from the Superior Court in Maricopa County No. CV2011-004502
The Honorable Sally Schneider Duncan, Judge
Quarles & Brady LLP, Phoenix By Jeffrey H. Wolf, Lauren
Elliott Stine, D. Cody Huffaker.
Strasburger & Price, LLP, Dallas By Jadd F. Masso, Scott
A. Shanes (attorneys admitted pro hac vice) Counsel for
& Wilmer LLP, Phoenix By Robert A. Henry, Kelly A.
Kszywienski Counsel for Defendants/Appellees.
Randall M. Howe delivered the opinion of the Court, in which
Presiding Judge Kent E. Cattani and Judge Kenton D. Jones
Keg Restaurants Ltd. ("Keg Limited"), Keg
Restaurants U.S., Inc. ("Keg U.S."), Keg Franchise
U.S., Inc. ("Keg Franchise"), and Keg Restaurants
Arizona, Inc. ("Keg Arizona") (collectively,
"Keg") appeal the trial court's denial of their
motion for judgment as a matter of law ("JMOL") and
for a new trial and the court's award of $5, 913, 301.40
to William and Fabienne Jones, Tucson Oro Valley Keg, LLC,
and OVM Keg Land, LLC (collectively, "TOVK"). For
the following reasons, we affirm.
AND PROCEDURAL HISTORY
In March 2011, Keg sued TOVK for compensatory and punitive
damages from acts that arose from the parties' agreements
to build a Keg-brand restaurant in Tucson, Arizona. As
amended, Keg alleged claims of breach of three agreements and
anticipatory breach of two agreements. Keg also alleged tort
claims of negligent misrepresentation and fraudulent
inducement and promissory fraud. TOVK counterclaimed,
alleging claims of breach of four agreements, the covenant of
good faith and fair dealing, and fiduciary duty. TOVK also
alleged alter-ego liability and tort claims of negligent
misrepresentation, fraud, fraudulent concealment, fraudulent
inducement, and unjust enrichment. Before trial, the court
dismissed all the parties' tort claims on summary
judgment, and at trial, the jury found Keg Limited liable for
the acts of its subsidiaries in breaching the parties'
agreements. Keg renewed its JMOL motion and alternatively
moved for a new trial, and the trial court denied both
motions. The sequence of events between Keg and TOVK explains
the jury's verdicts in finding Keg Limited liable for the
acts of its subsidiaries and the trial court's decision
to enter judgment in favor of TOVK.
The Keg Entities
"The Keg Steakhouse Bar" is a casual steakhouse
restaurant chain in Canada. Keg Rights Limited Partnership, a
Canadian limited partnership, owns the trademarks and trade
names and proprietary rights associated with the Keg
restaurant system. Keg Rights licensed Keg Limited, a
separate Canadian company, to use and sublicense other
entities' use of the trademarks, trade names, and
proprietary rights in connection with the Keg restaurant
system. Keg Limited sells "The Keg Steakhouse
Bar" franchises in Canada.
Keg U.S., a Delaware corporation, is a wholly-owned
subsidiary of Keg Limited and is sublicensed to use and to
sub-sublicense the trademarks. In that regard, Keg U.S.
sub-sublicensed its subsidiary, Keg Franchise, to use and to
sub-sublicense to its franchisees the rights to use the
trademarks. Keg Franchise sells "The Keg Steakhouse
Bar" franchises in the United States. In addition to the
independent franchises, Keg U.S. owns and operates
subsidiaries in the United States, including Keg Arizona,
which owns and operates several Keg restaurants in Arizona.
Keg Limited, Keg U.S., Keg Franchise, and Keg Arizona-all
separate business entities-have the same business address in
British Columbia, Canada.
As far as the record reveals, the individuals employed by Keg
have the following titles. David Aisenstat is Keg
Limited's and Keg Franchise's President, Chief
Executive Officer ("CEO"), and Director, but also
signed documents as Keg U.S.'s and Keg Arizona's
President and CEO. James Henderson is Keg Limited's Vice
President of Business Development, but also signed documents
as Keg U.S.'s Executive Vice President of Business
Development and Keg Franchise's Vice President of
Business Development. Andrea Janzen is employed by Keg
Limited as its Director of Real Estate Development, but
"do[es] work on behalf of those other entities."
Neil MacLean is Keg Limited's Chief Financial Officer and
all four entities' Secretary. Catherine Chow is Keg
Limited's Director of Legal Services. Bruce Sanford
"assume[s]" that he was employed by Keg Limited and
works as a project manager for corporate stores and merely
assists "franchisee[s] to do their project
The Agreement to Build a Keg Restaurant and the Subsequent
In 2005, Jones and Michael Ratz, a general manager at Keg
Limited, talked about establishing a Keg franchise in the
United States. They then met with Aisenstat and Henderson to
discuss the opportunity. In August 2005, Aisenstat,
Henderson, and Janzen flew from Canada to Tucson, Arizona, to
meet with their real estate agent and Ratz and Jones in
exploring potential locations for a restaurant.
After the trip, Janzen sent a memorandum to Jones and Ratz,
copying Aisenstat and Henderson, summarizing the locations
they were shown, but stating that "[w]e wholeheartedly
agree" with selecting a Vestar development, Oro Valley
Marketplace, as the location. Janzen also stated that
"[w]e believe the quality of Vestar's developments,
as well as our strong relationship, makes this an obvious
long-term location in this market." Janzen concluded by
stating that "we have already had discussions with
Vestar and will work with them to secure the prime restaurant
site in their development."
In December 2006, Vestar and Keg Arizona entered into a
Ground Lease for a pad in the Oro Valley Marketplace;
Aisenstat signed the lease as President and CEO of Keg
Arizona. Keg U.S. guaranteed the lease, while Keg Limited
guaranteed completion of its terms. Both guarantees were
signed by Aisenstat as the entities' President and CEO
and MacLean as the entities' Secretary and notarized by
Chow. The Ground Lease required that Keg Arizona open the
restaurant within one year of Vestar's completion of
certain work. Once that work was completed, Vestar would turn
the pad over to Keg Arizona.
In January 2008, TOVK entered into a "Restaurant
Development Agreement" with Keg Franchise to develop and
operate a Keg franchise on the land leased from Vestar. The
agreement required TOVK to pay $50, 000 to Keg Franchise,
which Keg Franchise would refund, less expenses, up to $25,
000, if the parties did not enter into a franchise agreement
by January 15, 2010. Keg Arizona then subleased the existing
Ground Lease between Keg Arizona and Vestar to TOVK. That
same day, TOVK agreed to indemnify Keg Limited, which was not
a party to the Ground Lease or Sublease, for any losses
Vestar might incur for any breach of the Sublease. Both the
Sublease and Indemnity Agreement were signed by MacLean as
In April 2008, Vestar notified Janzen that the pad had been
turned over to "The Keg" for it to begin
construction. Therefore, pursuant to the Ground Lease, Keg
Arizona had a year from that date to finish construction.
Chow then emailed Jones and Ratz an agency agreement to be
returned to Keg Limited, appointing employees of "Keg
Restaurants Ltd. and/or Keg Franchise U.S., Inc." as
Jones' and Ratz's agents for the restaurant's
construction ("2008 Agency Agreement"). The
agreement provided Keg Limited and/or Keg Franchise
"with full and absolute power and authority" to
execute all acts necessary to construct the restaurant and
"to transact any and all business for the development
and construction of the Restaurant." It further stated
that "[s]uch business may include without limitation,
entering into contracts for goods and services for the
development, construction and maintenance of the Restaurant,
amending construction and design plans, directing suppliers
and contractors, and performance of such other services as
[TOVK] may request from time to time."
Before construction could begin, however, "The Keg"
had to acquire building and grading permits from the City of
Oro Valley. In November 2008, seven months after the pad had
been turned over to "The Keg, " the parties amended
the Development Agreement to require that TOVK put in escrow
$500, 000 for construction costs and provide an additional
fund of at least $1.5 million and to submit a commitment
letter from a qualified lender for a loan of at least $3.25
million. The amendment also stated that if TOVK defaulted,
under the terms of the Development Agreement or the
amendment, Keg U.S. would refund TOVK's financial
investment, less set-offs and deduction for losses, expenses,
or costs arising from the default.
In late November 2008, Karson Builders, the construction
manager Keg Limited hired, obtained the building permit-which
TOVK paid for-but not the grading permit-which was the
responsibility of Sanford, Keg Limited's project manager.
Without the grading permit, Karson could not begin work and
further grading work was required on the pad before the City
would issue the permit. Vestar consequently extended the
proposed opening date to November 2009.
In February 2009, Oro Valley notified Sanford that it would
put the project on hold because "The Keg" still
needed a grading permit and to have its civil construction
plans approved. The City explained that "[w]hile your
building plans have been approved and you've been issued
a building permit; you still did not have approved site civil
construction documents nor an issued grading permit."
The City further explained that the civil construction plans,
which "modify the already approved generic site civil
plans for this pad to match the current building plans,
" still had some outstanding issues and therefore could
not be approved. In April 2009, "The Keg" still did
not have a grading permit.
Keg U.S. thereafter amended the Development Agreement again
for TOVK and its affiliate, OVM Keg Land, LLC, to purchase
the property, instead of renting the property. The amendment
was written on Keg Limited letterhead and signed by Henderson
as Keg U.S.'s Executive VP-Business Development and
MacLean as Keg Limited's Secretary. OVM subsequently
defaulted, however, and Keg U.S. and TOVK amended the
Development Agreement once again, agreeing to proceed under
their previous agreement where the Sublease governed and TOVK
would construct and operate the restaurant. The amendment
required that TOVK escrow $1.44 million to be used for
construction. The amendment was written on Keg Limited
letterhead and signed by MacLean as Secretary.
In September 2009, a month before the then-current
construction completion deadline, Jones requested an
extension. Janzen told him that the deadline could not be
extended, however, because Vestar had established the
deadline and she did not "want to go back to Vestar
until we start construction and show some level of good
faith." Jones responded that he was "comfortable
proceeding on the good faith of The Keg." TOVK and Keg
Franchise thereafter entered into an Escrow Agreement, signed
by MacLean, and TOVK escrowed $1.5 million.
After Jones escrowed the money, Janzen emailed him a copy of
"the standard agency letter and letter of intent used by
franchisees in Canada." She stated that to proceed with
the project, "Keg need[ed] to be appointed as
[TOVK's] agent, and [Karson Builders] need[ed] a letter
of intent" to allow it "to issue [purchase orders]
to the sub-trades before the construction contract is
finalized." TOVK signed and returned the letters,
appointing Keg U.S. as its agent for the construction
("2009 Agency Agreement"). Both the Escrow
Agreement and 2009 Agency Agreement authorized payments to
Karson. Keg Limited then authorized advance payments to
Karson in October 2009, even though "The Keg" still
had not received the grading permit.
In November 2009, still without a grading permit, Jones
advised Karson of the need for a performance bond to
guarantee Oro Valley that Karson would begin construction.
After Karson was unable to obtain the bond, Jones did so,
even though he was not responsible for acquiring it; that was
the duty of Brunson, Keg Limited's project manager. By
this point, Keg Limited had extended the completion deadline
to August 2010.
Once "The Keg" finally secured the grading permit,
Oro Valley certified the pad in December 2009, which should
have allowed Karson to begin construction. But construction
was again stalled when the City required additional site
work, which took place in January 2010. Construction was
again delayed the next month, and by March 2010, Karson
stopped construction, claiming it had no funds.
Meanwhile, Jones' assistant was actively pursuing capital
to fund TOVK's project. His daily duties included
locating possible lenders and capital providers, putting
together loan submission packages, following up with lenders,
providing them with additional information, and clarifying
project details. Jones' assistant contacted 85 lenders.
In April 2010, Jones' assistant approached Security
National Company ...