United States District Court, D. Arizona
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 ...