Court Opinion

ID: 9946262
Source: CourtListenerOpinion
Date Created: 2024-02-29 16:04:50.159859+00
Date Added: 2024-06-11T14:25:33.825930
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  UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

                    HIGH DESERT HEALING, LLC, et al.,
                           Plaintiffs/Appellees,

                                         v.

                              CEC 141202761, LLC,
                               Defendant/Appellant.

                              No. 1 CA-CV 23-0195
                                FILED 2-29-2024

            Appeal from the Superior Court in Maricopa County
                   No. CV2021-016161, CV2021-053708
                  The Honorable Danielle J. Viola, Judge

                                   AFFIRMED

                                    COUNSEL

Conant Law Firm, PLC, Phoenix
By Paul A. Conant, Melissa A. Emmel
Counsel for Plaintiffs/Appellees

Osborn Maledon, P.A., Phoenix
By Eric M. Fraser, John S. Bullock
Counsel for Plaintiffs/Appellees

Ahwatukee Legal Office, P.C., Phoenix
By David L. Abney
Counsel for Defendant/Appellant
                 HIGH DESERT, et al. v. CEC 141202761
                       Decision of the Court

                     MEMORANDUM DECISION

Presiding Judge Michael J. Brown delivered the decision of the Court, in
which Judge Andrew M. Jacobs and Judge Angela K. Paton joined.

B R O W N, Judge:

¶1           CEC 141202761, LLC (“CEC”) appeals the superior court’s
ruling that CEC breached a lease (“Lease”) by unreasonably withholding
its consent of High Desert Healing, LLC’s (“High Desert”) assignment
request. Because CEC has shown no error, we affirm.

                             BACKGROUND

¶2          In March 2018, High Desert leased a commercial property
from CEC. At the time, High Desert was a wholly owned subsidiary of
Harvest Dispensaries, Cultivations & Productions Facilities, LLC (“Harvest
DCP”). The Lease term was 15 years and permitted High Desert to operate
a medical marijuana dispensary on the property.

¶3           In May 2021, Harvest DCP’s parent company, Harvest Health
& Recreation, Inc. (“the Parent Company”) entered an agreement to be
acquired by Trulieve Cannabis Corp. Because the acquisition would
transfer more than 50% of the voting control in Harvest DCP, it would
trigger the assignment clause under the Lease and thus require CEC’s
consent. Sections 10 and 10.1 explain the procedure for requesting an
assignment and the ramifications for failing to do so:

      10. Assignment and Subletting. Lessee may not assign . . .
      this Lease . . . without having notified Lessor in writing of the
      terms of the Assignment (the “Assignment Request”) and
      obtaining prior written approval of Lessor, which approval
      shall not be unreasonably withheld, delayed or conditioned
      . . . Any attempt at an Assignment without Lessor’s prior
      written consent shall be null and void, confer no rights upon
      a third person, and shall, at the option of Lessor, be a Breach
      pursuant to Section 11.1(b) without the necessity of any notice
      or cure period, in which case Lessor may terminate this Lease
      . . . . A Change of Control shall constitute an Assignment
      requiring Lessor’s consent . . . the term “Change of Control”

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                  HIGH DESERT, et al. v. CEC 141202761
                        Decision of the Court

       means the transfer of more than 50% of the voting control of
       Lessee or Guarantor.

       ...

       10.1 Additional Terms and Conditions Applicable to an
       Assignment.

       ...

       (e) Each Assignment Request shall be in writing,
       accompanied by information relevant to Lessor’s
       determination as to the financial and operational
       responsibility and appropriateness of the proposed Assignee,
       including but not limited to the proposed Assignment terms,
       together with a fee of $500 as consideration for Lessor’s
       considering and processing said request. Lessee agrees to
       provide Lessor with such other or additional information
       and/or documentation as may be reasonably requested.

¶4            On August 6, 2021, High Desert emailed CEC a letter
notifying CEC of the pending acquisition and requesting CEC’s consent to
the assignment. High Desert provided links to Trulieve’s publicly available
business history and financial information and indicated the transaction
would likely occur before the end of 2021. Noting the $500 fee required
under Section 10.1(e), High Desert stated it would add $500 to its next rent
payment. Awaiting a response, High Desert sent CEC three emails over the
next three weeks making similar requests. CEC responded by email on
August 31, explaining the $500 fee, which had not been paid, was a
prerequisite for consideration of the assignment request. CEC also (1)
noted concerns about past due rent, (2) referred to legal issues involving the
Parent Company, and (3) questioned whether the leased property could “be
seized as part of a ‘civil asset forfeiture.’”

¶5            Consistent with its initial letter requesting approval of the
assignment, on September 1, High Desert paid the $500 fee to CEC with its
monthly rent payment and notified CEC it had done so. A day later, CEC
requested detailed financial information about High Desert and Trulieve,
which High Desert provided the following day. CEC indicated it would
review that information in considering the assignment request.

¶6            On September 29, CEC sent High Desert a letter refusing
consent to the August 6, 2021 assignment request. CEC explained in part
that the proposed acquisition of the Parent Company would detrimentally

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                   HIGH DESERT, et al. v. CEC 141202761
                         Decision of the Court

affect the landlord-tenant relationship, noting its “concerns that the
additional locations and jurisdictions in which Trulieve operates would”
increase CEC’s “exposure to state and federal forfeiture laws.” The letter
did not mention the timing of the $500 fee as a reason for refusing consent
to the assignment. In addition, CEC stated it was terminating the Lease,
“effective immediately,” because Harvest DCP had changed control in
2019, and CEC had not given prior written consent for that assignment.

¶7           High Desert sued CEC, seeking in part a declaratory
judgment that it had not breached the Lease. In a separate action, CEC
moved to evict High Desert. The superior court consolidated the cases and
held a four-day bench trial during which six witnesses testified.

¶8            The court ruled that High Desert did not breach the Lease,
CEC did breach the Lease, and CEC was obligated to approve the
assignment and could not evict High Desert. In its detailed ruling, the court
found that “[High Desert] sought approval of the assignment to Trulieve
consistent with the terms of the Lease. Accordingly, CEC was obligated to
act reasonably and in good faith when considering the request for
assignment.” The court further found that CEC failed to establish that
voting control of Harvest DCP transferred before September 29, 2021. It
also noted that CEC’s purported asset forfeiture concerns were not credible,
and that CEC acted in bad faith by claiming High Desert failed to pay rent.
The court thus concluded that “CEC unreasonably withheld consent to the
assignment.”

¶9            The court later issued a final judgment that awarded, under
the Lease, approximately $150,000 to High Desert for its attorneys’ fees and
taxable costs. CEC timely appealed, and we have jurisdiction under A.R.S.
§ 12-2101(A)(1).

                                DISCUSSION

¶10            On appeal from a bench trial, we defer to the superior court’s
factual findings unless clearly erroneous, but we review its legal
conclusions de novo. Town of Marana v. Pima Cnty., 230 Ariz. 142, 152, ¶ 46
(App. 2012). We review issues of contract interpretation de novo. Am.
Power Prods., Inc. v. CSK Auto, Inc., 242 Ariz. 364, 367, ¶ 12 (2017). When
interpreting a contract, we aim to determine and effectuate the parties’
intent. Terrell v. Torres, 248 Ariz. 47, 49, ¶ 14 (2020). In doing so, we construe
provisions by their “plain and ordinary meaning,” and we consider that
meaning “in the context of the entire contract.” Id. at 50, ¶ 14.

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                  HIGH DESERT, et al. v. CEC 141202761
                        Decision of the Court

¶11             We first note that CEC failed to timely submit the transcripts
from the superior court’s bench trial.1 See ARCAP 11(c) (stating that an
appellant is responsible for ordering transcripts necessary to consider the
issues on appeal). Thus, to the extent any issue CEC has raised on appeal
flows from the court’s resolution of factual disputes, we presume the
missing transcripts support the court’s findings and conclusions. See State
ex rel. Dep’t of Econ. Sec. v. Burton, 205 Ariz. 27, 30, ¶ 16 (App. 2003).

¶12           The only argument CEC makes on appeal is that by failing to
pay the $500 fee simultaneous with its August 6, 2021 written request, High
Desert breached the Lease by “attempting an assignment” without CEC’s
consent, which gave CEC the absolute right to refuse the assignment and
terminate the Lease. CEC asserts that the clause in Section 10.1 requiring
that “[e]ach Assignment Request shall be in writing . . . together with a fee
of $500 as consideration for Lessor’s considering and processing said
request” means the $500 fee must be paid simultaneously with the
assignment request.       It contends that “together with” means
“simultaneously with” and “there is nothing ambiguous or unclear” about
it. On the other hand, High Desert argues that “together with a fee of $500”
means that it had to submit both the written request and $500, but those
things did not have to happen simultaneously.

¶13           The superior court did not determine whether failure to pay
the $500 with the assignment request simultaneously was a breach, but we
need not reach that issue because the court found that it was “not material”
given that (1) High Desert explained in the August 6, 2021 request that it
would pay the $500 fee with September rent, (2) it paid the $500 fee as
promised, (3) the delayed payment did not prevent CEC from considering
the request, and (4) CEC never indicated it would not consider the request
without receiving the $500 fee. For CEC to prevail on appeal, it must show
these findings were clearly erroneous. Yet, CEC does not challenge these
findings on appeal, nor could it without providing the trial transcripts.

¶14           Instead, CEC argues the superior court should not have
analyzed whether the breach was material. Under CEC’s theory, High
Desert’s August 6, 2021 request was not merely an improper assignment
request, but an “attempt” to assign. And under the Lease: “Any attempt at
an Assignment without Lessor’s prior written consent shall be null and
void, confer no rights upon a third person, and shall, at the option of Lessor,

1      We granted High Desert’s motion to strike the trial transcripts from
the appellate record because CEC did not file them until after briefing and
oral argument.

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                  HIGH DESERT, et al. v. CEC 141202761
                        Decision of the Court

be a Breach pursuant to Section 11.1(b) without the necessity of any notice
or cure period, in which case Lessor may terminate this Lease . . . .”
Therefore, according to CEC, this provision “trumps any language stating
that consent to assignment ‘shall not [be] unreasonably withheld’” and
what the “trial court regards as material or immaterial is not relevant.”

¶15            CEC, however, does not point to anywhere in the record
showing that it raised this “attempt at an Assignment” issue in the superior
court, and CEC’s appellate counsel conceded at oral argument that the issue
was raised for the first time on appeal. It is therefore waived. See Trantor
v. Fredrikson, 179 Ariz. 299, 300 (1994) (“Because a trial court and opposing
counsel should be afforded the opportunity to correct any asserted defects
before error may be raised on appeal, absent extraordinary circumstances,
errors not raised in the trial court cannot be raised on appeal.”).

¶16          Waiver aside, we decline to adopt CEC’s construction of the
“attempt at an Assignment” provision. The Lease does not define “attempt
at an Assignment;” however, to request an assignment under the Lease,
“Lessee” must notify “Lessor in writing of the terms of the Assignment,”
which High Desert did on August 6, 2021. If that request itself is considered
“an attempt at an Assignment,” it would be impossible to request an
assignment without breaching the Lease and allowing CEC to terminate it.
Thus, CEC’s interpretation renders the portion of the Lease dedicated to
requesting an assignment meaningless. See Aztar Corp. v. U.S. Fire Ins. Co.,
223 Ariz. 463, 476, ¶ 45 (App. 2010) (“Our reading of one provision of a
contract must not render a related provision meaningless.”).

¶17           Moreover, if we were to focus only on the “attempt at an
Assignment” provision, CEC’s interpretation still cannot be reconciled. The
provision reads: “Any attempt at an Assignment without Lessor’s prior
written consent shall be null and void . . . .” (emphasis added). If High
Desert’s August 6, 2021 request for CEC’s prior written consent to the
assignment is by itself an “attempt at an Assignment without [CEC’s] prior
written consent,” then it would be impossible to obtain “prior written
consent,” which would also render that language meaningless. See id.; see
also Roe v. Austin, 246 Ariz. 21, 27, ¶ 17 (App. 2018) (“[C]ourts must avoid
an interpretation of a contract that leads to an absurd result.”). We conclude
that High Desert did not attempt an Assignment.

¶18           High Desert requests an award of attorneys’ fees incurred on
appeal under Section 28 of the Lease, which states that the prevailing party
on appeal “shall be entitled to reasonable attorneys’ fees.” A contractual
provision for attorneys’ fees will be enforced according to its terms. Rand

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                 HIGH DESERT, et al. v. CEC 141202761
                       Decision of the Court

v. Porsche Fin. Servs., 216 Ariz. 424, 435, ¶ 42 (App. 2007). We therefore
award reasonable attorneys’ fees to High Desert subject to compliance with
ARCAP 21.

                             CONCLUSION

¶19          We affirm the superior court’s judgment.

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

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