Keg Restaurants Arizona, Inc. v. Jones
240 Ariz. 64
| Ariz. Ct. App. | 2016Background
- Keg Restaurants Ltd. (Keg Limited) and its U.S. subsidiaries (Keg U.S., Keg Franchise, Keg Arizona) contracted with TOVK to develop and operate a Keg restaurant in Oro Valley, Arizona; documents and dealings frequently used overlapping letterhead, signatures, and personnel.
- TOVK deposited substantial funds into escrow and executed agency agreements (2008, 2009) appointing Keg entities to manage construction; grading and permit delays and disputed contractor payments stalled construction.
- Keg entities issued default notices, withdrew escrow funds, and ultimately Keg Limited (through its affiliates) completed and opened the restaurant; TOVK sued claiming breaches of contract, breach of the implied covenant of good faith and fair dealing, and sought damages.
- The trial court dismissed tort claims pre-trial; a jury found Keg Limited liable for breaches (Sublease, two agency agreements, and the covenant) and awarded damages; the court also awarded TOVK attorneys’ fees and expert witness fees under a fee-shifting provision in the Ground Lease incorporated into the Sublease.
- Keg moved for JMOL and a new trial; the trial court denied relief. On appeal Keg challenged sufficiency of the evidence, jury instructions, and the award of expert witness fees; the appellate court affirmed.
Issues
| Issue | Plaintiff's Argument (TOVK) | Defendant's Argument (Keg) | Held |
|---|---|---|---|
| Whether evidence was sufficient to hold Keg Limited liable for contract breaches | Keg Limited was alter-ego of its subsidiaries; the subsidiaries breached contracts and Keg Limited controlled them, so liability flows to parent | Insufficient evidence that Keg Limited directly or under alter-ego theory was liable; jury never separately found subsidiaries liable | Affirmed: sufficient evidence supported alter-ego liability and the jury reasonably found unity of control and injustice from recognizing separateness |
| Whether evidence supported breaches of the Sublease, agency agreements, and implied covenant | TOVK showed payment/performance, agency delegation, construction mismanagement, interference with financing, and wrongful termination/refund failures | Keg argued lack of enforceable contract terms (consideration), no duty to provide guarantees/financials, and delays due to other causes | Affirmed: jury could find breaches of quiet enjoyment (Sublease), breaches of agency duties, and breach of implied covenant based on facts presented |
| Whether jury instructions (agency, modification, alter-ego) were erroneous | Instructions correctly explained agency duties, contract modification elements, and alter-ego doctrine | Keg argued instructions allowed liability without precise findings and should have noted anti-oral-modification clauses | Affirmed: instructions were consistent with Arizona law and not misleading when read together |
| Whether expert witness fees awarded under fee-shifting clause were permissible | Fees recoverable as contractually provided nontaxable costs under the Ground Lease incorporated into the Sublease | Keg argued TOVK waived contract-based recovery by not pleading it and expert fees are not recoverable under statutes cited | Affirmed: contract expressly authorized reimbursement for consultants and experts; fees not waiver-barred because they are nontaxable contract costs |
Key Cases Cited
- Warne Invs., Ltd. v. Higgins, 219 Ariz. 186 (de novo review of JMOL standard)
- Felder v. Physiotherapy Assocs., 215 Ariz. 154 (sufficiency-of-evidence standard for JMOL)
- Hutcherson v. City of Phoenix, 192 Ariz. 51 (upholding jury verdict unless it shocks the conscience)
- Gatecliff v. Great Republic Life Ins. Co., 170 Ariz. 34 (alter-ego / veil-piercing test: unity of control + injustice)
- Taeger v. Catholic Family & Cmty. Servs., 196 Ariz. 285 (definition of substantially total control for alter-ego)
- Oldenburger v. Del E. Webb Dev. Co., 159 Ariz. 129 (parent liability when subsidiary is mere instrumentality)
- Maricopa P’ships, Inc. v. Petyak, 163 Ariz. 624 (agency imposes fiduciary duties; Restatement approach)
- Ahwatukee Custom Estates Mgmt. Ass’n v. Bach, 193 Ariz. 401 (trial court discretion to award nontaxable contract costs such as expert fees)