Judge Gates ruling on 668 NORTH for demolishing Chinese Cultural Center on NOv 1

Chris DeRose, Clerk of Court *** Electronically Filed *** 11/05/2018 8:00 AM

SUPERIOR COURT OF ARIZONA MARICOPA COUNTY CV 2017-012173

11/01/2018

CLERK OF THE COURT K. Ballard Deputy

HON. PAMELA GATES

C J DESIGN & CONSTRUCTION CORPORATION

JOHN DOUGLAS WILENCHIK

v.

668 NORTH L L C, et al.

GREGORY J GNEPPER

DONALD W BIVENS CHRISTOPHER D PAYNE ANDREW REED CHRISTENSEN

UNDER ADVISEMENT RULING

The trial court does not find Defendant 668 North in either criminal or civil contempt of the September 27, 2017 order as modified by the October 3, 2018 order. The trial court does find, however, Defendant 668 North in civil (not criminal) contempt of the October 15, 2018 court order. As a sanction to compel future compliance, the trial court is appointing a Special Master.

By way of background, on September 15, 2017, Plaintiff CJ Design & Construction Corporation and Defendants 668 North, LLC and David and Gemma Tedesco appeared before the trial court for Plaintiff’s Emergency Application for Temporary Restraining Order. Following a 47-minute non-evidentiary hearing, the trial court granted, in part, Plaintiff’s Emergency Application for Temporary Restraining Order and among other orders, the trial court ordered that the Defendants were “enjoined from removal of the roof tiles or any other destruction of improvements of Common Elements, until such time as the trial court may hear the matter at a Preliminary Injunction Hearing.” See Order dated 9/15/2017 and Minute Entry dated 9/15/2017.

The trial court set an order to show cause hearing on September 22, 2017 at 9:00 a.m., which was Docket Code 926

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subsequently reset to September 26, 2017. See Order to Show Cause dated 9/15/2017 and Minute Entry dated 9/19/2017.

Following the September 26, 2017 non-evidentiary hearing that lasted approximately 36 minutes, the trial court took the issue of whether the TRO should remain in effect under advisement. See Minute Entry dated 9/26/2017. The trial court set the matter for a two-day preliminary injunction hearing: Day 1 to proceed on November 3, 2017 and Day 2 to proceed on November 17, 2017.1 Id. On September 27, 2017, the trial court issued a ruling, noting that the purpose of a Temporary Restraining Order (“TRO”) is to preserve the status quo until the court has an opportunity to hear evidence at a preliminary injunction hearing. See Minute Entry dated 9/27/2017. In fact, the trial court noted that evidence at the preliminary injunction hearing may or may not show that Defendant 668 North received proper approval under the CC&Rs to remove the current roof and replace it with something different. In supporting its decision to continue the TRO, the trial court stated that “[i]n the event it did not [have prior approval], the consequence of denying a TRO could be the irreparable destruction of a distinctive design feature.” The trial court found that the equities favor preserving the status quo until the trial court can hear evidence. Id. Thereafter, the trial court modified the September 15, 2017 TRO and ordered that “668 North shall not commence replacement of the roof or remove any part of the roof.” Id. The preliminary injunction hearing was set to conclude approximately 75 days after entry of the initial TRO. Following the two-day evidentiary hearing on Plaintiff’s Application for Preliminary Injunction, the trial court lifted the TRO and denied a preliminary injunction. See Minute Entry dated 11/29/2017 and filed 12/1/2017. In the ruling, the trial court addressed Defendant 668 North’s plans to complete “significant renovations, including a complete overhaul of the roof.” Id. The trial court noted that the current roof was built with unique handmade tiles from China and made to look like the Forbidden City and that the proposed new roof would not have a distinctive Chinese look. Id. As noted above, the trial court denied the preliminary injunction, but granted a stay through 5:00 p.m. on December 11, 2017. Id. On December 20, 2017, the trial court heard oral argument on Plaintiff’s December 5, 2017 Motion to Set Supersedeas Bond Pursuant to Arizona Rules of Civil Appellate Procedure Rule 7.

At this hearing, the Plaintiff argued that it was entitled to stay the trial court’s ruling by merely filing a supersedeas bond, with the resulting effect that the TRO would remain in effect pending the appeal. The trial court denied Plaintiff’s motion and concluded that Plaintiff was not entitled to an automatic stay upon the posting of a bond. See Minute Entry dated 12/20/2017. Given the holidays, the trial court ordered that its ruling became effective on January 3, 2018. Id.

1

The trial court continued Day 2 of the preliminary injunction hearing to November 28, 2017.

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Subsequently, the court of appeals stayed enforcement of the trial court’s December 1, 2017 and December 20, 2017 rulings pending a ruling by the court of appeals on the Plaintiff/Appellant’s Motion to Stay and/or Injunctive Relief. After briefing, the court of appeals concluded “there appears to be a potential for irreparable harm to the [A]ppellant[/Plaintiff] if an injunction is not granted and the balance of harms seem to favor [A]ppellant[\Plaintiff].” See Order Granting Stay dated 2/1/2018. The court of appeals granted Appellant\Plaintiff’s “motion and stayed the under advisement ruling dated 11/29/17 filed 12/1/2017, which lifted the temporary restraining order entered on September 28, 2017, pending further order of this court.” Id. The court of appeals continued the $25,000 preliminary injunction bond Appellant posted on October 5, 2017 without prejudice to Defendants seeking a different or additional bond amount upon proof shown to the superior court. Id. On March 29, 2018 the trial court considered Defendants’ February 16, 2018 Motion for Additional and Ongoing Security. The trial court found that Defendant 668 North will likely suffer harm by virtue of the stay order in the event the trial court’s ruling on the preliminary injunction is ultimately affirmed. See Minute Entry dated 3/29/2018. The trial court found that the harm is the delay in renovations, including replacement of the roof that Defendant 668 North plans for the property. The trial court found $60,000.00 was a reasonable estimate of the monthly value of the loss of use of those units. After determining Plaintiff’s ability to pay and effect of the bond on Plaintiff’s access to appellate review, the trial court found that a monthly bond of $10,000 was appropriate. See id. The trial court ordered that Plaintiff post a bond in the amount of $80,000.00 covering the period from December 1, 2017 through July 31, 2018, and if the appeal is still pending on July 15, 2018, the trial court required that Plaintiff post an additional $30,000 bond by July 31, 2018 covering the three-month period starting August 1, 2018 and an additional $30,000 bond every three months until the appeal is concluded and a mandate issues. The court of appeals denied the request to treat the matter as an accelerated appeal under Arizona Rules of Civil Appellate Procedure 29, without prejudice to the parties filing a stipulation to accelerate the appeal or any party filing a motion to accelerate after the appeal is at issue. See Order Granting the Stay dated 2/1/2018. The trial court is unaware whether either party moved to accelerate the appeal.

Regardless, the appeal is currently pending.

The court recognizes that the order currently in effect was not initially intended by the trial court as an order with long-term practical application. Instead, the order was entered after a 36minute non-evidentiary hearing and was intended to preserve the status quo until the trial court had an opportunity to hear evidence at the preliminary injunction hearing. See Minute Entry dated 9/27/2017.

Functioning under the restrictive order became impractical and on October 2, 2018, Defendant 668 North filed an Emergency Motion to Modify Injunction for Roof Repairs. In the Motion, Defendant requested an order modifying the existing injunction to allow its licensed Docket Code 926

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contractors to remove tiles on the subject roof as needed to perform immediate repairs as necessary to fix existing leaks and prevent future leaks. See Defendant 668 North’s Emergency Motion to Modify Injunction for Roof Repairs at 2. In its Emergency Motion, Defendant 668 North indicated that without immediate repairs, the property is at risk for extensive and ongoing damage. Id. The Motion alerted the trial court and Plaintiff that the contemplated repairs will likely require the removal of roof tiles. Id. Defendant 668 North also informed the trial court that although “tiles are cemented in place, 668 North will attempt to save individual pieces when possible.” Id. The relief Defendant 668 North sought was an immediate order confirming that its licensed contractors may remove roof tiles to perform repairs to the roof as necessary to fix existing leaks and prevent future leaks. Id. at 3.

After Defendant 668 North filed its Emergency Motion to Modify Injunction for Roof Repairs, the parties engaged in an informal discussion to determine whether a stipulation could be reached. See Exhibit D to Emergency Application for Order to Show Cause Re: Contempt of Court. In the email communication, Plaintiff’s counsel questioned the need for court involvement, indicating, “[i]f tiles need to be removed to conduct repairs then I see no reason why they cannot be replaced afterwards but please advise if [668 North] is proposing to remove them permanently.”

In response, counsel for Defendant 668 North advised: Although I was not involved and it pertained to a different issue, your client has previously accused 668 North of being in contempt of court. Hence the preference for getting a court order.

It does not work to reuse tiles after they are removed. Because the tiles were installed with cement, it is nearly impossible to remove them without breaking. Nor will it work to use leftover tiles. Even if they can be located and are in proper condition, we do not know how to install those tiles. They require a non-standard installation method. And it would potentially be quite expensive for 668 North to hire someone to install tiles which—depending on the outcome on appeal—might be removed shortly thereafter.

That said, I certainly recognize that CJ Design will not want 668 North selecting the style for replacement tiles. The appeal will determine whether the style may be changed.

So, I propose a temporary solution. In the areas affected by leaks, the roofing contractor is able to install a temporary waterproof membrane. It is similar to the underlayment that currently sits underneath the tiles. The underlayment will eventually require a permanent covering, but I expect this will suffice until the appeal is resolved.

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Is this acceptable? Do you want me to revise the stipulated order accordingly?

Id. Plaintiff’s counsel responded that the option sounded “like a good temporary (emergency) solution.” Id. Plaintiff’s counsel indicated his need to obtain client approval and requested that counsel for Defendant 668 North revise the proposed order. Id. Plaintiff’s counsel also inquired, “Do we have any idea how big the affected area will be?” Id. Approximately 20 minutes later counsel for Defendant 668 North sent the proposed order, which included the following language: IT IS HEREBY ORDERED that licensed contractors of 668 North, LLC may perform repairs as necessary to fix leaks at the property. To the extent roof tiles must be removed to make such repairs, the contractors may install a temporary waterproof membrane similar to the roof’s existing underlayment, to be used pending the outcome of this action or further court order.

Id. On October 3, 2018 the court received the parties’ Stipulation for Entry of Order Re: Injunction. The order stated as follows: Pursuant to the parties’ Stipulation, IT IS HEREBY ORDERED that licensed contractors of 668 North, LLC may perform repairs as necessary to fix leaks at the property. To the extent roof tiles must be removed to make such repairs, the contractors may install a temporary waterproof membrane similar to the roof’s existing underlayment, to be used until such time as the parties can agree and arrange for the installation of another covering or the injunction regarding the roof is finally dissolved or made permanent, or pending further court order.

Order dated 10/03/2018 at 1. The evidence did not reveal that Defendant 668 North ever responded to Plaintiff’s inquiry regarding the size of the “affected area.” Aided by the clarity of hindsight, the trial court questions whether an answer to this question would have prevented the instant contempt proceeding.

On the day the parties filed the Stipulation for Entry of Order Re: Injunction, Phoenix experienced the most significant rain event in its history, and the roof leaked – a lot. See Exhibits 22-47 (depicting saturated knee walls, water pouring into the garage through the roof, and standing water on the corrugated metal roof decking).2 On October 9, 2018 John McCurry of Roofing 2

Mr. McCurry testified that he observed areas of standing water in the corrugated metal roof decking that were separated from the standing water adjacent to the water-saturated knee walls.

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Southwest sent an email to Defendants and a lawyer with Gammage & Burnham stating that he, John McCurry, inspected the flat and tile roof areas at 668 North 44th Street following the recent rains. See Exhibit 2. Mr. McCurry indicated that during prior inspections, Roofing Southwest noted “various signs that the existing roof system (tile [and] built-up roofing) were at the end of their serviceable life and are in need of immediate repair and/or replacement.” Id. He further stated that based on an inspection on October 2, 2018, he concluded that “both the flat and tile roofs are in disrepair and are in need of immediate repair/replacement.” Id. He advised Defendant 668 North that “[t]he only way to get to the asphalt underlayment (i.e., waterproof barrier) is to damage/crush the existing tile and haul it offsite.” Id. Mr. McCurry indicated that because there is no single point of failure to the roof, it is the recommendation of Roofing Southwest to remove “all roof areas and replace them with new.” Id. He advised Defendant 668 North that given the court’s order limiting Defendant to repairs only, he recommended removing approximately 16,000 square feet of tile roofing to repair the areas that are directly and visibly affected by water intrusion.

Id. He proposed a Saturday work schedule to commence repairs. Id. On Saturday October 13, 2018, without prior notice to Plaintiff, Defendant 668 North’s licensed contractor commenced work with a team of 40 employees. Mr. McCurry testified that Roofing Southwest proposed a tiered repair, which began with eliminating the roof leaks from the tile roof area followed by replacement of the knee walls and repair and/or replacement of the flat roof (referred to more accurately as a low-slope roof, but referenced as the “flat roof” for ease of this order). Mr. McCurry testified that removal of almost all tile from the east building was necessary prior to adhering a waterproof membrane to the roofing underlayment.3 Roofing Southwest demolished almost 14,000 square feet of roof tile and decorative tile in one day, knowing that a future rain event was likely. Mr. McCurry claimed that the unconventional method of mass demolition on Saturday was due to: 1) Southwest Roofing’s busy schedule; and 2) Defendant 668 North’s lack of interest in minimizing water damage during the roofing repairs due to the damage that already occurred during prior rain events. Plaintiff’s expert, Alan Shelton stated that Roofing Southwest’s approach revealed Defendant 668 North’s desire to destroy as much tile as possible as quickly as possible. Mr. Shelton alleged that the standard of care for a roofing contractor is to remove no more roof covering material than can be dried in that same day, or at a minimum, prior to any anticipated inclement weather. See Exhibit 1 at 6.

Mr. McCurry opined that the dry area of separation indicated the source of the water that was not adjacent to the knee wall was the tiled roof area. The court did not observe any areas of standing water separated from the water adjacent to the knee wall in Exhibits 22-47, particularly as depicted in Exhibits 31-33.

3 Plaintiff’s expert clarified that the “roofing underlayment” is more correctly referred to as a “selfhealing built-up roof membrane system.”

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Plaintiff claims that Defendant 668 North is in contempt for violating the agreed-upon stipulated court order that modified the September 27, 2017 order and which states: IT IS HEREBY ORDERED that licensed contractors of 668 North, LLC may perform repairs as necessary to fix leaks at the property. To the extent roof tiles must be removed to make such repairs, the contractors may install a temporary waterproof membrane similar to the roof’s existing underlayment, to be used until such time as the parties can agree and arrange for the installation of another covering or the injunction regarding the roof is finally dissolved or made permanent, or pending further court order.

Plaintiff requests that this court hold Defendant 668 North in civil and/or criminal contempt for violating the trial court’s October 3, 2018 and October 15, 2018 orders.

Criminal contempt occurs when a person or entity “willfully disobeys a lawful writ, process, or order or judgment of a superior court by doing an act or thing therein or thereby forbidden, if the act or thing done also constitutes a criminal offense.” See A.R.S. §12-861; Korman v. Strick, 133 Ariz. 471, 474, 652 P.2d 544, 547 (1982)(“A criminal contempt is found solely for punishment purposes . . . and nothing the contemnor can do will free him or her before the term of confinement imposed has run.”)(citing Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 442, 31 S.Ct. 492, 498 (1911). In this case, the court did not hear credible evidence to conclude that Defendant 668 North willfully disobeyed the October 3, 2018 court order. Instead, Defendant 668 North received an email on October 9, 2018 from its licensed roofing contractor proposing the removal of 16,000 square feet of roof tile “to repair the areas that are directly/visibly affected by water intrusion.” See Exhibit 2. Although the trial court heard evidence regarding Defendant David Tedesco and John McCurry’s friendship, the trial court did not hear credible evidence to conclude that this relationship transitioned from a social relationship between two individuals in a biking group to a conspiracy to willfully violate a court order. The court does not find a factual or legal basis to hold Defendant 668 North in criminal contempt for willfully violating the September 27, 2017 or the October 3, 2018 order.

Next the trial court turns to civil contempt. Civil contempt is defined in A.R.S. §12-864 and provides that “contempt[] committed by failure to obey a lawful writ, process, order, judgment of the court, and all other contempt[] not specifically embraced within this article may be punished in conformity to the practice and usage of the common law.” See Korman, 133 Ariz. at 474, 652 P.2d at 547(“[T]he purpose of finding a person in civil contempt is to coerce that person to do or refrain from doing some act.”). To establish liability for civil contempt, three elements must be proven by clear and convincing evidence: 1) a valid order of the court existed; 2) the party had knowledge of the order; and 3) the party disobeyed the order. 17 Am. Jur. 2d CONTEMPT §§13, 180 (2017).

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Both the September 27, 2017 order and the October 3, 2018 order are valid court orders.

Certainly, Defendant 668 North knew of the orders. The question is whether Defendant 668 North disobeyed the orders. The September 27, 2017 order states that “668 North shall not commence replacement of the roof or remove any part of the roof.” The October 3, 2018 stipulated order allows Defendant 668 North: 1) through a licensed contractor; 2) to perform repairs; 3) as necessary to fix leaks at the property. The order further provides that to the extent roof tiles must be removed to make such repairs: 1) the contractor may install a temporary waterproof membrane similar to the roof’s existing underlayment; and 2) that temporary waterproof membrane is intended to be used until such time as the parties can agree and arrange for the installation of another covering or the injunction regarding the roof is finally dissolved or made permanent, or pending further court order.

Roofing Southwest is a licensed contractor. The trial court finds that Defendant 668 North hired Roofing Southwest to make repairs to the roof. The question is whether Plaintiff proved by clear and convincing evidence that Defendant 668 North violated the court’s orders by authorizing its licensed contractor to perform the work the licensed contractor represented “would repair the areas that are directly/visibly affected by water intrusion.” See Exhibit 2. The court finds that Plaintiff did not satisfy its burden of proving that Defendant 668 North violated the September 27, 2017 order as modified by stipulation on October 3, 2018.

The trial court finds that Defendant 668 North followed the recommendations of its licensed contractor and simply authorized the work Roofing Southwest recommended were necessary to repair the areas that were directly/visibly affected by water intrusion. See Exhibit 2.

The trial court concludes that portions of the rust, lime, and corrosion depicted in Exhibits 108 and 115 was likely caused by water leaking through the roof tiles, mortar, redundant roof membrane, and/or through the metal caps. However, based on the testimony of Mr. McCurry and Mr. Shelton, the trial court further finds that a portion of rust, lime, and corrosion depicted in Exhibits 108 and 115 likely existed before the roof was installed. Ultimately, the trial court finds Defendant 668 North is not in civil contempt for violating the September 27, 2017 order or the October 3, 2018 order.

IT IS ORDERED vacating the October 15, 2018 order and the October 22, 2018 order (filed October 23, 2018).

IT IS FURTHER ORDERED affirming the restoration of the September 27, 2017 order as modified by stipulation and order of the court on October 3, 2018. To clarify for the parties: IT IS ORDERED that 668 North shall not commence replacement of the roof or remove any part of the roof; provided however, licensed contractors of 668 North, Docket Code 926

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LLC may perform repairs as necessary to fix leaks at the property. To the extent roof tiles must be removed to make such repairs, the contractors may install a temporary waterproof membrane similar to the roof’s existing underlayment, to be used until such time as the parties can agree and arrange for the installation of another covering or the injunction regarding the roof is finally dissolved or made permanent, or pending further court order.

By way of further clarification, the court finds that removal of the pan-tiles, top-caps, mortar and debris (collectively, the “Roof Tile Materials”) in the currently affected area (the area depicted in red in Figure 8 of Alan Shelton’s Expert Report p.6) is not a violation of the order set forth above and is allowed to occur, beginning immediately. This work includes using demolition tools to conduct the work as necessary to fix the leaks and install a temporary waterproof membrane.

Although the trial court herein vacates the October 15, 2018 and October 22, 2018 orders, the October 15, 2018 order remains relevant to Plaintiff’s Second Application for Order to Show Cause Re: Contempt of Court. The October 15, 2018 order stemmed from Plaintiff’s Emergency Application for Order to Show Cause Re: Contempt of Court filed at 8:05 a.m. on October 15, 2018 following Defendant 668 North’s destruction of almost 14,000 square foot of roofing tile. In the Emergency Application, Plaintiff represented that the “tiles on the current roof were made by artisans in China from materials that are no longer available, because the mine from which they were taken has since been shut down by the Chinese government.” See Emergency Application for Order to Show Cause Re: Contempt of Court at 2. Judge Coury reviewed the Emergency Application for Order to Show Cause Re: Contempt of Court and found that it is “appropriate to prevent waste from occurring between now and the time of the [non-evidentiary return] hearing on Plaintiff/Counterdefendant’s pending Application.” See Minute Entry dated 10/15/2018. The trial court found that “it is permissible for Defendants/Counterclaimants to take temporary steps to ensure that any roof changes made on October 13, 2018 will not leak in the event additional rain occurs between now and the time of the hearing.” Id. More specifically, on October 15, 2018, the trial court entered the following orders: 1. Emergency consideration of this issue, without the benefit of an inspection or a Response, is denied.

2. Alan Shelton of Shelton Contracting Group may conduct an inspection of the changes made on October 13, 2018, to the roof of the Chinese Cultural Center.

Additionally, Mr. Shelton may inspect any and all alleged leaks and work conducted to remediate said leaks.

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3. Mr. Shelton shall prepare a report and provide it to the court and all parties no later than October 17, 2018 at 8:30 a.m. The report shall be e-mailed or handdelivered to the court and all counsel.

4. Defendants/Counterclaimants shall be permitted to file a written Response no later than October 17, 2018 at 5:00 p.m. The Response shall be e-mailed or hand-delivered to the court and all counsel. * * * 6. Between the time of this Order and the issuance of any Orders following the October 18, 2018 hearing on the pending motion, Defendants/Counterclaimants shall be permitted to take remedial, temporary steps to try and make the roof water-tight in its current condition. The spirit of this Order is focused on preserving the status quo – namely, to avoid having waste occur due to the roof leaking because of any construction that may have occurred on October 13, 2018. This Order is not intended to permit additional long term repairs/redesign to occur.

7. The Preliminary Injunction shall remain in full force and effect, except as stated above.

See Minute Entry dated 10/15/2018. Importantly, Judge Coury entered emergency orders on Monday, October 15, 2018 and noted that the work permitted under his order was restricted to “remedial, temporary steps to try to make the roof water-tight in its current condition . . . to preserve the status quo” until the hearing three days later. Later that day at approximately 8:42 p.m. Plaintiff filed a Second Application for Order to Show Cause Re: Contempt of Court.

Plaintiff alleged that Defendant 668 North’s contractor was continuing to demolish and permanently destroy pan-tiles, cap-tiles, and mortar. On October 18, 2018, Plaintiff filed a Renewed Application for Order to Show Cause and Request for Leave to Move the Court of Appeals to Revest Jurisdiction. Plaintiff alleged fraud on the court and willful contempt of a court injunction. Plaintiff alleged an estimated half million dollars in damage to an irreplaceable roof system. See Renewed Application for Order to Show Cause and Request for Leave to Move the Court of Appeals to Revest Jurisdiction at 1. Plaintiff requested entry of a permanent injunction against the Defendants forbidding them from making any alteration of the Chinese roof without the Plaintiff’s consent, and to award monetary or other equitable relief to Plaintiff as compensation for Defendants’ demolition and attempted demolition of the roof. Id. at 2.

The evidence presented at the contempt hearing shows Defendant 668 North’s licensed contractor permanently removing mortar, pan-tiles, and decorative tiles after the trial court’s October 15, 2018 order. See Exhibit 60 (depicting Southwest Roofing employees using grain shovels to physically and permanently remove sections of roof material still adhered to the roof membrane); Exhibit 61 (depicting Southwest Roofing employees using claw hammers and grain shovels to remove the material obviously still adhered to the roof membrane); Exhibit 62 Docket Code 926

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(depicting Southwest Roofing employees using claw hammers and grain shovels to remove roof material and dispose of the material in a dumpster); Exhibit 63 (depicting Southwest Roofing employees using a grain shovel to permanently remove roofing material still adhered to the roof membrane); Exhibits 65-66 (depicting Southwest Roofing employees using claw hammers to permanently remove roof material still adhered to the roof membrane); Exhibit 67 (depicting Southwest Roofing employees using claw hammer to break apart and permanently remove clearly adhered portions of roofing material); Exhibit 73 (depicting Southwest Roofing employees using a grain shovel to pry adhered mortar off the roof membrane for permanent removal); and Exhibits 77-78 (depicting Southwest Roofing employees using a grain shovel to remove clearly adhered tile and mortar).

The October 15, 2018 order restricted Defendant 668 North’s conduct to remedial, temporary steps to make the roof water-tight in its current condition in an effort to preserve the status quo. The trial court finds that the only work allowed after entry of the October 15, 2018 order consisted of temporary steps to make the roof water-tight between the date of the order on October 15, 2018 and the return hearing on October 18, 2018. The trial court finds based on the evidence and testimony presented that Defendant 668 North did not instruct its licensed contractor to stop its prior work. In fact, as noted in Exhibit A to the Second Application for Order to Show Cause Re: Contempt of Court, Mr. McCurry sent an email after receiving notice of the October 15, 2018 order. The email copied members of Roofing Southwest and Defendants and stated:

668 North TeamPlease see email below.

RSW TeamI have discussed this email with the ownership of 668 North, LLC and we have their permission to continue with the removal of debris and dry-in of the areas where work was performed on Saturday. Please do not remove any additional areas of tile at this time. Please call me with any questions.

Of note, the area where work was performed on Saturday, October 13, 2018 consisted of approximately 14,000 square feet of roof tile and/or decorative tile. Although the conduct noted above does not constitute criminal contempt, the conduct following the October 15, 2018 order clearly violated the restriction imposed by the October 15, 2018 court order, i.e., allowing Defendant 668 North to take only remedial, temporary steps to try and make the roof water-tight in its current condition.

Therefore, upon reviewing all the evidence and testimony, the trial court finds that Plaintiff proved by clear and convincing evidence the following: 1) the October 15, 2018 order was a valid Docket Code 926

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order of the court; 2) Defendant 668 North had knowledge of the order; and 3) the party disobeyed the order. Specifically, the court finds clear and convincing evidence that after entry of the October 15, 2018 order, at Defendant 668 North’s direction, Defendant 668 North’s contractor continued to take the permanent steps of demolishing and removing additional tile and roofing material in the affected area in violation of the October 15, 2018 order. This finding has resolved all ambiguities in the trial court’s October 15, 2018 order in favor of the party charged with contempt.

See F.T.C. v. Lane Labs-USA, Inc., 624 F.3d 575, 582 (3rd Cir. 2010)(noting that the court should hesitate to adjudge a defendant in contempt where there is ground to doubt the wrongfulness of the conduct)(citation omitted).

The purpose of finding a person or entity in civil contempt is to coerce that person to do or refrain from doing some act. “If the means of coercion, either the jail term or a cumulative fine, cannot be removed by compliance with the court’s order, the coercive effect of a civil contempt finding will be weakened.” Korman, 133 Ariz. at 474, 652 P.2d at 547 (“A contempt finding intended solely for the purpose of imposing punishment must be a criminal contempt finding.”).

In assessing contempt, this trial court considered appropriate sanctions to obtain compliance with the trial court’s orders, including incarceration, requesting leave for the court of appeals to revest jurisdiction in the trial court, imposition of attorneys’ fees and costs, a coercive fine, and other coercive sanctions permitted by law. The conduct to compel is future compliance with the trial court’s orders and minimizing permanent damage to the existing roof material and design during the pendency of the litigation. As mentioned above, the trial court is aware of the restrictive nature of the September 27, 2017 order, which order was entered after a 36-minute nonevidentiary hearing and which no one likely anticipated would remain in effect without modification for over a year. Although restrictive, the court of appeals restored the order that Defendant 668 North shall not commence replacement of the roof or remove any part of the roof when it “stayed the under advisement ruling dated [November 29, 2017 and December 1, 2017].”

See Order Granting Stay dated 2/1/2018.

Initially the trial court indicated that a finding of contempt would result in the burden shifting to Defendant 668 North to prove that 1) Defendant 668 North took all reasonable steps to comply with the order, 2) substantially complied with the violated order, or 3) violated the order in a manner that was merely technical or inadvertent. If the trial court found Defendant 668 North in contempt of the October 3, 2018 order, a further evidentiary hearing would be necessary.

However, given the scope of the contempt and the clarity of the violation of the October 15, 2018 order, no further evidentiary hearing is necessary.

After considering the appropriate sanction and as a sanction of Defendant 668 North’s violation of the October 15, 2018 order, Docket Code 926

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IT IS ORDERED appointing a Special Master pursuant to Rule 53 of the Arizona Rules of Civil Procedure to monitor compliance with the current order in effect, i.e., IT IS ORDERED that 668 North shall not commence replacement of the roof or remove any part of the roof; provided however, licensed contractors of 668 North, LLC may perform repairs as necessary to fix leaks at the property. To the extent roof tiles must be removed to make such repairs, the contractors may install a temporary waterproof membrane similar to the roof’s existing underlayment, to be used until such time as the parties can agree and arrange for the installation of another covering or the injunction regarding the roof is finally dissolved or made permanent, or pending further court order.

The court clarifies that Defendant 668 North must submit all future proposals for repairs to the Special Master if the planned repairs are outside the area depicted in red in Figure 8 of Alan Shelton’s Expert Report and the planned repairs result in the replacement of the roof or removal of any part of the roof tile and/or decorative tile.

In an effort to ensure clarity, the trial court again confirms that Defendant 668 North may remove the Roof Tile Materials from the area depicted in red in Figure 8 of Alan Shelton’s Expert Report p.6 for the purpose of applying and potentially reapplying a watertight membrane. See Exhibit 1. Plans for removal of Roof Tile Material from the area depicted in red in Figure 8 of Alan Shelton’s Expert Report does not require review by the Special Master and removal of the Roof Tile Material in the area depicted in red in Figure 8 may begin immediately. Moreover, on the east building, Defendant 668 North may make repairs to the knee walls and the flat roof and the plans for repair and/or replacement of the knee walls and flat roof on the east building do not require review by the Special Master; provided however, that neither Defendant 668 North nor its agent is permitted to commence work prior to receiving the court’s permission if the proposed repairs result in destruction of roofing tile and/or decorative tile outside the area depicted in red in Figure 8 of Alan Shelton’s Expert Report p.6.4 Plans submitted to the Special Master must include the following information: a. the area of the roof impacted by the proposed repairs; b. an explanation of the reason the repairs are necessary; c. a description of the location and quantity of the impacted roofing tile and/or decorative tile; 4

Repair work that will cause the removal or replacement of roofing tile or decorative tile on the two towers that appear in white on Figure 8 of Alan Shelton’s Expert Report will require submission to the Special Master.

Form V000A Docket Code 926 Page 13

SUPERIOR COURT OF ARIZONA MARICOPA COUNTY CV 2017-012173

11/01/2018

d. a summary of whether the projected repairs will result in the permanent destruction of the roofing tile and/or decorative tile; and e. an analysis of less destructive methods of repair and explanation of why the less destructive methods of repair would be unreasonable, unworkable, impossible, impractical, or cost prohibitive.

Important in this trial court’s analysis is that the sanction fit the particular circumstances of the contempt. See Hubbard v. Fleet Mortgage Co., 810 F.2d 778, 782 (8th Cir. 1987); In re Grand Jury Witness, 835 F.2d 437, 443 (2nd Cir. 1987). Defendant 668 North can purge the civil contempt, causing the court to terminate the involvement of the Special Master through its continuous future compliance with court orders.

A court may only appoint a Special Master to: 1) perform duties consented by the parties, 2) to hold trial proceedings and make or recommend findings of fact and conclusions of law on issues to be decided without a jury if appointment is warranted by some exceptional condition or the need to perform an accounting or resolve a difficult computation of damages; or 3) to address pretrial or post-trial matters that cannot be effectively and timely addressed by an available superior court judge in the county in which the court sits. Here, the trial court finds appointment of a Special Master essential to consider evidence and ultimately recommend findings of fact on whether Defendant 668 North’s future repairs comply with the requirement that Defendant 668 North not commence replacement of the roof or remove any part of the roof unless the work is performed by a licensed contractor and the work constitutes only the work that is necessary to fix the leaks at the property.

On or before November 9, 2018, the parties must confer in an effort to reach agreement on a Special Master. If the parties cannot reach agreement, on or before November 16, 2018 each side may submit to the other party the names of three proposed Special Masters along with the curricula vitae of the proposed Special Masters and a fee schedule. On or before November 26, 2018, each party may strike the name of one of the proposed Special Masters proffered by the opposing party. On or before November 28, 2018, Defendant 668 North must submit to the trial court a blind list of the remaining individuals identified as potential Special Masters by all parties along with their curricula vitae and fee schedules.5 Prior to submitting a name as a potential Special Master, the party submitting the name must ensure that the potential Special Master is not otherwise disqualified pursuant to Rule 53(a)(2) of the Arizona Rules of Civil Procedure and that the Special Master will accept the appointment if ordered by the trial court.

5

A blind list means that the submission will not identify which party proposed any of the individuals identified as prospective Special Masters.

Form V000A Docket Code 926 Page 14

SUPERIOR COURT OF ARIZONA MARICOPA COUNTY CV 2017-012173

11/01/2018

The future appointment order will specify the Special Master’s duties and the allocation of costs. However, the trial court anticipates allocating costs as follows: all costs for review of proposed plans and preparation of findings to the trial court will be the expense of Defendant 668 North; all costs to review objections to plans and review counter-proposals will be the expense of Plaintiff; and the Special Master will have the ability to recommend re-allocation of costs based on a party’s unreasonable conduct or misuse of the Special Master.

In entering the orders set forth above, the trial court confirms that it found absolutely no credible evidence to suggest that Defendant 668 North or its lawyers committed a fraud upon the court or created a pretext to replace the entire roof with a non-Chinese roof. The trial court expressly finds that neither Defendant 668 North nor its lawyers were “avowedly trying to destroy the Chinese Cultural Center” as alleged by Plaintiff; but rather, Defendant 668 North was trying to repair a leaking roof, albeit in a manner that did not set out with the primary goal of minimizing the destruction of existing roofing tile and/or decorative tile.

IT IS FURTHER ORDERED denying all additional relief requested in Plaintiff’s October 15, 2018 Emergency Application for Order to Show Cause Re: Contempt; Plaintiff’s October 18, 2018 Renewed Application for Order to Show Cause and Request for Leave to Move the Court of Appeals to Revest Jurisdiction; and Plaintiff’s October 15, 2018 Second Application for Order to Show Cause Re: Contempt of Court.

Docket Code 926

Form V000A

Page 15