Court Opinion

ID: 2659004
Source: CourtListenerOpinion
Date Created: 2014-03-31 20:30:49.858893+00
Date Added: 2024-06-11T09:14:45.277070
License: Public Domain

NOT FOR PUBLICATION

                    UNITED STATES COURT OF APPEALS                            FILED
                            FOR THE NINTH CIRCUIT                             MAR 31 2014

                                                                          MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS

In the Matter of: CATHAY                         No. 12-15650
ENTERPRISES, INC.,
                                                 D.C. No. 2:10-cv-01079-NVW
              Debtor,

                                                 MEMORANDUM*
CATHAY ENTERPRISES, INC., an
Arizona corporation,

              Appellant,

  v.

DESIGN TREND INTERNATIONAL
INTERIORS LIMITED, an Arizona
corporation,

              Appellee.

                   Appeal from the United States District Court
                            for the District of Arizona
                     Neil V. Wake, District Judge, Presiding

                        Argued and Submitted March 11, 2014
                             San Francisco, California

Before: WALLACE, McKEOWN, and GOULD, Circuit Judges.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      Cathay Enterprises, Inc. (“Cathay”) appeals from the district court’s reversal

of the bankruptcy court’s judgment. The district court found that Cathay had

waived any material breach by Design Trend International Interiors, Ltd. (“Design

Trend”) based on timeliness of performance on a construction contract for

renovations to a hotel owned by Cathay. We have jurisdiction under 28 U.S.C. §§

158(d), 1291, and we affirm the district court’s decision as to waiver and

substantial performance in favor of Design Trend, but reverse and remand the

issues of prejudgment interest calculation and attorneys’ fees.

      This case has an extensive history that we will not recount. We simply note

that after Design Trend missed the final completion date of the construction

contract, Cathay repeatedly insisted that it continue to perform, communicating

through letters and two administrative enforcement actions enlisting the help and

authority of the Arizona Registrar of Contractors. An ALJ found that Design

Trend had substantially completed the project, but the bankruptcy court relieved

Cathay of responsibility to pay the amount outstanding because Design Trend had

materially breached the contract with its untimely performance. The district court

reversed the bankruptcy court, but offset the amount owed to Design Trend with

expenses incurred by Cathay.

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      The district court correctly addressed the issue of waiver because it was

raised to the bankruptcy court, which implicitly rejected the waiver argument when

it ruled against Design Trend. See Vance v. Am. Hawaii Cruises, Inc., 789 F.2d
790, 792–93 (9th Cir. 1986); Carr v. Yokohama Specie Bank, Ltd., 200 F.2d 251,

255 (9th Cir. 1952) (“It is sufficient if the special affirmative facts found by the

court, construed as a whole, negat[e] each rejected contention.”).

      Under Arizona law, “once a material breach in a partially-performed

construction contract has occurred, the non-defaulting party must elect to . . . waive

the breach and continue performance, or terminate the contract and sue for

damages; and if the innocent party elects to continue performance he thereby

waives the breach and he may not recover damages therefor.” Hunter Contracting

Co. v. Sanner Contracting Co., 492 P.2d 735, 740 (Ariz. Ct. App. 1972). We agree

with the district court that Cathay’s repeated insistence that Design Trend continue

to work after the contractual deadlines for performance had passed acted as a

waiver of Cathay’s right to sue Design Trend for a material breach based on

untimely performance. Further, Cathay offers insufficient evidence to show that

the district court erred in concluding that Design Trend substantially performed the

contract. See Cracchiolo v. Carlucci, 157 P.2d 352, 356 (Ariz. 1945); Homes &

Son Constr. Co., Inc. v. Bolo Corp., 526 P.2d 1258, 1262–63 (Ariz. Ct. App.

                                           3
1974). The district court correctly applied the remaining damages sustained by

Cathay to offset some of the amount owed to Design Trend.

       However, the district court erred in using the equitable remedy of nunc pro

tunc to backdate its order for the purpose of calculating prejudgment interest.

Nunc pro tunc should be applied in limited circumstances when it is necessary to

“mak[e] the record reflect what the district court actually intended to do at an

earlier date, but which it did not sufficiently express or did not accomplish due to

some error or inadvertence.” United States v. Sumner, 226 F.3d 1005, 1009–10

(9th Cir. 2000). There is no indication here that the district court meant to include

prejudgment interest in its original order dated March 28, 2011, and so we reverse

its application of nunc pro tunc and remand for recalculation of prejudgment

interest.

       While a trial court may award the prevailing party reasonable attorneys’ fees

at its “broad discretion” under Arizona law, A.R.S. § 12-341.01; State Farm Mut.

Auto. Ins. Co. v. Arrington, 963 P.2d 334, 340 (Ariz. Ct. App. 1998), at the very

least there must be proof supporting what is “reasonable,” Crouch v. Pixler, 320
P.2d 943, 946 (Ariz. 1958). The district court did not give enough information to

determine whether the attorneys’ fees award was reasonable. Further, there is no

indication that the district court excluded fees that could be attributed to work

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performed during the bankruptcy proceedings unrelated to the contract dispute.

See Zeagler v. Buckley, 219 P.3d 247, 249 (Ariz. Ct. App. 2009). For these

reasons, we reverse the award of attorneys’ fees to Design Trend and remand for

further explanation and, if necessary, recalculation.

      AFFIRMED IN PART, REVERSED AND REMANDED IN PART.

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