Court Opinion

ID: 619894
Source: CourtListenerOpinion
Date Created: 2011-12-28 01:01:15+00
Date Added: 2024-06-11T17:50:50.000362
License: Public Domain

FILED
                             NOT FOR PUBLICATION                            DEC 27 2011

                                                                        MOLLY C. DWYER, CLERK
                      UNITED STATES COURT OF APPEALS                     U .S. C O U R T OF APPE ALS

                             FOR THE NINTH CIRCUIT

BEST WESTERN INTERNATIONAL                       No. 10-16851
INCORPORATED, an Arizona non-profit
corporation,                                     D.C. No. 2:08-cv-02274-DGC

                Plaintiff-counter-defendant -
Appellee,                                        MEMORANDUM *

  v.

AV INN ASSOCIATES 1, LLC, a
California limited liability company;
HOOSHANG HAROONI,

                Defendants-counter-claimants
- Appellants.

                     Appeal from the United States District Court
                              for the District of Arizona
                     David G. Campbell, District Judge, Presiding

                       Argued and Submitted December 7, 2011
                              San Francisco, California

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: O’SCANNLAIN and BERZON, Circuit Judges, and ENGLAND, District
Judge.**

      Plaintiff-Counterdefendant Best Western International Inc. (Best Western)

sued Defendants-Counterclaimants Hooshang Harooni and AV Inn Associates 1,

LLC (collectively, Harooni) for breach of contract, breach of open account, and

breach of account stated, seeking to collect unpaid amounts relating to Harooni’s

recently terminated Best Western membership. Harooni individually

counterclaimed for breach of contract, breach of implied contract, and breach of

the implied covenant of good faith and fair dealing. On cross-motions for

summary judgment, the district court granted summary judgment for Best Western

on both its claims and Harooni’s counterclaims. We affirm.1

      1. Harooni challenges the district court’s application of Arizona law to this

dispute, which he maintains should be governed by the California Franchise

Relations Act, Cal. Bus. & Prof. Code § 20000 et seq. Because the federal district

          **
             The Honorable Morrison C. England, Jr., District Judge for the U.S.
District Court for the Eastern District of California, sitting by designation.
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        In addition to the issues we address, Harooni contends that allowing Best
Western to prevail on its claims would effect an inequitable forfeiture and that the
reasonable expectations doctrine should estop Best Western from enforcing the
contract. We do not reach these issues, however, because Harooni did not argue
them with sufficient specificity in his opening brief. See, e.g., Greenwood v. FAA,
28 F.3d 971, 977 (9th Cir. 1994).

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court hearing this diversity dispute sits in Arizona, Arizona conflict of laws

principles govern. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496

(1941). Arizona applies the law of the forum state, unless a conflict affecting the

outcome of the litigation exists between the laws of the forum state and the laws of

another interested state. See Bruce Church, Inc. v. United Farm Workers of Am.,

816 P.2d 919, 930 n.8 (Ariz. Ct. App. 1991); Lombardo v. Pollock, 521 P.2d 636,

637 (Ariz. Ct. App. 1974). Harooni does not identify, and we cannot locate, any

conflict between California and Arizona law affecting the outcome of this

litigation. The district court therefore did not err in applying Arizona law.

      2. Harooni contends that the district court erred in holding that Ariz. Rev.

Stat. § 10-3621 did not require Best Western to hold a “fair” pre-termination

hearing. In so holding, the district court purported to apply § 10-3621(B)(1).

Section 10-3621(A), however, requires corporations to terminate members

pursuant to any procedures set forth in the corporation’s governing documents or

in an agreement between the member and the corporation. Best Western’s

Members’ Bill of Rights states that each member of Best Western shall have “[t]he

right to continue membership in Best Western except where termination or

cancellation is provided for pursuant to the fair application of established Bylaws

and Rules and Regulations, which shall provide that cancellation may not occur

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until after a hearing before the Board of Directors, if requested by the member.”

We thus conclude that § 10-3621 did require Best Western to hold a “fair” pre-

termination hearing.

      The district court may, however, be affirmed on any grounds supported by

the record. See Mustang Mktg., Inc. v. Chevron Prods. Co., 406 F.3d 600, 606 (9th

Cir. 2005). Although Harooni contends that his pre-termination hearing was

unfair, he does not cite any evidence in the record that raises a genuine issue of

material fact as to the hearing’s fairness. Harooni was not, for example, thwarted

in any attempt to present witnesses or documents supporting his position.

Summary judgment was therefore appropriate. See, e.g., Corales v. Bennett, 567
F.3d 554, 562 (9th Cir. 2009).

      3. Harooni maintains that Best Western terminated his membership in bad

faith, using his failed inspections as a pretext for the termination. Contrary to

Harooni’s submission, Best Western’s exercise of discretion in conducting the

inspections does not itself demonstrate the existence of bad faith. Cf. Wells Fargo

Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust

Fund, 38 P.3d 12, 30 (Ariz. 2002) (“The good faith performance doctrine may be

said to permit the exercise of discretion for any purpose – including ordinary

business purposes – reasonably within the contemplation of the parties.” (quoting

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Sw. Sav. & Loan Ass’n v. SunAmp Sys., Inc., 838 P.2d 1314, 1319–20 (Ariz. Ct.

App. 1992))). Harooni does not identify any other evidence raising a genuine issue

of material fact as to whether Best Western terminated his membership in bad

faith.

         4. Harooni argues that Best Western’s improper termination of his

membership violated its fiduciary obligations. “A commercial contract creates a

fiduciary relationship only when one party agrees to serve in a fiduciary capacity.”

Urias v. PCS Health Sys., Inc., 118 P.3d 29, 35 (Ariz. Ct. App. 2005); cf.

Consumers Int’l, Inc. v. Sysco Corp., 951 P.2d 897, 902 (Ariz. Ct. App. 1997)

(holding that the implied covenant of good faith and fair dealing does not require a

franchisor to show good cause for terminating a franchise agreement). Harooni has

not identified any evidence in the record showing that Best Western agreed to serve

in a fiduciary capacity. As a result, he has failed to raise a genuine issue of material

fact regarding the existence of any fiduciary obligations.

         5. Harooni contends that Article II, § 7(A)(7) of Best Western’s Bylaws and

¶ 12 of the Members’ Bill of Rights required Best Western to offer him a

conditional extension of membership in lieu of termination. He is mistaken.

Members who continue to violate Best Western’s rules and regulations after

receiving a discretionary extension of membership, under Article II, § 8 of the

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Bylaws, can either be terminated automatically (under § 7(A)(7)) or penalized

(under ¶ 12). Because the Board decided not to grant Harooni a conditional

extension of membership pursuant to § 8, neither ¶ 12 nor § 7(A)(7) applies.

      6. Harooni contends that he is entitled to recover the losses incurred by his

corporate entities, AV Operations Group, Inc. and AV Inn Associates 1, LLC. We

will assume for purposes of this issue and the next that Harooni’s counterclaim

sought to, or could have been amended to, state a fraud-in-the-inducement claim

independent of the contract issues we have decided against him. We nonetheless

disagree that any such claim should have been allowed to proceed. AV Operations

Group was not a party to either the Membership Agreement or this litigation, and

AV Inn Associates was barred from asserting a counterclaim. Accordingly, neither

entity may recover from Best Western in this dispute. Moreover, even if Harooni

could assert an individual counterclaim on behalf of his corporate entities, he has

not done so here.

      7. Finally, Harooni maintains that he sufficiently established his personal

damages. He argues that the losses suffered by his corporate entities, which passed

through to him under federal and state tax law, constitute personal damages.

Contrary to Harooni’s submission, the special tax rules applied to S corporations do

not alter the entities’ corporate character or subvert the legal principles separating

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the shareholder from the corporation. Ding v. Comm’r, 200 F.3d 587, 589-90 (9th

Cir. 1999); see also Schroeder v. Hudgins, 690 P.2d 114, 117 (Ariz. Ct. App. 1984)

(stating that a shareholder “may not maintain an action individually for wrongs

against the corporation”), abrogation on other grounds recognized by Franko v.

Mitchell, 762 P.2d 1345, 1353 n.1 (Ariz. Ct. App. 1988).

      Harooni also argues that the funds he personally invested to renovate the

hotel establish his individual damages. He relies on the testimony of Scott Evans,

his “accountant and financial expert,” to establish his personal losses. The district

court disregarded Evans’s testimony because Harooni did not properly disclose

Evans as an expert witness and did not argue that Evans should be considered a

percipient witness until the motion for reconsideration. Harooni now maintains, in

his reply brief, that the court should have accepted Evans’s testimony because

Evans was a percipient witness. We decline to reach this argument, because

Harooni did not adequately preserve it before the district court and did not argue it

in his opening brief here. See Intercontinental Travel Mktg, Inc. v. FDIC, 45 F.3d
1278, 1286 (9th Cir. 1994); Greenwood, 28 F.3d at 977. Furthermore, Harooni has

not demonstrated how the amount of investments he allegedly made in

improvements establish his individual damages for a claim based on fraudulently

inducing his corporate entity’s original purchase of the hotel.

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AFFIRMED.

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