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Pinnacle Fitness and Recreation Management, LLC, A Delaware Limited Liability Company v. the Jerry and Vickie Moyes Family Trust

January 4, 2012


The opinion of the court was delivered by: Hon. Anthony J. Battaglia U.S. District Judge



Currently before the Court are three motions: (1) the motion for summary judgment filed by the the Jerry and Vickie Moyes Family Trust (hereinafter the "Trust"); (2) the motion for partial summary judgment filed by Pinnacle Fitness and Recreation Management, LLC (hereinafter the "Pinnacle"); and (3) the motion for judgment on the pleadings filed by Pinnacle. The hearing for these motions set for January 6, 2012 is hereby vacated as the Court finds these motions appropriate for submission on the papers without oral argument pursuant to Civil Local Rule 7.1.d.1. For the reasons set forth below, the Court rules as follows on the pending motions: the Trust' Motion for Summary Judgment, [Doc. No 169], is GRANTED IN PART and DENIED IN PART; Pinnacle's Partial Motion for Summary Judgment, [Doc. No. 170], and Motion for Judgment on the Pleadings, [Doc. No. 171], are GRANTED as set forth below.


1. Parties and Non-Parties

The Plaintiff, Pinnacle, is a Delaware LLC with its principal place of business in Illinois. Compl., Doc. No. 149, ¶ 1. Pinnacle's sole member is Marsha Forsythe-Fournier, a citizen of Illinois.

. Defendant, the Trust, is an Arizona trust owned by the Jerry and Vickie Moyes family, citizens of Arizona that own various businesses in the transportation, entertainment, and real estate development industries and this collection of businesses are referred to as the "Moyes Group." Id. at ¶ 2.

Non-party MFC Investments, LLC (hereinafter "MFC"), is a Nevada LLC jointly formed by Pinnacle and the Trust as a 50-50 joint venture for the purpose of loaning money to, and managing the health club operations of a separate non-party Xeptor, LLC ("Xeptor"), an entity which owned and operated 22 health clubs in Arizona.

Non-party Deer Valley Capital, LLC (hereinafter "Deer Valley") is a part of the Moyes Group, and is an Alaska LLC with its principal place of business in Arizona. Deer Valley is the Trust's designated Manager under the LLC Operating Agreement for non-party, MFC.

Non-party Carefree Capital Investments, LLC ("Carefree"), is a Nevada LLC with its principal place of business in Arizona. Carefree's sole member is the Trust. Compl. ¶ 4.

2. Procedural Background

On July 29, 2008, Pinnacle filed a complaint against the Trust, Deer Valley, and Carefree .*fn1 [Doc. No. 1.] On April 25, 2011, Pinnacle filed a First Amended Complaint (hereinafter"FAC"), [Doc. No. 149], naming only the Trust.

In this action, Pinnacle seeks: (i) a judicial declaration that Pinnacle and the Trust entered into a valid and enforceable Buy-Out Agreement whereby the Trust agreed to purchase Pinnacle's entire 50% interest in MFC; (ii) judicial enforcement of the Buy-Out Agreement; (iii) immediate payment to Pinnacle of all of the consideration due to Pinnacle under the Buy-Out Agreement; and (iv) compensatory and punitive damages for the Trust's alleged fraudulent conduct in connection with MFC and Xeptor.

The Trust in turn has asserted five counterclaims*fn2 against Pinnacle in this case and seeks damages in the amount of approximately $14.7 million.*fn3 The Trust's alleged damages are broken into three categories: Operation Damages,*fn4 Lease Damages,*fn5 and Lost Incentive Fees. Id.

3. Factual Background

The following description is taken from the parties' pleadings and is not to be construed as findings of fact by the Court.

During the summer of 2007, Pinnacle and the Trust organized MFC for the purpose of providing capital to Xeptor, which owned Arizona fitness and health clubs in financial trouble.*fn6 Compl., Doc. No. 169, ¶ 13. In October 2007, Pinnacle and the Trust executed MFC's Operating Agreement ("Operating Agreement"), which was made effective August 6, 2007. Id. ¶ 14. The Operating Agreement provides that Pinnacle and the Trust own MFC 50/50 and are jointly responsible for managing Xeptor's business affairs. Id. The Operating Agreement also contains a forum selection clause ("FSC"), which states:

Any initiation of legal proceedings arising out of, related to, or in connection with the interpretation of enforceability of the [Operating] Agreement or rights or remedies under the Act shall be brought in a U.S. District Court located in San Diego, California. (Operating Agreement. § 20.18.)

In October 2007, MFC and Xeptor also entered into a Second Amended and Restated Management, Loan and Standstill Agreement (the "MSA") effective as of August 6, 2007, pursuant to which MFC agreed to, among other things, manage the business of Xeptor and advance funds to Xeptor to run the fitness clubs through January 10, 2008, with the potential for MFC to acquire the assets of Xeptor. Thereafter, Xeptor and its members executed promissory notes with MFC, in the amount of $5.5 million, which Xeptor and its members promised to repay.

Sometime after the Operating Agreement was executed, the relationship between Pinnacle and the Trust began to deteriorate. Compl., Doc. No. 149, ¶ 18--22. By late February 2008, MFC had invested millions of dollars into the operation of the gyms, yet the gyms continued to lose money. MFC's members had not successfully negotiated a resolution to any of the pending litigation. Pinnacle was negotiating with MH Holdings, the equipment lessor, and was attempting to resolve that litigation by selling MFC's interest to MH Holdings. [Trust's MSJ, Doc. No. 169, Ex 21, 22, 24.] The Trust was negotiating with Greenstreet regarding Xeptor's leases for the gyms. Greenstreet offered forgiveness of past due rent with the requirement that Xeptor vacate the premises or MFC sign new leases within 30 days. Adding to the mounting pressure was Greenstreet's deadline to accept the settlement by March 3, 2008. [Id., Ex 26; Ex. 2 at 87:12-88:19.]

The Trust contends that Pinnacle hoped to avoid settling with Greenstreet and delayed its consent in the hopes that MH Holdings would buy MFC's interest. [Trust's MSJ, Exs. 21, 22, 23, 24, 25, 27, 27A.] The Trust alleges that Pinnacle presented the Trust with a Consent Resolution two hours before the deadline to sign the Greenstreet settlement agreement, establishing a new management structure and directing MFC to sign new leases. [Id., Ex. 28.] To avoid the loss of the gyms altogether, the Trust "yielded" and agreed to the Consent Resolution. [Id., Ex. 29, 30 and 2 at 56:5-57:3.] That same day, Xeptor and Greenstreet entered into the settlement agreement. [Id., Ex. 31 and 33.] Greenstreet accepted the settlement agreement on March 6, 2008, and the deadline to sign new leases fell on April 6, 2008, a Sunday. [Id., Ex. 33.] The parties treated the deadline to sign new leases as Monday, April 7, 2008. [Id., Ex. 11 at 87:21-90:6; Ex. 49 at P10453-54; Ex. 46.]

The Trust contends that despite the Consent Resolution containing Pinnacle's commitment to sign new leases, along with a guaranty, Pinnacle continued to threaten liquidation of MFC in an effort to gain leverage in ongoing buyout negotiations between Pinnacle and the Trust. [Trust's MSJ, Ex. 2 at 15:19-16:18; 37:1-38:12; 66:1-15; Ex. 1 at 307:16-309:3, 362:14-363:2; Ex. 42.] On March 24, 2008, Mr. Shumway, the Trust's designated representative, offered to sell the Trust's interest in MFC to Pinnacle, or, in the alternative, for Pinnacle to sell its interest to the Trust. [Id., Ex. 41.] Pinnacle pursued a sale of its interest in MFC to the Trust and negotiations followed. [Id., Ex. 1 at 327:7-328:8; Ex. 42; Ex. 9 at 179:16-180:8; Ex. 45.]

The Trust contends that by April 7, 2008, the last day MFC could sign new leases,*fn7 the parties "hit a brick wall" in their negotiations. [Ex. 49 at P0010452.] Pinnacle had not yet executed the leases and without the leases there would be nothing to buy out as Xeptor would be forced to vacate and shut down the gyms. [Ex. 1 at 75:1-3, 362:14-363:2; Ex. 11 at 89:22-90:6.] The Buy-Out negotiations continued into the evening of April 7, 2008. [Ex. 49 at P0010449-50.] With no word from Ms. Fournier for three hours, Mr. Shumway went to bed assuming that the negotiations had failed and that MFC had lost the opportunity to sign new leases. [Id.; Ex. 2 at 111:14-19, 113:18-114:3.] Pinnacle disputes this citing other email sent by Shumway afterward.

The next day, on April 8, Mr. Shumway discovered that Ms. Fournier had sent an email at 12:01 a.m. on April 8 (10:01 p.m. on April 7 in Arizona), stating: "I vote 'yes' on MFC signing the leases on the condition that Mr. Moyes has agreed in principle to purchase my 50% interest in MFC on the following terms." [Id., Ex. 1 at 363:3-15; Ex. 49 at P0010448.] The "I vote yes" email listed five terms, including a personal guaranty from Mr. Moyes and according to the Trust, at least one material alteration to Mr. Shumway's stated terms,*fn8 and Pinnacle's conditional vote to sign the Greenstreet leases. [Ex. 1 at 363:3-365:14; Ex. 49 at P0010448.] After reviewing the "I vote yes" email on the morning of April 8, Mr. Shumway emailed Ms. Fournier: "Marsha I will summarize our agreement and make sure we are agreed on all issues." [Id., Ex. 1 at 369:21-371:13; Ex. 49 at P0010446-47.]

The Trust alleges that Ms. Fournier's conditional vote to sign leases was "too little, too late," because on April 10, 2008, counsel for Greenstreet declared that "MFC no longer has any right, and my clients have no obligation, to enter into the 2008 Leases or the related agreements." [Id., Ex. 11 at 88:20-90:6, 90:9-92:5; Ex. 52.] Greenstreet sent a letter to MFC's counsel, Bob Shely, on April 10, 2008 claiming the deadline had passed for MFC to sign the leases. Pinnacle contends that Greenstreet had already extended the deadline to April 9th, and had agreed to sign leases with Deer Valley and incentive agreements with Moyes on April 8, 2008. Pinnacle contends that Greenstreet's April 10 letter was simply an act aimed at protecting itself from liability from MFC.

Alternatively, the Trust contends that Greenstreet ended its relationship with MFC, because it no longer wished to do business with Pinnacle or Ms. Fourner. [Id., Ex 11 at 84:21-86:14, 88:7-92:5, 94:14-95:1; Ex 12 at 80:13-81:4; Ex. 18.] However, Greenstreet did offer to execute the leases with Deer Valley, an entity affiliated with the Trust, which the Trust had designated as Manager of MFC. ., Ex 11 at 92:23-97:24.] When Ms. Fournier learned that Greenstreet was contemplating leases with an entity other than MFC, she emailed Mr. Shumway to protest: "Until we have a binding agreement the leases need to stay in MFC's name .." [Id., Ex 50 at JM0000847.]

Nevertheless, Mr. Shumway executed leases with Greenstreet in the name of MFC's Manager, Deer Valley Capital, LLC. on April 10, 2008, which the Trust contends was consistent with the Consent Resolution and the parties' prior expressed intent to have an affiliate enter into the leases to operate the *fn9 [Ex 30 at 2; Ex 2 at 141:3-25; Ex 1 at 239:12-242:5; Ex. 19 at P003447.] Mr. Shumway advised Ms. Fournier of Deer Valley's execution of the leases and again offered to buy out Pinnacle's interest on essentially the same terms originally offered, which would have repaid the entire amount of Pinnacle's investment out of profits from continued operations, however, Ms. Fournier rejected the Trust's offer and allegedly in contradiction to Ms. Fournier's previous email, claimed for the first time that the parties had already entered into a buyout agreement. [Id., Exs. 53, 54.]

Alternatively, Pinnacle alleges that it engaged in negotiations and reached an agreement with Shumway and the Trust in a 'summary' email sent by Fournier on April 7, 2008, (the "Buy-Out Agreement"), that the Trust would purchase Pinnacle's 50% interest in MFC.*fn10 Id. ¶ 28. Pinnacle contends that prior to the time Fournier sent the foregoing emails, Shumway had already agreed to each and every one of the terms.*fn11 [Trust's MSJ, Ex. 1 and 1-A.]

Pinnacle states that Fournier further clarified in two follow-up emails that the $504,077 was Pinnacle's half of the bond money and that Moyes had agreed to personally guarantee item number 3.

., Ex.14 at 847-848.] Pinnacle contends that Shumways' communications after the parties' email exchanges regarding the Buy-Out Agreement indicate that Shumway and the Trust believed that a BuyOut Agreement had been reached, as he stated "it is my understanding that we have a deal." [Id., Ex.

After the Buy-Out Agreement was allegedly reached, Pinnacle claims that the Trust and entities under its control, including Deer Valley and Carefree, seized control of MFC and its assets in a manner at odds with the fiduciary and contractual duties owed to Pinnacle under the Operating Agreement. Id. ¶ 7. Pinnacle also alleges that the Trust unlawfully conspired with Deer Valley and Carefree to commit other unlawful acts. Id. ¶ 8.


Currently before the Court are three motions: (1) the motion for summary judgment filed by the Trust, [Doc. No. 169]; (2) the motion for partial summary judgment filed by Pinnacle, [Doc. No. 170]; and (3) the motion for ...

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