Conlon Group Arizona,LLC, et al v. CNL Resort Biltmore Real Estate, Inc et al, No. 2:2008cv00965 - Document 155 (D. Ariz. 2009)

Court Description: ORDER denying the Hotel's 129 Daubert motion to exclude the report and testimony of expert Robert Keon, and DENYING the Hotel's 130 Daubert motion to exclude the report and testimony of expert Renee Jenkins. IT IS FURTHER ORDERED GRANTI NG IN PART AND DENYING IN PART the Hotel's 132 motion for summary judgment. The Hotel's motion for summary judgment is granted only to the extent it asserts that the statute of limitations bars claims occurring before February 26, 2002. Signed by Judge Frederick J Martone on 07/27/09. (ESL)

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Conlon Group Arizona,LLC, et al v. CNL Resort Biltmore Real Estate, Inc et al 1 Doc. 155 WO 2 3 4 5 NOT FOR PUBLICATION 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 11 12 13 14 15 ) ) ) Plaintiff, ) ) vs. ) ) CNL Resort Biltmore Real Estate, Inc.;) ) KSL Biltmore Resort, Inc., ) ) Defendants. ) ) Conlon Group Arizona, LLC, No. CV-08-0965-PHX-FJM ORDER 16 17 18 We now have before us defendants’(the “Hotel”) Daubert motion to exclude the report 19 and testimony of expert Robert Keon (doc. 129), Conlon’s response (doc. 142), and the 20 Hotel’s reply (doc. 146); the Hotel’s Daubert motion to exclude the report and testimony of 21 expert Renee Jenkins (doc. 130), Conlon’s response (doc. 143), and the Hotel’s reply (doc. 22 147). We also have before us the Hotel’s motion for summary judgment (doc. 132), 23 Conlon’s response (doc. 149), and the Hotel’s reply (doc. 150). 24 I. Background 25 This case involves a dispute over rental pool agreements between the Hotel and 26 dozens of villa owners. Under the agreements, the Hotel offers the villa units as rental 27 accommodations in addition to rooms in the Hotel. The Hotel receives a percentage of the 28 villa rental revenue after deducting certain expenses, including credit card and travel agent 1 fees. The balance of the revenue is then distributed equally among the rental pool 2 participants. 3 Conlon Group Arizona, LLC (“Conlon”) owns six villa units and has been 4 participating in the rental pool since 2003. Concerned that the Hotel was improperly 5 calculating the credit card and travel expense deductions, on June 19, 2006, Conlon, acting 6 in its individual capacity, sued the Hotel for an accounting of the rental pool books and 7 records and sought a judgment for the amount found to be owing under the rental pool 8 agreement. Conlon Group Arizona, LLC v. CNL Resort Biltmore Real Estate, Inc. No. CV- 9 06-2065-PHX-FJM (D. Ariz. 2006) (“Conlon I”). Conlon alleged that the Hotel breached 10 the rental pool agreement by improperly calculating (1) credit card expenses, and (2) travel 11 agent commissions, and by improperly providing complimentary villa units (3) to Hotel 12 employees, and (4) to Hotel guests. Shortly before trial, the parties reached agreement on 13 the first three claims and the trial proceeded on the only remaining issue—whether the Hotel 14 abused its discretion by providing complimentary villa rooms to non-employee guests. 15 Following a bench trial on April 8, 2008, we found in favor of the Hotel. 16 In early 2007, during the pendency of Conlon I, Conlon’s sole owner, Mark Finney, 17 began soliciting other rental pool participants to retain Conlon as their agent to prosecute 18 claims against the Hotel. By mid-2007, twenty-nine rental pool participants had entered into 19 agency agreements with Conlon. 20 assignment agreements. On February 26, 2008, again while Conlon I proceeded, Conlon 21 filed the present action against the Hotel as agent of the other villa owners (“Conlon II”). 22 This second action involves the same claims asserted in Conlon I—the improper calculation 23 of credit card and travel agent expenses, and excessive comping of rooms. The new lawsuit 24 is different from Conlon I in that it includes a new claim that the Hotel’s practice of capping 25 villa revenue at 17% breaches the rental pool agreement, and seeks damages for contract 26 breaches dating back to 1995. In mid-2008, these contracts were converted into 27 28 -2- 1 II. Expert Witnesses 2 Conlon hired Robert Keon to opine as to whether the Hotel’s management of the 3 rental pool agreement meets industry standards. Specifically, Keon analyzed: (1) the Hotel’s 4 accounting system for the rental pool; (2) the Hotel’s calculation of credit card expenses and 5 travel agency commissions; (3) the lack of documentation supporting the Hotel’s 17% 6 practice; (4) the Hotel’s practice regarding complimentary rooms; (5) the Hotel’s group rate 7 practices; and (6) the Hotel’s villa rate practices. The Hotel now challenges the reliability 8 of Keon’s opinions. 9 Rule 702, Fed. R. Evid., allows admission of “scientific, technical, or other specialized 10 knowledge” by a qualified expert if it “will assist the trier of fact to understand the evidence 11 or to determine a fact in issue.” We perform a “gatekeeping” function in order “to ensure the 12 reliability and relevancy of expert testimony.” Kumho Tire Co. v. Carmichael, 526 U.S. 137, 13 152, 119 S. Ct. 1167, 1176 (1999). This gatekeeping obligation applies to both jury and 14 bench trials, although its importance is limited when the judge is the trier of fact and has an 15 ongoing opportunity to evaluate the admissibility and weight of expert testimony. 16 The Hotel argues that Robert Keon’s opinions are unreliable because he lacks basic 17 qualifications to opine regarding industry standards or the Hotel’s practices. The Hotel 18 contends that Keon has no formal education in the hospitality industry, no specific 19 experience with rental pools, no experience with the Arizona hospitality market, and he has 20 never served as an expert. Each of these arguments is without merit. 21 An individual can be “qualified as an expert by knowledge, skill, experience, training, 22 or education.” Fed. R. Evid. 702. Keon has more than twenty years experience in the hotel 23 industry. He served as a food and beverage manager for several hotels in New York City. 24 He held senior financial positions with the Four Seasons Hotel and was the chief financial 25 officer for a spa and time-share resort. He conducted research for the Trust Hotel Group, 26 which included a study of pooling agreements. Since 2001, he has run his own hotel 27 consulting business. He has worked with hotels in six different states. Response, exhibit A. 28 -3- 1 He is clearly qualified by virtue of his extensive hotel experience to testify as an expert in 2 this case. 3 We reject the Hotel’s argument that Keon’s opinions are unreliable because they are 4 based on his own experience rather than reliable principles or authoritative sources, such as 5 “formal education, treatises, books or other learned documents.” Motion re: Keon at 7. 6 Daubert’s reliability test “is ‘flexible,’ and [its] list of specific factors neither necessarily nor 7 exclusively applies to all experts or in every case.” Kumho Tire Co. v. Carmichael, 526 U.S. 8 137, 141, 119 S. Ct. 1167, 1171 (1999). Keon’s extensive experience in the hotel industry 9 will undoubtedly assist us in understanding the evidence and renders his opinions sufficiently 10 reliable to be admissible. 11 The Hotel similarly challenges the opinion testimony and report of expert Renee 12 Jenkins regarding damages Conlon may have suffered as a result of the Hotel’s alleged 13 breach of the rental pool agreements. The Hotel contends that Jenkins, a certified public 14 accountant, is not qualified to offer her opinions regarding damages because Jenkins has no 15 specific experience in the hospitality industry, no experience with hotel rental pools, and no 16 experience in the Arizona market. 17 Jenkins was engaged as an accountant to provide an opinion regarding the calculation 18 of damages. She was not engage to evaluate the Hotel’s policies or practices regarding the 19 risk pool agreement. See Jenkins Depo at 11. “Ordinarily, courts impose no requirement 20 that an expert be a specialist in a given field, although there may be a requirement that he or 21 she be of a certain profession, such as a doctor.” Doe v. Cutter Biological, Inc., 971 F.2d 22 375, 385 (9th Cir. 1992). There is little doubt that as a certified public accountant, Jenkins 23 is qualified to render an opinion on damages. Although the Hotel also challenges the “rack 24 rate” methodology Jenkins used to calculate the rental value of the condo villas, the Hotel’s 25 challenge goes to the weight given Jenkins’ opinion, not its admissibility. 26 It is clear that both Keon and Jenkins’ reports will “logically advance[ ] a material 27 aspect of the [plaintiff’s] case,” Daubert v. Merrell Dow Pharms., Inc., 43 F.3d 1311, 1315 28 (9th Cir. 1995), and “will assist the trier of fact to understand the evidence or to determine -4- 1 a fact in issue.” Fed. R. Evid. 702. The motions to exclude the reports and opinions of 2 Robert Keon and Renee Jenkins are denied (doc. 129, 130). 3 III. Motion for Summary Judgment 4 A. Claim Preclusion 5 The Hotel argues that Conlon’s current claims are barred by the doctrine of claim 6 preclusion. When a final judgment is entered on the merits in a prior action involving the 7 same parties or their privies, a second action on matters that were actually decided or could 8 have been decided is barred. Hall v. Lalli, 194 Ariz. 54, 57, 977 P.2d 776, 779 (1999). In 9 evaluating the identity of parties, we must consider “the capacity in which [the parties] 10 appear.” Matusik v. Ariz. Pub. Serv. Co., 141 Ariz. 1, 3, 684 P.2d 882, 884 (Ct. App. 1984). 11 Where a party appears in one capacity, individually or as a representative, he is not bound 12 in a subsequent action in which he appears in another capacity. Restatement (Second) of 13 Judgments § 36(2) (1982). 14 Conlon I has no preclusive effect on the present action because there is no identity of 15 the parties. It is undisputed that Conlon brought Conlon I on its own behalf, not in its 16 representative capacity. See id. § 36(1) (a party appears in his individual capacity unless “it 17 is made evident that he appears in some other capacity”). Although Mark Finney began 18 soliciting agency agreements from villa owners while Conlon I was pending, no agency 19 agreement was executed until May 2007, almost a year after Conlon I was filed. Our Rule 20 16 scheduling order set March 31, 2007 as the deadline to amend the complaint and to join 21 additional parties. Had Conlon sought leave to amend to add the assignor villa owners after 22 this date, its motion would have likely been denied. 23 The assignor villa owners were not parties to Conlon I and there is no evidence that 24 they consented to be bound by it, as evidenced by the fact that they filed their own action 25 while Conlon I was pending. Due process dictates that these litigants have a right to now be 26 heard. Hall v. Lalli, 194 Ariz. at 57, 977 P.2d at 779. 27 28 -5- 1 B. Statute of Limitations 2 The Hotel also argues that Conlon’s claims are barred in part by the statute of 3 limitations. Conlon seeks damages for breach of contract and breach of the covenant of good 4 faith and fair dealing dating back to 1995. The statute of limitations for claims based on a 5 written contract is six years. A.R.S. § 12-548. Therefore, the six-year limitations period 6 applies to the breach of contract claim. 7 The Hotel contends, however, that Conlon’s breach of the covenant of good faith and 8 fair dealing claim is actually a claim sounding in tort and therefore the two-year statute of 9 limitations under A.R.S. § 12-542 is appropriate. We disagree. A breach of the covenant of 10 good faith and fair dealing arises in contract, unless “the contract creates a relationship in 11 which the law implies special duties not imposed on other contractual relationships.” 12 Rawlings v. Apodaca, 151 Ariz. 149, 158, 726 P.2d 565, 574 (1986). The Hotel’s claim that 13 a special relationship exists in the present case is without merit. 14 “noncommercial” component to the parties’ relationship arising out of the rental pool 15 agreements. See id. at 159, 726 P.2d at 575. Conlon’s claim for breach of the implied 16 covenant of good faith and fair dealing sounds in contract and the six-year statute of 17 limitations applies to this claim as well. There is no 18 The parties next dispute when the contract causes of action accrued. As a general 19 rule, a contract action accrues and the statute of limitations begins to run when the breach 20 occurred. Gust, Rosenfeld & Henderson v. Prudential Ins. Co., 182 Ariz. 586, 588, 898 P.2d 21 964, 966 (1995). A limited exception exists, however, “where circumstances prevent 22 [plaintiffs] from knowing they have been harmed.” Id. at 589, 989 P.2d at 967. In such a 23 case, the “discovery rule” provides that “a plaintiff’s cause of action does not accrue until the 24 plaintiff knows or, in the exercise of reasonable diligence, should know the facts underlying 25 the cause.” Id. at 588, 989 P.2d at 966. The relevant inquiry in determining whether to apply 26 the discovery rule is “whether the plaintiff’s injury or the conduct causing the injury is 27 difficult for plaintiff to detect.” Id. The discovery rule does not apply where a party fails to 28 -6- 1 “exercise[ ] reasonable diligence in monitoring the performance of another under the 2 contract.” Id. at 591, 898 P.2d at 969. 3 This is not the case where a defendant concealed facts from the plaintiff, or where the 4 plaintiff’s injury was undetectable even upon reasonable inquiry. Instead, this is a case 5 where the villa owners had a contractual right to review the Hotel’s rental pool books and 6 records, yet no villa owner sought to review those records until Conlon’s request in February 7 2004. This does not demonstrate the exercise of reasonable diligence required for application 8 of the discovery rule. 9 Conlon commenced this action on behalf of the assignor villa owners on February 26, 10 2008. Therefore, pursuant to Arizona’s six-year statute of limitations, Conlon’s breach of 11 contract claim and breach of the covenant of good faith and fair dealing claim are limited to 12 those breaches occurring after February 26, 2002. 13 C. Mitigation of Damages 14 On August 29, 2008, the Hotel issued refund checks to all rental pool participants, 15 including the assignor villa owners. The refund payments included credit card and travel 16 agent commission overcharges, revenue for complimentary use of villa rooms by Hotel 17 employees in excess of one week, and accrued interest. The Hotel informed the assignor 18 villa owners that if they had assigned their claims to Conlon, they could transfer their refund 19 to Conlon. Mr. Finney directed the assignor villa owners to return the refund checks to the 20 Hotel. Several of the villa owners nevertheless accepted the refund checks. The Hotel now 21 argues that Conlon’s damages should be reduced by the amount of the refund payments. 22 “[I]t is clear that when notice of an assignment is given to and received by the debtor 23 that the debtor becomes liable to pay the assignee and that its subsequent payment to the 24 original obligee-assignor does not relieve it of that liability.” Van Waters & Rogers, Inc. v. 25 Interchange Resources, Inc., 14 Ariz. App. 414, 417, 484 P.2d 26, 29 (Ct. App. 1971). It is 26 undisputed that the Hotel had notice of the assignments at least as early as August 1, 2008, 27 when the parties stipulated to the substitution of Conlon as the sole party plaintiff due to the 28 assignment agreements between the plaintiff villa owners and Conlon (doc. 8). Because the -7- 1 Hotel had notice of the assignment agreements, its payments to the assignor villa owners 2 does not relieve its liability to Conlon and will not serve to mitigate damages in this case. 3 IV. Conclusion 4 IT IS ORDERED DENYING the Hotel’s Daubert motion to exclude the report and 5 testimony of expert Robert Keon (doc. 129), and DENYING the Hotel’s Daubert motion to 6 exclude the report and testimony of expert Renee Jenkins (doc. 130). 7 IT IS FURTHER ORDERED GRANTING IN PART AND DENYING IN PART 8 the Hotel’s motion for summary judgment (doc. 132). The Hotel’s motion for summary 9 judgment is granted only to the extent it asserts that the statute of limitations bars claims 10 11 occurring before February 26, 2002. DATED this 27th day of July, 2009. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8-

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