Realty Executives International Services LLC v. Devonshire Western Canada Limited
2:17-cv-02671
| D. Ariz. | Aug 27, 2020Background
- REI (successor to Realty Executives International, Inc.) licenses real-estate franchising systems to regional developers; Devonshire (Canadian) and four individual defendants were REI regional developers in Alberta under a 2003 RDA.
- In 2008 REI provided a Franchise Disclosure Document containing a draft 2008 Regional Developer Agreement (RDA); Tarrabain marked and returned some pages but the draft omitted key terms (party identification, territory, some development schedule items) and contained blank signature lines.
- From 2008–2017 the parties operated with invoices and monthly payments under the fee schedule in the draft; in 2015 parties disputed extension; in June 2017 the individual defendants purchased Maxwell Realty and several subfranchises moved or were solicited to move.
- REI sued for breach of the 2008 Agreement, tortious interference, and breach of the implied covenant; defendants counterclaimed alleging REI threatened litigation and interfered with their economic relationships.
- Cross-motions for summary judgment were filed; the court held the 2008 Agreement unenforceable under Arizona’s statute of frauds (missing essential terms and unsigned), barred REI’s contract-based claims, granted defendants’ MSJ on REI’s claims, denied REI’s MSJ on liability, and granted/denied parts of REI’s motion as to counterclaims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of 2008 RDA under Arizona Statute of Frauds | Tarrabain’s handwritten modifications + REI’s acceptance created a binding RDA; missing items can be supplied by context/parol evidence | The 2008 RDA is unsigned, omits essential terms (party identity, territory, development obligations), and thus fails the statute of frauds | RDA unenforceable: writing fails to identify parties/subject and omits essential terms; parol evidence cannot cure the deficiency; summary judgment for defendants on breach claim |
| Applicability of part/full-performance exceptions to Statute of Frauds | Partial performance (payments, continued operation) and conduct estops defendants from invoking the statute | Exceptions do not apply; part-performance is an equitable doctrine unavailable where plaintiff seeks only money damages; no full performance | Exceptions inapplicable: REI seeks only money damages so part-performance cannot validate the oral/incomplete agreement; summary judgment for defendants |
| Breach of implied covenant of good faith (based on 2008 RDA) | Covenant implied in the 2008 RDA was breached when defendants impaired REI’s expected benefits | Claim is derivative of the unenforceable RDA and therefore barred by the statute of frauds | Claim barred as it is based indirectly on an unenforceable contract; summary judgment for defendants |
| REI’s tortious-interference claim (based on 2008 RDA) | Defendants interfered with REI’s contractual expectancies arising from the 2008 RDA | The tort claim is indirectly based on the unenforceable RDA and thus barred | REI’s tortious-interference claim barred by statute of frauds because it relies on the unenforceable agreement |
| Defendants’ tortious-interference counterclaims & damages (specific and unspecified brokers) | N/A (defendants assert REI’s threats/litigation caused loss of subfranchises and fees) | REI: damages speculative; waiver/assignment in 2008 RDA bars damages; insufficient proof for many claimed losses | Court allows some counterclaim issues to proceed: factual issues exist for specific broker losses (e.g., Mabey, Pfannmuller, North Star) and expert loss calculations; claims as to unspecified broker/agent recruitments largely too speculative; $27,000 diverted-fees claim presents a genuine dispute of fact |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard; movant burden to show absence of genuine dispute)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (evidence must permit a reasonable jury to find for nonmoving party to defeat summary judgment)
- W. Chance No. 2, Inc. v. KFC Corp., 957 F.2d 1538 (9th Cir. 1992) (statute of frauds requires writing that identifies parties with reasonable certainty)
- Custis v. Valley Nat’l Bank of Phoenix, 375 P.2d 558 (Ariz. 1962) (writing must state subject matter and terms/conditions of promises for statute of frauds)
- Owens v. M.E. Schepp Ltd. P’ship, 182 P.3d 664 (Ariz. 2008) (discussing limited exceptions to Arizona statute of frauds)
- Lininger v. Sonenblick, 532 P.2d 538 (Ariz. Ct. App.) (statute bars actions based indirectly on oral contracts)
- Two Brothers Distrib. Inc. v. Valero Mktg. & Supply Co., 270 F. Supp. 3d 1112 (D. Ariz. 2017) (illustrative treatment of reasonable business expectancy and damages evaluation)
- Arnold & Associates, Inc. v. Misys Healthcare Sys., 275 F. Supp. 2d 1013 (D. Ariz. 2003) (application of statute of frauds to contract and related covenant claim)