ANDERSON v. LIFEDEVINE5040

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
ARIZONA COURT OF APPEALS
DIVISION ONE

JOSEPH ANDERSON, et al., Plaintiffs/Appellees,

v.

LIFEDEVINE5040, LLC, et al., Defendants/Appellants.

No. 1 CA-CV 25-0623
FILED 05-07-2026

Appeal from the Superior Court in Maricopa County
No. CV2023-014321
The Honorable Jennifer C. Ryan-Touhill, Judge

VACATED

COUNSEL

Ballard Spahr, LLP, Phoenix
By Jay A. Zweig, Mitchell Turbenson
Counsel for Plaintiffs/Appellees

Enara Law, PLLC, Scottsdale
By Ross P. Meyer, Sara N. Rock
Counsel for Defendants/Appellants
ANDERSON et al. v. LIFEDEVINE5040 et al.
Decision of the Court

MEMORANDUM DECISION

Judge Cynthia J. Bailey delivered the decision of the Court, in which
Presiding Judge Daniel J. Kiley and Judge D. Steven Williams joined.

B A I L E Y, Judge:

¶1 This is an appeal from a $200,000 “pocket judgment” entered
under a settlement agreement after the promisors were four days late in
paying the first installment on a $75,000 settlement sum. We hold that the
judgment was an unenforceable penalty, and we therefore vacate it.

FACTS AND PROCEDURAL HISTORY

¶2 Rozaliya Heinen and Arvin Thomas, through their company
LifeDevine5040 LLC, (collectively, “the Thomases”) own a home (“the
Property”) in the same neighborhood as Joseph Anderson and Stefanie and
Michael Lotz (collectively, “the Neighbors”). In late 2023, the Neighbors
sued the Thomases for renting out the Property as an event venue, seeking
an injunction and damages for nuisance.

¶3 The Neighbors obtained a preliminary injunction restricting
the Thomases’ use of the Property. At some point, the Thomases moved to
Canada, leaving the Property as their only significant domestic asset. By
early 2025, when the parties participated in a court-ordered settlement
conference, the Thomases were “actively attempting to sell” the Property.

¶4 The settlement conference resulted in the parties executing a
“Mediator’s Proposal” resolving all claims in early February 2025 (“the
Settlement Agreement”). The Settlement Agreement stated that it
represented a binding settlement under Arizona Rule of Civil Procedure
80(a) even if the parties failed to prepare contemplated formal settlement
documents. The Settlement Agreement further provided that “any
dispute . . . regarding these Settlement Terms” would be submitted to the
judge assigned to the litigation as “Arbitrator” for “a binding, non-
appealable determination to the extent that this Arbitrator is not prohibited
from making such a determination.”

¶5 Under the Settlement Agreement, with “time . . . of the
essence for all terms,” the Thomases promised to pay a “Settlement
Amount” of $75,000 in three equal installments, due to the Neighbors’

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counsel by February 28, July 31, and December 10, 2025, respectively. The
agreement further provided:

Unpaid portions of the Settlement Amount shall be secured
by a “pocket judgment” in the customary amount of 300% of
the unpaid portion of the Settlement Amount. The Court will
retain jurisdiction to enter the pocket judgment. The pocket
judgment will not be requested, filed or entered unless a
payment of the Settlement Amount is not timely made.
Notwithstanding the timing of payments set forth above, the
entire amount of the Settlement Amount shall be immediately
due and payable at the time of the close of escrow in which
[the Thomases] sell the “Property” . . . .

The agreement also stated that “[u]pon the payment of the Settlement
Amount, the Preliminary Injunction entered in this matter shall terminate
and [a stipulated] Permanent Injunction [restricting the Thomases’ use of
the Property] . . . shall be entered instead.”

¶6 After entering the Settlement Agreement, the parties did not
execute the additional contemplated documents or dismiss the case. The
Thomases’ counsel did, however, communicate with the Neighbors’
counsel about wiring instructions for the first $25,000 installment payment.
And shortly before the first payment deadline, the Thomases directed the
sum to be wire-transferred from their Canadian bank account to their
United States account, which held only a small sum. For unknown reasons,
the transfer did not go through. On the afternoon of the due date, the
Thomases’ counsel informed the Neighbors’ counsel that the Thomases
were working to rectify the problem, but the payment might be delayed.
And that did end up being the case, with the Neighbors’ counsel receiving
the first installment payment four days late.

¶7 Almost immediately after receiving the untimely payment,
the Neighbors moved the court to enter the “pocket judgment” under
Arizona Rule of Civil Procedure 54(c) in the amount of $200,000 (300% of
the $50,000 unpaid on the Settlement Amount). Over the Thomases’
objection, the court summarily entered the requested judgment along with
the permanent injunction contemplated by the Settlement Agreement. The
Thomases appealed.

JURISDICTION

¶8 The Neighbors challenge our appellate jurisdiction. They
contend that the judgment is not appealable because the Settlement

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Agreement directed “any dispute . . . regarding these Settlement Terms” to
be submitted to the judge assigned to the litigation as “Arbitrator” for “a
binding, non-appealable determination.”

¶9 But neither party invoked the arbitration clause in the
superior court. To start, the Neighbors moved the court to enter a
procedurally appealable judgment consistent with the Settlement
Agreement’s provision that “the court will retain jurisdiction to enter the
pocket judgment.” See Brummett v. MGA Home Healthcare, L.L.C., 240 Ariz.
420, 427-28, ¶ 12 (App. 2016) (holding that a judgment entered under
Arizona Rule of Civil Procedure 54(c) is procedurally appealable); Major v.
Coleman, 251 Ariz. 345, 349, ¶ 15 (App. 2021) (holding that the court may
retain jurisdiction to enforce settlement agreements upon the parties’
stipulation). The Thomases then challenged the enforceability of the
“pocket judgment” provision. By so doing, the Thomases raised a
“dispute . . . regarding these Settlement Terms” within the meaning of the
arbitration clause. But the Thomases did not request arbitration. Nor did
the Neighbors in their reply. In fact, no party addressed arbitration until
this appeal.

¶10 Parties may waive their right to arbitration by “conduct that
clearly warrants inference of an intentional relinquishment” of the right.
Meineke v. Twin City Fire Ins. Co., 181 Ariz. 576, 581 (App. 2009).
“[P]articipat[ing] substantially in litigation without promptly seeking an
order from the court compelling arbitration” constitutes waiver. Russo v.
Barger, 239 Ariz. 100, 103-04, ¶ 15 (App. 2016) (citation omitted). On this
record, we hold that the parties waived binding arbitration and submitted
to the superior court’s resolution of the dispute by an appealable judgment.

¶11 The Thomases properly and timely appealed from the
judgment. We have jurisdiction under Arizona Revised Statutes (“A.R.S.”)
§ 12-2101(A)(1).

DISCUSSION

¶12 The Thomases contend that the judgment was based on an
unenforceable penalty term in the Settlement Agreement. The Neighbors
respond that the Settlement Agreement lawfully authorized the judgment’s
entry as one of several alternative-performance options. And if not, the
Neighbors argue, the judgment resulted from an enforceable liquidated-
damages provision. We review the superior court’s summary enforcement
of the “pocket judgment” provision de novo, viewing the facts in the light

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most favorable to the Thomases. Robertson v. Alling, 237 Ariz. 345, 347, ¶ 8
(2015).

¶13 Parties may lawfully agree to an alternative-performance
contract that gives the promisor a “reasonably certain” choice “in the
manner of performance.” Golder v. Crain, 7 Ariz. App. 207, 209-10 (App.
1968); see also Clayton v. Commc’ns. Capital Corp., 7 Ariz. App. 449, 454 (App.
1968). A lawful option may take the form of an onerous fixed-sum
payment. 22 Am. Jur. 2d Damages § 538. But because the purpose of an
alternative-performance contract is to ensure a performance, not prescribe
a remedy for a breach, the parties must “intend to give a real option to the
performing party and [must] not intend for one of the options to function
as a device to assure performance of the other option.” 22 Am. Jur. 2d
Damages § 503; see also 24 Williston on Contracts § 65:7 (4th ed.).

¶14 The determinative inquiry, regardless of the parties’ choice of
words, is whether the promisor is given “a real choice between reasonably
equivalent choices.” 22 Am. Jur. 2d Damages § 538. If, at the time of
contracting, the value of a fixed-sum payment option is “so
disproportionate as to be unequal” to the value of the promisor’s other
“choice” of performance, the contract does not actually authorize
alternative performances—it instead prescribes either liquidated damages
or a penalty. Id.; see also Restatement (Second) of Contracts § 356, cmt. c
(1981) (“In determining whether a contract is one for alternative
performances, the relative value of the alternatives may be decisive.”).

¶15 Liquidated damages represent a pre-agreed remedy for
breach. Dobson Bay Club II DD, LLC v. La Sonrisa de Siena, LLC, 242 Ariz.
108, 110, ¶ 8 (2017). Liquidated damages are beneficial when actual
damages would be difficult to quantify, because they give parties certainty
and allow them to avoid litigation expenses. Id.; Pima Savs. & Loan Ass’n v.
Rampello, 168 Ariz. 297, 299 (App. 1991). But parties cannot lawfully
contract for a penalty because the purpose of contract remedies is to
compensate, not to punish. Pima Savs. & Loan, 168 Ariz. at 299.

¶16 Whether a contract prescribes liquidated damages or a
penalty is a question of law for the court. Id. at 300. There is no bright-line
rule—the court must construe the contract in the light of the circumstances
of the case. Dobson Bay, 242 Ariz. at 112, ¶ 17. The inquiry is guided by
whether the stipulated sum “is reasonable in the light of [1] the anticipated
or actual loss caused by the breach and [2] the difficulties of proof of loss.”
Id. at 111, ¶ 12 (quoting Restatement (Second) of Contracts § 356(1)). The
court must consider the relative strengths of both factors, Dobson Bay, 242

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Ariz. at 111, ¶ 12, to determine whether the stipulated sum “is so
unreasonably large as to be a penalty,” Restatement (Second) of Contracts
§ 356(1), cmt. b. If the difficulty of proof of loss is great at the time of
contracting, “considerable latitude is allowed in the approximation of
anticipated or actual harm.” Dobson Bay, 242 Ariz. at 111, ¶ 12 (quoting
Restatement (Second) of Contracts § 356(1), cmt. b); Tortolita Veterinary
Servs., PC v. Rodden, 252 Ariz. 96, 101, ¶ 11 (App. 2021).

¶17 Conversely, if “the difficulty of proof of loss is slight, less
latitude is allowed in th[e] approximation” of harm. Dobson Bay, 242 Ariz.
at 111, ¶ 12 (quoting Restatement (Second) of Contracts § 356(1), cmt. b).
“[I]f the difficulty of proof of loss is slight and either no loss occurs or the
stipulated sum is grossly disproportionate to the loss, the parties’
stipulation [is] unreasonable and therefore unenforceable as a penalty.” Id.
at ¶ 14.

I. The Settlement Agreement’s “pocket judgment” provision did
not describe an alternative-performance option.

¶18 The Neighbors first contend that the Settlement Agreement’s
“pocket judgment” provision describes an alternative-performance option
that the parties negotiated to address the Neighbors’ concerns about
collecting unpaid portions of the Settlement Amount if the Thomases sold
the Property, their only significant domestic asset. The Thomases disputed
that the Neighbors ever expressed concern about untimely payments.
Regardless whether the Settlement Agreement was negotiated in view of
collection concerns, we hold that the “pocket judgment” provision did not
describe an alternative-performance option because it was not reasonably
equivalent to the Thomases’ payment of the settlement sum.

¶19 The parties agreed the Thomases would pay a “Settlement
Amount” of $75,000 either in installments on a schedule, or as a lump sum
(to the extent unpaid under the installment schedule) if the Thomases sold
the Property. Those provisions described alternative performances because
they set forth reasonably equivalent options: the Thomases could keep the
Property and pay a sum over time, or they could liquidate the Property and
pay the same sum earlier. The provisions also acknowledged the
Neighbors’ alleged collection concerns by tying the payment acceleration
to the Thomases’ potential sale of the Property.

¶20 The “pocket judgment” provision also protected the
Neighbors. But it did not do so by describing an alternative performance.
The “pocket judgment” provision required the Thomases to pay 300% of

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any unpaid portion of the Settlement Amount. On its face, this provision
did not provide the Thomases a realistic option. It was in no way
reasonably equivalent to the payment of the Settlement Amount on any
schedule. Based on its potential comparative value alone, the “pocket
judgment” provision was not an alternative performance, but was instead
a device designed to compel the Thomases to pay the Settlement Amount.
The language of the Settlement Agreement, though not controlling, also
supports this conclusion. First, the agreement describes the “pocket
judgment” as “secur[ity]” for the Settlement Amount instead of as an
alternative to paying the Settlement Amount. Second, the agreement
defines the value of the “pocket judgment” as a “customary amount” rather
than tying it to any facts. The “pocket judgment” was not an alternative-
performance option.

II. The Settlement Agreement’s “pocket judgment” provision
imposed a penalty.

¶21 The Neighbors next contend that even if the “pocket
judgment” provision did not describe an alternative performance, it
described liquidated damages. We disagree.

¶22 The Neighbors argue that when the parties entered the
Settlement Agreement, damages for the Thomases’ failure to pay the
Settlement Amount were difficult to estimate given the unique, hard-to-
calculate judgment-enforcement risk created by the Thomases’ move to
Canada and their efforts to sell their only significant domestic asset. But,
again, not only did the Settlement Agreement substantially increase the
Neighbors’ potential recovery, it also expressly tied that increase to a so-
called “customary” multiplier—not to the facts of the case. Although the
Neighbors later provided a website printout describing typical judgment-
enforcement costs in Canada, the printout was prepared post-breach and
the Neighbors did not assert that they relied on the website or any other
source when contracting. Further, the “pocket judgment” provision’s use
of a multiplier applied to unpaid amounts—rather than an addend applied
to the Settlement Amount—belies the Neighbors’ argument that the
provision was premised on anticipated enforcement costs, because the cost
of enforcing a judgment would not vary based on the amount of the
judgment.

¶23 On this record, we cannot say that the “pocket judgment” was
premised on a reasonable approximation of the Neighbors’ loss for a
breach, even if anticipated enforcement costs made the loss difficult to
calculate. Nor can we say that the stipulated amount was reasonable given

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the Neighbors’ actual loss incurred from receiving the first installment
payment four days late. The “pocket judgment” was an unenforceable
penalty. The balance of the Settlement Agreement, however, remains
intact. See Dobson Bay, 242 Ariz. at 110, ¶ 9.

¶24 We vacate the superior court’s entry of judgment because it
was premised not on an alternative-performance option, but rather on an
unenforceable penalty for a breach. Nothing in our decision precludes the
Neighbors from pursuing damages for the breach, though we note that any
damages may be mitigated by their acceptance of the untimely installment
payment and their alleged acceptance during this appeal of the balance due
on the Settlement Amount.

CONCLUSION

¶25 We vacate the superior court’s entry of judgment. In our
discretion, we deny the parties’ competing requests for attorneys’ fees
under A.R.S. §§ 12-341.01 and -349. The Thomases are entitled to recover
their costs on appeal under A.R.S. § 12-341 upon their compliance with
Arizona Rule of Civil Appellate Procedure 21.

MATTHEW J. MARTIN • Clerk of the Court
FILED: JR

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