Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-02055/USCOURTS-azd-2_10-cv-02055-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:2201 Declaratory Judgment

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

DOLLAR TREE STORES, INC.,

Plaintiff/Counterdefendant,

v.

BAYLESS INVESTMENT & TRADING

COMPANY,

Defendant/Counterclaimant.

MEMORANDUM OPINION

This matter comes before the Court on Plaintiff Dollar Tree Stores, Inc.'s ("Dollar Tree")

Amended Motion for Summary Judgment. (Dkt. No. 45). Concurrently before the Court is

Defendant Bayless Investment & Trading Company's ("Bayless" or "BIT") Cross Motion for

Partial Summary Judgment. (Dkt. No. 51).'

I. Background

The heart ofthis matter is an alleged lease agreement between Dollar Tree (the tenant)

and BIT (the landlord). At issue is whether Dollar Tree is bound under a lease through 2015,

pursuant to a renewal option within the agreement. Dollar Tree maintains that the alleged

agreement is void under Arizona's version ofthe Statute of Frauds because Dollar Tree, the party

to be charged, never signed the agreement.

For the reasons that follow, the Court GRANTS in part Dollar Tree's Amended Motion

for Summary Judgment, (Dkt. No. 45), and DENIES BIT's Cross Motion for Partial Summary

Judgment. (Dkt. No. 51). Because questions offact remain as to damages, the Court reserves this

issue for trial.

Civil Action No.: 2:10-cv-2055

1BIT's Motion requests summary judgment onthe issue of Dollar Tree's liability under the terms of the agreement,

leaving the quantification of damages for trial.

1

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II. Procedural Posture

On September24, 2010, Dollar Tree initiated this matter by filing a Complaint in the

United States District Court for the District of Arizona seeking declaratory relief as to the rights

and obligations ofthe Parties with respect to the alleged agreement. (Dkt. No. 1). On May 9,

2011, Dollar Tree filed its initial Motion for Summary Judgment (Dkt. No. 25). On May 23,

2011, BIT filed a Motion to Defer Response to Summary Judgment Until After a Decision on the

Rule 56(d) Motion and Completion of Discovery. (Dkt. No. 31). The Court granted this Motion,

(Dkt. No. 32), and Dollar Tree waited to file its Amended Motion for Summary Judgment until

August 30, 2011. (Dkt. No. 45). Subsequently, BIT filed a Cross Motion for Partial Summary

Judgment on September 13, 2011. (Dkt. No. 51). The Court heard oral argument on the Motions

on November 4, 2011, and this matter is ripe for disposition.

III. Material Facts

In 2004, Dollar Tree assumed the remaining months on a lease agreement between BIT

and Factory 2-U Stores, Inc. ("Factory 2-U"), one of BIT's prior tenants who filed for

bankruptcy. Because only four months remained until the Factory 2-U lease would expire, Dollar

Tree negotiated with BIT to extend the lease and to add or modify certain lease terms. As part of

the modification, BIT agreed to extend the lease term for an additional five years—through

January 31,2010. BIT also agreed to include an additional five-year renewal option that Dollar

Tree could exercise at the end ofthe 2010 lease term. Should Dollar Tree choose to exercise the

option, the lease would extend through 2015. Although a Dollar Tree executive negotiated the

terms ofthe agreement, Dollar Tree used outside counsel Scott Kipnis ("Kipnis") to memorialize

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the negotiations and to draft the original offer (the "Assignment Contract") to be presented to

BIT.2

After Dollar Tree executed the Assignment Contract and delivered the agreement to

BIT,3 BIT signed the contract and inserted an additional term by its signature stating: "Unless

[BIT] receives written notice on or before November 1,2009 [that Dollar Tree] elects not to

exercise the five year option in paragraph 12, the option shall be deemed automatically exercised

by [Dollar Tree]." There is some dispute between the parties as to which party suggested adding

this Automatic Exercise Provision ("AEP"). What is not disputed, however, is that after BIT

added this provision and signed the contract, no officer at Dollar Tree with signing authority

initialled orsigned the form ofthe agreement containing the AEP (the "Counteroffer).4

BIT made repeated requests for Dollar Tree to initial the Counteroffer. Kipnis, Dollar

Tree's attorney, even represented that Dollar Tree would sign the agreement. Ultimately,

however, Dollar Tree never authorized the Counteroffer by initialling or signing the document,

and for unknown reasons, BIT's attempts to obtain an agreement signed by both Parties

subsided.

Dollar Tree subsequently moved into the property described in the Counteroffer and the

Assignment Contract, (the "Property"), and began operating one ofits retail stores beginning in

October 2004. On October 5, 2004, an associate at Kipnis's law firm sent a letter to BIT stating:

As you know, Dollar Tree Stores, Inc. ("Dollar Tree") became the tenant under

the subject lease as of October 1, 2004, in accordance with the Order of the

2All parties agreed that the new terms for the lease agreement between Dollar Tree and BIT would be executed by

inserting the terms into the Assignment Contract in which Factory 2-U assigned the remaining four months of its

lease term to Dollar Tree.

3When Dollar Tree sent the Assignment Contract as its original offer toBIT, both Dollar Tree and Factory 2-U had

signed the agreement.

4See infra Part B.i.

3

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United States Bankruptcy Court for the District of Delaware and the Assignment

and Assumption Agreement between Factory 2-U Stores, Inc. and Dollar Tree,

copies ofwhich are attached.

(emphasis added). The attached copies ofthe subject lease, that Dollar Tree's attorney

referenced in the letter, contained the AEP. The letter identified the Counteroffer as the

document subject to which Dollar Tree became the tenant at the Property.

During the period that Dollar Tree operated its retail store from the Property, Dollar Tree

kept a copy ofthe Counteroffer in its files. At no point during its occupation ofthe Property did

any Dollar Tree representative communicate to BIT that it disagreed with the language ofthe

AEP or that the Counteroffer was binding.

On January 21,2010, ten days before the parties believed the original lease agreement

would terminate, Dollar Tree informed BIT in writing that Dollar Tree only intended to continue

its occupancy ofthe Property for a few more months as a hold over tenant, indicating that Dollar

Tree would not be exercising the five-year renewal option. Dollar Tree last paid monthly rent to

BIT in April 2010 and surrendered possession ofthe Property on April 28, 2010. BIT refused to

accept the surrender, returned the keys to Dollar Tree, and continues to insist that Dollar Tree is

bound under the terms ofthe lease through January 31, 2015. BIT claims that Dollar Tree never

provided written notice that it would not exercise its option by the date required in the AEP.

Accordingly, BIT claims that Dollar Tree is bound under the lease agreement until January 31,

2015.

Dollar Tree counters that it never signed and executed the agreement with the additional

AEP term—the Counteroffer, and that as a result, the alleged agreement is void under the Statute

of Frauds. Dollar Tree initially filed this cause of action for declaratory relief, asking the Court to

find that (i) the AEP is not enforceable, or (ii) in the alterative, Dollar Tree did not exercise its

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option, and (iii) that the lease terminated on January 31,2010, and Dollar Tree remained on the

Property during the additional months as a month-to-month hold over tenant.

In response, BIT claims that the Statute of Frauds does not void the contract because,

inter alia, exceptions to the Statute of Frauds exist that will prevent the Statute of Frauds from

voiding the accepted Counteroffer.

IV. Standard of Review

Under Rule 56(c) ofthe Federal Rules ofCivil Procedure, summary judgment is proper

"ifthe pleadings, depositions, answers to interrogatories, and admissions on file, together with

the affidavits, if any, show that there is no genuine issue as to any material fact and that the

moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Entry of

summary judgment is mandated "against a party who fails to make a showing sufficient to

establish the existence of an element essential to that party's case, and on which that party will

bear the burden of proof at trial." Celotex Corp. v. Catrett, All U.S. 317, 322 (1986). The nonmoving party must go beyond the pleadings and mere allegations to "set forth specific facts

showing that there is a genuine issue for trial." Id. at 323. The mere existence ofsome alleged

factual dispute between the parties will not defeat an otherwise properly supported motion for

summary judgment. Anderson v. Liberty Lobby, Inc., 411 U.S. 242,247-48 (1986). Indeed, "[i]f

the evidence is merely colorable, or is not significantly probative, summary judgment may be

granted." Id. at 249-50 (internal citations omitted).

Moreover, the Statute of Frauds is an affirmative defense on which the proponent bears

the burden of proof. See Double AA Builders, Ltd. v. Grand State Constr. LLC, 114 P.3d 835,

842 (Ariz. Ct. App. 2005) (citing Lakin Cattle Co. v. Engelthaler, 419 P.2d 66, 68 (Ariz. 1966);

Ariz. R. Civ. P. 8(c)).

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V. Discussion

A. Contract Formation

Every dispute regarding the enforcement of an alleged agreement between two parties

should begin in an identical manner. The Court must first determine whether the parties, in fact,

formed an agreement. This question requires the Court to consider whether a meeting ofthe

minds existed between the parties at the time the alleged agreement formed. Where there are

multiple stages to negotiations before an agreement is formed, the Court must determine

(i) which of the offers constitutes the final offer, and (ii) whether the final offeree accepted the

final offer.

i. The Offer

An offer is "[t]he act or an instance of presenting something for acceptance." Black's

Law Dictionary (9th ed. 2009). Once an offer is made, the offeree may either accept the offer or

reject it. If the offeree accepts the offer, a contractual agreement is formed. If the offeree rejects

the offer, the original offer terminates and the parties remain unbound.

Arizona follows the traditional common law rule, which requires a mirror image

acceptance of an offer in order to consummate an agreement.See Clark v. Compania Ganadera

de Cananea, S.A., 385 P.2d691,697 (Ariz. 1963). If the offeree adds additional or materially

different terms to the agreement when "accepting" the offer, the offeree will instead be

considered to have rejected the initial offer and to have made a counteroffer containing the

additional terms. See United California Bank v. Prudential Ins. Co. ofAmerica, 681 P.2d 390,

422-23 (Ariz. Ct. App. 1983) (citing Clark, 385 P.2d 691). In effect, the offeree becomes the

offeror.

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The new offeree may now accept or reject the counteroffer. Id. at 423. ("A counter-offer

can become the basis of a contract ifit is accepted by the person who made the original offer.").

In view ofthe negotiations before the Court, Dollar Tree signed the original offer

document (the Assignment Contract) and sent the offer to BIT. Upon receipt, BIT added the

AEP, signed the document, and returned the document to Dollar Tree to be initialed or signed.

This constituted BIT's rejection ofthe original offer and the creation of BIT's Counteroffer to

Dollar Tree. "The pivotal question before us then is whether" Dollar Tree accepted the BIT

counteroffer. 5a// RiverProject Agr. Imp. and Power Dist. v. Westinghouse Elec. Corp., 694

P.2d 267,274-75 (Ariz. Ct. App. 1983).5

ii. Acceptance via Conduct

An offer or counteroffer can be accepted by an express act or by implication from

conduct. Black's Law Dictionary (9th ed. 2009); 9 Az. Prac. § 7:6 (2010-2011 ed.) ("The

standard used to determine whether conduct constitutes acceptance is whether a reasonable

person would understand it to constitute assent and acceptance ofthe terms ofthe offer. Written

words, spoken words, conduct, and action are all permissible manifestations of acceptance.").

Not only did Dollar Tree take occupancy ofthe Property in question after receiving a

copy ofthe Counteroffer, but Dollar Tree also continued to make lease payments, as required in

5Dollar Tree's briefing assumes that the original offer from Dollar Tree toBIT, without the AEP, (the "Assignment

Contract") is binding on the Parties. DollarTree argues that the AEP was a modification to the Assignment

Contract. DollarTree claims that because it never agreed to the modification, the AEP cannot become part of the

Assignment Contract agreement.

DollarTree's argument fails because BIT did not modify an existing legal agreement between the Parties.

The additional language could not be considered a modification because no agreement existed to be modified. BIT

simultaneously added theAEP and signed andaccepted the terms inAssignment Contract. Theadditional language

was significantand was a necessarycondition to BIT's acceptance. The court finds that BIT would not have given

Dollar Tree a five-year renewal option in the Assignment Contract without also requiring a notice provisionas to

whether Dollar Tree would exercise the option.

In summary, BIT created a counteroffer when it added the AEP to the original Assignment Contract. It is

the Counteroffer, not the original Assignment Contract, which could potentially form an agreement between the

Parties. As explained in the body ofthe Opinion, the Counterofferterminated the Assignment Contract as the

original offer and left the original offeror (Dollar Tree) as the offeree.

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the Counteroffer, from October 2004 through April 2010. Dollar Tree made use ofthe Property

for over five years and continued to act as ifthe lease agreement governed. Dollar Tree kept a

copy ofthe agreement, containing the AEP, on file in its office. An associate at the firm Dollar

Tree used as outside counsel in negotiating the agreement sent a signed letterto BIT, enclosing

the Counteroffer (the Assignment Contractwith the AEP) and indicatingthat this document was

a true and correct copy ofthe agreement between the parties. Throughout Dollar Tree's time

operating its retail store from the Property, Dollar Tree behaved as if the Counteroffer was

binding, and the Court finds that Dollar Tree accepted the Counteroffer by its conduct and the

resulting implications.

B. Applying the Statute of Frauds

A court should consider the application ofthe Statute of Frauds to an alleged agreement

only after the issue of contract formation is resolved. See Johnson v. Gilbert, 621 P.2d 916, 919

(Ariz. 1980) (citing Gene Hancock Constr. Co. v. Kempton &Snedigar Dairy, 510 P.2d 752

(Ariz. Ct. App. 1973)), rev'don other grounds, Turleyv. Ethington, 146 P.3d 1282 (Ariz. 2006).

Once a court finds that an agreement exists, the Statute of Frauds is an evidentiary hurdle that

must be overcome so that the parties may present evidence ofthe alleged agreement. See

Pinnacle Peak Developers v. TRWInv. Corp., 631 P.2d 540,544 (Ariz. Ct. App. 1980)

(identifying the Statute as an evidentiary rule meant to exclude certain unreliable forms of

evidence).

i. No signature exists to satisfy the Statute of Frauds

Relevant to the case at bar, Arizona's Statute of Frauds provides that a party may not

bring a court action in relation to a leasing agreement for a period longer than one year "unless

the promise or agreement upon which the action is brought, or some memorandum thereof, is in

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writing and signed by the party to be charged, or by some person by him thereunto lawfully

authorized." Ariz. Rev. Stat. Ann. § 44-101(6) (2010).

Dollar Tree, the party to be charged, contends that it never signed the Counteroffer,

rendering the alleged agreement void under the Statute of Frauds. BIT proffers a number of

theories arguing that Dollar Tree's attorneys signed and executed the Counteroffer. The Court

finds these arguments unpersuasive. Dollar Tree's attorneys did not have the authority or the

requisite intent to execute the Counteroffer. See Bishop v. Norell, 353 P.2d 1022,1025 (Ariz.

1960). For these reasons, the agreement is void, and unless the Court is persuaded that an

exception exists to the Statute of Frauds, no evidence ofthe alleged agreement may be presented

before the Court.

ii. No Exceptions to the Statute of Frauds Exist

BIT argues that exceptions to the Statute of Frauds apply in this case.6

a. Full Performance

First, BIT argues that full performance bars the application ofthe Statute of Frauds. In re

MacDonald's Estate, 417 P.2d 728, 733 (Ariz. Ct. App. 1966) (noting that an agreement is

removed from the Statute of Frauds where there has been complete performance). However, a

6BIT discusses acceptance and ratification as a potential exception tothe Statute of Frauds. Although abundant case

law exists discussing this exception in relation to a contract for the sale of goods, the Court has not unearthed, nor

have the parties cited, any law recognizing acceptance and ratification as a Statute of Frauds defense in relation to

real property leases. Becausethe Court is not persuaded that the principles of acceptance and ratificationare

applicable inthe real property context, the Courtfinds that thisargument will not prevent the application of the

Statute of Frauds here.

As discussed infra in Part B.ii.b, the part performance doctrine is an accepted exception to the Statuteof

Fraudsin the real propertycontext. The part performance exception in the real property context is similarto the

acceptance andratification exception in the saleof goodscontext. The distinction between thetwo is that part

performance is only available when a party seeks equitable relief. A legal remedy is adequate in this case. For that

reason, and as discussed infra, part performance does not apply.

The inapplicability of the part performanceexception itself provides further credence for the Court's

previous finding—that the acceptance and ratification exception isinapplicable in the settingof real property leases.

Applyingthe acceptance and ratificationexception in the real property context would essentiallyprovide an end-run

around the equitable requirements inherent in the part performance exception to the Statute of Frauds.The Court

does not find, and BIThas notshown, that applyingthe acceptance and ratification doctrineto real property leases

would be appropriate.

9

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lease agreement is, by its very nature, executory. Trollope v. Koerner, 470 P.2d 91,98 (Ariz.

1970) ("We take it to be fundamental that one cannot claim full performance of a contract, such

as a lease, which would be, if performed, concededly executoryon both sides."). Although there

are certain situations in which a lease agreement is non-executory, none ofthese circumstances

are presently before the Court. See id.

BIT seeks to enforce a provision of the lease agreement requiring Dollar Tree to use the

Property over the next five years. This event is set to occur at a point in the future. By definition,

BIT could not have fully performed events that have not yet occurred. Accordingly, the contract

is executory, and the full performance exception to the Statute of Frauds does not apply.

b. Part Performance and Estoppel

Nor do the equitable doctrines of estoppel or part performance render the Statute of

Frauds inapplicable. It is well established in Arizonathat a party may be equitablyestopped from

asserting the Statute of Frauds as a defense. Del Rio Land, Inc. v. Haumont, 574 P.2d 469 (Ariz.

1977). As preliminary clarification, "the 'part performance' exception to the statuteof frauds is

grounded in the equitable principle of estoppel." Owens v. M.E. Schepp Ltd. P'ship, 182 P.3d

664, 668 (Ariz. 2008) (citing Gene HancockConstr. Co., 510 P.2d at 755).

Whether this doctrine is labeled 'estoppel' or 'part performance' does not affect

the ultimate result of its application, which is that a party may be precluded from

asserting the Statute of Frauds as a defense when he has induced or permitted

another to change his position to his detriment in reliance on an oral agreement

which would be within the Statute."

William Henry Brophy Coll. v. Tovar, 619 P.2d 19, 22 (Ariz Ct. App. 1980) (citing Gene

Hancock Constr. Co., 510 P.2d 752).

For a party to escape the evidentiary hurdle ofthe Statute of Frauds through the

application of equitable doctrines such as part performance and estoppel, Arizona courts have

10

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repeatedly affirmed that the partyseeking to enforce the oral agreement must be seeking an

equitable remedy. William Henry Brophy Coll., 619 P.2d at 23; Trollope, 470 P.2d at 98 (citing

Evans v. Mason, 308 P.2d 245, 248 (Ariz. 1957) ("This court has squarely held that

notwithstanding the procedural mergeroflaw and equity, the equitable doctrineof part

performance is inapplicable in a suit whereonly money damages are sought")). Where a party

seeks only a remedy at law, the equitable doctrines are unavailable to escape Statute of Frauds.

William Henry Brophy Coll., 619 P.2d at 23.7

Although BIT prayed for both legal and equitable relief, it is beyond dispute that

equitable relief is unavailable where a remedy at law would be adequate to make a party whole.

See Haynie v. Taylor, 213 P.2d 684, 689 (Ariz. 1950); Shreeve v. Greer, 173 P.2d 641,

644 (Ariz. 1946)(court will specifically enforce a contract where remedy at law is inadequate).

The facts and circumstances ofthis case lead to the conclusion that monetary relief would put

7During oralargument, counsel for BIT suggested that therestriction onequitable defenses inrelation to theStatute

of Frauds onlyapplied to the part performance doctrine, not theestoppel doctrine more generally.

THECOURT: ... I forgot to ask you, how- your argument about remedy at law, you know, how

that affects any equitable relief.

MR. MCGINNIS: I think those cases that they cited only relate to the part performance exception,

not to Gratification [sic] or estoppel, the general estoppel doctrine, or to the full performance

doctrine. At least that's the way I read them.

THE COURT: I think that was cited in that part ofthe brief. That's right.

Summ. J. Mots. Hr'g Tr. 29:5-7; 31:17, Nov. 4, 2011.

Upon further review, the Court finds that BIT's positionruns counter to the findings in William Henry

Brophy College. That court found that "where a party attemptingto enforce an oral agreement seeks an equitable

remedy,such as specific performance, the equitable doctrinesof estoppel and part performanceare available to

him." 619 P.2d at 23. Moreover, construing the exceptions in the manner BIT desires also fails to accord with the

underpinnings supportingthe longstandingArizona distinctionbetween law and equity. BIT has not persuaded the

Court that there isjustification for permitting equitable relief when sought under the estoppel nomenclature when

equitable relief soughtunderthe same circumstances would be denied if soughtunder the related part performance

doctrine. The Court finds the reasoning in William Henry Brophy College persuasive. BIT is not entitled to relief

under the equitable estoppel or part performance doctrines.

11

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BITin the sameposition as enforcing the rental agreement. There is nothing unique about Dollar

Tree's tenancy that would require the Court to specifically enforce this agreementand require

DollarTree to physically return to the Property. There is no indication that monetary damages

would be an insufficient remedy. Because the legal remedy is adequate, equitable relief is

unavailable, and because the equitable doctrines that BITinvoked are only available for a party

seekingequitablerelief, the part performance and estoppel defenses do not apply.

In sum, none ofthe asserted defenses bar the application ofthe Statute of Frauds.

Consequently,the Court finds that the Statute of Frauds applies to the lease agreement between

Dollar Tree and BIT, and that the agreement is unenforceable.8

iii. The Year to Year Lease

Because the agreement is void under the Statute of Frads, the Parties are assumed to have

engaged in a year-to-year lease. See Crane v. Franklin, 154 P. 1036, 1037-38 (Ariz. 1916) (citing

2 John Neilson Taylor, The American Law ofLandlord and Tenant § 56 (9th Ed. 1904) ("[I]f a

verbal lease for a longer period than one year is agreed upon, in which the rental value is

determined, the terms, agreements, and covenants fully understood, and possession is taken

thereunder, and rent paid or services rendered instead, by the lessee, although the lease may be

void as a whole under the statute offrauds, the law, in order to protect the rights ofthe parties,

will convert it into a lease from year to year.")).

Because Dollar Tree assumed the Property and began paying rent in October 2004, the

yearly lease term runs from October through September. Dollar Tree has paid monthly rent

through April 2010. BIT is potentially entitled to unpaid rent for the remaining lease term—the

months ofMay 2010 through September 2010. Although BIT may pursue recovery for this

8The Parties briefed the issues of(i) whether Dollar Tree gave sufficient notice that it would not be exercising the

AEP and(ii) whether Dollar Tree wasrequired to pay holdover rent at a higherrate. Becausethe Court finds that the

terms ofthe agreement are unenforceable, it is not necessary to discuss these issues.

12

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period, genuine issues of material fact remain regarding when or if BIT could have restored

operations following Dollar Tree's April 2010 exodus. Only this discrete issue remains for trial.

VI. Conclusion

In accordance with the accompanying Order, Dollar Tree's Amended Motion for

Summary Judgment (Dkt. No. 45) is GRANTED, for the reasons outlined above, on all issues

except as to damages.9 BIT's Motion for Partial Summary Judgment (Dkt. No. 51) is DENIED.

Alexandria, Virginia

December 1,2011

/s/ 1$

Liam 0'Grady

United States District Judge

9The Court invites the parties to resolve the damages issue themselves. Ifthey are unable to do so, they must

immediately contact United States Magistrate Judge T. Rawles Jones, Jr. to resume settlement discussions. In the

event they are unsuccessful in a settlementconference, this issueshallbe presented by affidavit and oral argument

telephonically, in order to savethe courts in the Eastern District of Virginia andthe District of Arizonafrom bearing

the significant expenses necessary to try this discrete issue.

13

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