Civil Procedure-Sanctions Under Offer of Judgment/Attys' Fees/Prejudgment Interest

Civil Procedure—Sanctions Under Offer of Judgment/Attys' Fees/Prejudgment Interest

Berry v. 342 E. Virginia, LLC, 610 Ariz. Adv. Rep. 14 (App. Div. I, June 9, 2011) (J. Weisberg)

WHERE PARTY FAILS TO PLEAD OR PROVE THE RIGHT TO ATTYS' FEES PURSUANT TO CONTRACT PROVISION AND ONLY PLEADS A GENERAL RIGHT TO FEES, ARS 12-341.01 AND NOT THE CONTRACT GOVERNS/WHERE PARTY DEMONSTRATES PRECISELY HOW TO CALCULATE DAMAGES, DAMAGES ARE LIQUIDATED DESPITE FACT OPPOSING PARTY CONTESTS THEM AND PREJUDGMENT INTEREST IS APPROPRIATE/RULE 68 SANCTIONS MAY BE AWARDED TO PREVAILING PARTY BASED UPON “TOTALITY OF LITIGATION” AND ARE DETERMINED BASED UPON FEES AND COSTS INCURRED UP TO THE TIME OF THE OFFER

Plaintiff sold defendant a building. A dispute arose over plaintiff's obligation to pay for improvements. A suit and counterclaim followed. Both parties served offers of judgment and claimed a right to attorneys' fees. The jury found that defendant was entitled to $8,625 out of escrow to cover the improvements and found for plaintiff on defendant's counterclaim. The trial court awarded defendant $50,000 in attorneys' fees under ARS sec. 12-341.01, $3,617.70 in taxable costs, prejudgment interest in the amount of $1,290.12 and $1,854.84 in Rule 68 sanctions based upon the “totality of the circumstances.” The Arizona Court of Appeals affirmed in part and vacated the judgment, remanding for further proceedings concerning the issue of “prevailing party” for Rule 68 sanctions.

First the court of appeals acknowledged that while the contract between the parties provided for the award of attorneys' fees to the prevailing party, since the defendant did not plead the contract provision or make proof there under at trial, the issue of attorneys' fees would be solely governed by ARS sec. 12-341.01. This statute gives the trial court discretion to award the “prevailing party” in an action “arising out of contract . . . reasonable attorneys' fees.” Hence, the trial court properly disregarded the contract and proceeded with an ARS sec. 12-341.01 analysis. As such the trial court has broad discretion, may award fees to a party who does not win on all issues, may determine the winning party on certain issues is not entitled to fees and overall should award fees to the “net winner” or apply a “percentage of success” or a “totality of the litigation” analysis when there are multiple claims, set offs and counterclaims. Partial success does not preclude a discretionary award of fees and where the trial court substantially reduced the amount awarded the defendant as compared to what was asked for it acted within its discretion.

As to prejudgment interest, because the defendant provided invoices which demonstrated a precise calculation of the amounts owed, the damages were liquidated despite the fact plaintiff disputed them and therefore prejudgment interest was properly awarded.

Plaintiff also claimed a right to attorneys' fees pursuant to the second sentence of ARS sec. 12-341.01(A) which provides fees may be awarded where a party makes a “written settlement offer” which is rejected and where the “judgment finally obtained is equal to or more favorable to the offeror.” Here while plaintiff made an offer pretrial that was equal to the amount of the verdict, the actual “judgment obtained” included prejudgment interest and taxable costs thus rendering the second sentence of the statute inapplicable.

Finally, the plaintiff challenged the trial court's award to defendant of Rule 68 sanctions. Before trial defendant had served a $25,000 offer of judgment on the plaintiff to include all damages, fees and costs. The judgment, interest, costs and fees which the trial court considered in awarding these sanctions, however was measured at the date of the judgment. Instead, the case was remanded for a computation of those damages up to the time of the making of the offer of judgment and not thereafter. Only if such a computation as of the time of the offer establishes the defendant beat its offer will the Rule 68 sanctions be allowed.