Best Western v. Oakland Park

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
BEST WESTERN INTERNATIONAL INC,
Plaintiff/Appellee,
v.
OAKLAND PARK INN INC, et al.,
Defendants/Appellants.
No. 1 CA-CV 17-0775
FILED 12-6-2018
Appeal from the Superior Court in Maricopa County
No. CV2015-000279
The Honorable Randall H. Warner, Judge
JUDGMENT VACATED IN PART, AFFIRMED IN PART,
REMANDED
COUNSEL
Radix Law, PLC, Scottsdale
By Michelle Swann, Jonathan B. Frutkin
Counsel for Plaintiff/Appellee
The Anderson Law Firm, PLC, Phoenix
By Carl R. Anderson
Counsel for Defendants/Appellants
BEST WESTERN v. OAKLAND PARK
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Diane M. Johnsen delivered the decision of the Court, in
which Judge Maria Elena Cruz and Judge Randall M. Howe joined.
J O H N S E N, Judge:
¶1 Alice Marquez and Oakland Park Inn, Inc. (collectively,
"Defendants") appeal the superior court's orders (1) striking their answer
and counterclaims and allowing Best Western International, Inc. to proceed
by default; (2) granting summary judgment for Best Western on its claim
for breach of contract and (3) ruling on summary judgment that Best
Western did not owe Defendants a fiduciary duty. We vacate the judgment
in part, affirm in part and remand for further proceedings.
FACTS AND PROCEDURAL BACKGROUND
¶2 In 2002, Marquez signed an agreement ("Membership
Agreement") with Best Western to become a Best Western member.
Marquez's membership entitled her hotel, the Oakland Park Inn, to use Best
Western's trademarks and other services. In 2014, Best Western notified
Defendants they were late in paying dues and fees owed under the
Membership Agreement and that, as a result, the membership might be
terminated. Ultimately, Best Western terminated the membership in
September 2014 and demanded that Defendants stop using Best Western's
trademarks.
¶3 In January 2015, Best Western filed a complaint alleging
breach of contract, open and stated account, unfair competition, trademark
dilution, trademark infringement and unjust enrichment. Defendants
answered and asserted several counterclaims. Extensive motion practice
followed, including three motions for summary judgment.
¶4 In January 2017, however, Defendants' former counsel
withdrew from the case. Defendants then retained another lawyer who
agreed to represent them only in specified pretrial proceedings. In April
2017, the court set a five-day jury trial to begin on November 6, 2017.
¶5 In July 2017, Best Western asked the superior court to set a
status conference because Defendants' counsel had told Best Western that
his representation of Defendants was complete, except for settlement
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negotiations. In response to Best Western's request, the court set a status
conference for August 10, directing that "[c]ounsel and any unrepresented
parties shall appear in person." Defendants' counsel, however, filed a
"Notice of Unavailability," saying he was going to be away until August 15
and would be unable to participate in "hearings or conferences" before then.
Accordingly, the court issued an order resetting the August 10 status
conference to August 16. As before, the court ordered that "[c]ounsel and
any unrepresented parties shall appear in person." The court also ordered
Defendants and their counsel to state whether counsel would represent
Defendants at trial and warned Defendants that the court would not
continue the November 6 trial date.
¶6 Neither Defendants nor their counsel appeared for the status
conference on August 16. In their absence, the court affirmed the
November 6 trial date and reset the status conference for August 28,
ordering that Defendants' counsel then "appear in person and show good
cause for his nonappearance" at the August 16 proceeding. The court also
ordered "any unrepresented parties" to appear in person at the August 28
conference.
¶7 Neither Defendants nor their counsel appeared for the status
conference on August 28. In the ensuing minute entry, the court stated that
notices of the August 16 and 28 conferences had been mailed to Defendants'
counsel at his business address, such that Defendants had notice of both
proceedings. The court then stated:
No one has appeared for Defendants at either hearing. The
court therefore finds that Defendants have abandoned their
defense of this case and their prosecution of counterclaims,
and it strikes Defendants' answer and directs [Best Western]
to proceed by default.
¶8 On September 6, Defendants' counsel filed a notice of
withdrawal, representing that his work on the case was complete, along
with an "Emergency Motion for Continuance" seeking time for Defendants
to retain new counsel. On September 10, through counsel, notwithstanding
his notice of withdrawal, Defendants filed an "Emergency Motion to
Reconsider and Reinstate Defendants' Answer and Counterclaims." The
motion asserted that Defendants' counsel had not received the minute
entries setting the two August status conferences. In an attached affidavit,
Defendants' counsel stated he had not received any "law firm mail
pertaining to this case" when he checked his mail in August.
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Decision of the Court
¶9 The court denied Defendants' motion for a continuance,
ruling that, given its prior ruling vacating the trial and ordering Best
Western to proceed by default, nothing remained to be continued. After
receiving Best Western's response to the Motion to Reconsider and
Reinstate and Defendants' reply, the court set oral argument for October 27,
2017. In the meantime, as the court had directed, Best Western filed a
motion for entry of default judgment and an application for attorney's fees
and costs.
¶10 At the oral argument on Defendants' motion, their counsel
appeared in person and Walter Johnson, Oakland Park Inn's CEO and
general manager, was present by phone. In response to a question from the
court, Johnson stated that Defendants did not have another lawyer "in
place" for trial. The court then asked about counsel's failure to appear at
the two August conferences, and counsel responded he had received no
notice of those proceedings by mail. At that point, the court clerk stated
that minute entries were sent to counsel by email, not by mail. Counsel
then confirmed that the court had his correct email address but offered as
"speculation" that he did not receive the emails because he had been
experiencing a series of computer problems.
¶11 The court then ruled as follows:
This Court relies on lawyers to get the minute entries,
and every once in a while something happens with one, but
to not get three minute entries, I don't find any grounds for
excusable neglect.
We set hearings. I relied on those hearings. Plaintiffs
and plaintiffs' counsel relied on those hearings. And so for
that reason, I'm not going to reconsider my order, and I'm not
going to vacate the default.
In addition – well, this is not a legal ground for my
ruling. I'm simply denying the Motion for Reconsideration.
But I'm going to add, if I granted the motion, I honestly don't
know what happens next because there's nobody to represent
[Defendants]. And I've given them many, many months to
get a lawyer in place that could try this case.
¶12 The court denied Defendants' Motion to Reconsider and
Reinstate and entered judgment for Best Western and awarded damages,
attorney's fees and costs in the amount of $429,452.41. Defendants filed a
timely notice of appeal from the court's judgment and order denying their
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Motion to Reconsider and Reinstate. The notice of appeal also identified
the court's interim summary judgment rulings.1
JURISDICTION
¶13 Best Western argues this court lacks jurisdiction over
Defendants' appeal. As Best Western argues, "[t]he general rule is that there
is no appeal from a default judgment . . . ." Hirsch v. Nat'l Van Lines, Inc.,
136 Ariz. 304, 311 (1983). A defaulting party's "primary remedy" is a motion
for relief from the default judgment under Arizona Rule of Civil Procedure
60. Hirsch, 136 Ariz. at 311. And in the usual case, "[t]he scope of an appeal
from a denial of a Rule 60 motion is restricted to the questions raised by the
motion to set aside and does not extend to a review of whether the trial
court was substantively correct in entering the judgment from which relief
was sought." Id.
¶14 That rule does not apply, however, when, as here, the default
judgment is the result of an order striking a party's answer as a sanction.
See Sears Roebuck & Co. v. Walker, 127 Ariz. 432, 435-36 (App. 1980). In such
a case, the party need not move for post-judgment relief before appealing.
See id. Accordingly, we have jurisdiction under Article 6, Section 9, of the
Arizona Constitution, and Arizona Revised Statutes sections 12-
120.21(A)(1) (2018) and -2101(A)(1) (2018).2
DISCUSSION
A. The Superior Court Abused Its Discretion by Striking the
Defendants' Answer and Counterclaim.
¶15 Rule 16(h)(1)(A) authorizes the superior court to impose a
sanction when a party or its attorney fails to obey a pretrial order. We
review such a sanction for abuse of discretion. See Estate of Lewis v. Lewis,
1 On motion by Best Western, this court set oral argument and emailed
notice to all counsel of the date and time of argument. Defendants' counsel
did not appear for the oral argument. In response to a subsequent order to
show cause, counsel averred that he had notified the court and opposing
counsel of a change in his email address, but the court has no record of
receiving counsel's notice, and Best Western's counsel reported she did not
receive it, either. The court has issued an order reprimanding Defendants'
counsel and notified the State Bar of Arizona of the reprimand.
2 Absent material revision after the relevant date, we cite the current
version of a statute or rule.
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229 Ariz. 316, 324, ¶ 20 (App. 2012) (default entered for party's failure to
appear in person at pretrial conference); Seidman v. Seidman, 222 Ariz. 408,
411, ¶ 18 (App. 2009) (default entered for party's failure to attend her
deposition). But "when a court imposes severe sanctions such as dismissal,
striking a pleading, or entering a default judgment, 'its discretion is more
limited than when it employs lesser sanctions.'" Lewis, 222 Ariz. at 323, ¶
18 (quoting Rivers v. Solley, 217 Ariz. 528, 530, ¶ 11 (App. 2008)). In that
event, due process circumscribes the court's power to impose severe
sanctions. Seidman, 222 Ariz. at 411, ¶ 18. In particular, before a court can
enter a default as a sanction, it must hold an evidentiary hearing and find
that (1) the client – not its counsel – was at fault for the violation; (2) the
client committed the violation willfully or in bad faith; and (3) the court
considered lesser sanctions but the egregiousness of the violation warrants
the more severe sanction. See id. at 411, ¶¶ 19-20.
¶16 Defendants argue the superior court abused its discretion
under Seidman by striking their answer and counterclaim as a sanction.3 We
agree the record does not support the court's decision to enter a default
judgment as a sanction.
¶17 First, the only evidence relating to the Defendants' and their
counsel's failure to appear at the status conferences was the lawyer's
statements that he did not receive the minute entries setting the status
conferences either by mail or by email. Although the superior court
concluded counsel had not demonstrated excusable neglect for failing to
appear at the conferences, there is no evidence in the record that Defendants
themselves were at fault for their nonappearance or for their counsel's
nonappearance, or that they failed to appear willfully or in bad faith.
Moreover, nothing in the record shows that the court considered imposing
a lesser sanction for their failure to appear. See Ariz. R. Civ. P. 16(h)(1);
Lewis, 229 Ariz. at 326, ¶ 26 (court abused its discretion by failing to consider
lesser sanction for party's failure to appear).
¶18 Best Western argues the superior court's finding of "excusable
neglect" by counsel and the court's subsequent use of the default
procedures under Rule 55 satisfied due-process requirements. As stated
3 Defendants also argue the court failed to make findings as Seidman
requires. In response, Best Western's answering brief does not address
Seidman but argues, inter alia, that Defendants waived that argument by
failing to ask the court for findings. Our decision is based on the absence
of evidence under Seidman to support the sanction order, not the absence of
requisite findings.
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above, however, a lawyer's excusable neglect, by itself, does not support
imposition of a default sanction against the lawyer's client. Compare Rule
60(c)(1) and Sign Here Petitions LLC v. Chavez, 243 Ariz. 99, 108-09, ¶ 37 (App.
2017) ("Neglect is excusable when it is such as might be the act of a
reasonably prudent person in the same circumstances.") (quotation
omitted) with Seidman, 222 Ariz. at 411-12, ¶ 20 (barring default sanction
unless client was at fault, acted willfully or in bad faith and lesser sanctions
are unavailing).
¶19 For these reasons, the court abused its discretion in striking
Defendants' pleadings and ordering Best Western to proceed by default.
Accordingly, we reverse and remand the court's resulting order entering
judgment on the claims and counterclaims that were unresolved as of
August 2017.4
B. Best Western's Summary Judgments.
¶20 Before the sanction proceedings, the superior court had
granted summary judgment to Best Western on its pre-termination breach-
of-contract claim and on Defendants' contention that Best Western owed
them a fiduciary duty. We review those rulings de novo. See Tierra Ranchos
Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, 199, ¶ 15 (App. 2007).
Summary judgment is appropriate when "there is no genuine dispute as to
any material fact and the moving party is entitled to judgment as a matter
of law." Ariz. R. Civ. P. 56(a); Orme School v. Reeves, 166 Ariz. 301, 305-10
(1990). There is no genuine dispute as to any material fact when a
nonmoving party produces facts that "have so little probative value, given
the quantum of evidence required, that reasonable people could not agree
with the conclusion advanced." Orme School, 166 Ariz. at 309.
1. Summary judgment on Best Western's claim for pre-
termination breach of contract.
¶21 Best Western moved for summary judgment on its breach-of-
contract claim based on Defendants' alleged failure to pay fees and dues
owed under the Membership Agreement. In response, Defendants argued,
4 Best Western argues Defendants waived any dispute as to the
default judgment the court finally entered by failing to object to any of Best
Western's Rule 55 filings. But after the court struck Defendants' pleadings
on August 28, Defendants had no basis on which to object.
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Decision of the Court
inter alia, there was no breach because Best Western had agreed to modify
the Membership Agreement to allow Defendants to make the delinquent
payments on a revised payment schedule.5 Best Western argued that no
enforceable modification had occurred because only Marquez could agree
to modify the Membership Agreement, and she had not signed the
modification. The superior court rejected Defendants' argument and
granted summary judgment for Best Western.
¶22 Parties to a contract may agree to modify their contract. See
Ancell v. Union Station Assocs., Inc., 166 Ariz. 457, 460 (App. 1990).
Modification requires "(1) an offer to modify the contract, (2) assent to or
acceptance of that offer, and (3) consideration." Demasse v. ITT Corp., 194
Ariz. 500, 506, ¶ 18 (1999). In response to Best Western's motion,
Defendants offered evidence that Best Western offered a payment plan and
that they accepted and complied with the offer's terms.
¶23 The superior court did not err in granting Best Western's
motion, however, because Defendants did not show that Marquez signed
the payment plan. See City of Tempe v. Outdoor Sys., Inc., 201 Ariz. 106, 111,
¶ 14 (App. 2001) (appellate court may affirm summary judgment ruling if
it is correct for any reason). Defendants offered evidence that Marquez
authorized Walter Johnson, Oakland Park's CEO and general manager, to
accept Best Western's revised plan on behalf of Oakland Park. But only
Marquez could accept Best Western's offer to modify the Membership
Agreement because she, not the Oakland Park Inn, was party to the
Membership Agreement. The Membership Agreement states:
3. This Membership Application and Agreement is made
jointly by the owner or lessee of the [Oakland Park Inn] and a
natural person known as the voting member. The owner or
lessee of the [Oakland Park Inn] is Alice Marquez. The voting
member is Alice Marquez. THE OWNER OR LESSEE AND
THE VOTING MEMBER ARE EACH PERSONALLY
RESPONSIBLE, JOINTLY AND SEVERALLY, FOR ALL
OBLIGATIONS TO BEST WESTERN ARISING UNDER THIS
5 Based on a prior ruling by the superior court that a question of fact
existed as to modification, Defendants argue the law-of-the-case doctrine
barred the court from reconsidering the issue in a subsequent summary
judgment motion. The law-of-the-case doctrine, however, is "one of
procedure, not of substance. A court does not lack the power to change a
ruling simply because it ruled on the question at an earlier stage." Love v.
Farmers Ins. Grp., 121 Ariz. 71, 73 (App. 1978).
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Decision of the Court
MEMBERSHIP APPLICATION AND AGREEMENT OR
RELATING TO THE AFFILIATION OF [Oakland Park Inn]
WITH BEST WESTERN.
* * *
12. Applicant agrees to timely pay all fees, dues, charges and
assessments imposed generally on the membership by [Best
Western's board of directors], and the cost of all goods or
services provided by or ordered through Best Western.
See Restatement (Second) of Contracts § 52 & cmt. a, illus. 1 (offer may be
accepted only by person who is to be bound).
¶24 Marquez and Johnson knew that Marquez would need to
personally sign to accept a revised payment plan; she had signed five prior
modifications to the Membership Agreement, the last of which expired just
a few months before the delinquencies that culminated in this litigation.
Although Best Western informed Defendants that the modified payment
plan could not be complete until Marquez signed it, she did not do so.
Defendants argued that Marquez was away in New York attending to her
husband, who was ill, but they offered no evidence that Marquez took any
steps to timely communicate her assent to the payment plan. Further, they
offered no evidence that Marquez granted Johnson authority to act for her
personally – only that he could act for Oakland Park Inn.
2. Summary judgment on Defendants' affirmative defense
asserting breach of fiduciary duty.
¶25 In August 2016, Best Western moved for summary judgment
on Defendants' affirmative defense that Best Western breached a fiduciary
duty owed to Defendants. The court granted the motion, ruling that Best
Western owed Defendants no fiduciary duty.6
¶26 On appeal, Defendants argue the court erred because a
fiduciary relationship arose out of language in the Best Western
6 While Best Western's summary judgment motion was pending,
Defendants filed an amended answer and counterclaim alleging breach of
fiduciary duty. After the superior court granted Best Western's motion and
upon another motion by Best Western, the court dismissed the fiduciary-
breach counterclaim. Defendants do not appeal that dismissal.
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International Bylaws and Articles ("Bylaws"), a letter Best Western sent to
its members, and "the [p]arties' relationship of confidence and trust."
¶27 A fiduciary relationship is formed when "something
approximating business agency, professional relationship, or family tie
impel[s] or induc[es] the trusting party to relax the care and vigilance [it]
would ordinarily exercise." Cook v. Orkin Exterminating Co., Inc., 227 Ariz.
331, 334, ¶ 14 (App. 2011). Typically, for a fiduciary relationship to exist,
one party must be "bound to act for the benefit of the other" and the
relationship must involve "great intimacy, disclosure of secret, or
[e]ntrusting of power." Id. "[M]ere trust in another's competence or
integrity" will not create a fiduciary relationship; similarly, "commercial
transactions do not create a fiduciary relationship unless one party agrees
to serve in a fiduciary capacity." See id. "Although the existence of a
fiduciary duty is generally a question of fact, 'when the evidence is
insufficient to support a verdict, the [superior] court has a duty to decide
the issue.'" Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 24 (App.
1996) (quoting Gemstar Ltd. v. Ernst & Young, 185 Ariz. 493, 504-05 (1996)).
¶28 Defendants' contention is belied by the Membership
Agreement, which states:
The relationship of Best Western to its members is one of an
independent contractor. Neither party has the power to
obligate or bind the other in any way. No relationship of
partners, joint venturers or agents is created. Best Western
only provides services as directed by the membership. Best
Western has no responsibility for the . . . operation of [the
Oakland Park Inn] . . . . Best Western has no control over or
responsibility for any decision affecting the employment or
supervision of any person employed in connection with [the
Oakland Park Inn].
(Emphasis omitted). This language does not show that Best Western is
"bound to act for the benefit of" Defendants; it instead shows the parties
merely agreed to form a commercial relationship. See Cook, 227 Ariz. at 334,
¶ 14; Urias v. PCS Health Sys., Inc., 211 Ariz. 81, 86-88, ¶¶ 29-35 (App. 2005).
¶29 Defendants cite no persuasive evidence to support their
contention that, notwithstanding the above language from the Membership
Agreement, Best Western owed them a fiduciary duty. Defendants cite a
provision from the Bylaws stating that a "[d]irector [i.e. a member of Best
Western's board of directors,] is accountable to [Best Western] and all
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BEST WESTERN v. OAKLAND PARK
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Members for . . . breach of fiduciary duty." But that section also specifies a
director's "fiduciary duty" only encompasses a duty to act "in the best
interest of [Best Western]." It imposes no duty on a director to act in the
best interest of an individual member, only that a director is "accountable
to . . . all members." Defendants also rely on a single letter from Best
Western's directors stating they believed they had a "fiduciary
responsibility" to inform members of another director's violation. A single
use of the term "fiduciary" in one letter is insufficient to create a genuine
question of material fact in this case. See Orme School, 166 Ariz. at 310.
¶30 Lastly, Defendants argue a fiduciary relationship was created
through their reliance on Best Western's "knowledge and skills" in
managing a hotel when they decided to invest in a hotel franchise and
Defendants' compliance with Best Western's requirements that the Oakland
Park Inn take certain actions. "[M]ere trust in [Best Western's] competence,"
however, is insufficient to create a fiduciary relationship, particularly when
the parties have entered a commercial transaction – a franchise agreement
– without agreeing to form such a relationship. See Cook, 227 Ariz. at 334, ¶
14.
CONCLUSION
¶31 For the reasons stated above, we (1) vacate the October 27,
2017 default judgment in favor of Best Western, (2) reverse the August 30,
2017 order imposing a default sanction and the October 27, 2017 order and
judgment denying Defendants' Motion to Reinstate, (3) order the superior
court to reinstate Defendants' answer and counterclaim, (4) affirm the April
10, 2017 grant of summary judgment in favor of Best Western on its claim
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for breach of contract, (5) affirm the December 21, 2016 entry of summary
judgment on Defendants' affirmative defense concerning breach of
fiduciary duty, and remand for further proceedings consistent with this
decision.
¶32 Defendants and Best Western each ask for their attorney's fees
on appeal; we deny both requests without prejudice to the parties' right to
seek a determination of the issue by the superior court on remand. We
grant Defendants their costs of appeal, contingent on their compliance with
Arizona Rule of Civil Appellate Procedure 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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