## Facts

- Rancho Pescado, Inc. was formed to develop a commercial catfish-farming operation in Arizona, led by its president, James Jones.
- Northwestern Mutual Life Insurance Co. owned the Gila Bend Canal and related ranch lands through a subsidiary that used the canal water for downstream agricultural operations.
- After preliminary discussions and a pilot effort, the parties executed a December 1973 license agreement granting Rancho Pescado the right to raise fish in part of the canal for five years.
- Disputes arose over canal operations and alleged interference with Northwestern’s water delivery and use.
- Northwestern sent a December 10, 1974 letter terminating the license “for cause,” effective December 31, 1974, and directed Rancho Pescado to vacate by April 1, 1975.
- Rancho Pescado sued for breach on January 6, 1975, seeking damages including future lost profits.
- Northwestern sought to compel arbitration under the agreement’s arbitration clause; the trial court denied the request and the case proceeded to jury trial.
- The jury awarded Rancho Pescado $2.5 million; the trial court later reduced the judgment to $101,510 by disallowing lost future profits as speculative.
- Rancho Pescado appealed the lost-profits reduction; Northwestern cross-appealed, challenging denial of arbitration and related rulings.

## Issues

1. Whether Northwestern waived any contractual right to compel arbitration by its litigation conduct after the trial court denied arbitration.
2. Whether Rancho Pescado proved future lost profits with reasonable certainty sufficient to support the jury’s award.

## Decision

- The court affirmed denial of Northwestern’s motion to compel arbitration, holding Northwestern waived arbitration by failing to timely pursue review of the denial and by proceeding through trial.
- The court affirmed the reduced damages award, holding Rancho Pescado failed to establish future lost profits with reasonable certainty.
- The court upheld judgment for Rancho Pescado in the reduced amount of $101,510.

## Legal Principles

- A contractual right to arbitrate can be waived by litigation conduct inconsistent with arbitration, including proceeding to trial after denial of a motion to compel and failing to timely seek available review.
- Courts will not permit a party to litigate to verdict and then attempt to invoke arbitration after an adverse outcome.
- Lost profits are recoverable only when proved with reasonable certainty; this standard applies to new businesses, but requires a concrete factual basis for calculating profits.
- Profit projections may be rejected as speculative where the enterprise lacks a demonstrated track record, the pilot experience is inconclusive, market and distribution capacity is unproven, or the profit model is not supported by reliable data.

## Conclusion

The court held Northwestern forfeited arbitration by not timely preserving that right and by allowing the dispute to be tried, and it limited damages to non-speculative losses because the fish-farming venture’s claimed future profits were not proven with reasonable certainty.


Rancho Pescado, Inc. v. Nw. Mut. Life Ins. Co., 140 Ariz. 174, 680 P.2d 1235 (Ariz. Ct. App. 1984)