Court Opinion

ID: 9392905
Source: CourtListenerOpinion
Date Created: 2023-05-08 17:02:41.629313+00
Date Added: 2024-06-11T17:18:49.702539
License: Public Domain

IN THE
                ARIZONA COURT OF APPEALS
                                  DIVISION TWO

 LARRY D. SPECTOR, AS TRUSTEE OF THE SPECTOR REVOCABLE TRUST, DATED
                            MAY 25, 1978,
                          Plaintiff/Appellant,

                                       v.

FITNESS & SPORTS CLUBS, LLC, A DELAWARE LIMITED LIABILITY COMPANY, FKA
  FITNESS INTERNATIONAL, LLC, A DELAWARE LIMITED LIABILITY COMPANY,
                          Defendant/Appellee.

                           No. 2 CA-CV 2022-0073
                             Filed May 8, 2023

              Appeal from the Superior Court in Pima County
                             No. C20183029
                  The Honorable Kellie Johnson, Judge

                      VACATED AND REMANDED

                                   COUNSEL

Waterfall, Economidis, Caldwell, Hanshaw & Villamana P.C., Tucson
By Corey B. Larson and Cindy K. Schmidt

and

Fleishman Law PLC, Tucson
By Michael A. Fleishman
Counsel for Plaintiff/Appellant
              SPECTOR v. FITNESS & SPORTS CLUBS, LLC
                         Opinion of the Court

Titus Brueckner & Levine PLC, Scottsdale
By Jeffrey D. Harris

and

Klehr Harrison Harvey Branzburg LLP, Philadelphia, Pennsylvania
By A. Grant Phelan
Counsel for Defendant/Appellee

                                OPINION

Presiding Judge Brearcliffe authored the opinion of the Court, in which
Judge Eckerstrom and Judge Kelly concurred.

B R E A R C L I F F E, Judge:

¶1            In this litigation arising from a commercial lease dispute,
Plaintiff Larry Spector appeals from a judgment in favor of defendant
Fitness & Sports Clubs LLC, formerly known as Fitness International LLC
(FSC), and the trial court’s denial of his motion for reconsideration. The
dispositive issue in this appeal is whether the notice and opportunity-to-
cure (“notice and cure”) provisions of a commercial lease apply to Spector’s
claim for damages. Addressing Spector’s arguments on the merits, even
though he did not raise them with the court, we conclude the notice and
cure provisions do not apply to Spector’s claim. Because the court
interpreted the pertinent provisions of the parties’ lease otherwise, we
vacate and remand.

                   Factual and Procedural Background

¶2            “Following a bench trial, we view the facts in the light most
favorable to upholding the court’s ruling.” Ariz. Biltmore Hotel Villas
Condos. Ass’n v. Conlon Grp. Ariz., LLC, 249 Ariz. 326, ¶ 3 (App. 2020). In
December 2006, Spector, as trustee for the Spector Revocable Trust, leased
a commercial building to Bally Total Fitness Corporation. The ten-year
lease required the tenant to pay “[a]ll costs, expenses and obligations” for
the premises, unless otherwise stated. The tenant also was required to
maintain the premises “in good condition and repair” during the lease and
to “leave the Premises in broom-clean condition” when the lease ended. In
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              SPECTOR v. FITNESS & SPORTS CLUBS, LLC
                         Opinion of the Court

December 2011, Bally assigned the lease to FSC. In 2012, with Spector’s
knowledge and approval—and as permitted by the lease—FSC ceased
operations on the premises, leaving the building vacant. FSC continued to
pay rent, which Spector accepted.

¶3            In March 2015, FSC notified Spector that the HVAC units on
the roof of the building had been vandalized. FSC advised Spector that,
given the danger of repeat vandalism, it would not repair or replace the
HVAC units. Instead, noting it would file an insurance claim, FSC
informed Spector that it would retain any insurance proceeds and give
them to him when the lease expired. Spector agreed.

¶4            FSC surrendered the premises to Spector on December 27,
2016, and the lease expired four days later. When it surrendered the
premises, FSC delivered $40,119.59 in insurance proceeds to Spector, which
he accepted. FSC also sent Spector a letter confirming the surrender of the
property and the expiration of the lease. In the letter, FSC stated that
“turnover of the Premises to Landlord has been performed in compliance
with all provisions as stated in the Lease” and that “Landlord hereby has
agreed to release the tenant,” asking that Spector countersign the letter
indicating his agreement. Spector did not do so. Instead, after inspecting
the property, Spector wrote at the bottom of the letter: “Landlord has
received possession on 12/27/16. HVAC is missing. Parking lot lights are
not working. Various windows are broken. Plumbing fixtures are
missing.” Spector then signed the letter and returned it to FSC in January
2017.

¶5           Spector filed his complaint in June 2018, alleging FSC
“materially breached the terms of the Lease by failing to adequately
maintain and safeguard the Leased Premises, which resulted in extensive
damages to the Leased Premises.” Spector alleged that, as a result of FSC
not maintaining the property, “vandals stole HVAC equipment, [and
copper], broke windows, [and] damaged the Leased Premises” and that
there was “overall deterioration of the condition of the Leased Premises.”
Spector also alleged the landscaping had not been properly maintained.
Spector sought “$117,944.37 in contract damages.”

¶6            FSC’s answer denied the allegations and asserted as an
affirmative defense that Spector’s “claims are barred by the non-occurrence
of conditions precedent.” Later, in a disclosure statement, FSC claimed that
Spector had never provided it “with written notice of any non-monetary
default and an opportunity to cure,” stating that such was “a prerequisite
of any claim for damages” under the lease.

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              SPECTOR v. FITNESS & SPORTS CLUBS, LLC
                         Opinion of the Court

¶7             A two-day bench trial was set for February 2022.1 In the
parties’ joint pretrial statement, FSC stated, as a contested issue of material
fact, that Spector had failed to provide it the prerequisite notice and cure
period “in accordance with § 9.2 of the Lease.” Spector included, as a
contested issue of law, whether “compliance with” the opportunity to cure
provisions (§ 9.2 of the lease) was a prerequisite to his claim for damages
for breach of lease.

¶8            During the February 2022 trial, despite having forecasted an
argument that no notice and cure period was required for his claim, Spector
did not make any direct argument that § 9.2 did not apply. He argued
instead, largely, that he had provided sufficient notice. The trial court
ultimately ruled for FSC, stating that “the evidence presented . . . fails to
prove by a preponderance of the evidence that [FSC] breached the Lease
because the evidence fails to demonstrate that [Spector] provided [FSC]
with written notice of his complaints and a cure period required under the
Lease.” Spector moved for reconsideration, arguing that FSC had waived
the notice and cure defense by failing to properly raise it in its answer. The
court denied the motion for reconsideration, awarded FSC its attorney fees
and costs and entered a final judgment under Rule 54(c), Ariz. R. Civ. P.
This appeal followed. We have jurisdiction pursuant to A.R.S. §§ 12-
120.21(A)(1), 12-2101(A)(1).

                                   Analysis

¶9             Spector argues on appeal that the notice and cure provisions
in § 9.2 of the lease do not apply here. FSC counters that Spector waived
this argument and, regardless, that the trial court correctly concluded that
notice and an opportunity to cure under § 9.2 of the lease was “a
prerequisite to Spector bringing an action against [FSC].”

¶10           Section 9.2 of the lease states

              If Tenant fails to perform any covenant or is
              otherwise in breach of any provision of this
              Lease (except for the defaults set forth in
              Sections 9.1 and 9.3), and such failure or breach
              continues for a period of thirty (30) days after
              Tenant receives written notice thereof from

       1Before  trial, the trial court granted Spector’s motion for partial
summary judgment, ruling that, by accepting the $40,119.59 in insurance
proceeds, Spector’s “breach of contract claim [was] waived only to the
extent of that $40,119.59.”

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              SPECTOR v. FITNESS & SPORTS CLUBS, LLC
                         Opinion of the Court

              Landlord specifying the nature of such failure,
              then such failure shall be deemed a default
              under this Lease . . . .

Then, in § 9.5, it states “[i]n the event of default” under the lease “and after
Tenant’s receipt of written notice of such default and the expiration of the
applicable cure period without Tenant’s cure thereof, Landlord shall have
the option to exercise” a series of remedies including terminating the lease
and re-entering and taking possession of the premises.

¶11            Those notice and cure provisions, Spector asserts, “relate
solely to depriving Tenant of possession during the term of the Lease, not
to recovery of damages after the end of the Lease term.” He relies on § 9.9,
the last section of Article 9 of the lease, which specifies that “[t]he above
remedies”—those stated in §§ 9.1 to 9.8—“are in addition to all other
remedies available to Landlord at law or in equity.” Consequently, he
argues, because his complaint only seeks money damages, not a default
remedy such as lease termination and repossession, the notice and cure
provision for such default remedies does not apply.

              Waiver

¶12           As to waiver, FSC asserts that Spector cannot argue the
inapplicability of § 9.2 because he did not raise it in the trial court. Spector
certainly did not squarely, let alone fully, raise this argument during trial.
However, he did preserve it in the parties’ joint pretrial statement as a
contested issue of law, and the doctrine of waiver is discretionary. See
Noriega v. Miami, 243 Ariz. 320, ¶ 27 (App. 2017).

¶13            The arguments at trial to a great degree turned on whether
§ 9.2 had been complied with, not whether or not it applied in the first
instance. This then led to the trial court’s conclusion that Spector failed to
prove a breach of the lease “because the evidence fail[ed] to demonstrate”
that Spector had provided the notice and cure period “required” by § 9.2 of
the lease. (Emphasis added.) Notwithstanding Spector’s failure to argue
the applicability of § 9.2 to his claims, as explained below, the court’s
conclusion was founded on an incorrect interpretation and application of
the lease language. See Ahwatukee Custom Ests. Mgmt. Ass’n v. Turner, 196
Ariz. 631, ¶ 5 (App. 2000) (contract interpretation is question of law and we
are not bound by trial court’s factual findings if “clearly erroneous”). In
our discretion, therefore, because the only evidence needed to correctly
interpret the contract—the lease itself—was in the record, and because the
court’s misinterpretation was fundamental to its judgment, we decline to
find this argument waived.

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              SPECTOR v. FITNESS & SPORTS CLUBS, LLC
                         Opinion of the Court

            Notice and Cure Period is Not a Condition Precedent to a
Breach of Contract Claim

¶14           “Contract interpretation is a question of law we review de
novo.” Dunn v. FastMed Urgent Care PC, 245 Ariz. 35, ¶ 10 (App. 2018). For
such interpretation, we look to the plain meaning of the words within the
whole of the contract. Id. If the language of the contract is clear on its face,
we go no further. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, ¶ 9
(App. 2009).

¶15             FSC is correct that, under § 9.2, providing notice and a cure
period is a condition precedent to some relief under the lease, including
those remedies identified in § 9.5, such as termination of the lease and
repossession. Under § 9.2, if the tenant is in breach of any lease provision
and that breach continues “for a period of thirty (30) days” after the
landlord provides written notice of the breach, the tenant is in “default”
under the lease. That is, if, after notice, the tenant fails to timely cure his
breach, he is both in breach of the lease (as to whatever lease obligation he
failed to fulfill) and in default. Upon default, the landlord can then pursue
default remedies, such as those in § 9.5 of terminating the lease, reentering
the premises, and retaking possession. Compliance with § 9.2 is therefore
a precondition to the pursuit of remedies requiring default.

¶16            Section 9.9, however, specifies that remedies for default, such
as those in § 9.5, “are in addition to all other remedies available to Landlord
at law or in equity.” (Emphasis added.) Spector’s complaint, while
referencing “Section 9.5(a) (Remedies After Default) of the Lease,” sought
only monetary damages for FSC’s alleged failure “to adequately maintain
and safeguard” the premises. Spector did not seek a default remedy, such
as termination of the lease and repossession of the premises. Undoubtedly,
he did not because FSC had already surrendered the premises and the lease
had expired. Nonetheless, because Spector was only seeking compensatory
damages, rather than any Article 9 default remedy, his claim was merely a
breach of contract claim encompassed within the additional remedies
available under § 9.9 of the lease. Proof of such a breach does not depend
on Spector proving that he had “provided [FSC] with written notice of his

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               SPECTOR v. FITNESS & SPORTS CLUBS, LLC
                          Opinion of the Court

complaints and a cure period required” by § 9.2, as the trial court
concluded.2 We therefore vacate the court’s judgment.3

Attorney Fees and Costs

¶17            Because we vacate the trial court’s judgment, we also vacate
its attorney fees and costs award in favor of FSC below. On appeal, both
Spector and FSC request attorney fees and costs pursuant to Ariz. R. Civ.
App. P. 13(a)(8) and 21(a), A.R.S. § 12-341.01, and § 16.6 of the lease.

¶18            Section 16.6 of the lease provides that the prevailing party
shall receive reasonable attorney fees and court costs from the losing party.
FSC is not the prevailing party on appeal and is therefore not entitled to an
award of fees under § 12-341.01(A) or § 16.6 of the lease. Because Spector is
the prevailing party, we award Spector costs and reasonable attorney fees
on appeal upon compliance with Rule 21, pursuant to § 16.6 of the lease.
See Bennett v. Appaloosa Horse Club, 201 Ariz. 372, ¶ 26 (App. 2001); see also
Fulton Homes Corp. v. BBP Concrete, 214 Ariz. 566, ¶ 33 (App. 2007) (costs on
appeal to prevailing party).

                                Disposition

¶19           We vacate the trial court’s judgment and remand for the
court’s reconsideration of the evidence presented at trial in light of this
opinion, the taking of additional argument and evidence at its discretion,
and entry of a new judgment.

       2This   opinion does not resolve whether § 9.2 applies to Spector’s
claim for “default interest” under § 9.8 of the lease. We leave that to the
trial court to address on remand.
       3Becausewe resolve the case on this issue, we need not address the
other arguments raised by Spector on appeal.

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