IN THE 

## A RIZONA 

## C OURT OF 

## A PPEALS
D IVISION O NE

S ALLY SCHNEIDER DUNCAN, et al.
, Plaintiff s/Appell ees ,

v.

P UBLIC STORAGE, INC.
, Defendant/Appell ant

.

________________________________________

K EVEN BROWN, Plaintiff/Appellee,

v.

P UBLIC STORAGE, INC., Defendant/Appellant.

________________________________________

T IFFANY ROBERTS, Plaintiff/Appellee,

v.

P UBLIC STORAGE, INC., Defendant/Appellant.

No. 1 CA- CV 21 -0283

A ppeal from the Superior Court in Maricopa County No s. CV2020-010440, CV2020-010510, CV2020-010493 The Honorable Stephen F. McCarville
, Judge

VACAT ED AND REMANDED FILED 3-8-20222 COUNSEL
Lewis Brisbois Bisgaard & Smith LLP, Phoenix By Sean P. Healy, Robert C. Ashley Counsel for Defendant/A ppellant Public Storage, Inc.

Hagens Berman Sobol Shapiro LLP, Phoenix By Robert B . Carey, John M. DeStefano, E. Tory Beardsley Counsel for Plaintiff/ Appellee Tiffany Roberts

Osborn Maledon P.A., Phoenix By Geoffrey M.T. Sturr Counsel for Plaintiffs/Appellees Duncan

Guidant Law , PLC, Tempe By Samuel Saks Counsel for Plaintiff/Appellee Keven Brown

OPINION

Vice Chief Judge David B. Gass delivered the opinion of the c ourt, in which Presiding Judge Paul J. McMurdie and Judge Angela K. Paton joined.

G A S S , Vice Chief Judge:

¶1 Public Storage , Inc., a self

- storage facility, appeals the superior court’s denial of its motion to compel arbitration. Because the superior court failed to apply the separability doctrine, we vacate the order and remand for further proceedings consistent with this decision.

FAC T UAL AND PROCEDURAL HIS TORY

¶2 At different times b etween 2016 and 2018
, Public Storage contracted with three unrelated renters

— Keven Brown (2016), Sally Schneider Duncan (together with her husband, David Duncan) (2018), and Tiffany Roberts (2018)

. The Duncan and Roberts rental con tract s were identical. T he Brown rental contract was not identical but included some of the same terms.

¶3 To begin, e ach rental contract contained an arbitration clause stating the parties agree d to “arbitrate any and all disputes or claims . . . relating to . . . the relationship between” the renter and Public Storage. TheDUNCAN, et al v. PUBLIC STORAGE Opinion of the Court

3 arbitration clause s specifically included consumer fraud and negligence claims. Each rental contract required the renter to a cknowledge the arbitration clause by initialing it . A nd each told the renter the arbitration clause was optional and explained how to reject it

. ¶4 Each rental contract also included an entirety clause, which (1) told the renter the written contract was the e ntire agreement , (2) disavowed an y prior statements , and (3) explained subsequent changes would need to be in writing

. Each rental contract required the renter to provide, at the renter’s expense, a lock the renter deemed sufficient to secure the unit. And each said the renter would not give Public Storage or any of its employees a key or combination to the lock.

¶5 In their complaint s , the renters allege d Public Storage ’s website stated prospective renters would “keep the only key to [their] unit.” The Duncans further allege d a Public Storage representative repeated the only

- key promise to them while standing outside their rental unit

. T he Du n cans ’ complaint , however
, does not mak e it clear whether that conversation occurred before or after the Duncans signed the ir rental
contract

. ¶6 The rental contract s differed in some respects. The Duncan and Roberts rental contract s said Public Storage would “not have possession, care, custody, or control over [their] stored property.” Brown’s rental contract did not.

¶7 In September 2018, a thief access ed the three units. The complaints allege d the thief used a “generic auctioneer code” to enter the gate outside Public Storage’s facilities. The thi ef then unlocked the rear doors to each rental unit and remov ed the renters’ possessions, including furniture, family heirlooms, historic gifts, photo albums, and other property

. The thief entered the units using Public Storage’s master key or keys obtained through the internet.

¶8 The r enters separately sued Public Storage
, alleging consumer fraud and negligence. Public Storage moved to dismiss each case and compel arbitration . T he superior court consolidated the thr ee cases for oral argument. After argument, the superior court denied Public Storage’s motion, finding the rental contracts void because Public Storage fraudulently induced the renters to enter them

. Public Storage timely appealed. This court has jurisdict ion under article VI, section 9, of the Arizona Constitution, and A.R.S. §§ 12

- 120.21.A.1 and 12

- 2101. 01. A.1.DUNCAN, et al v. PUBLIC STORAGE Opinion of the Court

4 ANALYSIS

¶9 Public Storage argues the superior court erred by denying its motion to compel arbitration because (1) it misconstrued the separability doctrine
, and (2) the r enters did not show the arbitration clause was fraudulently induced or unconscionable. The r enters maintain (1) Public Storage fraudulently induced them into agreeing to arbitrate disputes and (2) th e contract s are so unconscionable that no meeting of the minds occurred.

¶10 On review, this court treats a motion to compel arbitration like a motion for summary judgment. Gullett v . Kindred Nursing Ctrs. W., L.L.C. , 241 Ariz. 532, 54 0 , ¶ 27 (App. 2017) (cit ing Ruesga v. Kindred Nursing Ctrs. W., L.L.C. , 215 Ariz. 589, 596, ¶ 2 3 (App. 2007) )

. This court reviews de

novo a denial of a motion to compel arbitratio n

. Allstate Prop. & Cas. Ins. Co. v. Watts Water Tech., Inc. , 244 Ariz. 253, 256, ¶ 9 (App. 2018)

. But t his court defer s to an y findings of fact the superior court m ade in ruling on the motion unless they are “clearly erroneous or unsupported by any credible evidence.” See F ederoff v. Pioneer Title & Tr. Co. of Ari z. , 166 Ariz. 383, 388 (1990).

¶11 Here , no party asked for an evidentiary hearing, and the superior court did not hold one

. This court, therefore, assumes the superior court summarily determined any relevant disputed fact issues. See Ruesga , 215 Ariz. at 596, ¶ 24 (discussing A.R.S. § 12

- 1502

. A). If the superior court rules on an incorrect ground involving disputed fact issues and the correct ground involves different disputed fact issues, this court remands the case to the superior court to consider the relevant factual issues. Miller v. Bd. of Supervisors of Pinal Cnty. , 175 Ariz. 296, 301 (1993) (declining to adjudicate the issue on appeal not addressed in the superior court findings because a “final decision without findings was impossible without transforming this court into a factfinder resolving disputed issues of fact”) ; Aida Renta l Tr. v. Ariz. Dep ’ t of Revenue , 197 Ariz. 222, 233, ¶ 29 (App. 2000) (as corrected)

.

I. The Separability Doctrine

¶12 All parties agree the “separability doctrine ” governs arbitration clause s but disagree about how to apply that doctrine

. To begin, we need not resolve whether state or federal law controls because “the same analysis is mandated by both sets of statutes

. ” See WB, The Bldg. Co. v. El Destino, LP , 227 Ariz. 302, 306, ¶ 10 (App. 2011); see also Hamblen v. Hatch
, 242 Ariz. 483, 487

– 88, ¶ ¶ 16

– 17 (2017) ; 9 U.S.C. § 2 ; A.R.S. § 12

- 300 6

.DUNCAN, et al v. PUBLIC STORAGE Opinion of the Court

5 ¶13 Under the separability doctrine, an “arbitration clause is considered to be an agreement independent and separate from the principal contract.” U.S. Insulation, Inc. v. Hilro Constr. Co. , 146 Ariz. 250
, 253 (App. 1985). “[C] ourts must place arbitration agreements on equal footing with other contracts

. . . and enforce them according to their terms.” AT&T Mobility LLC v. Concepcion , 563 U.S. 333, 339 (2011) (internal citation omitted)

. Accordingly, a c hallenge to “ the contract as a whole, either on a ground that directly affects the entire agreement ( e.g. , the agreement was fraudulently induced), or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid ” is insufficient to render the arbitration clause un enforceable

. Rent

- A

- Center, W., Inc. v. Jackson , 561 U.S. 63, 70 (2010) (quoting Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 444 (2006) (emphasis in original) ). “ [A] court may only stay arbitration if there is a challenge t o the arbitration clause itself.” WB , 227 Ariz. at 306, ¶ 11. Nevertheless, “the same grounds may be used to challenge both an arbitration agreement and the underlying contract so long as an arbitration agreement itself is separately and distinctly challen ged on those grounds.” Id. at 307, ¶ 13.

¶14 In their responses to Public Storage’s motions to compel arbitration, the r enters did not raise a defense consistent with the separability doctrine. Except for a few different factual allegations , the

r enters ’ responses were nearly identical

. T he Duncans alone hinted at, but never developed, a n arbitration

- specific defense
, sa ying : “The very [rental contract] itself and all of its terms including the a rbitration [clause] are void because they were procured by due process violation s and induced by the lie [Public Storage] told [the r enters].” Beyond that, the renters’ responses did not suggest the arbitration clause s were distinctly induced by fraud or

u nconscionable

. Instead, they argued the entire rental contract s were substantively unconscionable because of terms outside the arbitration clause s

. ¶15 Then, at oral argument, the Duncans briefly developed a n arbitration

- specific theory premised on fraudulent inducement, and the other r enters adopted those arguments by reference. Though the r enters did
not adequately raise the appropriate theory in their respons es , we exercise our discretion to address the mer its because the renters advanced a theory consistent with the separability doctrine both during oral argument in the superior court and on appeal. See State v. Aleman , 210 Ariz. 232, 240, ¶ 24 (App. 2005) (waiver is a procedural concept this court does not “rigidly employ in mechanical fashion”).DUNCAN, et al v. PUBLIC STORAGE Opinion of the Court

6 II. The Enforceability of the Arbitration Clause s
¶16 An arbitration clause “is valid, enforceable and irrevocable except on a ground that exists at law or in equity for the revocation of a contract.” A.R.S

. § 12

- 3006.A; see also WB
, 227 Ariz. at 308, ¶ 14; 9 U.S.C. § 2

. Those grounds include “generally applicable contract defenses, such as fraud, duress, or unconscionability.” Rent

- A

- Center , 561 U .S. at 68 (quoting Dr

. ’s Assocs., Inc. v. Casarotto , 517 U.S. 681 , 687 (1996)) ; see also WB
, 227 Ariz. at 308, ¶ 14 (defenses to arbitration include “lack of mutual consent, consideration or capacity [,] fraud, duress, lack of capacity, mistake , or violation of a public purpose ” ( quoting Hilro , 146 Ariz. at 253 ) )

. We address the r enters’ fraudulent inducement defense before turning to their unconscionability argument.

A. Fraudulent Inducement

¶17 The r enters argue “Public Storage induced the making of the arbitration [clause] itself by fraudulently representing the very es sence of the security it was supposed to provide.” Public Storage counters by arguing the r enters failed to show it fraudulently induced them to agree to the arbitration clause s

. ¶18 In the superior court , a party seeking to compel arbitration must demonstrate the existence of an arbitration agreement . A.R.S. § 12

- 3007 .A

. The superior court next “determines whether material issues of fact are disputed, and, if such factual disputes exist, then conducts an
expe dited discovery hearing to resolve the dispute.” Ruesga , 215 Ariz. at 596, ¶ 24 (quoting Haynes v. Kuder , 591 A.2d 1286, 1290 (D.C. 1991)). On a motion to compel arbitration, the “burden of proving a generally applicable contract defense lies with the part y challenging” the arbitration clause. Gullett , 241 Ariz. at 54 1 , ¶ 31 ( ci ting Guidotti v. Legal Helpers Debt Resol

. , L.L.C. , 716 F.3d 764, 774 n.5 (3d Cir. 2013) (quoting Lloyd v. HOVENSA, LLC
, 369 F.3d 263, 274 (3d Cir. 2004)) ).

¶19 Public Storage met its initial burden by providing the parties’ signed arbitration clause s. T he r enters then bore the burden to bring forth evidence establishing a genuine dispute of material fact as to the arbitration clause s’ enforceability. See Ruesga
, 215 Ariz. at 596, ¶ 24.

¶20 Here, the renters claimed Public Storage fraudulently induced them to enter the rental contracts. Fraud requires proof of the following elements:DUNCAN, et al v. PUBLIC STORAGE Opinion of the Court

7 (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker ’ s knowledge of its falsity or ignorance of its truth; (5) the speaker ’ s intent that it be acted upon by the recipient in the manner reasonably contemplated; (6) the hearer ’ s ignorance of its falsity ; (7) the hearer ’ s reliance on its truth; (8) the hearer ’ s r ight to rely on it; [and] (9) the hearer ’ s consequent and proximate injury.

Comerica Bank v. Mahmoodi , 224 Ariz. 289, 291

– 92, ¶ 14 (App. 2010). B ecause a defense to a motion to compel arbitration seeks rescission, not damages, “a defrauded party does not have to show pecuniary damages in order to defeat a [motion] to compel arbitration.” Engalla v. Permanente Med. Grp. , 15 Cal. 4th 951, 98 0 (Cal. 1997) ; see also Le hnhardt v. City of Phoenix , 105 Ariz. 142, 144 (1969) (damages ar e not an essential element of a rescission claim based on misrepresentation )

. ¶21 On appeal, the r enters contend Public Storage induced them to agree to arbitrate any dispute by falsely promising they would each have the only key to their respective storage fa cilities. To be clear, the rental
contract s say the renter shall provide a lock for the unit and shall not provide a key or combination to Public Storage. The Duncan and Roberts rental contract s also say Public Storage will not have “ possession, care, custody, or control over [the renters’] stored property

. ” No rental contract states Public Storage will not keep a master key. Nevertheless , the renters argue they were fraudulently induced by statements made outside the
express contract ual terms

. The r ent ers ’ evidence, however, was limited to the rental contract s, a hyperlink to Public Storage’s website containing its only

- key promise, and a reference to the criminal case number in the thief’s criminal matter. The Duncans also alleged a Public Storage empl oyee repeated the on ly

- key promise while standing outside their unit. But

n either the Duncans nor the other renters file d an affidavit or testif ied about why they agreed to arbitration.

¶22 T he superior court denied Public Storage’s motion because it found the entire rental contract was fraudulently induced . The superior court’s ruling is inconsistent with the separability doctrine. See supra at ¶ 1 3

. Under that doctrine , t he only issue before the superior cour t was whether the arbitration clause s

— not the rental contracts as a whole

— w ere fraudulently induced

. See Rent

- A

- Center , 561 U.S. at 7 0 (“a party’s challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate”)

. In short
, on a motion to compel arbitration, the doctrine of separability squarelyDUNCAN, et al v. PUBLIC STORAGE Opinion of the Court

8 requires the superior court to consider whether the arbitration clause

— not the overall contract

— is enforceable

. See id.

¶23 T hough this court defers to the superior court’s factual findings absent clear error, the superior court here made no findings as to what induced the r enters to agree to arbitrat ion

. T he superior court did find “a Master Key that opened the back of each uni t was in fact stored in the Manager’s Office of Public Storage, as well as an auctioneer code which allowed access to the property and individual storage units.” Though the

r enters did not present direct evidence of a master key, they did reference a crimi nal case they said included those facts. Nothing in the record suggests the superior court looked at or took judicial notice of that criminal

case. See In re Sabino R. , 198 Ariz. 424, 425, ¶ 4 (App. 2000) ( A court may “take judicial notice of its own recor ds or those of another action tried in the same court

. ”)

. ¶24 The parties dispute why the r enters agreed to arbitration, and the superior court must resolve that dispute. Cf. WB , 227 Ariz. at 308, ¶ 15 ( holding arbitration clause void because undisputed relev ant facts supported the defense to arbitration ). T he r enters preserved this argument
, but only by the thinnest of margins

. The better practice is to submit evidence or to request an evidentiary hearing. See Ruesga , 215 Ariz. at 596, ¶ 24 ( “[T]he party claiming that there is a dispute of fact regarding arbitrability has the burden of requesting an evidentiary hearing.” ). W e remand this matter to the superior court to determine whether , in making

an “only

- key promise
, ” Public Storage necessarily represent ed it would not have a master key, and such representation fraudulently induced each of the renters to agree to arbitration. See Engalla , 15 Cal. 4th at 973

– 81 (remanding, in part, because plaintiffs presented sufficient evidence to establish material factual disputes regarding their fraudulent inducement challenge to an arbitration clause ) ; s ee also State v. Cid , 181 Ariz. 496, 500 (App. 1995) (the “find er

- of

- fact, not the appellate court, weighs the evidence” and determines credibility).

¶25 As discussed above, th e superior court must determine on remand whether Public Storage fraudulently induced the renters to agree to arbitration

. See supra at ¶ ¶ 1 3
, 2 4

. What induced the r enters into entering the entire rental contract is irrelevant to that determination. See supra at ¶ 13.DUNCAN, et al v. PUBLIC STORAGE Opinion of the Court

9 B. Unconscionability

¶26 We address whether the arbitration clause s are

uncons cionable because the issue may otherwise recur on remand. Under the separability doctrine, we decline to address whether the entire rental
contract s are unconscionab le

. See supra at ¶ 13.

¶27 Public Storage maintains the r enters “ never claimed the Arbitration [Clause] itself was unconscionable.” In r esponse, the r enters assert that “the contract is so contrary to the provision of storage services

. . . it did not reflect any meeting of the minds as to arbitration
, ” meaning the scope of arbitratio n was left “ undefined. ” W e agree with Public Storage.

¶28 To begin , the rental contract s did not l eave the scope of arbitration undefined

. The arbitration clause in e ach rental contract mandated arbitration would be the forum to resolve “any and all disputes” between the parties

. And each arbitration clause specifi cally covered both negligence and consumer protection claims

— the exact claims each r enter brought

. ¶29 The r enters identify nine contractual terms outside the arbitration clause they contend rendered the entire rental contract unconscionable. As support, the r enters compare those terms to similar contractual terms in Gonzalez v. A

- 1 Self Storage, Inc.
, 795 A.2d 885 (N.J. 2000). The r enters’ reliance on Gonzalez is unavailing because that case

— though it addressed unconscionability at storage facilities

— did not involve

an arbitration clause

. See generally id. As stated above, regardless of whether

a challenge to arbitrability is based on fraud or on unconscionability, under the doctrine of separability , the only issue is whether the arbitration clause is enforceable, not whether the remainder of the contract might be enforceable

. See Rent

- A

- Center , 561 U.S. at 7 0 (“a party’s challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from e nforcing a specific agreement to arbitrate”).

¶30 “Substantive unconscionability concerns the actual terms of the contract ,” and because separability governs arbitration, the terms of the arbitration clause

— standing alone

— govern its substantive

un conscionabili ty. See Maxwell v. Fid. Fin. Servs., Inc. , 184 Ariz. 82 , 89 (1995); see also Hilro , 146 Ariz. at 253 . Indeed, this court has recognized substantive unconscionability challenges to arbitration only when grounded on the terms of the arbitration clause itself. See, e.g.
, Harrington v. Pulte Home Corp.
, 211 Ariz. 241, 252

– 53, ¶¶ 42

– 49 (App. 2005); Clark v. Renaissance W., LLC
, 232 Ariz. 510
, 512

– 13, ¶¶ 8

– 13 (App. 2013) ; Gullett , 241 Ariz. at 535

– 40,DUNCAN, et al v. PUBLIC STORAGE Opinion of the Court

10 ¶¶ 7

– 25; Falcone Bros. & Assocs., Inc. v. City of Tucs on , 240 Ariz. 482, 490, ¶ 21 (App. 2016).

¶31 In the arbitration context, substantive unconscionability focuses on whether part ies can “effectively vindicate [their] rights in the arbitral forum.” Rizzio v. Surpass Senior Living LLC , 251 Ariz. 413, 417 , ¶ 10 (2021) ; see also Clark , 232 Ariz. at 51 2 , ¶ 9 (arbitration agreements may be substantively unconscionable if, for example, “the fees and costs to arbitrate are so excessive as to ‘ deny a potential litigant the opportunity to vindicate his or her rights ’” (quoting Harrington , 211 Ariz. at 252, ¶ 43) )

. The r enters have not argued t he terms of the arbitration clause s are unconscionable or the arbitral forum will prejudice their claims . The r enters, therefore, have not shown the arbitration clause s are substantively unconscionable.

CONCLUSION

¶32 We vacate the superior court’s denial of Public Storage’s motion to compel arbitration and remand to the superior court to determine
, consistent with this decision, whether Public Storage fraudulently induced the renters to agree to the arbitrat ion clauses

.