BRPS LLC v. Tenney Realty Services LLC

          ORDER

          HONORABLE ROSLYN O. SILVER SENIOR UNITED STATES DISTRICT JUDGE

         Plaintiff BRPS LLC believes Defendant Tenney Realty Services LLC is a “successor-in-interest” to a defunct entity. Years ago, BRPS's predecessor-in-interest obtained a judgment against that defunct entity and the present litigation is BRPS's attempt to hold Tenney Realty responsible for that judgment. Tenney Realty believes BRPS's attempt is barred by a four-year statute of limitations. BRPS argues a renewable ten-year limitations period applies. Because Arizona law does not provide a specific limitations period for suits of this type, a four-year limitations period applies and this suit is time-barred. Therefore, Tenney Realty is entitled to summary judgment.

         BACKGROUND

         The Court must view the facts in the light most favorable to BRPS but there do not appear to be any disputes regarding the facts relevant to the limitations dispute. Rather, the only disagreement is over which limitations period applies, a purely legal question. Levinson v. Jarrett ex rel. Cty. of Maricopa, 88 P.3d 186, 188 (Ariz.Ct.App. 2004) (determining correct statute of limitations is question of law). Resolving that legal question, however, requires an understanding of the convoluted background facts.

         Randolph Tenney and his wife, Debra Tenney, have been involved in the real estate business since at least 2002. As of August 2002, the Tenneys each owned a 50% interest in R&D Dart Realty Service, Inc. (“R&D”) in Pinetop, Arizona. (Doc. 39-1 at 23). The Tenneys worked at R&D, which derived its income “from commissions earned from the purchase and sale of real property in the Show Low, Arizona area.” (Doc. 34 at 10). On August 1, 2002, R&D entered into a “Franchise Agreement” with GMAC Real Estate, LLC. (Doc. 39-1 at 14). That agreement allowed R&D to use GMAC's “trademarks, service marks, . . . and other commercial symbols” in conducting R&D's real estate business. (Doc. 39-1 at 14). The agreement was for ten years. (Doc. 39-1 at 34).

         As a result of a downturn in real estate sales in 2008, R&D's business dried up and, in March 2009, R&D “closed its doors.” (Doc. 34 at 10). Sometime prior to that, R&D informed GMAC that R&D would be ceasing operations. (Doc. 34 at 14). GMAC viewed R&D's decision to cease operations as a breach of the franchise agreement. R&D and GMAC then negotiated a settlement agreement which required R&D make several payments to GMAC. The settlement agreement was drafted to require the signature of both Randolph Tenney and Debra Tenney but only Randolph signed it. Around the time R&D ceased operations, Randolph formed a new company with an unrelated individual. That new company was “commercially known as Realty Executives White Mountains” and seems to have been in the same business R&D had been. (Doc. 34 at 11).

         On October 26, 2009, GMAC sent the Tenneys a letter. That letter recounted the history of R&D ceasing operations and the subsequent negotiation of the settlement agreement. The letter stated GMAC had recently learned R&D “did not cease operation . . . but instead merged in some fashion with Realty Executives White Mountains.” That alleged merger was “an unauthorized transfer, and a manifest violation of the non-compete provision of the Franchise Agreement.” Based on Debra Tenney's failure to sign the settlement agreement, the letter stated GMAC was “rescind[ing]” the settlement agreement and, pursuant to the franchise agreement, R&D owed GMAC $318, 442.13. The Tenneys allegedly were personally responsible for a portion of that amount. Neither R&D nor the Tenneys paid the amount demanded by GMAC. GMAC did not, however, take immediate steps to collect that amount.

         GMAC waited until February 2012 to try to collect from R&D and the Tenneys. That month GMAC filed a lawsuit in Arizona state court against R&D and the Tenneys. The complaint included multiple claims but the central claim was that R&D had breached the franchise agreement. In November 2012, while that litigation was pending, the Tenneys filed for personal bankruptcy. The following month, December 2012, the Tenneys formed a new company, Tenney Realty. During their bankruptcy proceedings, the Tenneys filed a “Consolidated Disclosure Statement and Plan of Reorganization.” That document, which was provided to GMAC in June 2013, explicitly stated the Tenneys had formed Tenney Realty after filing their bankruptcy petition. (Doc. 34 at 23) (“Since the filing of the petition, the Debtors have formed Tenney Realty Services, LLC d/b/a Tenney Properties.”). It is unclear what became of the Tenneys' bankruptcy but it appears the bankruptcy resulted in the Tenneys dropping out of the lawsuit filed by GMAC. Thus, in May 2013, judgment was entered solely against R&D and in favor of GMAC for more than $340, 000. (Doc. 39-2 at 2).

         Through a series of transactions, BRPS became the successor-in-interest to all rights and claims GMAC possessed regarding R&D. (Doc. 39-2 at 6). Despite having a substantial judgment against R&D, BRPS apparently made no effort to collect on that judgment until October 2018 when BRPS filed the present suit against Tenney Realty.^[1]

         BRPS's original complaint alleged a version of the facts set forth above and contained a single claim for relief styled as “Declaratory Relief - Successor Entity Liability.” That claim sought a declaratory judgment that Tenney Realty was the “successor entity to R&D” such that Tenney Realty was liable on the judgment obtained against R&D. (Doc. 1 at 6). Tenney Realty filed an answer. (Doc. 10). Upon reviewing the complaint, the Court became concerned that BRPS had not identified an underlying cause of action to support its claim for declaratory relief. See Bisson v. Bank of Am., N.A., 919 F.Supp.2d 1130, 1139 (W.D. Wash. 2013) (“The Declaratory Judgment Act creates only a remedy, not a cause of action.”). Thus, the Court instructed the parties to be prepared at the Rule 16 Conference to discuss whether BRPS had stated a plausible claim for relief. After a brief discussion on this topic at the hearing, the Court directed the parties to continue their discussions and inform the Court whether they could agree on the viability of BRPS's suit.

         Shortly after that hearing, the parties stipulated to BRPS filing a First Amended Complaint. The proposed amended complaint would substitute the claim for declaratory relief with a claim for “successor liability” against Tenney Realty. (Doc. 24-1 at 7). In response to that stipulation, the Court directed the parties to submit briefs on whether “successor liability is a standalone claim under Arizona law.” (Doc. 25 at 1). In those briefs, the parties agreed Arizona law recognizes a standalone claim of successor liability. (Doc. 26, 27). Based on the parties' agreement, the Court granted BRPS's request to amend its complaint. (Doc. 28, 29). A few months later, Tenney Realty filed its motion for summary judgment, arguing a four-year statute of limitations bars BRPS's successor liability claim.

         ANALYSIS

         Because this case is proceeding in federal court based on diversity jurisdiction, the Court must apply “the substantive law of [Arizona], including [Arizona's] statute of limitations.” Albano v. Shea Homes Ltd. P'ship, 634 F.3d 524, 530 (9th Cir. 2011). Here, the parties agree the Arizona Supreme Court has not ruled which statute of limitations should apply to a standalone claim for successor liability. Thus, the Court must “predict how [that] court would resolve” the statute of limitations issue. Id. In making this prediction, the Court must follow the Arizona Supreme Court's general rule that “[t]he defense of statute of limitations is never favored.” Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 898 P.2d 964, 968 (Ariz. 1995). And when “there is substantial doubt as to which limitations period governs, the longer period should be applied.” Ins. Co. of N. Am. v. Superior Court In & For Cty. of Santa Cruz, 800 P.2d 585, 589 (Ariz. 1990).

         There is no dispute GMAC believed R&D “merged in some fashion” with another entity in 2009. GMAC's letter to the Tenneys in October 2009 complained about that exact activity. Moreover, the June 2013 bankruptcy disclosure statement sent to GMAC stated the Tenneys had formed Tenney Realty. BRPS does not dispute that GMAC's knowledge of the events in 2009 and 2013 should be imputed to BRPS. Accordingly, BRPS's claim for successor liability might have accrued as early as October 2009 but certainly accrued no later than June ...