SPUS8 Dakota LP v. KNR Contractors LLC

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 SPUS8 Dakota LP, et al., No. CV-19-05477-PHX-MTL

10 Plaintiffs, ORDER

11 v.

12 KNR Contractors LLC, et al.,

13 Defendants. 14 15 Pending before the Court is Defendant/ Cross-claimant KNR Contractor, LLC’s 16 motion for summary judgment against Cross-Defendants Oddonetto Granite & Marble 17 LLC and John Oddonetto. (Doc. 146.) For the reasons listed below, the motion is granted 18 in part and denied in part.1 19 I. BACKGROUND 20 The cross-claims at issue here concern a contract dispute between a general 21 contractor, KNR Contractor, LLC (“KNR”), and a subcontractor, Oddonetto Granite & 22 Marble, LLC (“Oddonetto LLC”) and John Oddonetto (collectively, “Oddonetto”). The 23 contract dispute involves the subcontractor’s obligation to procure, supply, and install 24 granite countertops and sinks for a multi-unit apartment complex renovation project (the 25 “KOTA Project”). 26 A. The Uncontroverted Facts 27 1 Neither party requested oral argument pursuant to LRCiv 7.2, and oral argument will not 28 aid the Court’s decision. See Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998); see also LRCiv 7.2(f); Fed. R. Civ. P. 78(b). 1 KNR contracted Oddonetto to procure, supply, and install granite countertops and 2 sinks for the KOTA Project. (Doc. 147 ¶ 1; Doc. 160 ¶ 1.) KNR made an initial payment 3 to Oddonetto of $167,126.00. (Doc. 147 ¶ 2; Doc. 160 ¶ 2.) John Oddonetto emailed KNR 4 on March 21, 2019, requesting additional funds to unload a delivery of granite that was in 5 port, and that KNR made a second payment of $78,200.00 on March 29, 2019. 6 (Doc. 147 ¶ 2; Doc. 160 ¶ 2.) The parties disagree about the content and meaning of that 7 email. (Doc. 147 ¶ 2; Doc. 160 ¶ 2.) They agree, however, that the delivery at port that 8 was mentioned in Oddonetto’s March 21 email, contained less than 25% of the total order 9 of granite countertops and sinks for the KOTA Project. (Doc. 147 ¶ 3; Doc. 160 ¶ 3.) In 10 October 2019, Plaintiffs SPUS8 Dakota LP, SPUS8 Pinnacle LP (collectively, “Dakota”), 11 and KNR called Oddenetto to take inventory of the granite countertops and sinks, but 12 Oddonetto “did not have any of the granite countertops and sinks” prepared. (Doc. 147 ¶ 13 4; see Doc. 159 ¶ 49–50; Doc. 160 ¶ 4.) 14 B. KNR’s Controverted Facts 15 KNR maintains that the two payments it made to Oddonetto were for 25% of the 16 total granite countertops and sinks for the KOTA Project. (Doc. 147 ¶¶ 1–2.) The 17 expectation, according to KNR, was that Oddonetto would have 25% of the total materials 18 after the second payment. (Id. ¶ 2.) KNR asserts that Oddonetto informed Keener that a 19 “container from China containing all of the granite countertops and sinks was in port but 20 could not be released until full payment was made.” (Id.) But, according to KNR, in 21 October of 2019, when it wanted to check the inventory, it discovered that Oddonetto “did 22 not have any of the granite countertops . . . and [Oddonetto] did not have the money KNR 23 [had] paid [Oddonetto] to procure them.” (Id. ¶ 4.) Finally, KNR asserts that Dakota’s 24 expert has concluded that KNR committed no fraud in the transactions with Oddonetto and 25 believes that Oddonetto lied to KNR. (Id. ¶ 5.) 26 C. Oddonetto’s Controverted Facts 27 Oddonetto maintains that it provided an estimate to KNR on October 4, 2018. 28 (Doc. 159 ¶ 10.) Oddonetto asserts that the estimate established the material terms of the 1 agreement between it and KNR, and that KNR accepted those terms. (Id. ¶¶ 11–12.) 2 Oddonetto emphasizes that “[a]ccording to the terms of the contract/ estimate” between it 3 and KNR, and “before any orders are placed for any products or materials regardless of the 4 quantity, the general contractor is required to pay at least a 50 percent deposit and the 5 remaining balance to Oddonetto Granite prior to delivery of any product.” (Id. ¶ 15.) 6 Additionally, Oddonetto asserts that the estimate provided (1) “no specific timeframe for 7 delivery of the stone materials for” the KOTA Project; (2) “no requirement that all stone 8 materials had to be ordered at the time of the initial or final payment by KNR to Oddonetto 9 Granite;” and (3) “no requirement that a specific quantity or all of the stone product would 10 be ordered at one time after the payment from KNR.” (Id. ¶¶ 13–14, 20; Doc. 158 at 5.) 11 Oddonetto also maintains that the parties agreed that it could acquire the material needed 12 to perform on an as-needed basis due to its limited shop space. (Doc. 159 ¶¶ 16–18.) 13 Oddonetto also asserts that it had worked with KNR before and was never required to order 14 all of the product for a project at once. (Id. ¶¶ 21–23) 15 Oddonetto also claims that KNR made representations about the size of the KOTA 16 Project and indicated that Oddonetto should not take on any other work. (Id. ¶ 35.) 17 Oddonetto further asserts that KNR told it to stop work for the KOTA Project while KNR 18 and Dakota settled a payment dispute. (Id. ¶¶ 38–39.) According to Oddonetto, KNR’s 19 stop-work order prevented it from “performing its subcontract with KNR, including being 20 able to finish the product order, fabricate the countertops and sinks, or complete the 21 installation.” (Id. ¶ 40.) Oddonetto maintains that because the KOTA Project was the only 22 project that it was working on, it had to use “some of the funds paid by KNR . . . to support 23 [its] business operations.” (Id. ¶¶ 41–42.) Oddonetto also maintains that it “was always 24 able to perform and willing to complete the work that it had been paid for, including 25 ordering any additional necessary product to complete the work.” (Id. ¶ 43.) Despite this, 26 Oddonetto claims representatives for KNR and Dakota, told it to wait until KNR and 27 Dakota “resolved their dispute. . . .” (Id. ¶¶ 48–49.) Finally, Oddonetto asserts that KNR 28 falsely represented itself as a licensed contractor because at “the time it entered into the 1 Construction Contracts with Plaintiffs, KNR was not a licensed contractor in Arizona with 2 the Arizona Registrar of Contractors.” (Id. ¶¶ 2–3.) 3 II. LEGAL STANDARD 4 Summary judgment is appropriate if the evidence, viewed in the light most favorable 5 to the nonmoving party, here Oddonetto, demonstrates “that there is no genuine dispute as 6 to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. 7 Civ. P. 56(a). A genuine issue of material fact exists if “the evidence is such that a 8 reasonable jury could return a verdict for the nonmoving party,” and material facts are 9 those “that might affect the outcome of the suit under the governing law.” Anderson v. 10 Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). At the summary judgment stage, “[t]he 11 evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn 12 in [its] favor.” Id. at 255; see also Jesinger v. Nev. Fed. Credit Union, 24 F.3d 1127, 1131 13 (9th Cir. 1994) (“The court must not weigh the evidence or determine the truth of the 14 matters asserted but only determine whether there is a genuine issue for trial.”). That said, 15 “[w]hen opposing parties tell two different stories, one of which is blatantly contradicted 16 by the record, so that no reasonable jury could believe it, a court should not adopt that 17 version of the facts for purposes of ruling on a motion for summary judgment.” Scott v. 18 Harris, 550 U.S. 372, 380 (2007). 19 “[A] party seeking summary judgment always bears the initial responsibility of 20 informing the district court of the basis for its motion, and identifying those portions of 21 [the record] which it believes demonstrate the absence of a genuine issue of material fact.” 22 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A party opposing summary judgment 23 must “cit[e] to particular parts of materials in the record” establishing a genuine dispute or 24 “show[] that the materials cited do not establish the absence . . . of a genuine dispute.” Fed. 25 R. Civ. P. 56(c)(1). 26 III. DISCUSSSION 27 KNR asks the Court to grant summary judgment on four of its cross-claims— (i) 28 breach of contract, (ii) breach of the implied covenant of good faith and fair dealing, (iii) 1 unjust enrichment, and (iv) fraud—and conditional summary judgment on its common law 2 indemnity cross-claim. (Docs. 146, 168.) KNR also argues that the Court should grant 3 summary judgment and find John Oddonetto personally liable for the fraud cross-claim. 4 (Doc. 146 at 7.) Oddonetto counters that summary judgment should not be granted because 5 (1) material facts are in dispute, (2) KNR cannot maintain its cross-claims because it was 6 an unlicensed contractor, (3) the economic loss doctrine bars KNR’s fraud cross-claim, and 7 (4) KNR’s common law indemnity cross-claim fails due to KNR’s negligence. (Doc. 158.) 8 A. KNR was an Unlicensed Contractor 9 The Court has already determined that KNR was “never a licensed contractor” for 10 the purposes of A.R.S. §§ 32-1101(A)(3)(a)(i) and 32-1153.2 (Doc. 171 at 8.) Thus, KNR 11 is unable to “maintain any action in any court” in Arizona for compensation for any act 12 requiring a contractor’s license. A.R.S. § 32-1153. Oddonetto argues that this bars KNR 13 from pursuing its contract and unjust enrichment cross-claims. (Doc. 158 at 12.) KNR 14 argues that it is not barred from maintaining those cross-claims because the issue in this 15 case “is payment for the purchase of product [or] materials from a supplier,” which can be 16 done without a contracting license. (Doc. 168 at 4.) 17 As previously explained in this Court’s order, “‘Arizona courts ‘have repeatedly 18 held that the purpose of § 32–1153 is to protect the public from unscrupulous, unqualified, 19 and financially irresponsible contractors.’” (Doc. 171 at 7 (quoting Aesthetic Prop. Maint. 20 Inc. v. Capitol Indem. Corp., 183 Ariz. 74, 77 (1995)).) 21 Part of a general contractor’s role is to pay for product, labor, or materials from a 22 supplier or subcontractor in order to complete a construction job. See A.R.S. § 32- 23 1101(A)(3)(b) (“‘Contractor’ . . . includes . . . consultants who represent that they are able 24 to supervise or manage a construction project for the property owner’s benefit, including 25 hiring and firing specialty contractors, scheduling work on the project and selecting and 26 purchasing construction material.”). The Court has already found that “KNR was never a

27 2 KNR does not dispute that it was an unlicensed contractor. (Docs. 146, 168.) Instead, KNR insists that “no license is implicated in the issues before this Court.” (Doc. 168 at 8.) 28 As discussed herein, the Court disagrees; KNR’s unlicensed status is not only a relevant issue but a dispositive one. 1 licensed contractor,” and as an unlicensed contractor KNR cannot maintain its actions for 2 breach of contract, breach of implied covenant of good faith and fair dealing, and unjust 3 enrichment. (Doc. 171 at 8); A.R.S. § 32-1153. 4 But even if KNR were properly licensed, summary judgment should still be denied 5 for these claims for relief because, as explained in further detail below, the Court finds that 6 genuine issues of material fact exist regarding the breach of contract and breach of implied 7 covenant of good faith cross-claims. The Court also find that the unjust enrichment cross- 8 claim was improperly briefed. 9 B. Breach of Contract 10 Contracts consist of an offer, acceptance, consideration, and intent by the parties to 11 be bound. Day v. LSI Corp., 174 F. Supp. 3d 1130, 1153 (D. Ariz. 2016), aff’d, 705 F. 12 App’x 539 (9th Cir. 2017). “‘To bring an action for the breach of the contract, the plaintiff 13 has the burden of proving the existence of the contract, its breach and the resulting 14 damages.’” Thomas v. Montelucia Villas, LLC, 232 Ariz. 92, 96 (2013) (quoting Graham 15 v. Asbury, 112 Ariz. 184, 185 (1975)). 16 KNR argues that Oddonetto was contractually obligated to deliver 25% of the 17 granite countertops and sinks for the KOTA project after KNR sent the $78,200.00 18 payment. (Doc. 146 at 4.) It asserts that Oddonetto breached by not delivering any 19 materials to KNR despite being paid $245,326.00. (Id.) KNR also argues that there is no 20 dispute that Mr. Oddonetto told KNR that the materials were in port and that the materials 21 could not be taken out of port until KNR made a second payment. (Doc. 168 at 2.) KNR 22 also asserts that Oddonetto’s claim that it only needed to purchase the stone on an as- 23 needed basis is contradicted by the fact that Oddonetto asked for the full payment before 24 supplying any stone. (Id. at 3–4.) Finally, KNR argues that Oddonetto’s ability to perform 25 is not relevant to the breach of contract cross-claim because it is only relevant to mitigation 26 of Dakota’s damages. (Id. at 4.) 27 Oddonetto argues its contractual obligations were determined by the October 4, 28 2018, estimate. (Doc. 158 at 10.) It asserts that the estimate contained “(1) no specific 1 timeframe for delivery of the stone materials for the KOTA Project; (2) no requirement 2 that all stone materials had to be ordered at the time of the initial or final payment by KNR 3 to Oddonetto [LLC]; and (3) no requirement that a specific quantity or all of the stone 4 product would be ordered at one time after the payment from KNR.” (Id.) Oddonetto 5 asserts that, consistent with its prior dealings with KNR, they agreed that it could acquire 6 materials on an as-needed basis because it did not have enough space to store all the 7 materials at once. (Id.) Oddonetto finally argues that “because the terms understood by 8 Mr. Oddonetto did not require all of the stone product to be purchased at once (even after 9 full payment),” there can be no breach of express contract terms or the covenant of good 10 faith and fair dealing or, at minimum, “the conflicting positions taken by the Parties shows 11 that there is a disputed factual issue on whether a breach even occurred.” (Id.) 12 The Court agrees with Oddonetto that the conflicting positions on the terms of the 13 agreement—when and how much of the stone needed to be ordered, and the delivery 14 timeframe—render the contract ambiguous and therefore, forecloses summary judgment. 15 “In Arizona, the construction of ambiguous contract provisions is a jury question.” MDY 16 Indus., LLC v. Blizzard Ent., Inc., 629 F.3d 928, 956 n. 22 (9th Cir. 2010) (citing Clark v. 17 Compania, Ganadera de Cananea, S.A., 94 Ariz. 391, 385 P.2d 691, 697–98 (1963)). 18 Therefore, summary judgment on KNR’s breach of contract cross-claim is denied. 3 19 C. Breach of Implied Covenant of Good Faith and Fair Dealing 20 “[T]he duty of good faith and fair dealing . . . is implied in all contracts.” Taylor v. 21 State Farm Mut. Auto. Ins. Co., 185 Ariz. 174, 176 (1996). “The duty of good faith requires 22 that neither party act in a manner that would damage the rights of the other party to receive 23 the benefits flowing from the underlying contractual relationship.” Id. 24 KNR argues that Oddonetto breached its duty by intentionally misrepresenting the 25 amount of product it was buying and by not delivering the goods after being paid, per the

26 3 The Court notes that Oddonetto also argues that the doctrine of frustration applies in this case. But neither party’s briefing adequately addresses the issue. Oddonetto mentions 27 frustration, but does not articulate arguments based on the clearly established test in Next Gen Cap., L.L.C. v. Consumer Lending Assocs., L.L.C., 234 Ariz. 9, 11 (App. 2013). 28 (Doc. 158 at 11–12.) For its part, KNR does not even address the issue in its Reply brief. (Doc. 168.) Accordingly, the Court will not address the doctrine of frustration in this Order. 1 terms of the parties’ agreement. (Doc. 146 at 4–5.) Oddonetto argues that it complied with 2 the terms of the agreement and did not violate its duty. (Doc. 158 at 9–11.) Additionally, 3 Oddonetto argues that there exist issues of material fact regarding the terms of the 4 agreement as evidenced by the parties’ contrary positions on this issue. (Id.) KNR counters 5 that there is no genuine dispute regarding the terms of the agreement. (Doc. 168 at 2–4.) 6 As previously discussed, the contours of the agreement are contested. Supra Section 7 III.B. If a jury finds Oddonetto’s controverted facts to be true, then it did not breach its 8 implied covenant of good faith and fair dealing because the agreement permitted its actions. 9 If, however, a jury finds that KNR’s controverted facts are true, then Oddonetto did violate 10 its duty because Oddonetto’s representations regarding the product at port were misleading. 11 See id. Determining the operative terms of the agreement is a question of material fact. 12 See id. Thus, summary judgment for KNR’s breach of implied covenant of good faith and 13 fair dealing cross-claim is denied. 14 D. Unjust Enrichment 15 “An unjust enrichment claim requires proof of ‘(1) an enrichment, (2) an 16 impoverishment, (3) a connection between the enrichment and impoverishment, (4) the 17 absence of justification for the enrichment and impoverishment, and (5) the absence of a 18 remedy provided by law.’” Perdue v. La Rue, 250 Ariz. 34, 42 (App. 2020) (quoting Wang 19 Elec., Inc. v. Smoke Tree Resort, LLC, 230 Ariz. 314, 318 (App. 2012)). 20 KNR’s briefing lacks any reference to this established standard or any meaningful 21 cites to the record. (Doc. 146 at 5; Doc. 168 at 2–3, 5–6.) Instead, KNR relies on general 22 statements such as “[i]t would be unjust to allow Defendants Oddonetto to retain [a] 23 benefit” from receiving the second payment of $78,000 “without paying for it.” (Doc. 146 24 at 5.) Summary judgment for KNR’s unjust enrichment cross-claim is denied because its 25 briefing on this issue is woefully underdeveloped and it has failed to meet its “initial 26 responsibility of informing the district court of the basis for its motion, and identifying 27 those portions of [the record] which it believes demonstrate the absence of a genuine issue 28 of material fact.” Celotex Corp., 477 U.S. at 323. 1 E. Fraud 2 To prove fraud, a KNR must prove nine elements: “‘(1) a representation; (2) its 3 falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; 4 (5) the speaker’s intent that it be acted upon by the recipient in the manner reasonably 5 contemplated; (6) the hearer’s ignorance of its falsity; (7) the hearer’s reliance on its truth; 6 (8) the hearer’s right to rely on it; and (9) the hearer’s consequent and proximate injury.’” 7 Duncan v. Pub. Storage, Inc., 253 Ariz. 15, --- (App. 2022) (quoting Comerica Bank v. 8 Mahmoodi, 224 Ariz. 289, 291–92 (App. 2010)). 9 KNR makes a poor showing as to why summary judgment should be entered in its 10 favor with respect to its fraud cross-claim. (Doc. 146 at 5–6.) Rather than bearing its 11 burden and explaining why each element has been proven by the record to date, KNR states 12 conclusory assertions without much support. (Doc. 146 at 5–6.) Summary judgment 13 should be denied for this reason alone. 14 The Court, however, agrees with Oddonetto that there are genuine disputes of 15 material facts and summary judgment should be denied with respect to KNR’s fraud claim. 16 Specifically, (1) whether Mr. Oddonetto made a false representation given the October 4, 17 2018 estimate; (2) whether KNR was aware of and agreed Oddonetto Granite could 18 purchase stone on an as-needed basis; and (3) whether Mr. Oddonetto intended to defraud 19 KNR when he sent the March 29, 2019 email. (Doc. 158 at 13.) Because the Court finds 20 that there are genuine disputes of material fact precluding summary judgment, it will not 21 discuss the parties’ arguments regarding the economic loss rule. 22 F. Common Law Indemnity 23 KNR requests that the Court grant conditional summary judgment on its common 24 law indemnity cross-claim. (Doc. 146 at 7–12.) However, KNR cites no authority from 25 this state, district, or circuit to support this Court entering an order for conditional summary 26 judgement in this case. Moreover, KNR fails to explain how its request for conditional 27 summary judgment would differ from an ordinary request for summary judgment. Indeed, 28 if the Court granted summary judgment on this issue, it would still be conditioned on 1 whether KNR is found liable to the plaintiff, Dakota, in this matter. Having been presented 2 with no reason to grant conditional summary judgment and no argument distinguishing it 3 from summary judgment, the Court denies KNR’s request for conditional summary 4 judgment. 5 G. John Oddonetto’s Personal Liability 6 In Arizona, an LLC’s liability is solely the liability of the entity, and its owners are 7 generally shielded from liability. See A.R.S. § 29-3304(A); Arizona Tile, L.L.C. v. Berger, 8 223 Ariz. 491, 496 (App. 2010) (“[D]irectors are not personally liable for [an LLC’s] torts 9 unless they ‘participate or have knowledge amounting to acquiescence or are guilty of 10 negligence in the management or supervision of the corporate affairs causing or 11 contributing to the injury.’”) (quoting Bischofshausen, Vasbinder, & Luckie v. D.W. 12 Jaquays Min. & Equip. Contractors Co., 145 Ariz. 204, 210–11 (App. 1985)). KNR argues 13 one exception that serves as the sole basis for its piercing theory: fraud. (Doc. 146 at 7; 14 Doc. 168 at 9–10.) The Court denies summary judgment regarding John Oddonetto’s 15 personal liability because the Court has denied summary judgment for KNR’s fraud cross- 16 claim. Supra Section III.E. 17 H. Oddonetto’s Cross-Claims 18 KNR also moves for summary judgment regarding Oddonetto’s cross-claims 19 against KNR. (Doc. 146 at 12.) Oddonetto “does not object to summary judgment on the 20 cross-claim and does not intend to pursue those claims any further in the litigation.” (Doc. 21 158 at 4.) Accordingly, summary judgement will be entered in favor of KNR with respect 22 to Oddonetto’s cross-claims against it. 23 IV. CONCLUSION 24 Accordingly, 25 IT IS ORDERED granting in part and denying in part Defendant KNR Contractor’s 26 Motion for Summary Judgement and Conditional Summary Judgement Against 27 Defendants Oddonetto Granite & Marble LLC and John Oddonetto. (Doc. 146.) 28 IT IS FURTHER ORDERED granting the Motion (Doc. 146) with respect to 1 || Oddonetto’s cross-claims. Summary judgment on Oddonetto’s cross-claims shall be 2 || entered in favor of KNR and Oddonetto’s cross-claims shall be dismissed from this action. 3 IT IS FINALLY ORDERED denying the Motion (Doc. 146) with respect to KNR’s Breach of Contract (Count I), Breach of Implied Covenant of Good Faith and Fair 5|| Dealing (Count I), Unjust Enrichment (Count IID), Fraud (Count IV), and Common Law || Indemnity (Count V) cross-claims, as well as personal liability against Mr. Oddonetto. 7\| Summary judgment shall not be entered with respect to those cross-claims. 8 Dated this 9th day of August, 2022. 9 Wichal T. Hburde i Michael T. Liburdi 12 United States District Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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