BRPS LLC v. Tenney Realty Services LLC ( 2019 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 BRPS LLC, No. CV-18-08249-PCT-ROS 10 Plaintiff, ORDER 11 v. 12 Tenney Realty Services LLC, 13 Defendant. 14 15 Plaintiff BRPS LLC believes Defendant Tenney Realty Services LLC is a 16 “successor-in-interest” to a defunct entity. Years ago, BRPS’s predecessor-in-interest 17 obtained a judgment against that defunct entity and the present litigation is BRPS’s attempt 18 to hold Tenney Realty responsible for that judgment. Tenney Realty believes BRPS’s 19 attempt is barred by a four-year statute of limitations. BRPS argues a renewable ten-year 20 limitations period applies. Because Arizona law does not provide a specific limitations 21 period for suits of this type, a four-year limitations period applies and this suit is time- 22 barred. Therefore, Tenney Realty is entitled to summary judgment. 23 BACKGROUND 24 The Court must view the facts in the light most favorable to BRPS but there do not 25 appear to be any disputes regarding the facts relevant to the limitations dispute. Rather, 26 the only disagreement is over which limitations period applies, a purely legal question. 27 Levinson v. Jarrett ex rel. Cty. of Maricopa, 88 P.3d 186, 188 (Ariz. Ct. App. 2004) 28 (determining correct statute of limitations is question of law). Resolving that legal 1 question, however, requires an understanding of the convoluted background facts. 2 Randolph Tenney and his wife, Debra Tenney, have been involved in the real estate 3 business since at least 2002. As of August 2002, the Tenneys each owned a 50% interest 4 in R&D Dart Realty Service, Inc. (“R&D”) in Pinetop, Arizona. (Doc. 39-1 at 23). The 5 Tenneys worked at R&D, which derived its income “from commissions earned from the 6 purchase and sale of real property in the Show Low, Arizona area.” (Doc. 34 at 10). On 7 August 1, 2002, R&D entered into a “Franchise Agreement” with GMAC Real Estate, 8 LLC. (Doc. 39-1 at 14). That agreement allowed R&D to use GMAC’s “trademarks, 9 service marks, . . . and other commercial symbols” in conducting R&D’s real estate 10 business. (Doc. 39-1 at 14). The agreement was for ten years. (Doc. 39-1 at 34). 11 As a result of a downturn in real estate sales in 2008, R&D’s business dried up and, 12 in March 2009, R&D “closed its doors.” (Doc. 34 at 10). Sometime prior to that, R&D 13 informed GMAC that R&D would be ceasing operations. (Doc. 34 at 14). GMAC viewed 14 R&D’s decision to cease operations as a breach of the franchise agreement. R&D and 15 GMAC then negotiated a settlement agreement which required R&D make several 16 payments to GMAC. The settlement agreement was drafted to require the signature of both 17 Randolph Tenney and Debra Tenney but only Randolph signed it. Around the time R&D 18 ceased operations, Randolph formed a new company with an unrelated individual. That 19 new company was “commercially known as Realty Executives White Mountains” and 20 seems to have been in the same business R&D had been. (Doc. 34 at 11). 21 On October 26, 2009, GMAC sent the Tenneys a letter. That letter recounted the 22 history of R&D ceasing operations and the subsequent negotiation of the settlement 23 agreement. The letter stated GMAC had recently learned R&D “did not cease operation 24 . . . but instead merged in some fashion with Realty Executives White Mountains.” That 25 alleged merger was “an unauthorized transfer, and a manifest violation of the non-compete 26 provision of the Franchise Agreement.” Based on Debra Tenney’s failure to sign the 27 settlement agreement, the letter stated GMAC was “rescind[ing]” the settlement agreement 28 and, pursuant to the franchise agreement, R&D owed GMAC $318,442.13. The Tenneys 1 allegedly were personally responsible for a portion of that amount. Neither R&D nor the 2 Tenneys paid the amount demanded by GMAC. GMAC did not, however, take immediate 3 steps to collect that amount. 4 GMAC waited until February 2012 to try to collect from R&D and the Tenneys. 5 That month GMAC filed a lawsuit in Arizona state court against R&D and the Tenneys. 6 The complaint included multiple claims but the central claim was that R&D had breached 7 the franchise agreement. In November 2012, while that litigation was pending, the 8 Tenneys filed for personal bankruptcy. The following month, December 2012, the Tenneys 9 formed a new company, Tenney Realty. During their bankruptcy proceedings, the Tenneys 10 filed a “Consolidated Disclosure Statement and Plan of Reorganization.” That document, 11 which was provided to GMAC in June 2013, explicitly stated the Tenneys had formed 12 Tenney Realty after filing their bankruptcy petition. (Doc. 34 at 23) (“Since the filing of 13 the petition, the Debtors have formed Tenney Realty Services, LLC d/b/a Tenney 14 Properties.”). It is unclear what became of the Tenneys’ bankruptcy but it appears the 15 bankruptcy resulted in the Tenneys dropping out of the lawsuit filed by GMAC. Thus, in 16 May 2013, judgment was entered solely against R&D and in favor of GMAC for more than 17 $340,000. (Doc. 39-2 at 2). 18 Through a series of transactions, BRPS became the successor-in-interest to all rights 19 and claims GMAC possessed regarding R&D. (Doc. 39-2 at 6). Despite having a 20 substantial judgment against R&D, BRPS apparently made no effort to collect on that 21 judgment until October 2018 when BRPS filed the present suit against Tenney Realty.1 22 BRPS’s original complaint alleged a version of the facts set forth above and 23 contained a single claim for relief styled as “Declaratory Relief - Successor Entity 24 Liability.” That claim sought a declaratory judgment that Tenney Realty was the 25 “successor entity to R&D” such that Tenney Realty was liable on the judgment obtained 26 against R&D. (Doc. 1 at 6). Tenney Realty filed an answer. (Doc. 10). Upon reviewing 27 the complaint, the Court became concerned that BRPS had not identified an underlying 28 1 It is important to note that BRPS had previously renewed the judgment on May 4, 2018. (Doc. 39-2 at 8). 1 cause of action to support its claim for declaratory relief. See Bisson v. Bank of Am., N.A., 2 919 F. Supp. 2d 1130, 1139 (W.D. Wash. 2013) (“The Declaratory Judgment Act creates 3 only a remedy, not a cause of action.”). Thus, the Court instructed the parties to be prepared 4 at the Rule 16 Conference to discuss whether BRPS had stated a plausible claim for relief. 5 After a brief discussion on this topic at the hearing, the Court directed the parties to 6 continue their discussions and inform the Court whether they could agree on the viability 7 of BRPS’s suit. 8 Shortly after that hearing, the parties stipulated to BRPS filing a First Amended 9 Complaint. The proposed amended complaint would substitute the claim for declaratory 10 relief with a claim for “successor liability” against Tenney Realty. (Doc. 24-1 at 7). In 11 response to that stipulation, the Court directed the parties to submit briefs on whether 12 “successor liability is a standalone claim under Arizona law.” (Doc. 25 at 1). In those 13 briefs, the parties agreed Arizona law recognizes a standalone claim of successor liability. 14 (Doc. 26, 27). Based on the parties’ agreement, the Court granted BRPS’s request to amend 15 its complaint. (Doc. 28, 29). A few months later, Tenney Realty filed its motion for 16 summary judgment, arguing a four-year statute of limitations bars BRPS’s successor 17 liability claim. 18 ANALYSIS 19 Because this case is proceeding in federal court based on diversity jurisdiction, the 20 Court must apply “the substantive law of [Arizona], including [Arizona’s] statute of 21 limitations.” Albano v. Shea Homes Ltd. P’ship, 634 F.3d 524, 530 (9th Cir. 2011). Here, 22 the parties agree the Arizona Supreme Court has not ruled which statute of limitations 23 should apply to a standalone claim for successor liability. Thus, the Court must “predict 24 how [that] court would resolve” the statute of limitations issue. Id. In making this 25 prediction, the Court must follow the Arizona Supreme Court’s general rule that “[t]he 26 defense of statute of limitations is never favored.” Gust, Rosenfeld & Henderson v. 27 Prudential Ins. Co. of Am., 898 P.2d 964, 968 (Ariz. 1995). And when “there is substantial 28 doubt as to which limitations period governs, the longer period should be applied.” Ins. 1 Co. of N. Am. v. Superior Court In & For Cty. of Santa Cruz, 800 P.2d 585, 589 (Ariz. 2 1990). 3 There is no dispute GMAC believed R&D “merged in some fashion” with another 4 entity in 2009. GMAC’s letter to the Tenneys in October 2009 complained about that exact 5 activity. Moreover, the June 2013 bankruptcy disclosure statement sent to GMAC stated 6 the Tenneys had formed Tenney Realty. BRPS does not dispute that GMAC’s knowledge 7 of the events in 2009 and 2013 should be imputed to BRPS. Accordingly, BRPS’s claim 8 for successor liability might have accrued as early as October 2009 but certainly accrued 9 no later than June 2013. Because the present suit was filed on October 4, 2018, a statute 10 of limitations of less than five years will render BRPS’s claim time-barred. 11 According to the parties, the Court’s task is to choose between two limitations 12 periods. The first possibility is found in A.R.S. § 12-550 which states “Actions other than 13 for recovery of real property for which no limitation is otherwise prescribed shall be 14 brought within four years after the cause of action accrues, and not afterward.” This is a 15 “catch-all statute of limitations” that applies when no other limitations period does. Crook 16 v. Anderson, 565 P.2d 908, 909 (Ariz. Ct. App. 1977). Tenney Realty argues this statute 17 applies because there is no specific limitations period that governs a standalone claim for 18 successor liability.2 BRPS disagrees and points to A.R.S. § 12-1551 as the specific 19 limitations period that should be applied. 20 The language of A.R.S. § 12-1551 is somewhat opaque. That statute provides, in 21 relevant part, 22 23 2 In support of its position that § 12-550 applies, Tenney Realty argues Arizona courts have a special preference for looking to the laws of Texas when identifying the appropriate 24 limitations period. It is true that Arizona courts often look to Texas law regarding the proper limitations period because Arizona adopted its limitations periods from Texas. See 25 Van Cleef v. Aeroflex Corp., 657 F.2d 1094, 1098 (9th Cir. 1981) (looking to Texas law for guidance regarding Arizona limitations period). But developments in Texas law that 26 occurred after Arizona adopted the limitations periods are merely “persuasive” and “not controlling.” Gee v. Pima Cty., 612 P.2d 1079, 1080 (Ariz. Ct. App. 1980). Thus, instead 27 of looking exclusively to Texas law, Arizona courts have routinely looked to other jurisdictions as well for guidance. Id. The parties agree Texas law does not recognize a 28 “successor liability” claim like BRPS is pursuing, meaning it is not helpful to look to Texas law to determine the appropriate limitations period. 1 The party in whose favor a judgment is given, at any time within ten years after entry of the judgment and within ten 2 years after any renewal of the judgment either by affidavit or by an action brought on it, may have a writ of execution or 3 other process issued for its enforcement. 4 A.R.S. § 12-1551(A). As interpreted by the Arizona Supreme Court, this language 5 establishes a “limitations period for the enforcement of a judgment.” Fid. Nat. Fin. Inc. v. 6 Friedman, 238 P.3d 118, 121 (Ariz. 2010). For present purposes, the crucial portion of the 7 statutory language is the reference to a party being entitled to enforce a judgment “by an 8 action brought on it.” In 2010, the Arizona Supreme Court addressed this language in 9 detail. Id. 10 According to the Arizona Supreme Court, the portion of § 1551 stating “an action 11 brought on [a previous judgment]” is referring to “the common law action on a judgment.” 12 Id. at 121. That is a “specific form of suit.” Id. at 121. Under Arizona law, “every 13 judgment continues to give rise to an action to enforce it, called an action upon a judgment.” 14 Id. “The defendant in an action on the judgment . . . is generally the judgment debtor and 15 the amount sought is the outstanding liability on the original judgment.” Id. In such a 16 case, the complaint should “simply recite the amount owed and seek a judgment on that 17 debt.” Id. at 123. In responding to such a complaint, “[t]he judgment debtor cannot deny 18 the binding force of the judgment” and can only assert a few defenses. Id. at 121. 19 Accordingly, pursuant to the language of § 1551(A), a party that obtains a judgment has 20 ten years to seek enforcement of that judgment by filing an “action on a judgment.” 21 The crucial question, therefore, is whether BRPS’s claim for successor liability 22 should be viewed as analogous to an “action on a judgment.” If so, BRPS’s claim is timely 23 pursuant to A.R.S. § 12-1551. If, however, BRPS’s claim is not viewed as analogous to 24 an “action on a judgment,” it is time-barred pursuant to the four-year limitations period 25 found in A.R.S. § 12-550. 26 Looking to BRPS’s operative complaint, there is no indication that BRPS is 27 attempting to pursue an “action on a judgment.” Instead, the complaint alleges a standalone 28 claim for “successor liability.” Throughout this litigation, BRPS has been adamant that 1 Arizona law recognizes “successor liability” as a standalone claim. For example, shortly 2 after filing the operative complaint, BRPS described its claim in substantial detail. In that 3 submission, BRPS made no mention of an “action on a judgment.” Rather, BRPS 4 explained that “under Arizona law a plaintiff may assert a successor liability claim as a 5 standalone cause of action” and “Arizona law clearly recognizes” successor liability as a 6 distinct claim. (Doc. 26 at 4-5). 7 Given BRPS’s statements, there is no basis for concluding BRPS is, in fact, 8 attempting to pursue something analogous to an “action on a judgment.” If that had been 9 BRPS’s intent, there was no need to allege a “standalone claim” for successor liability nor 10 was there any need to argue that Arizona has recognized such a “standalone claim.” 11 Instead, BRPS could have simply stated it was pursuing an “action on a judgment” as 12 contemplated by the Arizona Supreme Court in Fidelity National Financial. Inc. v. 13 Friedman, 238 P.3d 118 (Ariz. 2010). Based on BRPS’s own repeated descriptions of its 14 claim, the ten-year period for an “action on a judgment” does not apply. Thus, the catch- 15 all four-year limitations period applies. 16 In seeking to avoid this conclusion BRPS cites a case from the District of Arizona 17 and three cases from other jurisdictions allegedly establishing a standalone claim of 18 successor liability should be governed by the longer statute of limitations applicable to an 19 “action on a judgment.” (Doc. 38 at 7). But those cases are not helpful because they either 20 involved a non-existent claim under Arizona law or involved application of state law that 21 differs from Arizona law. 22 In the case from the District of Arizona the plaintiff had asserted a standalone claim 23 for “alter ego.” Five Points Hotel P’ship v. Pinsonneault, 835 F. Supp. 2d 753, 760 (D. 24 Ariz. 2011). After assuming such a claim existed, the district court concluded Arizona 25 courts would apply the limitations period found in § 1551. Id. at 761. Later in that same 26 case, however, the court determined “Arizona law does not recognize alter ego as an 27 independent cause of action” and, based on that, granted summary judgment to the 28 defendant. Five Points Hotel P’ship v. Pinsonneault, No. CV-11-00548-PHX-JAT, 2014 1 WL 1713623, at *5 (D. Ariz. May 1, 2014). On appeal, the Ninth Circuit agreed “alter ego 2 is a procedural mechanism to enforce an underlying claim and not an independent cause of 3 action.” Five Points Hotel P’ship v. Pinsonneault, 697 F. App’x 549, 550 (9th Cir. 2017). 4 Given the conclusion that alter ego is not a standalone claim under Arizona law, the district 5 court’s earlier conclusion regarding the appropriate limitations period applicable to such a 6 claim does not provide meaningful guidance. That is, if alter ego is not a standalone claim 7 recognized by Arizona law, a determination of the limitations period applicable to that non- 8 existent claim is not instructive. 9 Next, BRPS cites cases from three district courts. Those cases, however, are not 10 useful because they are based on the laws of other states that appear to differ significantly 11 from Arizona law. To reiterate, the Arizona Supreme Court has specifically identified what 12 type of action will qualify as an “action on a judgment” under Arizona law: an “action on 13 a judgment” must “simply recite the amount owed and seek a judgment on that debt.” Fid. 14 Nat. Fin. Inc. v. Friedman, 238 P.3d 118, 123 (2010). If a suit seeks additional remedies 15 under federal or state law, that suit is “clearly . . . not a common law action on the 16 judgment.” Id. Given that view of an “action on a judgment,” the cases cited by BRPS do 17 not apply. 18 Starting with the suits from the Eastern District of Virginia and the Eastern District 19 of Pennsylvania, both of those suits involved a variety of claims in addition to claims of 20 “successor liability.” Charles Schwab & Co. v. WS Wealth Mgmt., LLC, No. 1:16CV0352 21 (AJT/IDD), 2016 WL 7033699, at *1 (E.D. Va. Dec. 2, 2016) (involving claims for 22 successor liability, fraud, conspiracy, and breach of fiduciary duty); Madonna v. Francisco, 23 No. CIV.A. 13-807, 2014 WL 981568 (E.D. Pa. Mar. 13, 2014) (involving claims for 24 successor liability, alter ego, and unjust enrichment). Given the Arizona Supreme Court’s 25 guidance that such suits should not be “actions on a judgment,” the fact Virginia and 26 Pennsylvania might view those suits differently is irrelevant. See Fid., 238 P.3d at 119, 27 123 (suit involving “federal racketeering” and state fraud “clearly was not a common law 28 action on the judgment”). 1 As for the case from the Northern District of Illinois, it is unclear whether that suit 2 also involved other claims that would have taken it outside the Arizona Supreme Court’s 3 view of permissible “actions on a judgment.” Davila v. Magna Holding Co., No. 97 C 4 1909, 1998 WL 578032 (N.D. Ill. Sept. 3, 1998). But it is clear that the law of Arizona 5 and Illinois differs in that Illinois does not recognize “successor liability [as] a free- 6 standing cause of action.” Id. at *3. Here, BRPS has been adamant that Arizona recognizes 7 such a standalone claim. Therefore, the very nature of a “successor liability” claim under 8 Illinois law is quite different from such a claim under Arizona law. Given that difference, 9 it would be inappropriate to rely on a case interpreting Illinois law to determine which of 10 Arizona’s limitations periods applies. 11 BRPS never described this suit as an “action on a judgment” but has consistently 12 argued it is pursuing a different type of lawsuit involving a standalone claim for successor 13 liability. Therefore, the ten-year limitations period found in § 1551(A) does not apply.3 14 The catch-all four-year limitations period applies. Because it is undisputed that BRPS’s 15 claim for successor liability accrued more than four years prior to the filing of this suit, 16 BRPS’s claim is time-barred.4 17 / / / 18 / / / 19 / / / 20 / / / 21 3 Arizona’s rule requiring application of the longer limitations period requires more than 22 some level of doubt about the appropriate period. Arizona courts have stressed there must be “substantial” doubt before a court should rely on the longer limitations period. Hall v. 23 Romero, 685 P.2d 757, 760 (Ariz. Ct. App. 1984) (applying shorter limitations period because the court was “not in substantial doubt” about which limitations period applied); 24 Drug, Cosmetic & Beauty Trades Serv., Inc. v. McFate, 480 P.2d 30, 32 (Ariz. Ct. App. 1971) (applying shorter limitations period because the court had “little difficulty” in 25 concluding the language of longer limitations period did not apply). Here, there is no genuine uncertainty regarding how Arizona courts would view BRPS’s claim. Therefore, 26 it is appropriate to invoke the shorter limitations period. 4 In concluding BRPS’s standalone claim for successor liability is time-barred the Court is 27 making no finding regarding the viability of any other approach BRPS might pursue in attempting to enforce the judgment against R&D. In particular, the Court takes no position 28 on the potential preclusive effect of the judgment in this case should BRPS pursue an alternative avenue for enforcing the judgment against R&D. 1 Accordingly, 2 IT IS ORDERED the Motion for Summary Judgment (Doc. 34) is GRANTED. 3|| The Clerk of Court is directed to enter a judgment of dismissal with prejudice in favor of 4|| Defendant. 5 Dated this 26th day of December, 2019. 6 fo . 7 ‘ —— . 9 Senior United States District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -10-