Gilbert MH LLC v. Gilbert Family Hospital LLC

Opinion

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 8 ) No. CV-18-04046-PHX-SPL Gilbert MH LLC, 9 ) ) Plaintiff, ) AMENDED FINDINGS OF FACT AND 10 ) vs. CONCLUSIONS OF LAW* 11 ) ) Gilbert Family Hospital LLC, et al., ) 12 ) 13 Defendants. ) ) 14 )

15 Plaintiff filed this action on November 13, 2018, asserting claims for (1) breach of

16 personal guaranty against Defendant Justin Hohl, (2) breach of personal guaranty against

17 Defendants Henry and Karen Higgins, (3) fraudulent misrepresentation against Defendant

18 Higgins, (4) breach of lease agreement against Defendant Gilbert Family, and (5) bad faith

19 against all Defendants. (Doc. 1 at ¶¶70–105). Plaintiff seeks general, special,

20 consequential, and punitive damages, as well as attorneys’ fees and costs as provided in

21 the “relevant contracts and as provided by law.” (Doc. 1 at 19). Defendants timely filed an

22 answer on December 18, 2018. (Doc. 13).

23 The Court has jurisdiction over this action under 28 U.S.C. § 1332. Plaintiff and

24 Defendants are citizens of different states, and the amount in controversy exceeds $75,000.

25 (Docs. 1 at ¶8, 61 at 2).

26 This action, having been tried before the Court on September 14, 2021 through

27 * 28 This amends footnotes 3 and 12 of the October 1, 2021 Findings of Fact and Conclusions of Law (Doc. 97). Case 2:18-cv-04046-SPL Document 114 Filed 11/19/21 Page 2 of 38

1 September 17, 2021, and the Court having carefully considered the proposed findings of 2 fact and conclusions of law (Docs. 60, 62), the Joint Proposed Pretrial Order (Doc. 61), the 3 testimony received, and the exhibits admitted into evidence, hereby makes the following 4 Findings of Fact and Conclusions of Law pursuant to Fed. R. Civ. P. 52(a) and LRCiv 52.1: 6 The Parties, the Project, and the Lease Agreement 7 1. Henry and Karen Higgins (collectively the “Higgins”) are a married couple and 8 residents of the state of Texas. (Doc. 1 at 1). 9 2. Dr. Henry Higgins, an emergency medicine physician, is the owner of Gilbert Family 10 Hospital, LLC (“Gilbert Family”), a Texas limited liability company. (Doc. 61 at 2– 11 3). 12 3. Dr. Justin Hohl, a resident of Salt Lake City, Utah, is a spine surgeon. (Trial Tr. Day 13 3 at 96:19–20).1 14 4. Drs. Higgins and Hohl are partners on several different healthcare projects, including 15 Gilbert Family. (Trial Tr. Day 3 at 96:23–97:3). 16 5. Coaction Development Group (“Coaction”) is a limited liability company with 17 experience constructing healthcare projects, including in the Phoenix market. (Trial 18 Tr. Day 2 at 104:23–105:5). 19 6. Gilbert MH, LLC (“Gilbert MH”) is an Arizona limited liability company. (Doc. 1 20 at 1). 21 7. Coaction and Gilbert MH, along with Coaction Architectural Group (“CAG”) and 22 Strategic Healthcare Partners (“SHP”), are all affiliated entities. (Trial Tr. Day 1 at 23 154:5–16). 24 25 1 Citations to the trial transcripts refer to the transcripts by day. “Day 1” refers to the 26 transcript of the proceedings held September 14, 2021, reflected at Minute Entry 90. “Day 2” refers to the transcript of the proceedings held September 15, 2021, reflected at Minute 27 Entry 91. “Day 3” refers to the transcript of the proceedings held September 16, 2021, reflected at Minute Entry 92. “Day 4” refers to the transcript of the proceedings held 28 September 17, 2021, reflected at Minute Entry 93.

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1 8. Glen Adams is the Chief Executive Officer of Coaction, has a membership interest 2 in CAG, and has an ownership interest in SHP. (Doc. 61 at 2; Trial Tr. Day 4 at 3 27:25–28:1). 4 9. Mr. Adams owns an approximate 70% interest in Gilbert MH. (Doc. 61 at 2). 5 10. Shawn Porter is the Chief Financial Officer of Coaction and the manager of Gilbert 6 MH. (Trial Tr. Day 1 at 106:11–13, 23–25). 7 11. Mr. Porter owns an approximate 20% interest in Gilbert MH. (Trial Tr. Day 1 at 8 107:2–4). 9 12. Jared Cox is a civil engineer and the Chief Operations Officer of Coaction. (Trial Tr. 10 Day 2 at 3:15–16, 4:5–6). 11 13. Mr. Cox owns an approximate 10% interest in Gilbert MH. (Trial Tr. Day 2 at 31:1– 12 2). 13 14. Joe Remes is a former employee of both Coaction and SHP. (Ex. 158 at 13:12–16, 14 39:3–8). 15 15. On or about October 9, 2017, Gilbert MH and Gilbert Family entered into a Lease 16 Agreement (the “Lease Agreement”). (Ex. 6). 17 16. The Lease Agreement concerns the construction and lease of a micro-hospital 18 building in Gilbert, Arizona (the “Project”). Gilbert MH is identified as the Landlord 19 20 in the Lease Agreement, and Gilbert Family is identified as the Tenant. (Ex. 6 at 1).

21 17. Mr. Porter executed the Lease Agreement on behalf of Gilbert MH. (Trial Tr. Day 1

22 at 27:22–24).

23 18. Coaction formed Gilbert MH for the purpose of executing the Lease Agreement, and 24 Gilbert MH was relying on Coaction to develop the Project. (Trial Tr. Day 1 at 25 106:17–22). 26 19. Dr. Higgins executed the Lease Agreement on behalf of Gilbert Family. (Doc. 61 at 27 3). 28

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1 20. At or around the time of execution of the Lease Agreement, Gilbert Family paid a 2 $150,000 security deposit to Gilbert MH. (Ex. 6 at 4; Trial Tr. Day 2 at 62:15–17). 3 21. Article. 24.1 of the Lease Agreement states that Dr. Higgins had “full power and 4 authority under [Gilbert Family’s] governing documents to execute and deliver this 5 Lease in the name of, and on behalf of [Gilbert Family].” It goes on to state, “[T]his 6 Lease is the legal, valid and binding obligation of such party, and is enforceable 7 against such party in accordance with its terms.” (Doc. 6 at 22). 8 22. The Lease Agreement is a valid contract between Gilbert MH and Gilbert Family. 9 23. Article 40.3 of the Lease Agreement provides that any dispute between the parties 10 concerning the Lease Agreement is to be “governed by and construed in accordance 11 with the laws of the state in which the Premises are located without regard to the 12 conflict of law principles thereof.” (Ex. 6 at 28). The site of the Premises defined in 13 the Lease Agreement is Arizona. (Ex. 6 at GFH000036). 14 24. Article 44.1 of the Lease Agreement is an integration clause that provides that the 15 Lease Agreement “encompasses the entire agreement of the parties” and that “[t]he 16 parties have not relied on any representations or assurances made by or on behalf of 17 the other party. (Ex. 6 at 29–30). 18 25. Article 41.1 of the Lease Agreement (the “Anti-Waiver Clause”) states, “No failure 19 20 by either party to insist on the strict performance of any covenant, duty or condition

21 of this Lease or to exercise any right or remedy on a breach of this Lease by the other

22 party shall constitute a waiver of such covenant, duty, condition or breach. Any

23 waiver shall be in writing and no waiver by either party will imply or constitute its 24 further waiver of the same or any other matter.” (Ex. 6 at 29). 25 26. On or about October 4–5, 2017, the Higgins and Dr. Hohl executed personal 26 Guaranties of Lease. (Trial Tr. Day 3 at 134:9–11, 164:15–17; Ex. 58 at 14:24–15:3). 27 The Guaranties were included in the Lease Agreement as Exhibit F. (Ex. 6 at 28 GFH000054–58).

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1 27. The personal Guaranty of Lease executed by the Higgins is a valid contract between 2 Gilbert MH and the Higgins. The personal Guaranty of Lease executed by Dr. Hohl 3 is a valid contract between Gilbert MH and Dr. Hohl. 4 28. The personal Guaranties of Lease provide that the Higgins and Dr. Hohl “absolutely 5 and unconditionally guarantee[ ] the payment and performance of, and agree[ ] to 6 pay and perform as primary obligor[s], all liabilities, obligations, and duties 7 (including but not limited to payment of rent) imposed upon [Gilbert Family] under 8 the terms of the [Lease Agreement].” (Ex. 6 at GFH000054, GFH000057). 9 29. The personal Guaranties of Lease state, “Upon any default of [Gilbert Family] under 10 the Lease, [Gilbert MH] may, at its option, proceed directly and at once, without 11 notice of such default, against Guarantor to collect and recover the full amount of the 12 liability hereunder or any portion thereof without proceeding against [Gilbert 13 Family] or any other party . . . .” (Ex. 6 at GFH000054, GFH000057). 14 Dr. Higgins’s Financial Disclosures 15 30. In August 2017, Mr. Porter requested that Dr. Higgins provide documents 16 demonstrating his personal finances so Mr. Porter could assess Dr. Higgins’s 17 creditworthiness and ability to perform on the Lease Agreement. (Trial Tr. Day 1 at 18 48:24–49:16). Dr. Higgins provided a Personal Financial Statement (“PFS”) on a 19 20 standard U.S. Small Business Administration Form dated June 26, 2017. (Ex. 9). The

21 PFS was signed by the Higgins. (Trial Tr. Day 3 at 165:7–11; Ex. 58 at 18:2–13).

22 31. Dr. Higgins completed the PFS with the assistance of bankers and other advisors. To

23 the best of his knowledge, the information in the PFS was accurate. (Trial Tr. Day 3 24 at 91:17–92:2). 25 32. On the PFS, Dr. Higgins listed various assets, including his cash on hand and 26 accounts receivable. (Ex. 9 at GMH-037271). The form calls for a description of the 27 accounts receivable in Section 5. Section 5 of Dr. Higgins’s PFS states, “Dr. Higgins 28

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1 has included his business assets and liabilities at gross value in his PFS.” (Ex. 9 at 2 GMH-037273). 3 33. Also in August 2017, Dr. Higgins’s accountant, on Dr. Higgins’s behalf, provided 4 Mr. Porter with an accounting of the profits and losses of a hospital owned by Dr. 5 Higgins. (Trial Tr. Day 1 at 54:23–55:3; Ex. 13). 6 34. In October 2017, Dr. Higgins provided Mr. Porter with his 2016 tax return. (Trial Tr. 7 Day 1 at 53:8–11; Ex. 8). 8 35. At the time that Dr. Higgins provided Mr. Porter with his financial documents in the 9 fall of 2017, Mr. Porter had the opportunity to ask Dr. Higgins questions about them 10 or to request additional documents, but Mr. Porter did not do so. (Trial Tr. Day 1 at 11 156:4–13). 12 36. Mr. Porter re-analyzed Dr. Higgins’s financial documents in mid-2018 and 13 questioned whether they were accurate. (Trial Tr. Day 1 at 156:11–18). 14 37. When Gilbert MH filed suit against Dr. Higgins for fraud, it had no information that 15 anything in in his financial documents was false. It intended to use the discovery 16 process to dig into Dr. Higgins’s finances. By the time of trial, it had not obtained 17 any additional financial documents from Dr. Higgins. (Trial Tr. Day 1 at 156:19–23, 18 158:11–13, 159:12–19). 19 20 Formation of Gilbert Family Hospital, LLC

21 38. Article 24.1 of the Lease Agreement states that Gilbert Family “represents and

22 warrants” that it “was duly formed and is validly existing and in good standing under

23 the laws of the state of its formation.” (Ex. 6 at 21). 24 39. At the time the Lease Agreement was executed, Gilbert Family was not duly formed 25 and did not validly exist. (Trial Tr. Day 3 at 149:8–10). 26 40. Prior to the Lease Agreement’s execution, Dr. Higgins spoke to Mr. Porter on the 27 phone and expressed concern about signing the Lease Agreement before Gilbert 28 Family had been formed. (Trial Tr. Day 3 at 47:3–10).

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1 41. In the week before the Lease Agreement was executed, Drs. Higgins and Hohl 2 discussed the terms of the Lease Agreement with Alan Laulainen, Coaction’s 3 Executive Vice President of Real Estate, via email. On October 9, 2017, the same 4 day the Lease Agreement was executed, Mr. Laulainen sent an email asking, “Is 5 Gilbert Family Hospital, LLC going to be a Texas, or an Arizona LLC?” Dr. Higgins 6 responded to Mr. Laulainen stating, “We are planning to have the business founded 7 in Texas.” Mr. Porter was copied on Dr. Higgins’s email. (Ex. 105). 8 42. The Court finds Gilbert MH had actual knowledge that Gilbert Family was not duly 9 formed and was not validly existing on the day the Lease Agreement was executed, 10 yet Gilbert MH still proceeded with the Project over the next year. 11 43. On December 19, 2017, Mr. Porter sent an email to Dr. Higgins stating that Gilbert 12 MH’s attorneys had not been able to find Gilbert Family as an entity in the public 13 records of Texas and asking Dr. Higgins to “advise on the status of this.” (Ex. 106). 14 Mr. Porter does not remember receiving a response from Dr. Higgins, and he did not 15 follow up on the matter. (Trial Tr. Day 1 at 32:20). Nonetheless, Gilbert MH 16 proceeded with the Project. 17 44. Gilbert MH never executed a written waiver of Gilbert Family’s representation and 18 warranty under Article 24.1 of the Lease Agreement. (Trial Tr. Day 1 at 33:24–33:1). 19 20 45. Gilbert Family was organized as a Texas limited liability company (“LLC”) in

21 September 2018, almost a year after the Lease Agreement was executed. (Doc. 61 at

22 4).

23 Rent Under the Lease Agreement 24 46. Article 5.1 of the Lease Agreement states, “Beginning on the Rent Commencement 25 Date, [Gilbert Family] covenants and agrees to pay to [Gilbert MH], the base rent 26 (“Base Rent”) . . . .” (Doc. 6 at 2). 27 47. The Lease Agreement does not define a sum certain for the Base Rent but instead 28 provides a formula for calculating it. (Doc. 6 at GFH000046).

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1 48. Exhibit C-1 of the Lease Agreement states that the Base Rent would be calculated 2 using the following formula: Landlord’s Costs x (2.9% + Actual Market 3 Capitalization Rate). “Landlord’s Costs” are defined as “the aggregate of all actual, 4 direct costs incurred by [Gilbert MH].” The “Actual Market Capitalization Rate” is 5 defined as “the market capitalization rate used in a purchase and sale agreement 6 between [Gilbert MH] and a bona fide buyer.” (Doc. 6 at GFH000046). 7 49. The Lease Agreement required Gilbert MH to “provide an accounting summary to 8 [Gilbert Family] of the final Landlord’s Costs no later than fifteen (15) days before 9 the estimated date of delivery of the Certificate of Occupancy from the applicable 10 governmental entity.” (Doc. 6 at GFH000046). 11 50. The Lease Agreement does not provide a cap on the Base Rent amount. 12 51. Gilbert MH never represented that it could deliver the Project with a guaranteed 13 maximum Base Rent. (Trial Tr. Day 2 at 115:22–116:8). 14 52. Gilbert Family and Drs. Higgins and Hohl knew and understood at the time the Lease 15 Agreement was executed that it did not provide a cap on the Base Rent amount. (Trial 16 Tr. Day 3 at 108:17–25; 150:10–14). 17 53. The Lease Agreement includes a Preliminary Budget estimate for the Project’s costs 18 (Ex. 6 at GFH000045), but Gilbert Family and Drs. Higgins and Hohl knew and 19 20 understood at the time the Lease Agreement was executed that it was merely an

21 estimate and did not guarantee the Landlord’s Costs for the purpose of calculating

22 the Base Rent. (Trial Tr. Day 3 at 111:16–25).

23 54. Gilbert Family and Drs. Higgins and Hohl knew and understood at the time the Lease 24 Agreement was executed that Gilbert MH had never built a micro-hospital like the 25 Project. (Trial Tr. Day 3 at 109:13–16, 148:14–16). 26 Drs. Higgins and Hohl’s Rent Concerns and the Ensuing Discussions 27 55. No later than January 5, 2018, Gilbert Family began expressing concern to Gilbert 28 MH about the amount of the Base Rent. On that date, in response to updated

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1 estimates of Gilbert MH’s costs, Dr. Higgins wrote to Mr. Porter, “Our rent went 2 from $57k per month to $105k per month. . . . I am afraid that [the] design work here 3 may be pricing us out of feasibility.” (Ex. 115). 4 56. On February 8, 2018, Dr. Hohl wrote in an email that “we are confident that [Gilbert 5 Family’s] model can support a $65,000 lease. However, the risk of that lease getting 6 up towards $75,000 makes us very nervous.” Mr. Porter responded by outlining 7 variables that, if met, could result in a Base Rent of $65,000. (Ex. 126). 8 57. On May 18, 2018, Mr. Cox sent Drs. Higgins and Hohl an updated cost estimate that 9 would result in a Base Rent of $75,862. (Ex. 128). The following day, Dr. Hohl 10 emailed the cost estimate to Mr. Remes, stating, “[T]he costs and fees associated 11 with this Gilbert project have spun totally out of control in my opinion.” (Ex. 129). 12 58. Drs. Higgins and Hohl were concerned that Coaction was padding the fees it was 13 billing Gilbert MH for Coaction’s work on the Project. (Trial Tr. Day 3 at 101:7– 14 20). Mr. Remes shared this concern. (Ex. 158 at 100:4–9). 15 59. Throughout June, July, and August of 2018, Gilbert MH and Gilbert Family engaged 16 in discussions regarding the costs of developing the Project in response to Drs. 17 Higgins and Hohl’s concerns and pursued several options to lower the Base Rent. 18 60. On or about June 8, 2018, Dr. Higgins called Mr. Cox and Mr. Porter to request a 19 20 fixed Base Rent of $65,000. (Trial Tr. Day 2 at 12:16–22). In an email to Mr. Adams,

21 Mr. Porter, and Mr. Remes reflecting on the call, Mr. Cox expressed his beliefs that

22 Dr. Higgins never expected the Base Rent to be as high as the updated cost estimates

23 projected, Dr. Higgins was being honest and fair, Dr. Higgins was not terminating 24 the Lease Agreement at that time, and Gilbert MH could be flexible in order to make 25 the Project work. Later in the email thread, Mr. Adams responded, “I don’t think we 26 should concede anything at this point, they signed the lease same as us both sides are 27 required to honor agreement or deal with the consequences . . . .” (Ex. 157). 28

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1 61. On June 28, 2018, Mr. Porter sent Dr. Higgins a document showing the costs 2 committed by Gilbert MH to the Project to that date. The document shows that 3 Gilbert MH provided a courtesy discount of $289,869 on architecture and 4 engineering (“A&E”) costs. (Ex. 131). The discount was provided in response to 5 Gilbert Family’s concerns about costs. (Trial Tr. Day 2 at 50:13–17). Gilbert Family 6 never asked for a discount. (Trial Tr. Day 3 at 62:24–25). 7 62. On July 12, 2018, Dr. Hohl emailed Mr. Porter proposing caps on certain categories 8 of “soft costs” associated with the Project, such as A&E, administrative, financing, 9 and legal costs, with a total cap on soft costs of $3,897,161. Mr. Porter responded, 10 “Conceptually, fixing certain costs in the rent is fine. I just need to review the 11 numbers with the team and get back to you.” (Ex. 132). 12 63. On July 31, 2018, Mr. Porter emailed Drs. Higgins and Hohl a Proposed Amendment 13 to the Lease Agreement (the “Proposed Amendment”) that would define “Landlord’s 14 Costs” in the Base Rent calculation as “the sum of $3,897,161 plus the aggregate 15 cost of construction.” (Ex. 133 at 133-004). 16 64. On August 19, 2018, Gilbert Family’s counsel sent an email to Gilbert MH’s counsel 17 regarding the Proposed Amendment. In the email, Gilbert Family’s counsel stated, 18 “While I understand that [Gilbert MH] may not know the costs, yet; it [ ] was agreed 19 20 by the parties early on that rent would not exceed $65,000 per month, so this needs

21 to be put in writing. . . . Dr Hohl and Dr Higgins have not yet been serviced with an

22 itemized breakdown showing all of the costs that Coaction claims to have paid on

23 this project. In learning that some of these soft costs have nearly tripled as compared 24 to what was agreed upon my clients need to have a guaranteed maximum price for 25 rent to move forward.” (Ex. 34 at GFH001327). 26 65. Later in the same email, Gilbert Family’s counsel wrote, “But, let me be clear, my 27 clients want to move forward to make the transaction, but it seems that so many 28 material terms were not set forth in the lease agreement and there are still many

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1 unknowns. I wonder if it may be best to sit down in person and attempt to hash out a 2 new agreement based on what is now known. Otherwise, if can’t come to some 3 written agreement on costs, my client will need to start considering other options. 4 Please let me know.” (Ex. 34 at GFH001328). 5 66. Gilbert Family rejected the Proposed Amendment. (Trial Tr. Day 3 at 178:4–5). 6 67. Through its counsel’s email on August 19, 2018, Gilbert Family expressed an 7 intention not to perform under the terms of the Lease Agreement. By that time, 8 Gilbert Family only intended to move forward with the Project if Gilbert MH agreed 9 to fix or cap the Base Rent. 10 68. On August 31, 2018, Gilbert MH, through its counsel, offered to amend the Lease 11 Agreement to set a fixed rent of $75,000 per month. (Ex. 37). Gilbert Family did not 12 accept the offer. (Trial Tr. Day 1 at 82:11–13). 13 The Design Process for the Project 14 69. After the Lease Agreement was executed in October 2017, David Derr and Mr. Cox 15 began working with Drs. Higgins and Hohl to design the Project in a way that would 16 serve Gilbert Family’s functional needs, meet the Arizona Department of Health 17 Services (“AZDHS”) hospital licensing requirements, and be approved by the Town 18 of Gilbert. (Trial Tr. Day 2 at 6:9–16). Mr. Derr was a Coaction employee and the 19 20 principal architect for the Project. (Trial Tr. Day 2 at 4:8–19).

21 70. Between October 2017 and April 2018, the design and size of the Project fluctuated

22 greatly. (Trial Tr. Day 2 at 8:17–9:4).

23 71. On or about March 30, 2018, AZDHS gave preliminary approval of the design plans 24 for the Project. (Trial Tr. Day 2 at 7:20–25). 25 72. On April 3, 2018, Gilbert MH closed on the land on which the Project would be built 26 (the “Land”). (Trial Tr. Day 2 at 9:21–22). 27 73. Section 5 of Exhibit B-1 of the Lease Agreement states that within 120 days of 28 closing on the Land, Gilbert MH must prepare and submit to Gilbert Family “75%

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1 completed construction drawings (“Construction Drawings”), including the 2 proposed architectural, structural, mechanical and electrical drawings and civil 3 engineering plans . . . for [Gilbert Family’s] approval, which approval shall not be 4 unreasonably withheld, conditioned, or delayed.” (Ex. 6 at GFH000038). 5 74. The date 120 days after April 3, 2018 was August 1, 2018. 6 75. Section 9 of Exhibit B-1 of the Lease Agreement states that Gilbert MH and Gilbert 7 Family “shall in good faith review and approve (or reject), process and perform any 8 obligation pursuant to the Lease concerning approval of plans, or concerning the 9 construction of Landlord’s Work with all due diligence and reasonable speed.” (Ex. 10 6 at GFH000040). 11 76. Beginning in or around July 2018, as Gilbert Family was becoming increasingly 12 concerned about the Base Rent amount, Drs. Higgins and Hohl stopped participating 13 in the design process and failed to respond to inquiries from Gilbert MH regarding 14 the design of the Project. 15 77. On July 3, 2018, Mr. Derr emailed Drs. Higgins and Hohl a link to a set of 50% 16 complete construction drawings (the “50% Drawings”) for the Project. Mr. Derr 17 wrote, “I would very much like to review where we are with you if you can find the 18 time. There may be items we are including that are not required in your opinion or 19 20 items that require modification to meet your needs.” (Ex. 33).

21 78. On July 18, 2018, Mr. Cox emailed Drs. Higgins and Hohl following up on Mr.

22 Derr’s request for a meeting, emphasizing, “We are at a point in the process where

23 we really need to make time for this step.” (Ex. 32). 24 79. On July 23, 2018, Mr. Derr emailed Dr. Higgins again requesting a meeting to review 25 the 50% Drawings. (Ex. 33). 26 80. Neither Dr. Higgins nor Dr. Hohl responded to any of the requests for a meeting 27 regarding the 50% Drawings, nor did they otherwise review the 50% Drawings with 28 Mr. Derr or anyone from Gilbert MH. (Trial Tr. Day 2 at 16:13–20).

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1 81. It was unreasonable for Gilbert Family, Dr. Higgins, and Dr. Hohl to fail to meet 2 with Mr. Derr or another Gilbert MH representative to review and approve the 50% 3 Drawings. 4 82. On July 30, 2018, Mr. Cox emailed Drs. Higgins and Hohl a link to what he clearly 5 identified as “75% Construction Drawings” in accordance with Section 5 of Exhibit 6 B-1 of the Lease Agreement. (Ex. 32). 7 83. Mr. Cox, a civil engineer, testified that the Construction Drawings were, in fact, 75% 8 complete, as required by the Lease Agreement. (Trial Tr. Day 2 at 19:11–16). 9 However, he also testified that structural engineering sheets were inadvertently 10 omitted. (Trial Tr. Day 2 at 65:2–7). While Mr. Cox testified that the omission was 11 immaterial, he did not expound upon that statement, and the Court does not credit 12 that portion of his testimony. (Trial Tr. Day 2 at 67:10). 13 84. Dr. Higgins, a physician, testified that the Construction Drawings were not 75% 14 complete. (Trial Tr. Day 3 at 72:20). However, he offered no substantive explanation 15 of what was lacking in the drawings.2 16 85. The Court lacks sufficient evidence to determine whether the Construction Drawings 17 were, in fact, 75% complete. 18 86. Section 5 of Exhibit B-1 of the Lease Agreement states, “[Gilbert Family’s] failure 19 20 to approve or reject the Construction Drawings within twenty (20) days following

21 [Gilbert Family’s] receipt thereof shall be deemed approval by [Gilbert Family].”

22 (Ex. 6 at GFH000038).

23 87. The date 20 days after July 30, 2018 was August 19, 2018. 24 88. Section 5 of Exhibit B-1 of the Lease Agreement further states, “If [Gilbert Family] 25 rejects the Construction Drawings, it shall indicate with specificity the respects in 26 27 2 The Court notes that many pages of the Construction Drawings are labeled “50% Construction Documents,” but a label alone is not sufficient proof of the completeness of 28 a drawing. (Ex. 31 at GMH-039945–GMH-039973).

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1 which they are not found to be acceptable and [Gilbert MH] shall have such 2 corrections made and submitted to [Gilbert Family] for approval. The process . . . 3 shall be repeated, if necessary, until the Construction Drawings finally have been 4 approved or deemed approved by [Gilbert Family].” (Ex. 6 at GFH000038). 5 89. On August 19, 2018, Gilbert Family notified Gilbert MH that Gilbert Family “must 6 reject the Construction Drawings at this time” because “some of the design appears 7 to be grossly oversized for example the inpatient treatment rooms are approximately 8 240 square feet when they are only required to be 120 square feet.” (Ex. 34 at 9 GFH001327). This statement amounted to a reasonable, good-faith rejection of the 10 Construction Drawings that specifically indicates at least one respect in which 11 Gilbert Family found them unacceptable.3 12 90. In a letter to Gilbert Family dated August 23, 2018, Gilbert MH outlined potential 13 negative consequences of reducing the inpatient treatment rooms to 120 square feet, 14 but stated that Gilbert MH agreed to reduce the room size accordingly. (Ex. 35). 15 91. However, Gilbert MH never made the corrections to the room size in the 16 Construction Drawings to submit to Gilbert Family for approval as required by 17 Section 5 of Exhibit B-1 of the Lease Agreement. (Trial Tr. Day 2 at 25:9–11). 18 92. Thus, even if they were 75% complete, no set of Construction Drawings was ever 19 20 approved or deemed approved by Gilbert Family.

21 The Subordination Agreement and Estoppel Certificate

22 93. Article 17.1 of the Lease Agreement provides that “within ten (10) business days

23 after the receipt of a written request from [Gilbert MH] or any Encumbrance holder, 24 [Gilbert Family] shall execute a commercially reasonable subordination agreement 25 3 The parties disagree as to whether the supplemental comments on the Construction 26 Drawings made by Gilbert Family through counsel on September 6, 2018 (Ex. 39) were timely. However, because the Court finds that the Construction Drawings were never 27 approved due to Gilbert MH’s failure to submit for Gilbert Family’s approval a set of corrected drawings with smaller inpatient treatment rooms, the Court need not consider 28 Gilbert Family’s September 6 comments.

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1 together with any customary additional documents evidencing the priority of the 2 Encumbrance and the subordination of this Lease with respect to such 3 Encumbrance.” (Ex. 6 at 14). 4 94. Article 18.1 of the Lease Agreement provides that “[Gilbert Family] shall within ten 5 (10) days after a request by [Gilbert MH], execute and deliver to [Gilbert MH] an 6 estoppel certificate in commercially reasonable form in favor of [Gilbert MH] and 7 such other persons as [Gilbert MH] may reasonably request.” (Ex. 6 at 14). 8 95. On August 22, 2018, Gilbert MH’s counsel emailed Gilbert Family’s counsel a 9 Subordination Agreement and an Estoppel Certificate from Gilbert MH’s 10 construction lender for execution by Gilbert Family. (Ex. 36 at GMH-039558– 11 GMH-039560). The Subordination Agreement and Estoppel Certificate were sent 12 three days after Gilbert Family rejected the Construction Drawings and indicated it 13 would not move forward with the Project without a fixed or capped Base Rent. 14 96. The Estoppel Certificate required Gilbert Family to certify that “[a]s of the date of 15 this certificate . . . [Gilbert MH] has satisfactorily complied with all of the 16 obligations, duties, requirements, and conditions” of the Lease Agreement and that 17 the Lease Agreement “is in full force and effect and [Gilbert Family] is not in default 18 thereunder and there exist no facts that would constitute a basis for any default under 19 20 the Lease.” (Ex. 36 at GMH-039573).

21 97. The Subordination Agreement required no such certification. (Ex. 36 at GMH-

22 039564–GMH-039572).

23 98. The purpose of the Subordination Agreement was to subordinate Gilbert Family’s 24 rights under the Lease Agreement to those of a lender financing construction for the 25 Project. (Trial Tr. Day 1 at 39:6–11). 26 99. Gilbert MH stated that it would accept execution of the Estoppel Certificate as a 27 written assurance of performance to cure the anticipatory breach that it asserted had 28

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1 occurred due to the statements Gilbert Family had made “suggesting they might not 2 honor the Lease Agreement.” (Ex. 37). 3 100. Drs. Higgins and Hohl did not feel comfortable signing the Subordination 4 Agreement or the Estoppel Certificate due to the lack of agreement on design plans 5 for the Project. (Trial Tr. Day 3 at 78:18–25, 104:25–105:6). 6 101. Neither Dr. Higgins nor Dr. Hohl ever signed the Subordination Agreement 7 or the Estoppel Certificate. (Trial Tr. Day 3 at 104:20–23, 151:19–152:11). 8 102. Given the tumultuous state of the Project and its uncertain future at the time 9 Gilbert MH requested that Gilbert Family execute the Subordination Agreement and 10 the Estoppel Certificate, the documents were not presented in a commercially 11 reasonable form as required by the Lease Agreement. Gilbert Family could not 12 reasonably make the certifications contained in the Estoppel Certificate at that time. 13 Nor was it commercially reasonable for Gilbert MH to request that Gilbert Family 14 execute a Subordination Agreement for a construction lender when Gilbert Family 15 had not agreed to the design of the Project and it was not clear that the Project would 16 actually proceed to construction. 17 Drs. Higgins and Hohl’s Discussion of a Scottsdale Facility 18 103. Sometime before September 20, 2018, Drs. Higgins and Hohl began 19 20 investigating another business opportunity that involved leasing a hospital facility in

21 Scottsdale, Arizona (the “Scottsdale Facility”). (Trial Tr. Day 3 at 140:21–141:2).

22 104. On September 20, 2018, Dr. Higgins sent Dr. Hohl an email regarding the

23 Project and the Scottsdale Facility. In the email, he discussed which had greater 24 revenue potential. (Ex. 40). 25 105. Drs. Higgins and Hohl believed the monthly rent for the Scottsdale Facility 26 would be about $110,000. (Ex. 40; Trial Tr. Day 3 at 141:4–6). The Scottsdale 27 Facility would be a surgical hospital, which would generate more revenue than the 28 Project. (Trial Tr. Day 3 at 142:7–10).

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1 106. In the September 20, 2018 email, Dr. Higgins discussed the possibility of 2 adding a second operating room and a procedure room to the Project. He stated that 3 Gilbert Family then “may end up with a rent rate that is in the mid $80,000-$90,000 4 range, a facility enjoying revenue streams from ER, OR, and inpatient.” (Ex. 40). 5 107. Drs. Higgins and Hohl were debating whether adding a second operating 6 room to the Project and performing elective procedures there would boost Gilbert 7 Family’s revenues and allow it to afford higher rent. (Trial Tr. Day 3 at 142:12–16). 8 108. On September 21, 2018, Dr. Hohl responded to Dr. Higgins’s email from the 9 previous day, writing, “As we move forward the reality is that two facilities right off 10 the bat in Phoenix equals monthly rent payments of almost $200,000. . . . It may be 11 more prudent to proceed in a Stepwise fashion and confirm our model. I see two 12 options to do that: 1. get out of Gilbert with a lawsuit. 2. Put the brakes on 13 Scottsdale.” Dr. Higgins responded later that day, stating, “You and I are coming to 14 the same conclusions.” (Ex. 40). 15 109. No later than September of 2018, Drs. Higgins and Hohl were contemplating 16 trying to find a way out of the Project in favor of the Scottsdale Facility, believing 17 the Scottsdale Facility may have greater revenue potential. Alternatively, Drs. 18 Higgins and Hohl were contemplating drastic changes to the scope of the Project to 19 20 increase its revenue potential.

21 Termination and Remedial Provisions in the Lease Agreement

22 110. The Lease Agreement contains multiple provisions that give the parties the

23 right to terminate the Lease Agreement that apply under different circumstances and 24 allow for different remedies. 25 111. Article 22 of the Lease Agreement enumerates various occurrences that 26 amount to an “Event of Default” by Gilbert Family as well as Gilbert MH’s rights 27 upon such default. (Ex. 6 at 18–21). 28

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1 112. Under Article 22.1(iv) of the Lease Agreement, one such “Event of Default” 2 occurs if Gilbert Family fails to perform its covenants and obligations under the 3 Lease Agreement “where such failure continues for a period of thirty (30) days after 4 written notice from [Gilbert MH].” (Ex. 6 at 18). 5 113. If an Event of Default occurs, Article 22.2(i)(A) of the Lease Agreement 6 allows Gilbert MH, “at its option and without further notice to [Gilbert Family],” to 7 “terminate this Lease, in which event [Gilbert Family] must immediately surrender 8 possession of the Premises to [Gilbert MH].” (Ex. 6 at 19). 9 114. Article 22.2(iii)(D) of the Lease Agreement states that if Gilbert MH 10 terminates the Lease Agreement due to an Event of Default, Gilbert Family must pay 11 Gilbert MH the sum of “the cost of recovering the Premises,” “the unpaid Rent and 12 all other indebtedness accrued,” “the total Rent which [Gilbert MH] would have 13 received under this Lease for the remainder of the Term minus the Fair Market Rental 14 Value . . . of the Premises for the same period” discounted to present value, and other 15 specified costs. (Ex. 6 at 20). 16 115. Section 5 of Exhibit B-1 of the Lease Agreement applies “[i]n the event that 17 the parties are unable to mutually agree upon the Construction Drawings within sixty 18 (60) days after the same are delivered to [Gilbert Family] for approval” and allows 19 20 either Gilbert MH or Gilbert Family to terminate the lease in that event. (Ex. 6 at

21 GFH000038).

22 116. If the Lease Agreement is terminated under Section 5 of Exhibit B-1 of the

23 Lease Agreement, “[Gilbert Family] shall reimburse [Gilbert MH] for fifty percent 24 (50%) of any and all out-of-pocket expenses incurred by [Gilbert MH] pertaining to 25 the Land, including, but not limited to, costs and expenses associated with due 26 diligence reports and studies, architectural and engineering expenses, and legal fees.” 27 Section 5 of Exhibit B-1 further provides that Gilbert Family may apply a security 28

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1 deposit paid by Gilbert MH to pay Gilbert Family’s reimbursement obligations. (Ex. 2 6 at GFH000038). 3 117. The Lease Agreement does not define how a party may effectuate 4 termination. 5 Gilbert MH’s Notices of Default and Demands for Damages 6 118. On August 31, 2018, Gilbert MH sent Gilbert Family a letter stating that 7 Gilbert Family needed to sign and return the Subordination Agreement and Estoppel 8 Certificate by the end of the day on September 1, 2018 to avoid default. The letter 9 also stated that Gilbert Family would accept execution of the Estoppel Certificate as 10 a written assurance of performance to cure the asserted anticipatory breach resulting 11 from Gilbert Family’s statements that it would not perform under the Lease 12 Agreement. (Ex. 38). 13 119. On September 5, 2018, Gilbert MH sent Gilbert Family a letter asserting that 14 Gilbert Family had breached the Lease Agreement by failing to execute the 15 Subordination Agreement and Estoppel Certificate and that it had anticipatorily 16 breached the Lease Agreement through its statements that it did not intend to honor 17 its obligations under the Lease Agreement (Ex. 38). 18 120. On October 1, 2018, Gilbert MH sent Gilbert Family a letter “provid[ing] 19 20 formal notification that [Gilbert Family] has committed an Event of Default under

21 the Lease Agreement as defined by Sec. 22.1(iv)” due to its failure to execute the

22 Subordination Agreement and Estoppel Certificate. The letter ended by stating,

23 “There will need to be a separate contractual agreement in the event the parties can 24 reach an agreement for moving forward because of the Event of Default.” (Ex. 41). 25 121. On October 17, 2018, Gilbert MH sent Gilbert Family a letter to similar effect 26 and demanding damages. On October 22, 2018, Gilbert Family rejected the demand. 27 (Ex. 138). 28

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1 122. On October 18, 2018, Gilbert MH sent Gilbert Family a letter stating that the 2 property that was to be used for the Project would be “listed and sold without further 3 notice.” (Ex. 42). 4 123. No later than October 18, 2018, through its letters to Gilbert Family, Gilbert 5 MH demonstrated an unquestionable intent that the Lease Agreement was no longer 6 in effect. To the extent that Gilbert MH continued to discuss the Project with Gilbert 7 Family after that date, Gilbert MH had expressed that a new contract would need to 8 be executed. 9 124. On October 17, 2018, Gilbert MH sent a letter to Drs. Higgins and Hohl 10 notifying them of Gilbert Family’s default and demanding damages from them 11 pursuant to their personal Guaranties of Lease. (Ex. 53). 12 125. Gilbert MH did not receive a response to its demand for damages from either 13 Dr. Higgins or Dr. Hohl. (Trial Tr. Day 1 at 92:12–13). 14 126. At the time Gilbert MH filed this lawsuit, it had a completed set of 15 construction drawings, the Town of Gilbert’s approval for the Project, and a general 16 contractor who was going to construct the Project. (Trial Tr. Day 2 at 26:12–19). 17 The Current State of Gilbert MH 18 127. The Project never moved forward to construction. (Trial Tr. Day 2 at 111:16– 19 20 18).

21 128. As of September 14, 2021, the lender that financed Gilbert MH’s purchase

22 of the land for the Project was in the process of foreclosing on it. (Trial Tr. Day 1 at

23 95:24–96:2). Gilbert MH and the lender stipulated that the lender would take the land 24 for the amount of the principal on the loan. (Trial Tr. Day 2 at 181:23–25). 25 129. On March 19, 2021, Gilbert MH filed a Voluntary Petition for Bankruptcy 26 (the “Bankruptcy Petition”). (Ex. 154). 27 130. Gilbert MH’s creditors listed on the Bankruptcy Petition include Coaction, 28 CAG, and SHP. (Ex. 154 at 154-009).

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1 131. Gilbert MH has paid some of the bills from Coaction and from CAG related 2 to the Project but has not paid any bills from SHP. (Trial Tr. Day 1 at 154:21–24). 3 Gilbert MH’s Out-of-Pocket Costs and Other Damage Claims4 4 132. At trial, Gilbert MH stated that, if the Court were to award costs incurred, the 5 Court should refer to Gilbert MH’s Application and Certification for Payment (“Pay 6 App”) dated November 12, 2018 (“Pay App 14”), found at pages 454–464 of Exhibit 7 124, to determine the amount. Gilbert MH asserted that Pay App 14 details all the 8 costs Gilbert MH had paid or been billed for in association with the Project through 9 October 31, 2018 in the column labeled “Total Completed and Stored to Date.” (Trial 10 Tr. Day 4 at 54:15–24). 11 133. Exhibit 124 consists of 569 pages including Pay Apps, invoices, budgets, and 12 time sheets without any clear organization or index. 13 134. Mr. Porter testified that the 17 Pay Apps found within Exhibit 124 were 14 intended for internal use by Gilbert MH only. (Trial Tr. Day 1 at 94:8–11). He also 15 testified that Gilbert MH did not always use the Pay App form as it was intended. 16 (Trial Tr. Day 1 at 116:2–3). 17 135. The Court will refer to Pay App 14 as the basis for determining Gilbert MH’s 18 out-of-pocket costs but finds that the amounts stated therein are not credible on their 19 20 own. The Court will only credit costs that are supported by other evidence, such as

21 invoices, time logs, or proof of payment.

22 136. The Court cannot fathom why, when Gilbert MH’s costs would have

23 ultimately been subject to an accounting pursuant to the Lease Agreement in order 24 to calculate the Base Rent, Gilbert MH and its affiliated entities would not have kept 25 clear, detailed, contemporaneous records of the work performed and costs owed. The 26 4 Because the Court finds that Section 5 of Exhibit B-1 of the Lease Agreement provides 27 the appropriate basis for determining Gilbert MH’s damages in this case, see infra Conclusions of Law ¶¶38–44, the Court does not address the amount that would be 28 recoverable under Article 22 of the Lease Agreement.

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1 fact that Gilbert MH and its affiliates did not provide such records to the Court leads 2 the Court to question the validity of the asserted costs. 3 137. Moreover, in September and October of 2018, as the Project was falling 4 apart, both Coaction and SHP purported to bill Gilbert MH more than $350,000 each, 5 apparently as lump-sum amounts, without any explanation or documentation. (Ex. 6 124 at 374, 464). 7 138. Given the irregularities, in the case of costs billed by Gilbert MH’s 8 affiliates—Coaction, CAG, and SHP—the Court will credit only costs that are 9 supported by detailed, itemized invoices or time sheets. 10 139. The time sheets for work performed by CAG contained throughout Exhibit 11 124 were created by Mr. Cox on September 19, 2019, almost a year after Gilbert MH 12 filed this lawsuit and the day before Mr. Porter presented them at his deposition. (Ex. 13 151 at 151-016). The Court will not credit CAG’s time sheets as sufficient support 14 for the work performed. 15 140. Gilbert MH provided no evidence of its affiliates’ standard rates or hours nor 16 of industry standards for rates or hours for work comparable to the work purportedly 17 performed by Coaction, CAG, and SHP on the Project. 18 141. The Court finds evidence to support $600,142.62 of Gilbert MH’s out-of- 19 20 pocket costs stated in Pay App 14 (Ex. 124 at 455–63). The amount breaks down as

21 follows:

22 ///

23 /// 24 /// 25 /// 26 /// 27 /// 28 ///

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1 Pay App 14 Assertions Court’s Findings 2 Item Description of Work6 Total Amount Citation8 5 No. Completed and Evidenced 3 Stored to Date7 4 7 Land Loan Fee $38,600 $38,600 268 5 8 Land Due Diligence Fee $5,000 $5,000 55–57 9 Land Interest $135,721.84 $135,721.84 273–74, 308, 6 345, 390, 439, 7 470 8 12 Property Tax Credit from ($2,162.80) ($2,162.80) 196 Seller (land) 9 13 Closing Fees & Title $3,070.99 $3,070.99 196–200 10 Insurance (land) 11 15 Owner GL Insurance $415 $415 220, 305 25 Geotechnical Engineering $2,000 $2,000 75 12 27 ALTA & Topographic Survey $2,900 $1,015 74 13 28 Fire Flow Test $550 $550 223 14 29 Environmental Engineering $1,800 $1,800 76 Phase I 15 32 Concept Cost Estimating $6,432 $6,432 162 16 33 Structural Engineering – SD $2,400 $2,400 166 17 Narrative 18 34 MPE Engineering – SD $9,800 $9,800 224 Narrative 19 36 Closing Costs $232 $232 17, 25–26, 98, 20 139, 170 21 38 Travel $2,915.54 $2,915.54 49, 112–24, 130–32, 140– 22 41, 156–59, 23 24 25 5 Column A of Pay App 14. 26 6 Column B of Pay App 14. 27 7 Column I of Pay App 14. 28 8 This column refers to the page number of Exhibit 124 that supports the amount evidenced.

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1 Pay App 14 Assertions Court’s Findings 2 Item Description of Work6 Total Amount Citation8 No.5 Completed and Evidenced 3 Stored to Date7 4 296–99, 309– 5 11, 359–61 40 Preliminary Landscape Plan $7,103.75 $7,103.75 232, 402–03, 6 451 7 44 Tree Removal $1,500 $1,500 423–25 8 49 Design Review Application $3,660 $3,660 190–194 Fee 9 179 Sign Fee $152.43 $152.43 339–42 10 181 Plan Check Fee $8,439.67 $8,439.67 378–81 11 186 Schematic Design TI’s $53,319 $53,319 300 187 Design Development TI’s $53,319 $53,319 300 12 188 Construction Document TI’s $53,319 $53,319 300, 382 13 189 Bid Administration TI’s $10,663.80 $10,663.80 426 14 190 Contract Administration TI’s $2,132.76 $2,132.76 426 191 TI Architect Reimbursables $2,660 $2,618.39 300–04, 382– 15 86, 426–34 16 193 Schematic Design Shell $56,500 $1,500 391 17 194 Design Development Shell $34,000 $4,000 391 18 197 Mechanical Engineering $59,800 $59,800 348, 441, 471 199 Construction Documents $50,000 $8,000 346 19 Shell 20 201 Specification Writer $4,000 $4,000 312, 395 21 206 Pre-Construction Services $26,800 $26,800 392 207 Civil Engineering $54,544.33 $4,284.44 393–94, 420– 22 22 23 216 Schematic Design Cost $7,585.59 $7,585.59 216 24 Estimating 220 ALTA & Topographic Survey $3,160 $3,160 347, 440 25 221 Printing & Postage $493.13 $493.13 251–52, 330– 26 38 27 227 Closing Fees & Title $15,000 $15,000 351–57 Insurance 28

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1 Pay App 14 Assertions Court’s Findings 2 Item Description of Work6 Total Amount Citation8 5 No. Completed and Evidenced 3 Stored to Date7 4 240 Property Taxes During $9,724.74 $9,724.74 447 5 Construction 45 Temp Fence Monthly Rental $1,652 6 46 Temp Fence Installation . . . $249.73 225–28, 253– $2,497.659 7 217 Temp Fence Monthly Rental $324.42 58, 474–75 8 266 Fence Re-Location $271.50 20–24, 51–52, 9 58–59, 70–73, 10 134–35, 163– 11 64, 188–89, 37 Legal Fees $25,345.75 195, 221–22, 12 $49,279.7010 234 Legal Fees $33,248.95 266, 294, 306– 13 07, 343–44, 14 349–50, 387– 89, 435–38, 15 442–44 16 TOTAL $600,142.62 17 142. As to the Land Cost, Item No. 4 on Pay App 14, the Court will not include 18 the amount of $1,650,000 as an out-of-pocket cost given that Gilbert MH retained 19 the land and gave the land to the lender for the principal amount. See supra Findings 20 of Fact ¶128. 21 22 23 9 Rather than attempting to decipher the unexplained breakdown of certain costs in Pay 24 App 14, the Court has aggregated its findings as to fence-related costs and legal fees. 25 10 To be clear about how the Court arrived at the amount of legal fees, the Court did not credit the amounts billed in the invoices at pages 445–46 and 472–73 of Exhibit 124 26 because they do not include itemized time sheets. Nor did the Court credit the amounts found in the invoice at pages 349–50 of Exhibit 124 because the fees appear to be incurred 27 based on the dispute between the parties rather than in furtherance of the Project. The Court notes that such fees may be recoverable in a subsequent motion for attorneys’ fees, 28 discussed infra note 12.

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1 143. As to the “Referral Fee to Tenant’s RE Broker,” Item No. 14, the Court finds 2 that the purpose of this $100,000 cost was primarily business development for 3 Coaction rather than an out-of-pocket cost for the Project. An email from the payee 4 with instructions to complete the wire transfer also stated, “Its good to have our first 5 deal closed,” and included information about other projects for which the payee was 6 seeking capital partners. Mr. Porter responded, “I look forward to learning more 7 about your other projects that we could potentially partner with you on.” (Ex. 124 at 8 269–72). 9 144. As to the “Land Acq Real Estate Brokerage Fees,” Item No. 270, the Court 10 also finds that the purpose of this $30,000 cost was primarily business development 11 for Coaction. In a letter to the payee to confirm the payment, a Coaction employee 12 also wrote, “[W]hen Glen’s travel schedule will allow, he would like to meet up with 13 you to clear the air from any past issues you may have had with Coaction.” (Ex. 124 14 at 230). Additionally, in the Pay App dated July 26, 2018, Gilbert MH reclassified 15 the cost from “Commissions” to “Land Acq Real Estate Brokerage Fees,” which 16 further raises the Court’s suspicions regarding the payment. (Ex. 124 at 289). 17 145. The Court finds insufficient evidence to support all other amounts stated in 18 the “Total Completed and Stored to Date” column of Pay App 14. 19 20 146. Fifty percent of $600,142.62 is $300,071.31.

21 147. $300,071.31 minus $150,000 is $150,071.31.

22 148. In addition to out-of-pocket costs, Gilbert MH requested that if the Court

23 were to award costs incurred, it also award lost profits. At trial, Gilbert MH asserted 24 that its request for nearly $3 million in lost profits was supported by Mr. Porter’s 25 testimony. (Trial Tr. Day 4 at 54:1–3). 26 149. Mr. Porter provided only a bare summary of his calculation of lost profits 27 and explained that he estimated as to the Project costs, market capitalization rate, and 28 sale price for the building. (Trial Tr. Day 1 at 88:14–23).

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1 150. Gilbert MH had not lost any expected rent profits as of October 2018 as there 2 was no agreement on design plans for the Project, much less an actual, constructed 3 micro-hospital for a tenant to occupy. (Trial Tr. Day 1 at 89:2–4). 5 Breach of Contract Claim Against Gilbert Family 6 1. Under Arizona law, in order to show a breach of contract, a plaintiff must 7 demonstrate (i) the existence of a contract, (ii) a breach, and (iii) resulting damages 8 Thomas v. Montelucia Villas, LLC, 232 Ariz. 92, 96, 302 P.3d 617, 621 (2013). 9 2. A party waives strict compliance with a contract provision through either “express, 10 voluntary, intentional relinquishment of a known right or such conduct as warrants 11 an inference of such an intentional relinquishment.” Am. Cont’l Life Ins. Co. v. 12 Ranier Constr. Co., 125 Ariz. 53, 55, 607 P.2d 372, 374 (1980). 13 3. When a contract contains an anti-waiver clause, a party may nonetheless waive a 14 particular provision, but only if it waives both that provision and the anti-waiver 15 clause with respect to that provision. See 13 Williston on Contracts § 39.36. 16 4. A party’s “long acquiescence” to another’s failure to strictly comply with a contract 17 provision warrants an inference of that party’s intentional relinquishment of its 18 rights under the anti-waiver clause with respect to that provision. Dillingham Com. 19 20 Co. v. Spears, 641 P.2d 1, 8 (Alaska 1982); see also, e.g., Summa Corp. v.

21 Richardson, 564 P.2d 181, 235 (Nev. 1977); Gonsalves v. Gilbert, 356 P.2d 379,

22 384 (Haw. 1960).

23 5. The Lease Agreement was a valid contract. See supra Findings of Fact ¶22. 24 6. As to Gilbert MH’s allegation that Gilbert Family breached the Lease Agreement 25 because it was not duly formed and did not validly exist as warranted in Article 24.1 26 of the Lease Agreement, the Court finds that Gilbert MH waived Article 24.1 and 27 the Anti-Waiver Clause through its conduct. Gilbert MH had actual knowledge that 28 Gilbert Family was not in compliance with Article 24.1 on the day the Lease

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1 Agreement was executed yet continued to proceed with the Project for almost a year 2 before Gilbert Family was formed. Gilbert MH made no effort to enforce its rights 3 under Article 24.1 or the Anti-Waiver Clause even as it continued to inquire as to 4 the status of Gilbert Family’s formation throughout that time. Gilbert MH thereby 5 acquiesced to Gilbert Family’s noncompliance and intentionally relinquished its 6 rights under Article 24.1 as well as the Anti-Waiver Clause with respect to Article 7 24.1. See supra Findings of Fact ¶¶38–45. 8 7. As to Gilbert MH’s allegation that Gilbert Family breached Articles 17.1 and 18.1 9 of the Lease Agreement because it did not execute the Subordination Agreement 10 and Estoppel Certificate, respectively, the Court finds that under the circumstances, 11 neither the Subordination Agreement nor the Estoppel Certificate were in 12 commercially reasonable form as required by Articles 17.1 and 18.1. See supra 13 Findings of Fact ¶¶93–102. Thus, Gilbert Family did not breach Article 17.1 or 14 Article 18.1. 15 8. As to Gilbert MH’s allegation that Gilbert Family breached Section 9 of Exhibit B- 16 1 of the Lease Agreement by failing to respond to requests for meetings to review 17 architectural plans in June and July of 2018, the Court finds that Gilbert Family did 18 breach the Lease Agreement. Gilbert Family failed to “in good faith review and 19 20 approve” the 50% Drawings “with all due diligence and reasonable speed” as

21 required by the Lease based on their unreasonable failure to meet with Mr. Derr or

22 another Gilbert MH representative to review and approve the 50% Drawings. See

23 supra Findings of Fact ¶¶75–81. 24 9. As to Gilbert MH’s allegation that Gilbert Family breached Section 5 of Exhibit B- 25 1 of the Lease Agreement by unreasonably delaying and conditioning its approval 26 of the Construction Drawings, the Court finds that even if the Construction 27 Drawings were 75% complete, Gilbert MH did not breach the Lease Agreement 28 because it provided a reasonable, good-faith rejection of the Construction Drawings

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1 within the 20-day timeframe provided by the Lease Agreement. See supra Findings 2 of Fact ¶¶73, 82–89. 3 10. Under Arizona law, “[a]n anticipatory repudiation is a breach of contract giving rise 4 to a claim for damages and also excusing the necessity for the non-breaching party 5 to tender performance.” United Cal. Bank v. Prudential Ins. Co. of Am., 140 Ariz. 6 238, 283, 681 P.2d 390, 435 (App. 1983). To recover damages, the non-breaching 7 party must prove both repudiation and that it would have performed under the 8 contract absent the repudiation. Thomas v. Montelucia Villas, LLC, 232 Ariz. 92, 9 95, 302 P.3d 617, 620 (2013). 10 11. Anticipatory repudiation occurs when there is “a positive and unequivocal 11 manifestation on the part of the party allegedly repudiating that he will not render 12 the promised performance when the time fixed for it in the contract arrives.” Diamos 13 v. Hirsch, 91 Ariz. 304, 307, 372 P.2d 76, 78 (1962) Likewise, “[i]f one party to a 14 contract, either willfully or by mistake, demands of the other a performance to which 15 he has no right under the contract and states definitely that, unless his demand is 16 complied with, he will not render his promised performance, an anticipatory breach 17 has been committed.” Snow v. W. Sav. & Loan Ass’n, 152 Ariz. 27, 32, 730 P.2d 18 204, 210 (1986) (quoting 4 Corbin on Contracts § 973 (1951)). 19 20 12. In Arizona, parol evidence may not be used to interpret a contract if it “contradict[s]

21 or var[ies] the meaning of the agreement.” Taylor v. State Farm Mut. Auto. Ins. Co.,

22 175 Ariz. 148, 154, 854 P.2d 1134, 1140 (1993).

23 13. However, “parol evidence is always admissible to show fraud in the inducement of 24 a contract.” Barnes v. Lopez, 544 P.2d 694, 697 (Ariz. Ct. App. 1976). Fraud in the 25 inducement occurs when a party “misrepresent[s] a material fact concerning the 26 subject matter of the underlying transaction and the other party[ ] rel[ies] on the 27 misrepresentation to . . . its detriment in executing a document.” 21 Williston on 28

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1 Contracts § 57:32; see Wilson v. Byrd, 79 Ariz. 302, 304, 288 P.2d 1079, 1081 2 (1955). 3 14. As to Gilbert MH’s allegation that Gilbert Family anticipatorily repudiated the 4 Lease Agreement by refusing to move forward with the Project without a rent cap, 5 the Court finds that Gilbert Family did anticipatorily repudiate the Lease 6 Agreement. The August 19, 2018 email from its counsel along with its conduct in 7 the preceding months amounted to a positive and unequivocal manifestation that it 8 would not continue to perform its obligations under the Lease Agreement as written. 9 Rather, Gilbert Family conditioned its future performance on Gilbert MH agreeing 10 to cap the Base Rent at $65,000. Throughout July and August of 2018, Gilbert 11 Family continually requested a cap on the Base Rent while ignoring requests to meet 12 about design plans for the Project. Gilbert Family was already demonstrating a 13 resistance to proceed under the terms of the Lease Agreement, culminating in the 14 statement that it “need[ed] to have a guaranteed maximum price for rent to move 15 forward.” See supra Findings of Fact ¶¶59–67. 16 15. To the extent that Gilbert Family argues the August 19, 2018 email still expressed 17 a desire to move forward with the Project, its desire was conditioned on the demand 18 for new terms to which it had no right under the Lease Agreement and thus further 19 20 supports the finding of anticipatory breach.

21 16. To the extent that Gilbert Family argues that the parties had agreed to a maximum

22 Base Rent prior to execution of the Lease Agreement, the parol evidence rule bars

23 consideration of any such evidence. The Lease Agreement contains a clear, 24 unambiguous, uncapped formula for calculating the Base Rent. Any evidence of a 25 Base Rent cap contradicts the meaning of the Lease Agreement on its face. See 26 supra Findings of Fact ¶¶46–52. 27 17. To the extent that Gilbert Family argues that the parol evidence rule is inapplicable 28 because it was fraudulently induced into executing the Lease Agreement, the

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1 argument fails. Gilbert MH made no representations as to a guaranteed maximum 2 Base Rent. Further, Gilbert Family understood when it executed the Lease 3 Agreement that Gilbert Family had never constructed a micro-hospital like the 4 Project and that Gilbert MH’s cost estimates were, in fact, estimates. Thus, even if 5 Gilbert MH made any material representations, Gilbert Family did not rely on them 6 in executing the Lease Agreement. See supra Findings of Fact ¶¶50–54. 7 18. The Court further finds that Gilbert MH would have performed under the Lease 8 Agreement absent the repudiation. When it filed this lawsuit, it was prepared to 9 proceed with construction of the Project. See supra Findings of Fact ¶126. 10 19. Finally, Gilbert MH has proven it was damaged by Gilbert Family’s breaches of the 11 Lease Agreement because it incurred significant costs in association with the Project 12 and is entitled to reimbursement for those costs under the terms of the Lease 13 Agreement. See infra Conclusions of Law ¶¶38–48. 14 20. In sum, Gilbert Family is liable to Gilbert MH for Breach of Contract based on its 15 breach of Section 9 of Exhibit B-1 of the Lease Agreement and its anticipatory 16 repudiation of the Lease Agreement. 17 Breach of Personal Guaranty Claims Against the Higgins and Dr. Hohl 18 21. The personal Guaranties of Lease executed by the Higgins and by Dr. Hohl, 19 20 respectively, were valid contracts. See supra Findings of Fact ¶27.

21 22. The Higgins and Dr. Hohl have refused to pay the liability imposed upon Gilbert

22 Family under the Lease Agreement as required by the personal Guaranties of Lease,

23 and thus have breached the personal Guaranties of Lease. See supra Findings of 24 Fact ¶¶28–29, 125. 25 23. Gilbert MH has proven it was damaged by the breaches of the personal Guaranties 26 of Lease by the Higgins and Dr. Hohl because it incurred significant costs in 27 association with the Project and is entitled to reimbursement for those costs under 28 the terms of the Guaranties of Lease. See infra Conclusions of Law ¶¶38–48.

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1 24. The Higgins and Dr. Hohl are therefore liable to Gilbert MH for Breach of Personal 2 Guaranty. 3 Fraudulent Misrepresentation Claim Against the Higgins 4 25. In Arizona, a claim for fraudulent misrepresentation is established by showing that 5 the defendant “made a false and material representation, with knowledge of its 6 falsity or ignorance of its truth, with intent that the hearer would act upon the 7 representation in a reasonably contemplated manner, and that the hearer, ignorant 8 of the falsity of the representation, rightfully relied upon the representation and was 9 thereby damaged.” Dawson v. Withycombe, 216 Ariz. 84, 96, 163 P.3d 1034, 1046 10 (App. 2007) (emphasis omitted). The plaintiff “must demonstrate the speaker’s 11 knowledge of the falsity of the statement.” Id. at 97, 1048. 12 26. There is no evidence that the Higgins made a false and material representation of 13 their financial assets. Rather, the only clear basis for Gilbert MH’s fraudulent 14 misrepresentation claim—that the Higgins included business assets on their PFS— 15 was explicitly disclosed on the PFS. See supra Findings of Fact ¶32. 16 27. Even if the inclusion of business assets on the Higgins’ PFS did amount to a false 17 and material representation, there is no evidence that the Higgins knew it was false. 18 Rather, Dr. Higgins completed the PFS in consultation with advisors and believed 19 20 it to be an accurate statement of the Higgins’ finances. See supra Findings of Fact

21 ¶31.

22 28. Thus, the Higgins are not liable to Gilbert MH for Fraudulent Misrepresentation.

23 Breach of the Duty of Good Faith and Fair Dealing Claims Against Each 24 Defendant 25 29. “Arizona law implies a covenant of good faith and fair dealing in every contract.” 26 Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Loc. No. 395 27 Pension Tr. Fund, 201 Ariz. 474, 490, 38 P.3d 12, 28 (2002). A party that proves a 28 breach of the implied covenant is entitled to contract damages. Id. at 491, 29.

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1 30. The duty of good faith and fair dealing requires parties to a contract to refrain “from 2 doing anything to prevent other parties to the contract from receiving the benefits 3 and entitlements of the agreement.” Id. at 490, 28. It “emphasizes faithfulness to an 4 agreed common purpose and consistency with the justified expectations of the other 5 party.” Id. (quoting Restatement (Second) of Contracts § 205 cmt. a (1981)). On the 6 other hand, bad-faith conduct “violate[s] community standards of decency, fairness 7 or reasonableness.” Restatement (Second) of Contracts § 205 cmt. a (1981). 8 31. When a party attempts to renege on or evade its obligations under a contract at the 9 expense of another party to that contract in order to pursue a more profitable 10 opportunity instead, it acts in bad faith. See Rawlings v. Apodaca, 151 Ariz. 149, 11 161, 726 P.2d 565, 161 (1986) (holding that trial court’s finding of bad faith was 12 supported by evidence that defendant used tactics including “reneging on promises, 13 violation of industry custom and deliberate attempts to obfuscate” to protect 14 defendant’s own financial interest with indifference to the loss caused to another 15 contractual party); Restatement (Second) of Contracts § 205 cmt. d (1981) (listing 16 types of bad-faith conduct, including “evasion of the spirit of the bargain,” “willful 17 rendering of imperfect performance,” and “interference with or failure to cooperate 18 in the other party’s performance”). 19 20 32. Gilbert Family, through the actions of Drs. Higgins and Hohl, breached the duty of

21 good faith and fair dealing implied in the Lease Agreement. Gilbert Family

22 attempted to evade its obligation to pay the Base Rent calculated under the terms of

23 the Lease Agreement and avoid continuing with the Project. It did so for its own 24 financial gain with indifference to the losses caused to Gilbert MH, evidenced by 25 Gilbert Family’s pursuit of the Scottsdale Facility and its potentially greater 26 revenue. Unhappy with the uncapped Base Rent formula to which it had knowingly 27 agreed, Gilbert Family tried to renegotiate or evade the Lease Agreement, willfully 28 depriving Gilbert MH of the benefits of its bargain and rebuking Gilbert MH’s

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1 justified expectations under the Lease Agreement. See supra Findings of Fact ¶¶52– 2 54, 58–68, 103–109. 3 33. Concerned about the costs of the Project and the resulting Base Rent, Gilbert 4 Family, through the actions of Drs. Higgins and Hohl failed to cooperate with 5 Gilbert MH’s work on design plans during the summer of 2018, thereby interfering 6 with Gilbert MH’s ability to perform its obligations under the Lease Agreement and 7 move the Project forward. See supra Findings of Fact ¶¶76–81. 8 34. A covenant of good faith and fair dealing was also implied in the personal 9 Guaranties of Lease executed by the Higgins and Dr. Hohl. By taking their actions 10 to undermine the Lease Agreement, Drs. Higgins and Hohl sought to evade their 11 obligations under the Guaranties of Lease to pay and perform the liabilities, 12 obligations, and duties imposed on Gilbert Family under the Lease Agreement. See 13 supra Findings of Fact ¶28. 14 35. Accordingly, Gilbert Family, the Higgins, and Dr. Hohl are contractually liable to 15 Gilbert MH for Breach of the Duty of Good Faith and Fair Dealing. 16 Affirmative Defenses11 17 36. For the reasons previously stated, the Court finds that Gilbert MH did not 18 fraudulently induce Gilbert Family to execute the Lease Agreement, nor did it 19 20 fraudulently induce either the Higgins or Dr. Hohl to execute the personal

21 Guaranties of Lease. See supra Conclusions of Law ¶17.

22 23 11 The parties’ Joint Proposed Final Pretrial Order listed as an issue of law “whether 24 [Gilbert MH’s] damages should be barred or reduced as a result of conduct by Gilbert MH as asserted in [Gilbert Family’s] affirmative defenses set forth in their Answer.” (Doc. 61 25 at 31). Gilbert Family’s only contentions on this issue related to fraud in the inducement and breach of Section 5 of Exhibit B-1 of the Lease Agreement, so the Court will address 26 only those affirmative defenses. Additionally, the parties’ Joint Proposed Final Pretrial Order listed as an issue of law “Whether Gilbert MH breached its duty of good faith and 27 fair dealing to the Defendants.” (Doc. 61 at 30). But Defendants did not assert a counterclaim nor raise this as an affirmative defense in their Answer, so the issue was 28 waived. See KST Data, Inc. v. DXC Tech. Co., 980 F.3d 709, 714 (9th Cir. 2020).

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1 37. The Defendants have failed to meet their burden to prove that Gilbert MH breached 2 Section 5 of Exhibit B-1 of the Lease Agreement by failing to timely and adequately 3 provide 75% completed Construction Drawings. See supra Findings of Fact ¶85. 4 The Applicable Remedial Provision in the Lease Agreement 5 38. “Arizona has long held that damages for breach of contract are those damages which 6 arise naturally from the breach itself or which may reasonably be supposed to have 7 been within the contemplation of the parties at the time they entered the contract.” 8 All Am. Sch. Supply Co. v. Slavens, 125 Ariz. 231, 233, 609 P.2d 46, 48 (1980). 9 Here, the parties agreed in the Lease Agreement to two potentially applicable 10 termination and remedial provisions: Article 22 (the “Default Provision”) and 11 Section 5 of Exhibit B-1 (the “Exit Ramp Provision”). See supra Findings of Fact 12 ¶¶110–116. 13 39. Under Arizona law, courts must “attempt to enforce a contract according to the 14 parties’ intent.” Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 152, 854 15 P.2d 1134, 1138 (1993). “A contract must be construed so that every part is given 16 effect, and each section of an agreement must be read in relation to each other to 17 bring harmony, if possible, between all parts of the writing.” Chandler Med. Bldg. 18 Partners v. Chandler Dental Grp., 175 Ariz. 273, 277, 855 P.2d 787, 791 (App. 19 20 1993). “The court must apply a standard of reasonableness in contract

21 interpretation.” Id.

22 40. Reading the Lease Agreement as a whole, the Court finds that the parties intended

23 for the Exit Ramp Provision to apply if the contract was terminated prior to an 24 agreement on the Construction Drawings. The Default Provision clearly 25 contemplates a constructed Project building occupied by Gilbert Family: it requires 26 Gilbert Family to vacate the premises and entitles Gilbert MH to amounts that would 27 be indeterminate until the Project was constructed—much less designed. For 28 example, the amount due to Gilbert MH under the Default Provision depends on the

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1 Fair Market Rental Value of the building as well as the total Rent due to Gilbert 2 MH, which is a function of actual costs and actual market capitalization rate under 3 the Lease Agreement. See supra Findings of Fact ¶¶113–114. None of those 4 amounts could be determined with any reasonable certainty prior to construction. 5 On the other hand, the Exit Ramp Provision provides a determinate formula based 6 on costs and expenses incurred, and it would be rendered nearly meaningless if the 7 Default Provision also applied to pre-construction termination of the Lease 8 Agreement. The most reasonable and harmonious interpretation of the Lease 9 Agreement is to apply the Exit Ramp Provision if the contract is terminated before 10 the parties agree on Construction Drawings. 11 41. Because the Lease Agreement does not define how the parties could effectuate 12 termination, the Court finds Arizona law on rescission of contracts instructive. 13 Rescission “must be clear and unambiguous, conveying the unquestionable purpose 14 to terminate the contract.” Miller v. Crouse, 506 P.2d 659, 664 (Ariz. Ct. App. 15 1973). “Although such notice is not required to be formal and may be evidenced by 16 conduct, manifestation of an intent to rescind must be unequivocal.” Id. 17 42. No later than October 18, 2018, the date it told Gilbert Family it would list and sell 18 the land for the Project, Gilbert MH exercised its right to terminate the Lease 19 20 Agreement. See supra Findings of Fact ¶123.

21 43. When Gilbert MH exercised its right to terminate the Lease Agreement, the parties

22 had not agreed to a set of Construction Drawings. See supra Findings of Fact ¶92.

23 44. Thus, Gilbert MH is entitled to a remedy under the Exit Ramp Provision, as that was 24 the remedy that was within the contemplation of the parties when they executed the 25 Lease Agreement in the event that it was terminated under the circumstances that 26 occurred. 27 /// 28 ///

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1 Amount of Damages 2 45. The Exit Ramp Provision requires Gilbert Family to pay Gilbert MH for half of the 3 out-of-pocket expenses incurred by Gilbert MH related to the project, giving credit 4 to Gilbert Family for its $150,000 security deposit. See supra Findings of Fact 5 ¶¶20, 116. 6 46. Still, under Arizona law, the plaintiff must show damages “with reasonable certainty 7 and a reasonable degree of accuracy . . . .” Harris Cattle Co. v. Paradise Motors, 8 Inc., 104 Ariz. 66, 68, 448 P.2d 866, 868 (1968) (internal quotation marks omitted). 9 The plaintiff must “establish adequate foundation for the documents that 10 purportedly support their damages claim” and “provide any additional documentary 11 or testimonial evidence” to assist the factfinder in determining the amount of 12 damages. Chartone, Inc. v. Bernini, 207 Ariz. 162, 172, 83 P.3d 1103, 1113 (App. 13 2004). In other words, it is for the plaintiff to prove its damages to the Court; it is 14 not for the Court to discern damages by poring through hundreds of pages of 15 unorganized, unindexed, unsupported documents. Likewise, it is for the plaintiff to 16 support the value of its damages; it is not for the Court to attempt to guess the value. 17 47. Gilbert MH has shown with reasonable certainty and a reasonable degree of 18 accuracy that it incurred out-of-pocket costs for the Project in the amount of 19 20 $600,142.62. See supra Findings of Fact ¶¶132–145.

21 48. Applying the Exit Ramp Provision’s formula to the $600,142.62 incurred, Gilbert

22 Family owes Gilbert MH $150,071.31 under the Lease Agreement, which is

23 personally guarantied by the Higgins and Dr. Hohl. See supra Findings of Fact 24 ¶¶146–147. 25 /// 26 /// 27 /// 28 ///

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1 49. Thus, Gilbert Family, the Higgins, and Dr. Hohl are liable to Gilbert MH for 2 $150,071.31.12 3 Dated this 19th day of November, 2021. 4 5 Honorable Steven P. Logan 6 United States District Judge

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 12 Pursuant to Article 42 of the Lease Agreement, the prevailing party in this action is 24 entitled to its reasonable attorneys’ fees. (Ex. 6 at 29). The Court notes that it has already awarded legal fees incurred by Gilbert MH in furtherance of the Project as out-of-pocket 25 costs. See supra note 10. Any party that believes it is the prevailing party may file a motion for attorneys’ fees, supported by sufficient documentation, for the Court’s consideration 26 pursuant to Fed. R. Civ. P. 54(d)(2). Any such motion should include only fees directly associated with this litigation and should exclude any fees already awarded under these 27 Findings of Fact and Conclusions of Law and the associated Judgment. The Court advises that it will not be inclined to parse through documents or perform recalculations in the 28 event that a party fails to comply with this direction.