Bellas Artes De Mexico, Inc. v. Argento LLC

BELLAS ARTES DE MEXICO, INC., Plaintiff/Appellee, v. ARGENTO LLC, an Arizona limited liability company;MARIA PAPAGNO and JORGE A. PAPAGNO,as wife and husband, Defendants/Appellants.

No. 1 CA-CV 16-0090

ARIZONA COURT OF APPEALS DIVISION ONE

December 19, 2017

NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 101(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

Appeal from the Superior Court in Maricopa County

No. CV2013-070402

The Honorable Dawn M. Bergin, Judge

AFFIRMED

COUNSEL

Jennings, Strouss & Salmon, P.L.C., Peoria

By David Brnilovich, Garrett J. Olexa

Counsel for Plaintiff/Appellee

DLA PIPER LLP, Phoenix

By Mark A. Nadeau, Laura M. Kam, Aaron T. Goodman

Counsel for Defendants/Appellants

MEMORANDUM DECISION

Judge Jon W. Thompson delivered the decision of the Court, in which Presiding Judge Kenton D. Jones and Chief Judge Samuel A. Thumma joined.

THOMPSON, Judge:

¶1 This matter stems from a commercial lease. Landlord Argento, LLC, and Maria and Jorge Papagno (collectively, here, Argento) appeal from the judgment in favor of tenant Bellas Artes de Mexico, Inc. (Bellas Artes) following a four-day bench trial. Finding no error by the trial court, we affirm.

FACTUAL AND PROCEDURAL HISTORY

A. Lease and Property History

¶2 Many of the underlying facts are undisputed. Bellas Artes imported, manufactured, and sold high-end home furniture and decorative items starting in 2000.¹,² In or around August 2010, Bellas Artes began considering moving from its then-current location and leasing commercial space from Argento.³

¶3 Argento and Bellas Artes entered into a lease. The original lease, in October 2010, was for Suite 104 (the Showroom). The monthly rent on the Showroom was $ 1,676.15 with $1,197.25 in common area maintenance (CAM) fees. Bellas Artes moved in during the last week of October 2010. An amended lease entered into approximately two weekslater added in an omitted warehouse and workshop space -- Space 6 -- here Bellas Artes intended to store and customize its inventory. Argento charged Bellas Artes monthly rent for Space 6 of $583.45 with $416.75 CAM fees starting in November 2010.⁴

¶4 At the time the amended lease was signed Space 6 did not yet have access to the Showroom and was not in a usable condition for Bellas Artes.⁵ Argento kept promising that Space 6 would be ready for occupation, but never completed the required work.

¶5 During some portion of the time Bellas Artes was waiting for Space 6 it stored inventory outside of the building or, later after a complaint from the City of Scottsdale, in another area called Space 4. Space 4, being another showroom, was not appropriate as a warehouse and workshop space. Bellas Artes could store furniture in Space 4, but could not customize furniture there. Bellas Artes declined a request from Argento to lease Space 4; Bellas Artes continued to indicate in person and by email it still wanted Space 6.

¶6 Over the approximately two years Bellas Artes stored furniture in Space 4, Space 4 remained available for rent and Argento's real estate agent showed the space multiple times. Bellas Artes paid five monthly payments of $500 for Space 4 from March 2011 to August 2011 and then stopped paying.⁶ Argento stopped billing Bellas Artes for Space 4.

¶7 For two years ending November 1, 2012, Argento submitted invoices to Bellas Artes that Bellas Artes paid even when there was a dispute over the amount. In total, Bellas Artes paid Argento $95,486.86.

¶8 In Summer 2012, Bellas Artes became aware that Argento was showing Space 4 to a company called Cantera Stone Source, LLC (Stone Source). Felipe, Bellas Artes' owner, sent Maria an email saying he hoped this meant that Argento would soon provide Space 6 to Bellas Artes "clean and in good condition." He clarified that if Stone Source was moving into Space 4 there also needed to be a wall built to separate the Showroom from Space 4, as well as separating the then-concurrent electrical and restrooms. Maria promised that it would be done.

¶9 Stone Source became aware that for them to rent Space 4, Space 6 needed to be completed for Bellas Artes. Felipe obtained a quote from a contractor to clean the glue residue off the floor; he relayed the quote to Maria, his contact at Argento, who declined the quote as too expensive. Instead, Argento gave Stone Source's manager, Gregory Mortimer, access to Space 6 via Suite 102. Argento did not pay Mortimer, did not pay his assistant, or provide the materials or tools for the work. It did let Mortimer into Space 6, giving him access via another tenant's space. However, on cross-examination, when asked if she "had Mr. Mortimer go in there and grind the cement," Maria replied "correct." Over the next few weeks, Mortimer created an access door to the Showroom, closed the doorway to Suite 102, and began trying to clean the glue from the Space 6 floor without much success.⁷

¶10 On December 9, 2012 Felipe complained to Maria, in a meeting at the building, that there was dust coming into the Showroom from Mortimer's work in Space 6. As of December 17, 2012, Bellas Artes still had not occupied Space 6. On that date, Mortimer tried to clean the floor by grinding it. Felipe stated that Mortimer was using sand to grind the floors. This new method created a "dust tsunami" that invaded the Showroom, coating Bellas Artes' furniture, upholstery, and decorative items with a fine covering of cement dust.

¶11 Afterward, Felipe emailed Argento that the dust covered the furniture and customers were refusing to enter. He demanded that Argento do something immediately. Felipe testified that it was nearly impossible to clean the fine dust off of the wood furniture as it was embedded in the wax polish and, where it had settled on upholstery, wetting the dust turned it into cement.

¶12 Bellas Artes closed the business that day and never reopened. Bellas Artes did not pay any further rent to Argento. Bellas Artes did not retrieve its damaged inventory.

¶13 Argento did not continue to mail Bellas Artes monthly invoices for rent. Argento did not try to remediate the dust issue. Bellas Artes eventually settled with Stone Source for $65,000 for damage to the furniture. The furniture was unable to be restored and the settlement did not cover Bellas Artes true losses.

¶14 Months later, in May 2013, Argento mailed Bellas Artes a Notice to Pay or Quit Possession. In early June 2013, Argento locked Bellas Artes out and took possession of the inventory, equipment, and fixtures, and gave notice to Bellas Artes of its intent to sell the property. It gave a second notice of its intent to sell on August 6, 2013. Argento's decision to sell the inventory was a joint decision between Maria and Jorge Papagno and their daughter Ariadna, who did the company's paperwork.

¶15 On August 9, 2013 Bellas Artes filed a complaint in superior court against Argento asserting, among other things, breach of contract and conversion. Argento's counsel accepted service.

¶16 On August 24, 2013, Argento sold the inventory at auction for $111,931, of which $70,750.86 was profit after sales expenses. Argento applied the remaining funds as follows: Space 6 garage door replacement ($1,968), exterior painting ($2,300), removal of trash ($950), asbestos report ($975), locksmith ($1,310), lock ($150), APS turn-on for auction ($1,193.50), cleaning duct work ($4,177), and attorneys' fees and expenses ($8,028.96). Argento further claims losses of $36,062.81 for unpaid rent and interest, through June 2013, and lost rents from June 2013-December 2013 ($27,698.19). No portion of the sales proceeds were paid to Bellas Artes.

B. At Trial

¶17 At trial Bellas Artes asserted Argento breached the lease by failing to deliver Space 6 and by creating a hazardous situation thatcaused them to vacate the Showroom, leaving their damaged inventory behind and excusing future rent payments. Bellas Artes asserted that it overpaid rent in the amount of $26,329.77 on Space 6. It asserted lost profits, lost inventory, and lost business value.

¶18 Argento claimed the lease was modified by the offer and use of Space 4 in lieu of Space 6, or that Bellas Artes waived any breach by occupying and paying rent on Space 4. Argento asserted that it had a valid landlord lien for unpaid rents. It alleged Bellas Artes failed to mitigate its damages by having proper insurance coverage, in breach of the lease, or by failing to remediate the damage to the inventory. It argues Bellas Artes waived any claim of conversion because it failed to take reasonable steps to prevent Argento's sale of the inventory—including failing to timely respond to the notice of sale. Argento's expert Kenneth Sandhaus asserted the maximum net loss to Bellas Artes was $157,833. He found no lost profits and no loss of business value. Sandhaus' analysis was entered into evidence.

¶19 After the parties waived their right to a jury trial, the matter was tried to the court over four days. The trial court heard testimony from Felipe and Christina Guzman of Bellas Artes, from Maria and Ariadna Papagno for Argento, from Argento's former real estate agent, and each side's damages expert. Brendan Kennedy, Bellas Artes' expert, asserted total damages of $1,266,281 and pointed out flaws in Argento's expert's reasoning. Kennedy's report was entered into evidence. The trial court explicitly found Bellas Artes' expert Kennedy "considerably more credible."⁸

¶20 The trial court found in favor of Bellas Artes and against Argento in the amount of $378,765 for the breach of the lease and loss of business value. It awarded Bellas Artes $822,516 against Argento and the Papagnos, joint and severally, for the conversion of the inventory. The court ordered an offset of the $65,000 recovery from Stone Source. It found, citing Maloof v. Raper Sales, 113 Ariz. 485, 488 (1976), that MariaPapagno, as an officer of the company who directed or participated in the tort, was liable for conversion and Jorge Papagno was liable...