Court Opinion

ID: 9931179
Source: CourtListenerOpinion
Date Created: 2024-02-08 17:02:29.514847+00
Date Added: 2024-06-11T12:17:20.211466
License: Public Domain

`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  UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

           GROWTH OPPORTUNITIES, INC., Plaintiff/Appellant,

                                         v.

                  TENBAR, INC., et al., Defendants/Appellees.

                              No. 1 CA-CV 23-0143
                                FILED 2-8-2024

            Appeal from the Superior Court in Maricopa County
                           No. CV2019-014852
                   The Honorable Dewain D. Fox, Judge

    AFFIRMED IN PART; VACATED AND REMANDED IN PART

                                    COUNSEL

Tiffany & Bosco, P.A., Phoenix
By Robert A. Royal, Matthew R. Holt
Counsel for Plaintiff/Appellant

Quarles & Brady LLP, Phoenix
By Jimmie W. Pursell, Jr., Daniel J.F. Peabody
Counsel for Defendants/Appellees

                     MEMORANDUM DECISION
Chief Judge David B. Gass delivered the decision of the court, in which
Presiding Judge Jennifer B. Campbell and Judge Anni Hill Foster joined.
                        GROWTH v. TENBAR, et al.
                          Decision of the Court

G A S S, Chief Judge:

¶1           This appeal arises out of a dispute over a lease agreement for
property used as a marijuana cultivation facility. The key issues are whether
the landlord consented to an assignment of the lease from named to
putative tenant and, relatedly, whether the landlord waived the lease’s
requirement for landlord consent to such assignment. The putative tenant
appeals the superior court’s granting of summary judgment for the
landlord.

¶2            Though this appeal involves only a few parties, its resolution
requires us to journey through six claims and a complicated web of business
relationships with other entities and their dealings. At the end of that
journey, we vacate summary judgment against the putative tenant and
remand for further proceedings on two claims against the landlord: breach
of contract and—in the alternative—unjust enrichment. We affirm
summary judgment against the putative tenant and for the landlord on the
four remaining claims: breach of the duty of good faith and fair dealing,
negligent misrepresentation, promissory estoppel, and breach of statutory
lease.

               FACTUAL AND PROCEDURAL HISTORY

¶3           When reviewing an order granting summary judgment, this
court views the facts in the light most favorable to the non-moving party.
Andrews v. Blake, 205 Ariz. 236, 240 ¶ 12 (2003).

I.    The issues here arise from a web of complex business
      relationships.

¶4            Tenbar, Inc. is the landlord. Tenbar, Inc.’s president, William
Barber, signed the lease for Tenbar. Throughout this decision, we refer to
Tenbar, Inc. and Tenbar, Inc.’s president collectively as the landlord.

¶5            Apache Growth Management 31st Ave., LLC is the named
tenant on the lease. As explained in the next paragraph, the named tenant
entity was dissolved before the issues in the litigation arose.

¶6            GMX Management Group, LLC is the putative tenant. The
putative tenant bought the named tenant’s assets and assumed the named
tenant’s interest under the lease shortly before the named tenant entity was
dissolved. GMX later assigned any claims arising out of the lease to Growth
Opportunities, Inc., not to be confused with Growth Management 31st Ave.,
LLC, the named tenant identified above. Because Growth Opportunities,

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Inc. stands in GMX’s shoes in this litigation, we refer to GMX and Growth
Opportunities, Inc. collectively as the putative tenant throughout this
decision.

¶7             The third set of business entities involved is the dispensary
registration certificate holders. The named tenant and the putative tenant
could not independently operate the facility because they did not hold a
dispensary registration certificate. Instead, the tenant (named or putative)
had to operate under a management agreement with a dispensary
certificate holder. A company called FWA was the original certificate holder
for the named tenant and then for the putative tenant. Later, an affiliate of
that original certificate holder entered into a management agreement with
the putative tenant to oversee the putative tenant’s management of the
facility for the original certificate holder. Several years later, the putative
tenant began negotiating a management agreement with yet a different
certificate-holding dispensary under which the putative tenant could
operate the facility, but an agreement was never finalized.

¶8             One other individual merits mention. Michael Forakis was the
named tenant’s managing partner, and he signed the lease for the named
tenant. He also formed GMX, the entity that assumed the named tenant’s
lease. Forakis also served as GMX’s director for a time. He also formed, and
was a director of, the original certificate holder (FWA). Later, he formed the
original certificate holder’s affiliate as another corporate layer to oversee
the cultivation at the facility.

II.    The landlord and the named tenant entered into the lease.

¶9            In December 2013, the landlord leased a facility to the named
tenant to be used as a marijuana cultivation facility. The lease was for a term
from January 2014 through April 2019. Forakis signed the lease on behalf of
the named tenant. The named tenant paid a $25,000.00 security deposit
under the lease.

¶10           The lease included a sublet clause. The clause read, “The
Tenant shall not sublet any part of the premises, nor assign the lease, or any
interest therein, without the written consent of the Landlord.” The lease
also included an “Assignment and Acceptance” term. The assignment
clause included blank spaces for the parties to an assignment to fill in with
their names and signatures and a space where the landlord could sign to
show consent.

III.   The named tenant and the putative tenant entered into the asset
       purchase agreement.

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¶11             In October 2015, about two years into the lease, Forakis wrote
a letter to the landlord explaining the putative tenant would “manage, pay
the bills and collect the receipts for [the named tenant]” going forward.
Starting that month, the putative tenant paid the rent from the putative
tenant’s bank account. Two months later, the named tenant and the
putative tenant executed an “Assets Purchase Agreement.” Under that
purchase agreement, the putative tenant bought the named tenant’s assets,
including equipment and inventory, and assumed the lease.

¶12          Consistent with the putative tenant assuming the lease, the
purchase agreement itemized the named tenant’s $25,000.00 security
deposit as part of the purchase price. Neither the putative tenant nor the
named tenant notified the landlord of the purchase agreement. And neither
the landlord, the named tenant, nor the putative tenant executed the
assignment term in the lease.

¶13          Yet around the time of the putative tenant’s formation,
Forakis made a telephone call to the landlord and introduced one of the
putative tenant’s senior managers. Forakis told the landlord the manager
would handle transitioning the lease from the named tenant to the putative
tenant. And the putative tenant made rent payments consistent with
amounts due under the lease for more than two years, until the putative
tenant was forced to leave the facility.

¶14          About six months after the putative tenant and the named
tenant executed the purchase agreement, the named tenant was dissolved
as a corporate entity, and Forakis resigned from his management position
with the putative tenant.

IV.    The putative tenant and the original certificate holder’s affiliate
       entered into the facility management agreement.

¶15           Under the Arizona Medical Marijuana Act (the Act), the
putative tenant could only operate a cultivation facility under the authority
of a nonprofit medical marijuana dispensary registered with the Arizona
Department of Health Services (the Department). See A.R.S. §§ 36-2801.12
(identifying activities in which a nonprofit medical marijuana dispensary
may engage), -2804.A, B (requiring registration and certificate); A.A.C.
R9-17-305. Here, the original certificate holder was already registered as a
nonprofit dispensary. The original certificate holder’s certificate authorized
operation of its specific dispensary location and one offsite cultivation
facility. See A.R.S. § 36-2804.B.1(b)(ii) (permitting registration of one

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cultivation facility). The facility at issue here was the original certificate
holder’s designated offsite cultivation facility.

¶16           The putative tenant and the original certificate holder’s
affiliate executed a management agreement. Under the management
agreement, the putative tenant would operate the original certificate
holder’s cultivation facility on the premises leased by the named tenant,
which the putative tenant did for several years.

¶17           The putative tenant also had to “pay all costs and expenses of
the managing and operating [the facility], including costs associated with
leases and rent, improvement or maintenance of facilities . . ., and any and
all tenant improvement costs associated with operations at that location,
including any and all tenant improvements required by [the Act and its
regulations].” The management agreement also included a schedule of
improvements the putative tenant committed to make to the facility with
its own funding.

¶18            All the putative tenant’s employees were registered
dispensary agents under the original certificate holder’s operation
authority and could enter the facility only if the original certificate holder
maintained their agent registration. The original certificate holder, not the
putative tenant, had to register the agents. See A.A.C. R9-17-311 (dispensary
to apply to Department for dispensary agent registry identification cards).
Under the Act, all persons who work at a cultivation facility must be
registered with the Department and must have an agent card to show their
registration status. See A.R.S. § 36-2806.E (limiting persons who may access
a cultivation facility to “registered nonprofit medical marijuana dispensary
agents”); A.A.C. R9-17-310.A.7. Unregistered persons cannot enter the
cultivation facility without a registered agent as an escort. See A.A.C. R9-
17-310.A.8.

V.     The putative tenant alleged the landlord assigned the named
       tenant’s lease to the putative tenant.

¶19           Around August 2017, the City of Phoenix approached the
putative tenant about compliance with a Phoenix ordinance regulating
marijuana cultivation facilities. Phoenix was reluctant to work with the
putative tenant because the putative tenant could not produce a lease with
its name on it.

¶20           To address Phoenix’s concerns, the putative tenant wrote to
the landlord and asked for “an entity change on the current lease.” The
letter explained “the lease should have been changed when [the named

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tenant] was purchased by [the putative tenant] in December of 2015.” The
change, the letter continued, would “make[] it easier for [the putative
tenant] to conduct business with the City of Phoenix.” In response, the
landlord sent the putative tenant a copy of the lease with the named
tenant’s name scratched out and replaced with the putative tenant’s name
(the scratched-out lease). When the putative tenant questioned the landlord
about the sufficiency of the scratched-out lease, the landlord responded
saying it was all the putative tenant needed for now. The putative tenant
understood the landlord’s comment as meaning the putative tenant could
take the scratched-out lease to the city of Phoenix and use it to hold itself
out as the landlord’s cultivation-facility tenant.

¶21            Around that time, the landlord telephoned Forakis to ask
about the putative tenant’s identity. Forakis testified he responded, “I told
him they are your tenants—or I told him reach out to your tenants and get
some clarification.” Even so, the landlord continued to accept rent
payments from the putative tenant for about six months. Forakis had been
the manager of the putative tenant when it was formed and when it entered
the purchase agreement with the named tenant. Yet nothing in the record
suggests Forakis told the landlord he had not been affiliated with the
putative tenant in the more than a year after he resigned from his
management position with the putative tenant. Indeed, the landlord later
testified, “[T]he only tenant was [the named tenant] operated by Michael
Forakis[, a]nd since he’s still there or his partner, . . . that’s all we really
cared about.”

VI.    The putative tenant’s relationship with the original certificate
       holder’s affiliate collapsed, and the putative tenant began a
       relationship with a different dispensary holding its own
       dispensary registration certificate.

¶22            Through 2017, tension grew between the putative tenant and
the original certificate holder’s affiliate. The affiliate grew concerned about
several issues, including the putative tenant allegedly allowing
unregistered persons into the facility, which could endanger the
certification. In September 2017, the original certificate holder’s affiliate
sued the putative tenant, alleging breach of contract.

¶23            About two months later, the putative tenant signed a letter of
intent with a different dispensary that held its own dispensary registration
certificate. The letter of intent’s stated purpose was “to establish basic terms
to be used in a future licensing agreement,” which would include the
putative tenant’s “lease” of the other dispensary’s license to cultivate

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marijuana under its certificate, in return for supplying the marijuana so
cultivated to the other dispensary. The letter of intent did not prevent the
putative tenant or the other dispensary from negotiating with third parties
on the same matters and was neither binding nor enforceable. The putative
tenant and the other dispensary continued to discuss possible terms and
exchanged multiple draft agreements. The other dispensary’s owner later
testified they had been close to a final agreement. Discussion continued
through at least January 2018 but faltered once the other dispensary learned
the putative tenant lost access to the facility.

¶24           About a month after signing the letter of intent with the other
dispensary, the putative tenant sent a letter to the original certificate
holder’s affiliate. In that letter, the putative tenant told the original
certificate holder’s affiliate it had elected to terminate the management
agreement as of May 14, 2018, the expiration of the management
agreement’s initial term. Several months later, on February 20, 2018, the
putative tenant sent the original certificate holder’s affiliate a letter
purporting immediately to terminate the management agreement because
of various alleged breaches by the original certificate holder’s affiliate. The
putative tenant attached a proposed agreement transferring the facility’s
marijuana inventory from the original certificate holder’s affiliate to the
other dispensary.

VII.   The landlord terminated the lease, and the putative tenant was
       removed from the facility.

¶25            In January 2018, a director for the original certificate holder
drafted a letter for the landlord’s signature. That director addressed the
letter to the named tenant and to Forakis as a director for the original
certificate holder. As noted above, the named tenant no longer existed at
that point, but Forakis had been the managing partner who signed the lease
for the named tenant and was the manager of the putative tenant when it
bought all the named tenant’s assets. And he was a director for the original
certificate holder.

¶26            The letter said the landlord had approved no lease
assignment, the named tenant failed to pay rent due on January 1, 2018, the
named tenant failed to obtain lease-required approval for facility
alterations, and the landlord was “terminating the lease immediately.” The
letter then said:

       Furthermore . . ., I have asked [the named tenant], . . . to be
       the tenant on record and no others.

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       Herein I authorize [the original certificate holder] to contact
       authorities and evict anyone in contrary to the above
       arrangements.

       Please be advised as the Landlord herein I am leasing the
       Premises to [the original certificate holder] on the same terms
       and conditions set forth in the Lease.

¶27             The landlord signed and sent the letter as drafted. Even so,
the landlord later testified he did not recall the letter, did not recall reading
it, did not write it, and was “not capable of giving . . . an opinion” about
who wrote it. The landlord then testified the named tenant—“whatever
they called themselves”—did not fail to pay the rent as the letter said and
the facility’s alterations “had nothing to do with [the landlord].”

¶28            The landlord sent the letter eight days after the putative
tenant said it was terminating the management agreement with the original
certificate holder’s affiliate because of alleged breaches by the affiliate. The
record is unclear about when and how the putative tenant learned of the
landlord’s letter to the then-defunct named tenant. The record, however,
shows the original certificate holder revoked all the putative tenant
personnel’s agent cards before February 26, 2018. On February 26, 2018, the
original certificate holder’s affiliate went to the facility with private armed
security, removed the putative tenant’s personnel, and prevented their
reentry. The original certificate holder’s affiliate allowed only one putative
tenant employee to reenter the property, and only under the affiliate’s
supervision. The employee could not retrieve property, including funds left
in the onsite safe because accessing the safe would require giving the
combination to the original certificate holder’s affiliate.

VIII. The putative tenant sued the landlord.

¶29           The putative tenant sued the landlord alleging breach of
contract, unjust enrichment, breach of the covenant of good faith and fair
dealing, negligent misrepresentation, promissory estoppel, and breach of
statutory lease. The superior court granted summary judgment for the
landlord on all claims.

¶30          We have jurisdiction over the putative tenant’s timely appeal
under article VI, section 9, Constitution of Arizona, and A.R.S.
§§ 12-2101.A.1 and 120.21.A.1.

                                  ANALYSIS

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¶31            The superior court may grant summary judgment when no
genuine issue of material fact exists and the moving party is entitled to
judgment as a matter of law. Orme Sch. v. Reeves, 166 Ariz. 301, 305, 309
(1990); Ariz. R. Civ. P. 56(a). This court reviews a grant of summary
judgment de novo and will affirm “for any reason supported by the record,
even if not explicitly considered by the superior court.” KB Home Tucson,
Inc. v. Charter Oak Fire Ins. Co., 236 Ariz. 326, 329 ¶ 14 (App. 2014); see also
Andrews, 205 Ariz. at 240 ¶ 12.

I.     Issues of material fact preclude summary judgment on the
       putative tenant’s breach-of-contract claim.

¶32          The putative tenant challenges the superior court’s grant of
summary judgment for the landlord on the putative tenant’s
breach-of-contract claim. The party claiming a breach of contract has the
burden to prove the existence of the contract, the breach, and the resulting
damages. ChartOne, Inc. v. Bernini, 207 Ariz. 162, 170 ¶ 30 (App. 2004).

       A.     The putative tenant established a disputed issue of material
              fact about whether the landlord agreed to assign the named
              tenant’s interest in the lease to the putative tenant.

¶33           The superior court determined the putative tenant was not
the landlord’s tenant because “no reasonable juror could conclude that by
scratching out ‘[the named tenant]’ and adding ‘[the putative tenant]’,
Defendant [the landlord] intended to modify the lease to make [the putative
tenant] the tenant.” The superior court then concluded the resulting lack of
tenancy “preclude[d]” the putative tenant’s claim of wrongful eviction and
“defeat[ed]” the putative tenant’s negligent misrepresentation and
promissory estoppel claims.

¶34            Tenants have a right to assign or sublet their leasehold
interests freely when not explicitly restricted from doing so by contract or
statute. See Tucson Med. Ctr. v. Zoslow, 147 Ariz. 612, 614 (App. 1985).
Arizona follows the Restatement rule allowing a lease to require a
landlord’s consent to validate an assignment, but the landlord may not
unreasonably withhold such consent. Id. (quoting Restatement (Second) of
Property § 15.2(2) (1977)). If a tenant fails to obtain the landlord’s consent
as required by a lease, that failure may give rise to an action for breach, but
such action belongs only to the landlord, not the purported assignee. Riffle
v. Robert L. Parker Co., 19 Ariz. App. 100, 106 (App. 1973). And landlords
have the right to waive a lease’s consent requirement. M. Karam & Sons
Mercantile Co. v. Serrano, 51 Ariz. 397, 407–08 (1938). Whether a landlord has

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waived a lease’s consent provision is a question of fact. See Chaney Bldg. Co.
v. Sunnyside Sch. Dist. No. 21, 147 Ariz. 270, 273 (App. 1985) (“[W]aiver may
be inferred from conduct and is, therefore, a question of fact . . . .”).

¶35           The putative tenant’s success on the assignment claim
depends on one of two factual findings: the landlord intended the
scratched-out lease to be either (1) its “written consent” to an assignment or
(2) a waiver of the lease’s requirement of written consent. See M. Karam &
Sons Mercantile Co., 57 Ariz. at 407–08. The lease required the landlord’s
written consent for any assignments by the named tenant. The lease also
included an “assignment and acceptance” term for the parties to fill out to
perfect an assignment. The parties never executed the lease’s assignment
term, and the landlord did not execute the lease’s written consent term.

¶36          A year and a half into the named tenant’s tenancy, the
putative tenant began paying rent under the lease. Around that time,
Forakis told the landlord the lease would be “transition[ed]” from the
named tenant to the putative tenant. Two months later, the named tenant
and the putative tenant signed the purchase agreement under which the
putative tenant bought the named tenant’s assets and “assumed” the lease.
After signing the purchase agreement, the putative tenant made, and the
landlord accepted, rent payments for the facility under the lease for more
than two years—through February 2018. The putative tenant also
continuously had possession of and operated the facility during that time.
Under these facts, the law presumes an assignment of the lease to the
putative tenant. See Indep. Gin Co. v. Parker, 19 Ariz. App. 413, 415 (1973).
Whether the landlord rebuts that presumption is an issue of material fact.
See id.

¶37            The factfinder must weigh all the evidence, including the
scratched-out lease, the landlord’s communications with the putative
tenant, and the landlord’s communications with Forakis. Though the
putative tenant continued to ask the landlord for a clearer assignment, that
point is just one other piece of evidence for the factfinder to consider in
resolving two issues of material fact: (1) was there an assignment of the
lease, and (2) did the landlord waive the consent requirement?

¶38           Though the facts create a presumption of an assignment, the
landlord may rebut that presumption. Indep. Gin Co., 19 Ariz. App. at 415.
And the factfinder must resolve conflicting evidence and draw appropriate
inferences from the evidence to determine whether the landlord consented
to the assignment or waived the consent requirement. See Estate of Maudsley
v. Meta Servs., Inc., 227 Ariz. 430, 434 ¶ 11 (App. 2011) (holding superior

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court should not have granted summary judgment when factfinder needed
to decide preliminary fact question based on conflicting evidence).

¶39          In short, the factfinder must weigh the significance of the
scratched-out lease and the other evidence in the record.

       B.     The putative tenant established alleged damages as issues
              of material fact.

¶40            The superior court found the putative tenant generally failed
to show contract damages with certainty. It also concluded the putative
tenant’s damages claims were “premised on conjecture and speculation”
insufficient to survive summary judgment.

¶41            To prove profits lost from a breach of contract, a plaintiff must
“establish[] a reasonably certain factual basis for computation of lost
profits.” Rhue v. Dawson, 173 Ariz. 220, 228–29 (App. 1992) (citation
omitted). A plaintiff may establish reasonable certainty by “devis[ing] some
reasonable method of computing [its] net loss.” Rancho Pescado, Inc. v. Nw.
Mut. Life Ins. Co., 140 Ariz. 174, 184 (App. 1984). But the plaintiff need not
establish the calculated amount with the same degree of certainty as the fact
of damages itself. Id.

¶42             The putative tenant produced evidence it operated at the
facility as a cultivation enterprise for over two years and earned a net profit
over that time. Based on the putative tenant’s history at the facility, it
induced the other dispensary to sign a letter of intent to enter a cultivation
agreement with the putative tenant. The evidence shows the two companies
were close to a final agreement but the discussions stopped once the
putative tenant was removed from the facility and separated from the
necessary tools and equipment. The putative tenant also produced an
expert report showing its projected loss for the remaining lease term based
on its historical performance, likely key terms of the expected cultivation
agreement with the other dispensary, and marijuana market projections. Cf.
Rhue, 173 Ariz. at 229 (approving analysis of comparable sales, net income,
discounted cash flows, and replacement costs in appraisal to value property
for lost-profit claim); Rancho Pescado, 140 Ariz. at 186 (noting lack of
conclusive evidence of lost-profit claimant’s ability to successfully market
the product he was prevented from marketing, unlike the putative tenant’s
evidence here).

¶43          In addition to evidence of lost profits, the record contains
evidence the putative tenant lost control of other personal property when
the putative tenant was removed from the facility and not permitted to

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return. The putative tenant left cultivation equipment in the landlord’s
facility, along with equipment and other personal property the putative
tenant and its employees acquired and left in the facility upon the putative
tenant’s removal. And the putative tenant came forward with evidence of
some of that property’s value. The putative tenant and the named tenant
valued the equipment then in the facility at $230,000.00 in the purchase
agreement. No matter why that equipment and property were in the
facility—whether under the management agreement or otherwise—the
landlord has not shown it had any right to possess and transfer that
equipment and property to another party: its new tenant, the original
certificate holder.

¶44           True enough, a factfinder ultimately may find the putative
tenant did not meet its burden to prove damages. Even so, the putative
tenant brought forward a sufficiently certain factual basis for the
computation of its alleged damages to survive summary judgment. The
question of the putative tenant’s alleged damages, thus, is for the jury.

II.   Issues of material fact preclude summary judgment on the
      putative tenant’s unjust-enrichment claim.

¶45            The putative tenant challenges the superior court’s grant of
summary judgment for the landlord on the putative tenant’s
unjust-enrichment claim. To succeed on a claim of unjust enrichment, a
claimant “must show (1) an enrichment, (2) an impoverishment, (3) a
connection between the enrichment and impoverishment, (4) the absence of
justification for the enrichment and impoverishment, and (5) the absence of
a remedy at law.” Span v. Maricopa Cnty. Treasurer, 246 Ariz. 222, 227 ¶ 15
(App. 2019). When it granted summary judgment on the putative tenant’s
unjust enrichment claim, the superior court ruled the putative tenant failed
to show the landlord was enriched.

      A.     Material fact issues preclude summary judgment on
             whether the landlord was enriched because the landlord
             took possession and control of the putative tenant’s
             equipment and property and then leased the facility to the
             new tenant as a fully equipped medical marijuana
             cultivation facility.

¶46          The putative tenant argues the landlord was unjustly
enriched when the putative tenant was removed from the facility and the
landlord took possession of the putative tenant’s improvements and
personal property, including its equipment.

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¶47             The putative tenant made extensive improvements to the
landlord’s facility: replacing and upgrading HVAC and electrical systems,
fixing fire escapes, roofing, landscaping, upgrading windows and doors,
and upgrading security systems. The putative tenant also added a
thousand-square-foot commercial kitchen, including all necessary fixtures
and internal infrastructure improvements. The putative tenant made the
repairs and improvements so the facility could operate as a medical
marijuana cultivation facility. All those improvements remained at the
facility after the putative tenant was removed. The putative tenant also left
cultivation equipment in the landlord’s facility. The putative and the
named tenant valued that equipment at about $230,000.00 in the purchase
agreement. And the putative tenant and its employees left other equipment
and personal property behind upon the putative tenant’s forcible removal.

¶48           A jury reasonably could find the landlord was enriched when
it took possession from the putative tenant by terminating the lease early
and entering into a new lease with the original certificate holder. When the
putative tenant was removed from the facility, the landlord had a fully
equipped and functional medical marijuana cultivation facility ready to be
leased to the original certificate holder for immediate occupation with no
pause in operation, rent, or need for improvements.

¶49             The landlord argues the putative tenant’s improvements did
not enrich the landlord because the putative tenant made them to fulfill
“independent obligation[s] under the Management Agreement for the
benefit of [the original certificate holder and its affiliate]—not [the landlord]
. . . .” The management agreement is to the contrary. In it, the original
certificate holder’s affiliate acknowledged the putative tenant “[was] the
owner of all[] office furniture, fixtures and equipment used in the operation
of the [certificate holder’s affiliate] grow facility including, without
limitation, items located on the premises” except for items the putative tenant
was prohibited from owning under the Act. (Emphases added.) Contrary
to the landlord’s contention, the management agreement supports the
landlord’s enrichment because it evidences the putative tenant’s ownership
of personal property on the premises when the putative tenant was
removed from the facility because of the landlord’s actions.

¶50              And in entering a new lease with the original certificate
holder, the landlord undercut the putative tenant’s interests under the
management agreement. The record contains no evidence the landlord ever
acted to return any of the putative tenant’s personal property left in the
facility to its possession. Rather, it shows most of that property fell into the
possession of the original certificate holder. The landlord, thus, allowed the

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original certificate holder to take possession of the very equipment and
personal property the original certificate holder’s affiliate acknowledged in
the management agreement belonged to the putative tenant.

¶51            The landlord also argues the putative tenant should seek
relief for its lost property damages by bringing a breach of contract or
conversion claim against the original certificate holder or its affiliate. But
any potential claim at law the putative tenant may have against the original
certificate holder or its affiliate is not a defense to the putative tenant’s
equitable unjust enrichment claim against the landlord. See Loiselle v. Cosas
Mgmt. Grp., 224 Ariz. 207, 211 ¶ 14 (App. 2010) (“The legal remedy . . . must
be against the same person from whom relief in equity is sought.”).

¶52            The landlord took possession and control of the putative
tenant’s property when it entered into the new lease with the original
certificate holder while the putative tenant’s property remained at the
facility, fully equipping it for marijuana cultivation. In so doing, the
landlord asserted its reversionary interest in the facility without providing
for the return of the putative tenant’s property. At bottom, the putative
tenant has come forward with sufficient evidence the landlord took control
of the putative tenant’s property and secured a gain when the landlord
terminated the lease early and executed a new lease with the original
certificate holder. In defense, the landlord must justify withholding the
putative tenant’s property or prove by contrary evidence it was not
enriched.

       B.     Material fact issues preclude summary judgment on
              whether the landlord was unjustly enriched by the putative
              tenant paying rent for February 2018.

¶53             The putative tenant argues it “did not receive the full benefits
of its rights as a lessee for the rent paid to [the landlord].” But before it was
removed from the facility, the putative tenant enjoyed its possession and
use consistent with a tenancy under the lease, whether the putative tenant
was, or was not, a party to or assignee of the lease. Indeed, the putative
tenant earned a net profit over that time. The putative tenant cannot
establish it was unjust for the landlord to receive the putative tenant’s rent
payments under those circumstances. Though true the putative tenant was
impoverished by the rent payments through late February 2018, the
landlord was justified in receiving those rent payments in exchange for the
putative tenant’s possession and use of the facility.

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                       GROWTH v. TENBAR, et al.
                         Decision of the Court

¶54            The putative tenant, however, has established an adequate
factual basis for its claim for the rent payments attributable to the two and
a fraction of days at the end of February 2018 for which the putative tenant
paid rent but was excluded from the facility. For those two-plus days, the
putative tenant was prevented from possessing or using the facility because
the landlord chose to enter a new lease with the original certificate holder
and the original certificate holder’s affiliate removed the putative tenant
from the facility.

       C.     The putative tenant’s unjust enrichment claim fails if the
              putative tenant ultimately proves it had a valid contract
              with the landlord.

¶55             The landlord correctly argues the putative tenant’s unjust
enrichment claim cannot survive if it has a valid claim at law. See Brooks v.
Valley Nat’l Bank, 113 Ariz. 169, 174 (1976) (“[W]here . . . a specific
contract . . . governs the relationship of the parties, the doctrine of unjust
enrichment has no application.”). But as discussed above, factual issues
preclude summary judgment on whether the putative tenant has any
contract claim under the lease. See supra ¶¶ 32–44. That issue must be
resolved on remand. If the putative tenant prevails on the assignment issue,
it has no claim for unjust enrichment. But if the landlord prevails on the
assignment issue, then and only then, the putative tenant may proceed on
its claim for unjust enrichment.

¶56            Otherwise, the record shows disputed material facts under all
elements required for the putative tenant’s unjust enrichment claim. They
include the value of the property and upgrades it owned that were left in
the facility and the rent it paid attributable to the final days of February
2018 when it did not have possession or use of the facility. If the factfinder
on remand does not find a contract between the landlord and the putative
tenant, the superior court must evaluate whether the putative tenant is
entitled to compensation for the unjust enrichment the landlord received.
See State v. Ariz. Pension Plan., 154 Ariz. 56, 58 (1987) (noting unjust
enrichment provides for equitable remedy of restitution when the court
finds justice and equity require compensation for benefits received). The
value of the property transferred, the justifiability of rent paid, and the
amount of resulting benefit to the landlord are questions of fact.

¶57           This court, thus, must vacate the grant of summary judgment
as to the putative tenant’s unjust enrichment claim.

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                         GROWTH v. TENBAR, et al.
                           Decision of the Court

III.   No issues of material fact preclude summary judgment on the
       putative tenant’s claims for the landlord’s alleged breach of the
       covenant of good faith and fair dealing, negligent
       misrepresentation, promissory estoppel, and breach of statutory
       lease.

¶58           We now turn to the putative tenant’s remaining claims.

       A.     The putative tenant established no issues of material fact to
              preclude summary judgment for the landlord on the
              putative tenant’s claim for breach of the covenant of good
              faith and fair dealing.

¶59           “Arizona law implies a covenant of good faith and fair
dealing in every contract.” Keg Rests. Ariz., Inc. v. Jones, 240 Ariz. 64, 77 ¶ 45
(App. 2016). The covenant imposes on contract parties the duty not to “act
to impair the right of the other to receive the benefits which flow from their
agreement or contractual relationship.” Rawlings v. Apodaca, 151 Ariz. 149,
153 (1986). A party can breach the covenant “both by exercising express
discretion in a way inconsistent with a party’s reasonable expectations and
by acting in ways not expressly excluded by the contract’s terms but which
nevertheless bear adversely on the party’s reasonably expected benefits of
the bargain.” Bike Fashion Corp. v. Kramer, 202 Ariz. 420, 424 ¶ 14 (App.
2002). Arizona has adopted the Restatement rule against a lessor’s
unreasonable withholding of consent for lease assignment as consistent
with Arizona’s recognition of the implied covenant of good faith and fair
dealing. See Campbell v. Westdahl, 148 Ariz. 432, 436–37 (App. 1985)
(reasoning); Zoslow, 147 Ariz. at 614 (adopting rule) (quoting Restatement
(Second) of Property § 15.2(2) (1977)).

¶60           The landlord argues the putative tenant waived the claim for
breach of the covenant of good faith and fair dealing it makes on appeal. To
begin, the putative tenant abandons an argument it made in its amended
complaint. In that complaint, the putative tenant alleged the landlord
breached its duty by allowing the original certificate holder to take
possession and control of the facility and its contents and executing an
“overlapping lease” with the original certificate holder.

¶61          In its opening brief, the putative tenant argues for the first
time the landlord breached the covenant of good faith and fair dealing by
unreasonably withholding consent to assign the lease to the putative tenant.
The putative tenant’s new argument is as follows: if the landlord did not
agree to assign the lease to the putative tenant when it provided the
scratched-out lease, then the landlord unreasonably withheld its consent.

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                        GROWTH v. TENBAR, et al.
                          Decision of the Court

The crux of the new argument is the landlord treated the putative tenant
like a tenant for six months after it provided the scratched-out lease.

¶62            The putative tenant presents yet another new argument in its
reply brief, suggesting for the first time it can prevail on this claim even if
no contractual relationship existed between it and the landlord. The
putative tenant argues fact questions preclude summary judgment
“because [the putative tenant] did not receive the benefits or reasonable
expectations of the lease with [the landlord].” Further, “[i]f [the putative
tenant] was not a tenant, then by accepting rent for nearly a year after [the
landlord] received knowledge that [the putative tenant] was occupying the
space, and withholding consent for the assignment, [the landlord] breached
that covenant.”

¶63          The putative tenant waived these arguments by not raising
them at the superior court. See BMO Harris Bank N.A. v. Espiau, 251 Ariz.
588, 593–94 ¶ 25 (App. 2021).

       B.     The putative tenant established no issues of material fact to
              preclude summary judgment for the landlord on the
              putative tenant’s claim for negligent misrepresentation.

¶64           To prevail on a claim of negligent misrepresentation the
plaintiff must prove five elements:

       (1) the defendant provided false information in a business
       transaction; (2) the defendant intended for the plaintiff to rely
       on the incorrect information or knew that it reasonably would
       rely; (3) the defendant failed to exercise reasonable care in
       obtaining or communicating the information; (4) the plaintiff
       justifiably relied on the incorrect information; and (5)
       resulting damage.

KB Home Tucson, 236 Ariz. at 333 ¶ 30 n.7 (citing Mur-Ray Mgmt. Corp. v.
Founders Title Co., 169 Ariz. 417, 422–23 (App. 1991)).

¶65          The putative tenant argues sufficient evidence shows the
landlord misrepresented its relationship with the putative tenant because
the landlord did the following: (1) accepted rent payments and responded
to maintenance requests from the putative tenant, (2) provided the
scratched-out lease, and (3) told the putative tenant the scratched-out lease
was all the putative tenant needed to deal with Phoenix. The putative
tenant argues those statements were misrepresentations because they

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                        GROWTH v. TENBAR, et al.
                          Decision of the Court

conflict with the landlord’s argument the putative tenant did not have a
leasehold interest in the facility.

¶66          The putative tenant’s argument fails as to the landlord’s
accepting the putative tenant’s rent payments and responding to the
putative tenant’s maintenance requests because those acts cannot
reasonably be understood as the landlord making a “representation” as to
whether the putative tenant had a leasehold interest in the facility.

¶67           Even if we accept—without deciding—the putative tenant’s
argument the landlord made misrepresentations when the landlord
provided the scratched-out lease and told the putative tenant the
scratched-out lease was all the putative tenant needed to deal with Phoenix,
the putative tenant cannot show it relied on that information. The putative
tenant was paying rent and managing the facility before receiving the
scratched-out lease and continued to do so after. The putative tenant argues
its “continuing to hold tenancy” at the facility shows it relied on the
landlord’s alleged misrepresentations, but the putative tenant possessed
the facility and paid rent all along. The putative tenant points to no
evidence it changed its behavior to suggest it relied on the landlord’s
alleged misrepresentations, and we find none in the record.

¶68           As a result, we affirm the grant of summary judgment on this
claim.

         C.   The putative tenant established no issues of material fact to
              preclude summary judgment for the landlord on the
              putative tenant’s claim for promissory estoppel.

¶69              The putative tenant argues the superior court erred when it
granted summary judgment on the putative tenant’s claim of promissory
estoppel. To prove promissory estoppel, the putative tenant must show the
landlord “made a promise and should have reasonably foreseen that [the
putative tenant] would rely on that promise” and that the putative tenant
did rely on that promise to its detriment. See Higginbottom v. State, 203 Ariz.
139, 144 ¶ 18 (App. 2002). The putative tenant argues that when the
landlord provided the scratched-out lease, the landlord promised
“the . . . lease had been validly assigned to [the putative tenant]” and the
landlord should have known the putative tenant would rely on this
promise.

¶70            Promissory estoppel, as a cause of action for damages,
“operates not in regard to a past or presently existing state of facts, but
rather to a situation which one party promises will be true in the future.”

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                       GROWTH v. TENBAR, et al.
                         Decision of the Court

Tiffany Inc. v. W.M.K. Transit Mix, Inc., 16 Ariz. App. 415, 419 (1972). The
putative tenant’s argument fails because the landlord made no promise
when it provided the scratched-out lease. The name-change on the lease
either served as an assignment of the lease or it did not. It could not be a
promise of a future assignment.

¶71            The putative tenant’s claim for promissory estoppel, thus,
fails. We affirm the grant of summary judgment on this claim.

       D.     The putative tenant established no issues of material fact to
              preclude summary judgment for the landlord on the
              putative tenant’s claim for breach of statutory lease.

¶72           The putative tenant argues the superior court erred by
granting summary judgment because the landlord breached a statutory
month-to-month tenancy by not providing the putative tenant ten days’
notice of its termination. See A.R.S. § 33-341.B (notice requirement for
month-to-month lease). The superior court ruled this claim failed as a
matter of law because a lease for the facility was in place with the named
tenant, not the putative tenant. The superior court then concluded the
named tenant, not the putative tenant, was the only tenant who could hold
a statutory, month-to-month lease under subsection 33-341.B.

¶73            The putative tenant argues it had, even with no assignment of
the lease, “statutory lease rights as a month-to-month tenant under A.R.S.
§ 33-341” because it paid rent, the landlord accepted that rent, and the
putative tenant occupied the facility. True, a tenant’s holding over after
expiration of a lease will cause a month-to-month tenancy governed by the
original lease terms. A.R.S. § 33-342 (creating month-to-month tenancy);
Pima Cnty. v. Testin, 173 Ariz. 117, 119 (App. 1992) (holding original lease
terms govern tenancy). But Subsection 33-341.E forecloses the putative
tenant’s argument by precluding tenancies at sufferance or will when a
putative tenant is in possession of property against the will of a landlord.
Even so, the putative tenant relies on A.R.S. § 33-342 and Mestro v. Pasionek,
1 CA-CV 22-0218, 2022 WL 17258801 (Ariz. App. Nov. 29, 2022) (mem.
decision) to show the landlord created a tenancy when it accepted rent from
the putative tenant. That reliance is misplaced. Section 33-342, consistent
with A.R.S. § 33-341.E, applies only to holdover tenants, and Mestro
similarly involves litigation around a holdover tenancy. See 1 CA-CV 22-
0218 at *2 ¶ 12.

¶74           In short, regardless of the status of the original lease at the
time of the putative tenant’s removal, Arizona law does not provide for the

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                       GROWTH v. TENBAR, et al.
                         Decision of the Court

creation of a landlord-tenant relationship by implication against the will of
the landlord. So, absent an original tenancy after which the putative tenant
could hold over, the putative tenant’s payment of rent, the landlord’s
acceptance of the rent, and the putative tenant’s occupation of the facility
are irrelevant. That evidence cannot alone establish the existence of a
holdover month-to-month tenancy subject to the notice requirement of
subsection 33-341.B. See A.R.S. § 33-342 (providing for month-to-month
holdover tenancies).

¶75            The putative tenant’s “breach of statutory lease” claim, thus,
fails as a matter of law. We affirm the grant of summary judgment on this
claim.

                     ATTORNEY FEES AND COSTS

¶76           Both the putative tenant and the landlord request attorney
fees under A.R.S. § 12-341.01. In our discretion, we decline to award
attorney fees because of the preliminary nature of this case on remand. On
remand, the superior court may consider any request for attorney fees,
including those incurred in this appeal, when this litigation concludes.
See Eans-Snoderly v. Snoderly, 249 Ariz. 552, 559 ¶ 27 (App. 2020). We award
the putative tenant its taxable costs on appeal as the prevailing party on
compliance with ARCAP 21.

                              CONCLUSION

¶77           We affirm the superior court’s grant of summary judgment
against the putative tenant on its claims of breach of the covenant of good
faith and fair dealing, negligent misrepresentation, promissory estoppel,
and breach of statutory lease. We vacate the superior court’s grant of
summary judgment against the putative tenant on its claims of breach of
contract and unjust enrichment and remand for further proceedings
consistent with this decision.

                           AMY M. WOOD • Clerk of the Court
                           FILED: AA

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