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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
MEMORANDUM DECISION
Judge Andrew W. Gould delivered the decision of the Court, in which
Presiding Judge Randall M. Howe and Judge Peter B. Swann joined.
G O U L D, Judge:
1
TSI/Alanco appeals from the trial courts decision finding
TSI/Alanco in breach of warranty and awarding damages and attorneys
fees. For the following reasons we affirm in part, vacate in part, and
remand.
FACTUAL AND PROCEDURAL BACKGROUND
2
Alanco owned TSI Prism, a business that manufactured and
marketed RFID systems designed to monitor persons confined in prisons
and jails. On August 11, 2010, Black Creek executed a purchase contract for
substantially all the assets of Alanco and TSI Prism. The sale was governed
by an Asset Purchase Agreement (APA).
3
According to the APA, the parties agreed on a purchase price
of $2,000,000.00 subject to adjustment if the inventory at the closing date
differed from the inventory taken on May 31, 2010. The APA provided that
TSI/Alanco would prepare an inventory schedule on the closing date using
the same principles, policies and practices that had been used to prepare
the May 31 inventory schedule. Any changes in the inventory would be
reflected dollar for dollar in the purchase price adjustment. Black Creek
would have an opportunity to object to the inventory amount in the closing
inventory schedule. If Black Creek and TSI/Alanco could not resolve the
issues outstanding with respect to the [closing inventory schedule] the
parties agreed the issues remaining in dispute would be submitted to
independent public accountants for resolution applying the principles,
policies and practices that had been used to prepare the May 31 inventory
schedule.
4
Following the closing on August 11, 2010, Black Creek
objected to the inventory schedule on the basis that some of the inventory
included in the closing inventory schedule breached the APA warranty.
Specifically, Black Creek asserted that some of the inventory was not, as
required by the warranty, of a quality and quantity usable and saleable in
Alancos Guaranty
19
Alanco argues on appeal that the court erred in concluding
that it was contractually bound to guaranty TSI against Black Creeks
breach of warranty claim. The indemnity provision in the contract is
extremely broad. Under Article 11, TSI is obligated to indemnify Black
Creek against any claim, liability, expense, loss or other damage in respect
of . . . any breach of any representation or warranty contained in [the APA].
In addition, Alanco unconditionally guaranteed each and every obligation
of [TSI] under Article 11 of the APA.
Attorneys Fees
21
Because we vacate the courts damages award, we must also
vacate the trial courts award of fees and costs to Black Creek. Section 19 of
the APA directs the court to award reasonable attorneys fees to the
prevailing party in an action to enforce the provisions of the APA. Based
on our decision in this case, the determination of which party has prevailed
is premature. Upon final resolution of the parties claims pursuant to the
terms of the APA, the parties may then seek to have the court determine
which party has prevailed for the purpose of awarding fees.
22
TSI/Alanco has prevailed on the majority of issues on appeal.
We therefore grant the request for attorneys fees on appeal subject to
compliance with ARCAP 21. We also award TSI/Alanco its costs on appeal.
CONCLUSION
23
We affirm the courts conclusion that the AeroScout inventory
breached the APAs warranty; however, we vacate the courts damages
award and remand to the trial court to direct the parties to submit this
dispute to the independent public accountants pursuant to 3.2 of the APA.
The trial courts attorneys fee award is also vacated. TSI/Alanco are
entitled to an award of fees on appeal upon compliance with ARCAP 21.
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