Lalangan v. Pennington

1 WO [5] 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA [8] 9 Ireno Lalangan, No. CV-20-00292-TUC-JCH 10 Plaintiff, ORDER 11 v. 12 Greg Pennington, et al., 13 Defendants. [14] 15 This case concerns a contract for the sale and installation of 75 HVAC units at two 16 apartment complexes in Sierra Vista, Arizona. (Doc. 22.) On April 13, 2022, the Court 17 entered an Order determining that Plaintiff was entitled to an award of $85,500.00 in 18 contract damages. (Doc. 44.) On June 28, 2022, the Court held an evidentiary hearing on 19 Plaintiff’s claim for an award of lost profit damages and took the matter under advisement. 20 (Doc. 45.) On July 7, 2022, Plaintiff moved for an award of attorney’s fees and costs. (Doc. 21 48.) The Court now rules. 22 I. EVIDENCE ON LOST PROFIT DAMAGES 23 On March 9, 2018, Plaintiff and Defendant Pen-Tek LLC entered into a contract for 24 the purchase and installation of 75 HVAC units that were to be installed at Plaintiff’s two 25 apartment complexes in Sierra Vista, Arizona. At the evidentiary hearing, Plaintiff testified 26 that he purchased the two apartment complexes in 2018. The two apartment complexes 27 have a combined occupancy of 440 units. The apartment complexes had a 70% occupancy 28 rate at the time Plaintiff purchased them. 1 The contract provides, inter alia, that “Pen-Tek LLC will install [the 75 HVAC] 2 units over the next 24 months when [it is] notified of which units need to be replaced.” 3 (Doc. 22 at 12.) Plaintiff testified that at the end of the two year period only 30 HVAC 4 units had been replaced. Plaintiff initially testified that when he entered into the contract, 5 none of the 75 HVAC units that were to be replaced were working. On further questioning, 6 Plaintiff testified that when he entered into the contract some of the 75 HVAC units that 7 were to be replaced under the contract were functioning. However, on additional 8 questioning, Plaintiff changed his testimony again and claimed that when he entered into 9 the contract all of the 75 HVAC units that were contemplated to be replaced under the 10 contract were not working. 11 In his Amended Sum Certain Affidavit Pursuant to Rule 55(b)(1), Plaintiff avowed 12 that “[w]hen the remaining HVAC units were not installed, tenants canceled leases and the 13 rental units could not be leased again without operating HVAC units.” (Doc. 43 at 3, ¶ 8.) 14 Consistent with his affidavit, Plaintiff testified that he has been unable to rent 45 apartment 15 units because they do not have air conditioning as a result of Defendants’ failure to replace 16 the HVAC units in the 45 apartment units. However, Plaintiff offered no explanation for 17 the claimed simultaneous termination of 45 leases. 18 Plaintiff testified that he spoke with Defendant Greg Pennington about the 19 replacement of the HVAC units during the course of performance of the contract. Plaintiff 20 testified that he told Greg Pennington that he was losing $750.00 per month for two21 bedroom apartment units and $650.00 per month for one-bedroom units as a result of Pen22 Tek LLC’s failure to replace the HVAC units. 23 Relying upon information contained in exhibit 8,1 Plaintiff testified that his gross 24 receipts for the rental of 30 two-bedroom apartment units for 26 months would have been 25 $585,000.00 and that his gross receipts for the rental of 15 one-bedroom apartment units 26 for 26 months would have been $253,000.00. Paul Lalangan, Plaintiff’s son, also testified. [27] 1 Although Plaintiff did not move for the admission of any exhibit that he offered at the 28 evidentiary hearing, the Court will refer to an exhibit that was discussed at the hearing when relevant to this Order. 1 Mr. Paul Lalangan testified that he is familiar with the books and records of the two 2 apartment complexes in issue. He testified that the two apartment complexes have a higher 3 than normal vacancy rate as a result of many apartment units needing work, including 4 needing HVAC units. Mr. Paul Lalangan testified that after his review of the books and 5 records of the company for the year 2021, the operating expenses for the two apartment 6 units were 46% of gross income. 7 II. LEGAL STANDARD 8 “The well-established rule in Arizona is that the damages for breach of contract are 9 those which arise naturally from the breach itself or which may reasonably be supposed to 10 have been within the contemplation of the parties at the time they entered into the contract.” 11 S. Ariz. School for Boys, Inc. v. Chery, 580 P.2d 738 , 741 (Ariz. App. Div. 2 1978). 12 “Referred to as ‘expectation damages,’ contract damages are most often based on the 13 party’s expected value of the contract that was unfulfilled due to the other party’s 14 nonperformance.” Moore v. First Transit Bus Co., No. CV-20-00790-PHX-JJT, 2020 WL 15 9347648, at *2 (D. Ariz. Sept. 23, 2020). Lost profit damages are available for breach of 16 contract if they are within the contemplation of the parties. See Short v. Riley, 724 P.2d 17 1252, 1254-55 (Ariz. App. Div. 2 1986) (lost profits sustained as damages naturally 18 flowing from breach of contract and within contemplation of parties). 19 III. ANALYSIS 20 Plaintiff hass not established that he is entitled to an award of lost profits for two 21 reasons. First, there is insufficient evidence that lost profit damages were contemplated by 22 the parties at the time of contracting. Second, the fact and amount of lost profits have not 23 been sufficiently established. 24 a. There is Insufficient Evidence that at the Time of Contracting the 25 Parties Contemplated an Award of Lost Profit Damages 26 “Arizona law comports with general principles of contract which dictate that 27 ‘[d]amages are not recoverable for loss that the party in breach did not have reason to 28 foresee as a probable result when the contract was made.’” Arizona Precious Metals, Inc. 1 v. Accept Erste Rohstoff Beteiligungs KG, 407 Fed. Appx. 216, 217 (D. Ariz. Jan. 3, 2011) 2 (quoting RESTATEMENT (Second) of Contracts § 351 (1981)). No evidence was presented 3 on the parties’ negotiations prior to entering into the contract. Plaintiff testified that he 4 called Greg Pennington during the course of the performance of the contract and told him 5 that he was losing $750.00 per month for two-bedroom units and $650.00 per month for 6 one-bedroom units as a result of Pen-Tek’s failure to perform. 7 Because no evidence was presented on the parties’ negotiations prior to entering 8 into the contract and the contract is silent on either parties’ remedies in the event of a 9 breach, the Court finds Plaintiff is not entitled to an award of lost profit damages under 10 Arizona law. 11 b. The Fact and Amount of Lost Profit Damages are not Sufficiently 12 Established 13 Arizona law does not provide for the recovery of damages unless they are 14 reasonably certain. Hubbard v. Shelton, No. CV-08-623-TUC-DCB, 2011 WL 13183092 , 15 at *7 (D. Ariz. Nov. 23, 2011) (citing Rancho Pescado, Inc. v. Northwestern Mut. Life Ins. 16 Co., 680 P.2d 1235, 1244 (Ariz. App. Div. 1 1984)). “Courts will award damages for loss 17 of profits in an established business ... if they are proved with certainty. Such certainty is 18 provided where the plaintiff devises some reasonable method of computing his net 19 loss.” Hubbard, 2011 WL 13183092 , at *7 (quoting Liniger v. Dine Out Corp., 639 P.2d 20 350, 352-53 (Ariz. Capp. Div. 2 1981)). “The requirement of ‘reasonable certainty’ in 21 establishing the amount of damages applies with added force where a loss of future profits 22 is alleged.” Hubbard, 2011 WL 13183092 , at *7 (quoting Gilmore v. Cohen, 386 P.2d 81 , 23 83 (Ariz. 1963)). It is “well settled that conjecture or speculation cannot provide the basis 24 for an award of damages. The evidence must make an approximately accurate estimate 25 possible.” Hubbard, 2011 WL 13183092 , at *7 (quoting Rancho Pescado, 680 P.2d at 26 1247). 27 Plaintiff testified that at the time he purchased the two apartment complexes in 2018, 28 the complexes had a combined total of 440 apartment units and a combined occupancy rate 1 of 70%. In other words, the two complexes had a total of 308 units occupied and a total of 2 132 units vacant at the time they were purchased. While the date that Plaintiff closed on 3 the purchase of the two apartment complexes was not offered into evidence, it seems likely 4 that about 132 units were also vacant on March 9, 2018 when the parties entered into the 5 contract. 6 Plaintiff testified that all of the 75 apartment units that were to have an HVAC unit 7 replaced (due to the HVAC units not functioning) were occupied. However, Plaintiff’s 8 testimony on the functionality of the 75 HVAC units shifted during the hearing. Plaintiff 9 also could not offer any explanation for the claimed simultaneous termination of 45 leases 10 at the end of the contract term. Furthermore, according to Mr. Paul Lalangan, as of 2021, 11 three years after the parties entered into the contract, the two apartment complexes continue 12 to suffer from a high vacancy rate as a result of numerous apartment units needing repair 13 work including needing HVAC replacement. 14 Evidence on the amount of Plaintiff’s lost profits was provided solely through 15 testimony from Plaintiff and his son. Both Plaintiff and his son testified as to figures 16 provided on a chart contained in exhibit 8. No documents supporting the figures on exhibit 17 8 were offered into evidence. Based on exhibit 8, Plaintiff testified that he would have 18 received $585,000 in gross receipts for the rental of 30 two-bedroom units and $253,000 19 in gross receipts for the rental of 15 one-bedroom units for 26 months. 20 The Court finds that Plaintiff has failed to establish his lost profits with reasonable 21 certainty. For example, in Gilmore, the Arizona Court of Appeals upheld the trial court’s 22 ruling that lost profit damages were not established with reasonable certainty where the 23 evidence on lost profit damages was all in the form of testimony. 386 P.2d at 83 . Similarly, 24 in this case, all of the evidence offered on lost profits was in the form of testimony from 25 Plaintiff and his son. While Plaintiff’s exhibit 8 is a document containing a “LOST PROFIT 26 CHART,” 2 no documents supporting the figures contained in the chart on exhibit 8 were 27 offered into evidence. The lost profit chart is not a record establishing lost profit damages. 28 2 Exhibit 8 also contains a “BREACH OF CONTRACT DAMAGE CHART” immediately below the “LOST PROFIT CHART.” 1 Also in Gilmore, the state court of appeals found that the testimony offered by the plaintiffs 2 was contradictory, ambiguous and confusing. 386 P.2d at 83 . Here, as explained above, 3 Plaintiff’s testimony on the functionality of the 75 HVAC units that were to be replaced 4 was unclear, contradictory and confusing. 5 The Court also finds that Plaintiff’s assumption of a 100% occupancy rate for 26 6 months for the 45 apartment units that were to have received an HVAC unit but did not is 7 speculative. As mentioned above, when Plaintiff bought the two apartment complexes in 8 2018 the complexes had a 70% occupancy rate and based on this occupancy rate, 9 approximately 132 units were vacant. Plaintiff’s son testified that in 2021 the apartment 10 complexes were still operating at a higher than normal vacancy rate, and some of the 11 vacancies were not attributable to HVAC units. From the evidence presented the Court 12 finds that a reasonable juror could not conclude that Plaintiff established lost profit 13 damages with reasonable certainty. See e.g., Cosmetic Alchemy, LLC v. Loving Lotus, No. 14 CV-10-1045-PHX-SRB, 2011 WL 285834 , at *1 (D. Ariz. Jan.27, 2011) (declining to 15 award damages on motion for entry of default judgment where assumptions in calculations 16 were speculative; there was no evidence to support plaintiff’s assumption that each and 17 every product was sold over the internet). 18 For the reasons set forth above, the Court finds that Plaintiff has not sufficiently 19 established that he is entitled to an award of lost profits. Plaintiff will be awarded his 20 contract damages in the amount of $85,500.00 as explained in the Court’s April 13, 2022 21 Order (Doc. 44). 22 IV. ATTORNEY’S FEES 23 Plaintiff moves for an award of attorney’s fees in the amount of $32,007.05 and costs 24 in the amount of $3,225.50.3 (Doc. 48.) The Court has discretion to award Plaintiff his 25 attorney’s fees in this case. See ARIZ. REV. STAT. § 12-341.01(A) (“In any contested action 26 arising out of a contract, express or implied, the court may award the successful party [27] 3 The procedure for filing a bill of costs is governed by Rule 54.1 of the Local Rules of 28 Civil Procedure. See LRCiv 54.1. Plaintiff’s request for an award of costs should be made to the Clerk of the Court in accordance with this local rule. 1 reasonable attorney fees.”). The Court finds that Plaintiff is the prevailing party in this 2 action and is entitled to a reasonable attorney’s fee award. 3 The factors set forth in Rule 54.2(c)(3) of the Local Rules of Civil Procedure guides 4 the Court in determining the fee award amount. See LRCiv 54.2(c)(3) (setting forth factors 5 to be considered in determining the amount of a reasonable fee award, including, the 6 customary fee charged in matters of the type involved, whether the fee contracted between 7 the attorney and the client is fixed or contingent, the amount of money involved, the results 8 obtained and the experience, reputation and ability of counsel). 9 Upon review of the relevant Rule 54(c)(3) factors, the Declaration of Mark Pyper, the 10 fee agreement in this case, and the submitted billing records, the Court finds that Plaintiff 11 is entitled to an award of $27,411.05 in attorney’s fees.4 12 V. CONCLUSION 13 For the reasons set forth above, Plaintiff will be awarded the sum of $85,500.00 in 14 contract damages as set forth in the Court’s Order dated April 13, 2022. Plaintiff will be 15 awarded attorney’s fees in the amount of $27,411.05. Plaintiff will be awarded pre16 judgment interest on the amount of $85,500.00 accruing from the date of the filing of the 17 initial complaint until date of entry of judgment and post-judgment interest accruing from 18 the date of judgment. 19 Accordingly, 20 IT IS HEREBY ORDERED AWARDING in favor of Plaintiff in the amount of 21 $85,500.00. Pre-judgment interest on the amount of $85,500.00 shall accrue from the date 22 of the filing of the initial complaint until date of entry of judgment and post-judgment 23 interest shall accrue from the date of judgment. Plaintiff is awarded attorney’s fees in the 24 amount of $27,411.05. [25] 4 The Court reduces Plaintiff’s request by $4,596.00. This reduction is comprised of (1) a 26 $2,000.00 expert witness fees and 1.2 hours (at $295.00/per hour) in time spent reviewing an expert witness draft report and in speaking with the expert witness as there is no 27 indication that an expert was used in this matter; (2) $1,593.00 representing 5.4 hours (at $295.00/per hour) for work related to a “Red Rock Roofing matter”; and (3) $649.00 28 representing 2.2 hours (at $295.00/per hour) for work related to preparing a motion for summary judgment. ... 2 IT IS FURTHER ORDERED DIRECTING the Clerk of the Court to terminate 3|| Plaintiffs motion for an award of attorney’s fees (Doc. 48), enter judgment accordingly and close this case. 5 Dated this 12th day of July, 2022. [7] DA 26 bree onorable John C. Hinderaker 9 United States District Judge [28] -8-