable) due to circumstances totally
beyond his control, can be given certain types of relief. On
March 13, 2008, the civil judge in Sonora, Mexico entered a
Declaratory Ruling (Judgment) in favor of [Worldwide]
based on this legal concept.
The result of the Mexican Court’s force majeure ruling is to
extend the time deadline for [Worldwide] to finish
construction and effect delivery of your unit in the Project to
a date later than that required in your purchase contract.
Stated another way, the practical effect of this ruling is that a
court of law has now determined, due to circumstances
beyond [Worldwide]’s control, that [Worldwide] is not in
breach of its agreement with you for failing to provide
delivery of your unit in accordance with the terms set forth
in your Purchase Contract. What this means in plain terms
is that when [Worldwide] has your unit completed and
presents it to you, you will be obligated to close on the purchase
of the unit at that point in time, or suffer the complete
forfeiture and loss of your earnest money deposit.
¶6 Russo retained an attorney in Mexico who advised that no
such ruling had issued. A translation of the purported force majeure ruling
revealed that the Mexican court had simply granted a motion Worldwide
had filed “to submit expert testimonial information whereby the proposed
witnesses issue statements regarding the economic (mortgage) crisis
affecting the United States of America, as noted in the international
financial and economic media outlets, and its impact in Mexico.”
¶7 In June 2009, Russo filed an eight-count complaint in the
Maricopa County Superior Court naming Appellees, Worldwide, Abigail
Properties, and Las Palomas Resort as defendants.1 The defendants filed a
1 Only the claims against the Bargers and Mishkins are at issue in
this appeal. Count 1 sought statutory rescission as to Worldwide; count 2
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RUSSO v. BARGER, et al.
Opinion of the Court
joint answer in July 2009 and enumerated several affirmative defenses,
including a lack of jurisdiction based on “constitutional due process
deficiencies, procedural due process deficiencies, the forum selection
clause set forth in the contract which Plaintiff executed with one or more
of the Defendants in this matter, and/or on other grounds as well[.]”
¶8 Russo filed a motion for partial summary judgment against
Worldwide in March 2010. Worldwide responded in opposition, and all
of the defendants — Appellees included — cross-moved for summary
judgment on various grounds not including the forum selection clause.
The superior court denied all of the summary judgment requests.
¶9 With leave of court, Russo filed an amended complaint in
October 2011. After Appellees successfully moved to set aside default
judgments that issued when they failed to timely answer the amended
complaint, the Bargers moved to dismiss Russo’s claims based on the
forum selection clause, and the Mishkins joined in that motion. The
superior court granted the motion, concluding the forum selection clause
was enforceable and had not been waived.2 The court awarded Appellees
attorneys’ fees pursuant to Arizona Revised Statutes (“A.R.S.”) section
12-341.01 and taxable costs.
¶10 Russo timely appealed. We have jurisdiction pursuant to
A.R.S. §§ 12-120.21(A)(1), -2101(A)(1).
requested declaratory relief against Worldwide and Abigail Properties;
count 3 sought equitable rescission as to Worldwide; count 4 alleged
consumer fraud against all defendants; count 5 alleged negligent
misrepresentation against Appellees and Abigail Properties; count 6
alleged unlawful acts under Arizona Revised Statutes (“A.R.S.”) section
13-2301, et seq., against all defendants; count 7 alleged negligence against
Barger and Abigail Properties; and count 8 requested injunctive relief
against all defendants.
2 Appellees filed a separate motion to dismiss the amended
complaint based on Arizona Rule of Civil Procedure 12(b)(6). Russo
moved to convert that motion into one for summary judgment. The
superior court concluded that its dismissal order premised on the forum
selection clause made it unnecessary to resolve these motions. On
remand, those motions may be litigated if appropriate.
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RUSSO v. BARGER, et al.
Opinion of the Court
DISCUSSION
¶11 The question before us is not whether the forum selection
clause in the purchase contract is substantively valid. See, e.g., Societe Jean
Nicolas et Fils v. Mousseux, 123 Ariz. 59, 61 (1979) (“[A] forum selection
clause that is fairly bargained for and not the result of fraud will be
enforced so long as to do so is reasonable at the time of litigation.”).
Rather, we are asked to decide whether Appellees waived reliance on that
clause by their conduct in the litigation. Because the facts relevant to this
inquiry are undisputed, we review the superior court’s waiver
determination de novo. See Grosvenor Holdings L.C. v. City of Peoria, 195
Ariz. 137, 139, ¶ 6 (App. 1999) (appellate court reviews legal rulings based
on undisputed facts de novo); cf. Bennett v. Appaloosa Horse Club, 201 Ariz.
372, 375, ¶ 11 (App. 2001) (enforceability of forum selection clause is
reviewed de novo).
¶12 “It is, of course, true that one party may waive any provision
of a contract made for his benefit.” Concannon v. Yewell, 16 Ariz. App. 320,
321 (1972). “Waiver is either the express, voluntary, intentional
relinquishment of a known right or such conduct as warrants an inference
of such an intentional relinquishment.” Am. Continental Life Ins. Co. v.
Ranier Constr. Co., 125 Ariz. 53, 55 (1980). Russo does not contend
Appellees expressly waived the forum selection clause. He argues instead
that waiver “can be inferred by a pattern of conduct.” A litigant asserting
waiver by conduct must establish acts by the opposing party that are
clearly inconsistent with an intention to assert the right in question. See id.
¶13 In ruling on waiver, the superior court noted that Appellees
had “preserved the issue of lack of jurisdiction” in their answer. We agree
that they did so, but the inquiry does not end there. As Appellees
concede, notwithstanding the preservation of an affirmative defense in an
answer, a defendant “may waive that defense by its subsequent conduct
in the litigation.” City of Phoenix v. Fields, 219 Ariz. 568, 574, ¶ 29 (2009).
¶14 The notion that an otherwise-enforceable forum selection
clause may be waived by litigation-related activity is consistent with
appellate jurisprudence in analogous contexts. In Fields, for example, the
Arizona Supreme Court held that a defendant who preserved a notice-of-
claim defense in its answer nonetheless waived reliance on that defense
through subsequent conduct. Id. at 575, ¶ 33. Waiver, the court held,
should be found when the defendant “has taken substantial action to
litigate the merits of the claim that would not have been necessary had the
entity promptly raised the defense.” Id. at ¶ 30.
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¶15 Cases addressing arbitration clauses also offer guidance
because “[a]n agreement to arbitrate before a specified tribunal is, in
effect, a specialized kind of forum-selection clause.” Scherk v. Alberto-
Culver Co., 417 U.S. 506, 519 (1974). In Arizona, it is “widely recognized
that even when a dispute is subject to arbitration, that right may be
waived by a party who participates substantially in litigation without
promptly seeking an order from the court compelling arbitration.” Fields,
219 Ariz. at 575 n.4, ¶ 30; see also Bolo Corp. v. Homes & Son Constr. Co., 105
Ariz. 343, 347 (1970) (plaintiff who “sought redress through the courts, in
lieu of the arbitration tribunal, and asked the court for exactly the same
type of relief . . . which an arbitrator is empowered to grant” waived right
to enforce arbitration clause); EPC Dev. Corp. v. F. F. Baugh Plumbing &
Heating, Inc., 24 Ariz. App. 566, 569 (1975) (finding waiver of arbitration
clause by “conduct inconsistent with utilization of the arbitration
remedy”).
¶16 We hold that, as with arbitration clauses and notice-of-claim
defenses, a party may waive reliance on an otherwise-enforceable forum
selection clause by participating substantially in litigation without
promptly seeking to enforce the clause. In this case, between the July 2009
answer and the August 2012 motion to dismiss based on the forum
selection clause, Appellees:
 Filed a joint pretrial memorandum in October 2009.
 Filed a stipulated scheduling order setting deadlines for
disclosing witnesses, conducting written discovery, taking
depositions, filing dispositive motions and motions to
amend, and participating in mediation.
 Participated in an October 2009 status conference.
 Participated in a March 2010 status conference.
 Stipulated to a revised scheduling order.
 Stipulated to placing the case on the active calendar and
entry of a revised scheduling order that set deadlines for
disclosures, discovery, and pretrial motions.
 Moved for summary judgment on counts 1, 2, and 5 of the
original complaint based on: (1) the statute of limitations; (2)
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Opinion of the Court
inapplicability of statutes upon which Russo relied; and (3)
lack of reliance.3
 Participated in a September 2010 status conference.
 Stipulated to a revised scheduling order, stating that the
parties “have dutifully pressed the claims and defenses in
this case, as vast amounts of disclosure and discovery has already
taken place, including written discovery requests and
responses and multiple depositions.” (Emphasis added).
 Participated in a January 2011 status conference.
 Presented oral argument in opposition to Russo’s motion for
partial summary judgment and in support of their own
cross-motion for summary judgment.
 Filed supplemental briefing regarding whether the statute of
limitations had been tolled.
 Stipulated to entry of a revised scheduling order in
September 2011.
 Participated in a pretrial conference on September 27, 2011,
at which time the court set new disclosure, discovery, and
mediation deadlines.
 Filed a pretrial conference memorandum in January 2012.
That memorandum advised the court that “many
depositions have already been taken” and that the parties
had “exchanged multiple disclosure statements and
supplements.” Russo also certified his readiness for trial
and requested a trial date.
 Participated in a pretrial conference on January 26, 2012.
 Participated in depositions, including those of Alan Mishkin
and Michael Russo.
3 One of these counts (count 5) named Appellees as defendants. In
seeking summary judgment, Appellees argued, inter alia, that they never
marketed the Condo nor solicited Russo and that Russo had not relied on
Alan Mishkin’s representations about a substantive force majeure ruling.
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RUSSO v. BARGER, et al.
Opinion of the Court
¶17 In fact, Appellees did not seek to enforce the forum selection
clause until after the case had been set for trial. And by that time, they
had lost on the merits of their statute of limitations defense. In rejecting
Appellees’ limitations defense, the superior court ruled:
This Court does find that there exist sufficient facts to invoke
the operation of the principle of equitable tolling to this 3
year statute of limitation. The facts support an equitable
tolling of this applicable statute of limitation from the dates
of June 19, 2008 through and including November 19, 2008 a
period of 153 days. That is from the issuance of the
Amended Public Report through the date Plaintiff
discovered the non-existence of the “Force Majeure.”
¶18 Appellees’ reliance on Taylor v. Fireman’s Fund Ins. Co. of
Canada, 161 Ariz. 432 (App. 1989), is unavailing. Taylor implicitly
recognized that a forum selection clause is subject to waiver, though we
concluded in that case that the act of opposing a motion to amend on the
basis that there was a pending motion to dismiss premised on a forum
selection clause did not “rise to the level of a general appearance
requesting affirmative relief thereby waiving an objection to the assertion
of personal jurisdiction.” Id. at 437.
¶19 Had Appellees timely sought dismissal based on the forum
selection clause, years of litigation and expense could have been avoided,
as well as the expenditure of significant judicial resources.4 See Fields, 219
Ariz. at 575, ¶ 33 (noting that if defendants had “promptly sought judicial
resolution of their [notice-of-claim] defense, the plaintiffs would have
been spared considerable expense and the judicial system a significant
expenditure of its resources”). Instead, Appellees waited more than three
years to assert a defense they were well aware of from the outset of the
litigation.
¶20 Although waiver is typically a question of fact, id. at ¶ 32, as
in Fields, we have no difficulty concluding here that “wavier by conduct is
apparent from the extensive litigation record below.” Id.; see also Jones v.
Cochise Cty., 218 Ariz. 372, 380, ¶ 28 (App. 2008) (although waiver is
typically a question of fact, “the facts relating to waiver are uncontested,
4 In addition to the enumerated activities, Russo retained an expert
who filed a preliminary expert opinion affidavit pursuant to A.R.S.
§ 12-2602.
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Opinion of the Court
occurred after litigation began, and are wholly unrelated to the
underlying facts of the [notice of] claim,” making the decision a question
of law for the trial court). We reject Appellees’ attempt to disassociate
themselves from the other named defendants. During the more than
three-year period in question, all of the defendants were jointly
represented. And with a few exceptions not relied on for our waiver
analysis, the record does not support drawing distinctions between
actions taken by Appellees and conduct by other defendants. In fact, the
record compels the opposite conclusion because it reveals that the relevant
filings were made on behalf of all defendants.
¶21 Finally, Appellees assert in cursory fashion that because
Russo filed an amended complaint in October 2011, they timely sought to
enforce the forum selection clause in August 2012. We disagree. The
amended pleading gave rise to no new or different affirmative defenses.
It merely added allegations to the existing statutory rescission count
against Worldwide and included a new statutory reference in the
injunctive relief count.
CONCLUSION
¶22 As a matter of law, Appellees waived reliance on the forum
selection clause by their conduct in the underlying litigation. We
therefore vacate the judgment of dismissal, as well as the award of
attorneys’ fees and costs to Appellees. We remand to the superior court
for further proceedings consistent with this opinion.
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Opinion of the Court
¶23 We deny Appellees’ request for attorneys’ fees and costs
incurred on appeal because they have not prevailed. In the exercise of our
discretion, we award Russo his taxable costs on appeal, as well as a
reasonable sum of attorneys’ fees pursuant to A.R.S. § 12-341.01, upon his
compliance with Arizona Rule of Civil Appellate Procedure 21.
:ama
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