Court Opinion

ID: 4313857
Source: CourtListenerOpinion
Date Created: 2018-09-20 15:01:49.706066+00
Date Added: 2024-06-11T13:27:41.897405
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

                   HV & CANAL, LLC, Plaintiff/Appellee,

                                        v.

            UPPER IOWA UNIVERSITY, Defendant/Appellant.

                             No. 1 CA-CV 17-0621
                               FILED 9-20-2018

           Appeal from the Superior Court in Maricopa County
                          No. CV2015-009781
                The Honorable Dawn M. Bergin, Judge

                                  AFFIRMED

                                   COUNSEL

Dickinson Wright PLLC, Phoenix
By Robert A. Shull, Amanda E. Newman
Counsel for Plaintiff/Appellee

Spiess & Bell, PC, Phoenix
By James O. Bell, Yvonne R. Love
Counsel for Defendant/Appellant

                       MEMORANDUM DECISION

Judge Lawrence F. Winthrop delivered the decision of the Court, in which
Presiding Judge Jennifer M. Perkins and Judge Jon W. Thompson joined.
                     HV & CANAL v. UPPER IOWA
                         Decision of the Court

W I N T H R O P, Judge:

¶1            Upper Iowa University (“UIU”) appeals the superior court’s
judgment in favor of HV & Canal, LLC (“HV”) for breach of a commercial
lease. For the following reasons, we affirm.

                FACTS AND PROCEDURAL HISTORY

¶2             On November 20, 2012, HV and UIU executed a lease
agreement (“the Lease”), pursuant to which UIU would lease 13,389 square
feet of space from HV for a period of up to fifteen years and four months.
In addition to monthly rent, the Lease obligated UIU to pay other charges
to HV, including fees for heating, ventilation, and air conditioning
(“HVAC”) maintenance and repair.

¶3           Paragraph 1(l) of the Lease required UIU to provide a Letter
of Credit (“LOC”) to secure its performance:

      Security Deposit:
      Unconditional and Irrevocable Letter of Credit substantially
      in the form attached hereto as Exhibit “G” having a term of
      five (5) years beginning on the Lease Commencement Date in
      the amount of Five Hundred Thousand and 00/100 Dollars
      ($500,000.00). The Letter of Credit shall be reduced by One
      Hundred Thousand and 00/100 Dollars ($100,000.00) on each
      of the first five (5) anniversaries of the Lease Term if there
      ha[ve] been no defaults by Lessee under the terms of the Lease
      beyond all applicable notice and cure periods.

¶4           The form attached as Exhibit “G” was titled “Form of Letter
of Credit” and reflected Wells Fargo Bank, N.A. (“Wells Fargo”) as the
issuer; however, nothing in the body of the Lease required that Wells Fargo
issue the LOC. The only other reference to the security deposit in the Lease
appeared in paragraph 4, which required the security deposit to be
provided “upon the execution of this Lease” and allowed HV to use it for
any damages resulting from any breach, nonperformance, or default by
UIU.

¶5            On November 21, 2012, UIU provided HV with a LOC issued
by Wells Fargo in the amount of $500,000 with an expiration date of May 1,
2018. Although some spaces on the original Exhibit “G” had been left
blank, the blank spaces had been filled in to match the Lease requirements.

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                      HV & CANAL v. UPPER IOWA
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¶6         The Lease commenced on May 1, 2013. On May 1, 2014, the
LOC was reduced by $100,000 pursuant to the security deposit provision.

¶7            On October 20, 2014, Susan Dusenbery, UIU’s Associate Vice
President of Finance, sent an email to Jerry Tokoph, President of HV’s
Managing Member, advising that UIU wanted to substitute a LOC from
Bankers Trust for the Wells Fargo LOC. UIU wanted to substitute the
Bankers Trust LOC because, unlike Wells Fargo, Bankers Trust did not
require UIU to deposit funds to obtain the LOC. Thus, the proposed
substitution would have allowed UIU access to the remaining funds on the
Wells Fargo LOC; UIU, however, never communicated the reason for the
request to HV. Dusenbery requested that HV execute documents to
effectuate the substitution.

¶8            Tokoph forwarded the request to Steve O’Connor, HV’s
Controller, who told Dusenbery the LOC “is security for debt we have on
the property,” and the request would be sent to HV’s lender for review. On
October 23, 2014, Dusenbery asked O’Connor for a response to the request
by 12:00 p.m. on October 27. O’Connor responded the same day that HV
could not accept the transfer and the LOC needed to remain with Wells
Fargo. Dusenbery requested an explanation for the denial, and O’Connor
responded that it was “[b]ased on the financial strength of Wells Fargo,”
and that “[t]he lender and partners would prefer to keep the letter of credit
with Wells Fargo.”

¶9            On October 30, 2014, Christopher Kragnes, UIU’s General
Counsel and Chief Legal Officer, wrote a letter to O’Connor, arguing that
because the Lease required only that the LOC be “substantially in the form
attached hereto as Exhibit ‘G,’” and the Bankers Trust LOC met those
requirements, UIU did not need permission from HV for the substitution.
He asserted that HV’s refusal to accept the substitute LOC constituted an
event of default and was “unreasonable, putative [sic], and an act of bad
faith.” He demanded that HV execute documents for the substitution by
November 3, 2014. HV did not do so, and UIU took no further action until
it vacated the premises, ceased making lease payments, and removed from
the premises collateral in which HV had a perfected security interest — all
on or about June 30, 2015. Meanwhile, as of May 1, 2015, the Wells Fargo
LOC was reduced to $300,000 in accordance with the terms of the Lease.

¶10            On July 2, 2015, HV notified UIU that it was in material breach
of the Lease, failure to timely tender rent and other payments would trigger
an event of default, and HV intended to draw upon the Wells Fargo LOC.

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                     HV & CANAL v. UPPER IOWA
                         Decision of the Court

On July 24, HV again notified UIU that it was in material breach of the
Lease, by failing to pay rent and return the collateral taken by UIU.

¶11           On August 5, 2015, HV filed a complaint against UIU, alleging
breach of the Lease and conversion of collateral. UIU then filed an answer
and counterclaim, seeking a declaratory judgment and injunctive relief.

¶12           In November 2015, HV moved for partial summary judgment
on liability. UIU responded and cross-moved for summary judgment,
arguing that HV’s refusal to accept the substitute LOC constituted a
material breach, thereby excusing UIU’s continued performance under the
Lease. HV maintained that its refusal to accept the proposed substitute
LOC did not constitute a breach, and even if it did, the breach was not
material and did not excuse UIU from performing.

¶13           On January 15, 2016, the superior court held oral argument on
the cross-motions and took the matter under advisement. On March 15,
2016, the court issued a minute entry granting HV’s motion for partial
summary judgment as to liability on HV’s claim for breach of the Lease and
denying UIU’s cross-motion for summary judgment. The court’s grant of
partial summary judgment left open the issues of damages on HV’s breach
of Lease claim, as well as any liability and damages for conversion.1

¶14          Before trial, UIU filed a motion in limine to preclude HV from
presenting evidence as to various calculated damages, including evidence
supporting HV’s entitlement to HVAC expenses. The court granted UIU’s
motion in part, but permitted the admission of evidence regarding the
HVAC repair and maintenance costs.

¶15            On February 14, 2017, the superior court held trial on the
remaining issues. At conclusion of the trial, the court ordered counsel to
file closing arguments and took the matter under advisement. Later, in a
minute entry dated June 9, 2017, the court granted judgment as a matter of
law, see Ariz. R. Civ. P. 50, in favor of UIU on HV’s conversion claim after
concluding it would result in an impermissible double recovery, but
determined that HV was entitled to additional damages in the amount of
$63,921 (including $15,681 for HVAC maintenance) for UIU’s breach of the
Lease.

1      In the meantime, HV had notified UIU that it intended to draw down
the full remaining amount of the Wells Fargo LOC. HV subsequently did
so, applying the drawdown to the total amount of its damages.

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                      HV & CANAL v. UPPER IOWA
                          Decision of the Court

¶16            On September 18, 2017, the superior court issued a signed
judgment in favor of HV on its breach of contract claim against UIU,
awarding HV damages in the principal amount of $63,921 and prejudgment
interest in the amount of $4,840.30 as of July 5, 2017, plus accruing interest.
The court entered judgment in favor of UIU on HV’s conversion claim.
Finally, the court awarded HV attorneys’ fees in the amount of $133,492 and
costs in the amount of $2,573.76, plus interest.

¶17          UIU filed a timely notice of appeal. We have jurisdiction
pursuant to Arizona Revised Statutes (“A.R.S.”) section 12-2101(A)(1).

                                 ANALYSIS

       I.     Summary Judgment as to UIU’s Liability for Breach of the Lease

¶18           UIU argues the superior court erred in granting HV’s motion
for partial summary judgment as to UIU’s liability for breach of the Lease.
In concluding UIU materially breached the Lease, the court concluded HV
did not breach an express provision of the Lease, no reasonable juror could
find that HV breached the implied covenant of good faith and fair dealing,
and even if the court was incorrect about the existence of a breach by HV,
the alleged breach was, as a matter of law, immaterial. Thus, the court
concluded as a matter of law that UIU’s performance was not excused by
HV’s refusal to allow a substitution of the Wells Fargo LOC.

¶19            We review de novo a superior court’s grant of summary
judgment, construing the facts and reasonable inferences in the light most
favorable to the opposing party. Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12
(2003); Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local
No. 395 Pension Trust Fund, 201 Ariz. 474, 482, ¶ 13 (2002). Summary
judgment is appropriate if no genuine issues of material fact exist and the
moving party is entitled to judgment as a matter of law. Orme Sch. v. Reeves,
166 Ariz. 301, 309 (1990); Ariz. R. Civ. P. 56(a). Further, we will affirm
summary judgment if the facts produced in support of the claim or defense
have so little probative value, given the quantum of evidence required, that
no reasonable person could find for its proponent. Orme Sch., 166 Ariz. at
309. The existence of cross-motions for summary judgment generally
underscores the absence of material factual disputes underlying an issue.
See United Metro Materials, Inc. v. Pena Blanca Props., L.L.C., 197 Ariz. 479,
480 n.1 (App. 2000); LaBombard v. Samaritan Health Sys., 195 Ariz. 543, 545,
¶ 2 (App. 1998).

¶20          We also review de novo the interpretation of leases and other
contracts, which involve questions of law. Andrews, 205 Ariz. at 240, ¶ 12;

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                      HV & CANAL v. UPPER IOWA
                          Decision of the Court

accord United Cal. Bank v. Prudential Ins. Co. of Am., 140 Ariz. 238, 257 (App.
1983). As a contract, a lease is governed by the general contract principles
of good faith and commercial reasonableness. Tucson Med. Ctr. v. Zoslow,
147 Ariz. 612, 614 (App. 1985); see also Enyart v. Transamerica Ins. Co., 195
Ariz. 71, 76, ¶ 14 (App. 1998) (“Arizona law implies a covenant of good faith
and fair dealing in every contract.” (citation omitted)). The implied
covenant of good faith and fair dealing is “as much a part of a contract as
are the express terms.” Wells Fargo Bank, 201 Ariz. at 490, ¶ 59 (citation
omitted). Thus, it is possible to breach the covenant of good faith and fair
dealing implied in a contract without breaching an express contractual
provision. See id. at 491, ¶ 64. Generally, a party may breach the covenant
of good faith and fair dealing when it “uses its discretion for a reason
outside the contemplated range – a reason beyond the risks assumed by the
party claiming a breach.” Sw. Sav. & Loan Ass’n v. SunAmp Sys., Inc., 172
Ariz. 553, 558-59 (App. 1992) (quoting Stephen J. Burton, Breach of Contract
and the Common Law Duty to Perform in Good Faith, 94 Harv. L. Rev. 369, 385-
86 (1980) (footnote omitted)).

¶21            We agree with HV that it did not breach an express provision
of the Lease, and the superior court did not err in ruling that UIU was liable
for breaching the Lease. The Lease is entirely silent on substitution of the
original (Wells Fargo) LOC. Thus, although the Lease required the original
LOC to be “substantially in the form attached hereto as Exhibit ‘G,’” no
Lease provision (1) created an express right to substitute the original LOC,
(2) required HV to accept a substitute LOC, (3) prohibited substitution of
the original LOC, or (4) expressly vested HV with discretion to deny a
substitution request by UIU. In other words, because the Lease contained
no language either allowing or prohibiting substitution of the Wells Fargo
LOC, HV did not breach an express provision of the Lease by denying
UIU’s request.

¶22             Further, to simply imply the right for UIU to unilaterally
substitute the Wells Fargo LOC with another LOC might deprive HV of the
security for which it bargained, especially if the substitute LOC was not
“substantially in the form” of the original (Wells Fargo) LOC. See generally
D. Nelsen & Sons, Inc. v. Gen. Am. Dev. Corp., 366 N.E.2d 381, 386 (Ill. App.
Ct. 1977) (noting that a “cause of the plaintiffs’ losses was the plaintiffs’
consent . . . to substitute the funds represented by the certificate of deposit
ultimately for a letter of credit, which later turned out to be worthless” after
the issuing bank became insolvent).

¶23         Although UIU argues HV arbitrarily withheld its approval of
the proposed substitute (Bankers Trust) LOC, and therefore breached the

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                      HV & CANAL v. UPPER IOWA
                          Decision of the Court

covenant of good faith and fair dealing, we disagree. The purpose of the
original (Wells Fargo) LOC was to provide adequate security to HV in the
event of a default by UIU. After Dusenbery asked HV to approve the
substitute LOC, O’Connor informed Dusenbery that he was forwarding the
request to HV’s lender for review, an action the superior court found
“reasonable” and we deem prudent given that a substitute LOC could alter
the strength of HV’s “security for debt [it had] on the property.” Although
O’Connor did not explain the reason for the denial in his initial email to
Dusenbery, he later explained at her request that the denial was based on
the comparative financial strengths of Wells Fargo and Bankers Trust.
Thus, the reason provided for the denial was not beyond the risks assumed
by UIU. See Sw. Sav. & Loan Ass’n, 172 Ariz. at 559. Moreover, neither
Dusenbery nor anyone else from UIU communicated to HV the reason for
UIU’s request. Cf. D’Oca v. Delfakis, 130 Ariz. 470, 471-72 (App. 1981) (“The
burden to furnish sufficient information for a lessor to determine whether
a consent to assignment of a lease will be given is the lessee’s. The lessor is
under no duty to seek out such information. In the absence of information
concerning the proposed tenancy and the tenant, the lessor is justified in
withholding consent.” (internal citations omitted)). Given that LOC
substitution was not a part of the Lease or an expectation ever
communicated to HV before UIU’s request, and given that UIU never
explained its need for the substitution and knew HV had bargained for the
security of an LOC “substantially in the form” of the original (Wells Fargo)
LOC, we agree with the superior court that UIU assumed the risk HV might
deny a proposed substitute LOC for financial reasons. See generally Tucson
Med. Ctr., 147 Ariz. at 615 (recognizing that “financial irresponsibility or
instability” would be an example of a good-faith, reasonable basis for
refusing an assignment or sublease).

¶24           If UIU had informed HV that UIU needed access to the
remaining $300,000 on the Wells Fargo LOC to pay its rent under the Lease
and offered a substantially similar LOC from an issuer of the same caliber
as Wells Fargo, an outright refusal to consider the substitute LOC might
have constituted a breach of the covenant of good faith and fair dealing. See
Metcalf Constr. Co. v. United States, 742 F.3d 984, 991 (Fed. Cir. 2014) (“The
implied duty of good faith and fair dealing is limited by the original
bargain: it prevents a party’s acts or omissions that, though not proscribed
by the contract expressly, are inconsistent with the contract’s purpose and
deprive the other party of the contemplated value.” (citation omitted)). But
here, because the denial was within the risks assumed by UIU and
apparently did not interfere with UIU’s ability to perform under the
Lease—as evidenced by UIU’s rent payments over the next eight months—

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                      HV & CANAL v. UPPER IOWA
                          Decision of the Court

no reasonable juror could find that HV breached the implied covenant of
good faith and fair dealing.

¶25           The superior court, applying the factors set forth in § 241 of
the Restatement (Second) of Contracts (1981) as adopted by our supreme
court in Foundation Development Corp. v. Loehmann’s, Inc., 163 Ariz. 438, 446-
47 (1990), also found that, even if it was incorrect about the existence of a
breach by HV, the alleged breach was, as a matter of law, not material. UIU
argues that the superior court erred in concluding the alleged breach of the
Lease by HV was not material. We do not address this argument because,
as discussed above, we agree with the superior court that HV did not breach
the Lease as a matter of law.

       II.    Damages for HVAC Expenses

¶26           UIU argues the superior court erred in awarding HV damages
for HVAC expenses. UIU maintains the superior court erroneously
considered parole evidence in the form of Tokoph’s testimony in
interpreting an unambiguous clause (paragraph 11(f)) in the Lease; HV
failed to provide a written request for payment in accordance with
paragraph 11(f) of the Lease; and even if the court was correct that UIU was
required to pay $7,500 (plus three percent) per year regardless of whether
HV incurred any actual HVAC expenses, HV failed to meet its burden of
proof.

¶27           As previously noted, we review de novo the interpretation of
leases and other contracts. Andrews, 205 Ariz. at 240, ¶ 12. “Our purpose
in interpreting a contract is to ascertain and enforce the parties’ intent.” Elm
Ret. Ctr., LP v. Callaway, 226 Ariz. 287, 290, ¶ 15 (App. 2010) (citation
omitted). In ascertaining intent, we look first to the plain meaning of the
words in the contract. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588,
593, ¶ 9 (App. 2009). When contract terms “are plain and unambiguous
upon their face, they must be applied as written.” Emp’rs Mut. Cas. Co. v.
DGG & CAR, Inc., 218 Ariz. 262, 267, ¶ 24 (2008) (quoting D.M.A.F.B. Fed.
Credit Union v. Emp’rs Mut. Liab. Ins. Co., 96 Ariz. 399, 403 (1964)). If
language in a contract “is reasonably susceptible to more than one
interpretation,” however, extrinsic evidence may be admitted in
interpreting the contract. Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz.
148, 158-59 (1993).

¶28           Paragraph 11(f) of the Lease provides in relevant part:

       On the first anniversary of the Commencement Date and on
       each anniversary thereafter during the Lease Term (in each

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                     HV & CANAL v. UPPER IOWA
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      case following receipt of a written request for payment from
      Lessor), Lessee shall pay to Lessor $7,500 to reimburse Lessor
      for routine maintenance and repair of such HVAC system
      during the prior year (the “HVAC Cap”), which HVAC Cap
      shall be increased by three percent (3%) on the second
      anniversary of the Commencement Date and each
      anniversary of the Commencement Date thereafter during the
      Lease Term.

¶29           At trial, the parties offered competing interpretations for
paragraph 11(f). HV argued the paragraph provided for a fixed annual fee
of $7,500 (plus annual three percent increases); UIU argued it was intended
to reimburse HV for actual costs up to $7,500 (plus the annual increases).
Finding the clause was reasonably susceptible to both interpretations, the
superior court admitted the trial testimony of Tokoph and awarded HVAC
expenses, reasoning as follows:

             [HV] contends that the HVAC provision in the Lease
      imposes a fixed annual fee for [UIU]’s contribution to the
      costs of routine maintenance and repair of the HVAC system.
      For the first year, [UIU] was to pay $7500, and for the second
      year, $8181 (3% increase). [UIU] argues that [HV] is not
      entitled to any HVAC payments because: (1) the provision
      was intended to reimburse [HV] for any actual maintenance
      costs, not impose a fixed fee; and (2) [HV] failed to make a
      written request for payment.

              The Court finds that the language of the HVAC
      provision is reasonably susceptible to both parties’
      interpretations.    The only evidence presented at trial
      regarding the parties’ intent was testimony from Jerry
      Tokoph, [HV]’s President and Managing Member. Tokoph
      testified that [UIU] insisted on a fixed amount ($7500 for the
      first year) to eliminate any risk of incurring more than that
      amount. According to Tokoph, the fixed amount was a “cap”
      in the sense that if actual costs exceeded $7500, [HV] would
      have to pay the excess. [UIU] presented no witness or
      evidence to refute Tokoph’s testimony. The Court therefore
      finds that [HV] is entitled to recover the requested HVAC
      payments for 2015 and 2016.

¶30          We do not find paragraph 11(f) to be ambiguous; in our view,
UIU’s obligation to pay $7,500 (plus a three percent annual increase) is

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                      HV & CANAL v. UPPER IOWA
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unconditional. However, even assuming the language in paragraph 11(f)
is ambiguous, as UIU argues, the superior court did not err as a matter of
law either in allowing extrinsic evidence or in ultimately concluding that
the intent of the provision was to impose an annual unconditional HVAC
charge that was neither dependent upon nor limited to actual HVAC
maintenance and/or repair expenses. See Taylor, 175 Ariz. at 158-59
(“Whether contract language is reasonably susceptible to more than one
interpretation so that extrinsic evidence is admissible is a question of law
for the court.” (citing Leo Eisenberg & Co. v. Payson, 162 Ariz. 529, 532-33
(1989)). Although UIU argues the paragraph’s use of the term “reimburse”
suggests UIU shall pay to HV actual costs up to $7,500 plus annual increases,
HV points out that the paragraph does not use the words “up to” and
simply provides that UIU “shall pay to [HV] $7,500” a year, plus annual
increases. Accordingly, the superior court properly admitted Tokoph’s
testimony that paragraph 11(f) entitled HV to a fixed amount annually, and
did not err in relying on Tokoph’s testimony to resolve any supposed
ambiguity. See Blaine v. McSpadden, 111 Ariz. 147, 149 (1974) (“A trial court
sitting without a jury is the judge of the witness’ credibility and the weight
of the evidence and the reasonable inferences to be drawn therefrom.”
(citation omitted)).

¶31            UIU also argues that HV failed to provide a written request
for payment in accordance with paragraph 11(f) of the Lease. In making
this argument, UIU acknowledges that on at least two occasions, HV
“provided UIU with written notice of UIU’s alleged breach of the [L]ease
for failure to pay rent and ‘other charges’ as well as its conduct in drawing
down the LOC,” but maintains HV has not “produced evidence that it
provided UIU a written request explicitly requesting monies in turn for its
maintenance and repair of the HVAC.”

¶32           HV points out, however, that it provided UIU with written
notice requesting payment for the HVAC maintenance and repair expenses
in its complaint, which appended as Exhibit 6 a schedule of past-due
amounts, including the May 2015 HVAC charge, which had not been paid
and came due shortly before UIU vacated the premises. Further, the other
HVAC charge for which the court found UIU responsible—the May 2016
HVAC charge—came due during pendency of the lawsuit. HV further
avows, without dispute from UIU, that HV has asserted a continuing
demand for these HVAC charges in its “pleadings, disclosures, pretrial
memorandum, and other documents prepared” in this litigation.

¶33         UIU argues for the first time in its reply brief that, even if HV
did request payment for HVAC expenses, HV did not comply with

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                     HV & CANAL v. UPPER IOWA
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paragraph 28 of the Lease, entitled “Notices – Manner of Giving.” Because
UIU raises this argument for the first time in its reply brief, it has waived
the issue, and we do not further consider it. See Romero v. Sw. Ambulance,
211 Ariz. 200, 204 n.3, ¶ 7 (App. 2005).

¶34           UIU also argues that, even if it was required to pay $7,500
(plus three percent) per year for HVAC expenses, HV nonetheless failed to
meet its burden of proof because Tokoph’s testimony could be interpreted
as ambiguous regarding whether HVAC charges for the 2015-2016 year had
been paid. As the trier of fact, however, the superior court resolved any
ambiguity in favor of HV. We will not set aside the court’s findings of fact
unless clearly erroneous. Blaine, 111 Ariz. at 149. After reviewing Tokoph’s
trial testimony, we conclude that the superior court did not err in finding
that HV was entitled to recover the requested HVAC payments for 2015
and 2016.2

      III.   Attorneys’ Fees and Costs in Superior Court

¶35             UIU argues the superior court erred in awarding attorneys’
fees and costs to HV and denying UIU’s application for attorneys’ fees. UIU
relies on paragraph 33 of the Lease, and premises its argument on this court
reversing the superior court’s summary judgment in favor of HV as to
liability for breach of the Lease.

¶36          In pertinent part, paragraph 33 of the Lease provides as
follows:

      In the event that it becomes necessary for any party to employ
      an attorney to enforce any of the terms or provisions of this
      Lease, the defaulting party shall pay to the prevailing party all
      reasonable attorneys’ fees and court costs (if any) in connection
      therewith, the amount to be fixed by the court without a jury.

(Emphasis added.)

¶37          In awarding attorneys’ fees and costs to HV and denying
UIU’s fees application, the court explained its reasoning as follows:

             [UIU] bases its argument that it is the prevailing party
      on [HV]’s failure to prevail on its conversion claim ($184,697)
      and its recovery of only $63,921 of the $363,921 requested on

2      Moreover, as HV correctly points out, UIU has never contended it
did actually pay the HVAC fees.

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                     HV & CANAL v. UPPER IOWA
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      its breach of contract claim. [UIU] fails to take into account,
      however, that [HV] prevailed on: (1) its motion for summary
      judgment on liability on the breach of contract claim; (2)
      [UIU]’s affirmative defense of failure to mitigate damages;
      and (3) [UIU]’s counterclaims for injunctive relief and
      declaratory judgment. Furthermore, the attorneys’ fees
      clause states that “the defaulting party shall pay to the
      prevailing party all reasonable attorneys’ fees and court costs
      . . .” [UIU] is undisputedly the “defaulting party;” therefore,
      [HV] must be the “prevailing party.”

¶38           We find no error in the superior court’s reasoning. The court
properly held that, because HV prevailed on the cross-motions for
summary judgment as to liability for breach of the Lease, UIU was the
“defaulting party” and HV was the “prevailing party” under paragraph 33
of the Lease. Accordingly, the court did not err in awarding HV its
attorneys’ fees and costs.

      IV.    Attorneys’ Fees and Costs on Appeal

¶39           Both UIU and HV request attorneys’ fees incurred on appeal
pursuant to the Lease and A.R.S. § 12-341.01(A). HV is the prevailing party
on appeal; UIU is not. Accordingly, UIU’s request is denied, and we award
reasonable attorneys’ fees and taxable costs to HV in an amount to be
determined upon compliance with Rule 21, ARCAP.

                              CONCLUSION

¶40          The superior court’s judgment is affirmed.

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

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