NOT FOR PUBLICATION

UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.

MEMORANDUM DECISION

THOMPSON, Judge.

¶1 Ross Dress for Less, Inc. (Ross) appeals from the trial court's summary judgment ruling in favor of its landlord Westfest, Inc., finding that its lease did not permit Ross to forgo paying rent when it closed its store during a period of reduced occupancy in the shopping center. Westfest cross-appeals the court's summary judgment ruling that its termination of Ross's lease was not justified. Ross further challenges the court's award of attorneys' fees to Westfest. For the following reasons, we affirm the determination that Ross was required to pay rent while its store was closed, reverse the ruling that Westfest could not terminate the lease, and affirm the attorneys' fee award. Because our decision requires the application of a different interest rate to the late payments than was applied by the superior court, we remand for re-calculation of interest owed by Ross.

FACTUAL AND PROCEDURAL HISTORY

¶2 In October 1997, Ross entered a commercial lease with Westfest, whereby Ross would occupy certain space in a shopping center in exchange for monthly rent. The lease sets forth a Minimum Rent per square foot. The lease also requires Westfest to maintain a certain mix of retail tenants in the shopping center, such that if a major cotenant left and was not replaced, the lease entered a "Reduced Occupancy Period." Section 7.2(b) of the lease provides:

Section 8.1(a) specified a percentage rate of 2 percent.

¶3 Section 9.2 sets forth that Ross could decide to cease operations if it chose to do so, stating:

¶4 The "Disputed Sums" clause, Section 37.17, further provided a procedure to address disputes over charges:

¶5 A Reduced Occupancy Period was in effect in 2010 when Ross decided to change its retail concept from a Ross Dress for Less to a dd's Discounts Store. Ross closed the store from September 30, 2010, to February 26, 2011, while it remodeled the premises. During the time the store was closed, Ross paid no rent, but did pay its share of common area charges, taxes, and expenses. Ross claimed that, because a Reduced Occupancy Period was in effect, Section 7.2(b) permitted it to pay the lesser of the Minimum Rent or 2 percent of gross sales. Ross contended that it owed no rent while the store was closed because gross sales were zero as a result of the closure.

¶6 Westfest sent a notice of default to Ross on November 16, 2010. The letter asserted that the alternative of paying a percentage of gross sales was not available because Ross had closed the store. Westfest advised that failure to pay the minimum rent owed within ten days would be a default under the lease. Ross responded that it was not in default, insisting that it owed no rent because the lease allowed it to pay the lesser of Minimum Rent or a percentage of gross sales, and because there had been no sales, no rent was due. On December 3, 2010, Westfest affirmed that the lease was in default, but offered to negotiate to resolve their differences. Ross did not respond. Westfest sent two additional letters, one on March 7, 2011, and another on April 14, 2011, offering to discuss settlement options. Ross did not respond.

¶7 On July 22, 2011, Westfest sent a Default Notice to Ross, stating that it was "reinstating the default notice" of November 16, 2011, and declaring that Ross was in default for nonpayment of rent of $85,719.19. The letter declared that the lease would be terminated if the rent was not paid within ten days. Ross denied it was in default, and again asserted it owed no rent because of the Reduced Occupancy Period and its closure resulting in zero gross sales. Westfest then sent a "Notice of Termination of Lease" to Ross on August 30, 2011. The letter declared that the lease was terminated, but authorized Ross to continue to occupy the premises if it paid the amounts owed and abided by its other obligations under the lease on a month-to-month basis. Ross sent a letter to Westfest denying that the lease had been terminated, accusing Westfest of breaching the lease, and invoking Section 37.17, the Disputed Sums clause, in the event Westfest continued to insist on payment of Minimum Rent.

¶8 On September 28, 2011, Ross filed suit against Westfest for a declaratory judgment that it owed zero rent, breach of contract, and a preliminary and permanent injunction precluding Westfest from terminating the lease. Westfest answered and filed a counterclaim seeking payment of the unpaid rent. Ross deposited with the court the disputed principal sum of $85,719.19 plus interest for a total amount of $89,290.82.

¶9 Ross filed a motion for summary judgment, arguing that under Section 7.2(b) of the lease, read in conjunction with Section 9.2, it was not required to pay rent during the Reduced Occupancy Period when the store was closed for remodeling because the lease permitted it to pay the lesser of the Minimum Rent or 2 percent of gross sales and it had zero gross sales. Ross argued that under the Disputed Sums clause, it could dispute the sums Westfest claimed were owed without breaching the lease, and that Westfest's termination of the lease therefore violated the Disputed Funds clause and constituted a material breach.

¶10 Westfest responded and filed a cross-motion for summary judgment. Westfest argued that implicit in an option to pay a percentage of gross sales was a requirement that Ross be open for business. It contended that interpreting the lease as Ross advocated led to the absurd result that Ross was permitted to occupy the premises indefinitely without paying rent. Westfest argued that the Disputed Sums clause applied to charges, not to rent, and that Ross never sent written notice that it was invoking the provision. Westfest noted that in a prior dispute over rent, Ross had not invoked the Disputed Sums clause. Westfest asserted that it had carefully followed the lease requirements regarding notifying Ross of its default and that even if Westfest had somehow breached the lease, Ross had not shown damages.

¶11 The court ruled that Ross was entitled to assert the Disputed Sums clause without breaching the lease, that its interpretation of the lease regarding its obligation to pay rent was unreasonable, but made in good faith, and that it was required to pay minimum rent during the disputed period. The court also found that Westfest was unreasonable in terminating the lease during a good faith dispute over the rent and could not terminate the lease. The court granted summary judgment to Ross on its claim regarding the lease termination, granted judgment to Westfest regarding payment of the unpaid rent, and ordered that the $89,290.82 deposited with the court be released to Westfest. The court later explained,

¶12 Westfest filed a Motion for Determination of Additional Damages, asserting that it was entitled to a late penalty of 4 percent on the principal amount of $85,719.19 and interest at 10 percent from November 27, 2010 through January 11, 2012, pursuant to Section 37.1:

Ross argued that the 4 percent penalty in Section 37.1 was an unenforceable penalty, and that the interest rate of the Disputed Sums clause—the "prime rate of interest as quoted in the Wall Street Journal on the date the dispute was first claimed in writing"—should apply. Ross asserted that the applicable rate was therefore 3.25 percent.

¶13 The court initially awarded Westfest interest at 10 percent, but after a motion to reconsider filed by Ross, the court found:

¶14 Westfest and Ross filed competing applications for attorneys' fees, with Westfest seeking an award of $73,719, and Ross seeking fees of $56,298. The court found that Westfest was the prevailing party and that $65,000 was a reasonable fee "taking into account that Ross Dress for Less, Inc. was partially successful in that the Court found that the Disputed Sums Clause applied."

¶15 The court entered judgment on the rent issue in favor of Westfest, ordering that the $89,290.82 deposited into the court be released to Westfest, awarding Westfest additional damages of $2,980 in interest at 3.25 percent and $2,306.18 in sales tax at 2.6 percent, and ordering post-judgment interest to continue to accrue on the outstanding balance at 3.25 percent. The court granted judgment on the issue of lease termination to Ross.

¶16 Ross filed a timely appeal; Westfest filed a timely cross-appeal. We have jurisdiction pursuant to Arizona Revised Statutes (A.R.S.) section 12-2101(A)(1) (Supp. 2012).

DISCUSSION

¶17 Summary judgment may be granted when "there is no genuine issue as to any material fact and [] the moving party is entitled to judgment as a matter of law." Ariz. R. Civ. P. 56(c). In reviewing a motion for summary judgment, we determine de novo whether any genuine issues of material fact exist and whether the trial court properly applied the law. Eller Media Co. v. City of Tucson, 198 Ariz. 127, 130, ¶ 4, 7 P.3d 136, 139 (App. 2000).

¶18 Issues pertaining to contract interpretation present questions of law, which we review de novo. Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12, 69 P.3d 7, 11 (2003). We interpret a contract to make it effective and reasonable, giving its words their ordinary meaning and construing its provisions from the language of the parties in view of all the circumstances. County of La Paz v. Yakima Compost Co., 224 Ariz. 590, 599, ¶ 16, 233 P.3d 1169, 1178 (App. 2010). We give preference to an interpretation that gives "a reasonable meaning to the manifested intent of the parties rather than an interpretation that would render the contract unreasonable." Bryceland v. Northey, 160 Ariz. 213, 216, 772 P.2d 36, 39 (App. 1989) (citation omitted).

I. Ross's Rent Obligation

¶19 Ross first takes issue with the trial court's statement at oral argument finding that Ross was required to pay minimum rent during a period of reduced occupancy and contends that the court appears to have confused Sections 7.2(b)(ii) and Section 8.1(a), and in doing so appears to have ignored the "lesser of" language of Section 7.2. Under Section 7.2(b) of the lease, Ross's rent obligation during a Reduced Occupancy Period is "to pay . . . the lesser of" Minimum Rent or 2 percent of gross sales. Ross argues that this provision in conjunction with Section 9.2, which allowed Ross to cease operations at its own discretion, permitted Ross to close its store and pay no rent during that closure because its gross sales were zero. We disagree.

¶20 Section 7.2 does not contemplate or authorize nonpayment of rent. It imposes an obligation "to pay" the lesser amount of two means of calculating the rent owed, which necessarily suggests the existence of such amounts for a comparison. Similarly, the very employment of a percentage of gross sales as a calculation of rent implies that such sales are being generated.

¶21 Where rent is based on a percentage of sales, Arizona recognizes an obligation on the part of the lessee to act in good faith to ensure that the contemplated sales will be produced such that the lessor is adequately compensated for the lessee's use of the property. Walgreen Arizona Drug Co. v. Plaza Ctr. Corp., 132 Ariz. 512, 516, 647 P.2d 643, 647 (App. 1982). The right or ability to pay a percentage of sales as rent is therefore necessarily related to the generation of sales. Ross, consequently, has an obligation to act in good faith to maintain retail business operations if it bases its rent on a percentage of those sales. See Rawlings v. Apodaca, 151 Ariz. 149, 153, 726 P.2d 565, 569 (1986) (the law implies a covenant of good faith and fair dealing in every contract that "neither party will act to impair the right of the other to receive the benefits which flow from their agreement or contractual relationship").

¶22 It is true that under Section 9.2, Ross is under no obligation to operate its store. However, it does not follow, as Ross suggests, that it can stop retail operations, thereby eliminating gross sales, and still assert the right to base its rent on a percentage of the gross sales that are nonexistent because of Ross's unilateral business decision. Such a course would be tantamount to permitting Ross to unilaterally decide to stop paying rent. See Camelback Land & Inv. Co. v. Phoenix Entm't Corp., 2 Ariz.App. 250, 253, 407 P.2d 791, 794 (1965) (lessee generally cannot unilaterally terminate its obligation to pay the agreed rent). The lessor is entitled to compensation for the use of its property. Walgreen, 132 Ariz. at 516, 647 P.2d at 647.

¶23 The language of Section 9.2 is consistent with Westfest's contention that the provision permits Ross to pay less than Minimum Rent if sales decrease because of the landlord's failure to meet the cotenancy requirement. Ross's gross sales here, however, have not been eliminated because of the reduced occupancy caused by Westfest, but by a unilateral decision by Ross. An interpretation that the tenant should be entitled to employ this provision to pay nothing when the decrease in or elimination of gross sales is not a consequence of the landlord's failure but a choice made by the tenant, is not compelled by the language of the lease and "would render the contract unreasonable." Bryceland, 160 Ariz. at 216, 772 P.2d at 39.

¶24 We affirm the trial court's determination that Ross cannot pay as rent two percent of nonexistent gross sales and must therefore pay minimum rent.

II. Disputed Sums Clause

¶25 Westfest challenges the trial court's ruling that it could not terminate the lease for Ross's failure to pay rent, and argues that the Disputed Sums clause applies only to the "numerous charges [that] are and may be due from the Tenant to the Landlord and vice versa, including without limitation, taxes, Common Area Charges, insurance reimbursement and other items" that are "estimated monthly impound charges that are [] reconciled at year end." Ross counters that the Disputed Sums clause applies to rent, noting that the charges are identified "without limitation," and under Section 7.1, "Rent" or "Rental" includes "all Minimum Rent, Percentage Rent, and other charges which may be due from Tenant to Landlord."

¶26 Considering the language of Section 37.17, we note that neither Minimum Rent nor Percentage Rent is listed as being included within the provision. We do not find the "including without limitation" language on which Ross relies as sufficient to incorporate rent into the clause. Such a phrase would typically be used to encompass those items that the drafter could not foresee might be the subject of a dispute to which the provision should apply. Rent, however, is a significant if not the primary obligation of the tenant to the landlord. The types of charges listed in Section 37.17 are those where a dispute could arise as to how much is owed, either from the tenant to the landlord or "vice versa," such as insurance reimbursement and taxes.

¶27 In contrast, rent would only be Minimum Rent or Percentage Rent under the contract and would not be the subject of a dispute about the amount owing. Westfest argues, and we agree, that applying the disputed sums clause in this case would negate other provisions in the lease, including the notice of default provision and termination of the lease when a default is not cured. See Tenet Healthsystem TGH, Inc. v. Silver, 203 Ariz. 217, 221, ¶ 11, 52 P.3d 786, 790 (App. 2002) (a court must construe a contract so as to give effect to all its parts). We conclude that rent does not constitute a charge under Section 37.17.

¶28 The trial court found that Ross's interpretation of the lease, though unreasonable, was made in good faith, and that Westfest was unreasonable in terminating the lease during a good faith dispute over the rent. Westfest argues that acting in good faith is no defense to breach of contract. Ross contends that the court was finding that it had raised a bona fide, good faith dispute under the Disputed Sums provision, rather than providing an independent basis for its decision. Ross does not dispute that acting in good faith is not a defense to breach of contract.

¶29 To the extent that the trial court may have recognized a good faith defense to Westfest's breach of contract claim, that was error. An erroneous good faith belief in one's position is no defense to a breach of contract claim. Snow v. W. Sav. & Loan Ass'n, 152 Ariz. 27, 33, 730 P.2d 204, 210 (1987). The consequences of a dispute over a contract should be borne by the mistaken party even where that party acts in good faith. Id.

¶30 Because we have concluded that the Disputed Sums provision does not apply and have affirmed the trial court's determination that Ross was required to pay minimum rent during the period the store was closed, we find that Westfest's termination of the lease was not unjustified and reverse the court's ruling in favor of Ross on Ross's claim for breach of contract related to the lease termination.1 Our finding that the Disputed Sums provision does not apply means that the interest rate under that provision, applied by the trial court, also does not apply.

III. Late Payment Provision

¶31 Westfest contends that the Late Payment provision of the lease, Section 37.1, applies to impose a ten percent annual interest rate to the late payments. Ross does not dispute that the ten percent rate applies if the Disputed Sums clause is inapplicable.

¶32 Westfest also asserts that the trial court erred in not imposing the 4 percent late penalty under Section 37.1. That section provides that upon receiving a third notice of failure to pay within a twelve month period, "a late penalty of four percent (4%) of the amount due shall be payable to Landlord without the prerequisite of notice from Landlord." Ross argued in the trial court and argues on appeal that the late payment penalty is an unenforceable penalty. The court found, without explanation, that the late payment penalty did not apply.

¶33 The objective of contract remedies is compensation, not punishment. Pima Sav. & Loan Ass'n v. Rampello, 168 Ariz. 297, 299, 812 P.2d 1115, 1117 (App. 1991). In Arizona, an agreement for damages made in advance of a breach is an unenforceable penalty unless "the amount fixed in the contract [is] a reasonable forecast of just compensation for the harm that is caused by the breach" and the harm is difficult or incapable of being accurately estimated. Larson-Hegstrom & Assoc., Inc. v. Jeffries, 145 Ariz. 329, 333, 701 P.2d 587, 591 (App. 1985). The facts and circumstances of the individual case determine whether these conditions are satisfied. Id. The anticipated harm is determined as of the time of the making of the contract. Rampello, 168 Ariz. at 300, 812 P.2d at 1118.

¶34 Westfest argues that a fixed 4 percent late fee is reasonable and so is not an unenforceable penalty. Westfest does not identify, however, what harm the late penalty is intended to compensate or explain how 4 percent of the amount due constitutes a reasonable forecast of the harm caused by the untimely payments. Because Section 37.1 already provides for 10 percent interest on late payments, the 4 percent penalty must be intended to compensate for something other than the loss of the use of the funds. Yet, Westfest does not contend that the late penalty payment is designed to compensate, for example, administrative costs or collection costs associated with the late payments. Instead, Westfest explains that the late penalty is a tool to encourage timely payments. In the absence of any evidence or argument that the 4 percent late penalty is a reasonable forecast of compensation for some harm caused by the untimely payments, we conclude that it constitutes an unenforceable penalty and is inapplicable here.

IV. Attorneys' Fees

¶35 Ross also challenges the superior court's decision to award attorneys' fees to Westfest. Ross argues that it, not Westfest, was the prevailing party and that the amount awarded by the court was not reasonable. The determination of the reasonable amount of fees is within the trial court's discretion. Woliansky v. Miller, 146 Ariz. 170, 172, 704 P.2d 811, 813 (App. 1985). We will not disturb the trial court's decision if there is any reasonable basis for the amount awarded. ABC Supply, Inc. v. Edwards, 191 Ariz. 48, 52, 952 P.2d 286, 290 (App. 1997). We will not substitute our judgment for that of the superior court. Radkowsky v. Provident Life & Acc. Ins. Co., 196 Ariz. 110, 113, ¶ 18, 993 P.2d 1074, 1077 (1999).

¶36 Section 27.2 of the lease provides that the prevailing party in an action arising out of the lease "shall be entitled" to recover "reasonable attorneys' fees, costs of suit, investigation costs and discovery costs, including costs of appeal." We enforce a contractual provision authorizing an award of attorneys' fees according to its terms. F.D.I.C. v. Adams, 187 Ariz. 585, 595, 931 P.2d 1095, 1105 (App. 1996).

¶37 The superior court awarded Westfest $65,000 of its requested $73,719 in attorneys' fees as well as $625 in costs. The court found the amount awarded to be "a reasonable fee for the work performed" taking into account that Ross was partially successful.

¶38 Ross first disputes the court's finding that Westfest was the prevailing party. Because we have affirmed the court's ruling in favor of Westfest that Ross was required to pay rent while it had ceased operations, and because we have reversed the court's ruling in favor of Ross regarding the Disputed Sums clause, any question that may have existed as to the identity of the prevailing party is resolved in favor of Westfest. Westfest is now the successful party on all matters except the imposition of the late penalty fee.

¶39 Ross also asserts that Westfest engaged in improper "block billing." Block billing is a discredited practice in which an attorney records multiple tasks in one entry, making it difficult to determine the reasonableness of the tasks and the time expended. See In re Guardianship of Sleeth, 226 Ariz. 171, 178, ¶ 34, 244 P.3d 1169, 1176 (App. 2010) (citations omitted).

¶40 Having reviewed the challenged block billing entries, we cannot conclude that they warrant exclusion. Although the entries list multiple tasks in a group, for many of those groups the time spent on the individual tasks is in fact noted. In addition, the time expended for the multiple tasks does not appear unreasonable. The court was within its discretion to take these charges into account.

¶41 Ross contends that Westfest's attorneys billed excessive hours and inappropriately staffed the case. Ross specifically objects to two partners spending 13.3 hours chronologically organizing the case file. Even if Westfest could have staffed the case more efficiently, we cannot say the tasks or time expended were unreasonable such that the court abused its discretion in its fee award on this basis.2 "Unlike fees awarded under A.R.S. § 12-341.01(A), the court lacks discretion to refuse to award fees under [a] contractual provision." Chase Bank of Ariz. v. Acosta, 179 Ariz. 563, 575, 880 P.2d 1109, 1121 (App. 1994). Where "parties have provided in the contract the conditions under which attorney's fees may be recovered, A.R.S. § 12-341.01 is not to be considered." Connor v. Cal-Az Properties, Inc., 137 Ariz. 53, 55, 668 P.2d 896, 898 (App. 1983) (quotation omitted). The Associated Indemnity factors relied on by Ross are similarly inapplicable. See Associated Indemnity Corporation v. Warner, 143 Ariz. 567, 570, 694 P.2d 1181, 1184 (1985). We find no abuse of discretion in the superior court's award of attorneys' fees.

¶42 Westfest seeks an award of attorneys' fees on appeal. Pursuant to Section 27.2 of the lease, Westfest is entitled to an award of reasonable fees. We therefore grant the request upon Westfest's compliance with Rule 21(a), Arizona Rules of Civil Appellate Procedure.

CONCLUSION

¶43 We affirm the superior court's decision finding that Ross was required to pay rent to Westfest during the period that it closed its store. We reverse the superior court's ruling that the Disputed Sums clause applied to preclude Westfest from terminating the lease. Because the Disputed Sums clause does not apply, the interest rate applied by the superior court pursuant to that provision no longer applies to the late payments; pursuant to Section 37.1, an interest rate of 10 percent per year applies. We further find that the 4 percent late penalty under Section 37.1 is inapplicable as an unenforceable penalty. We remand to the superior court for a re-calculation of interest owed by Ross.