Attorneys Fees - Calculating Fees Under ARS 12-341.01

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Hall v. Reed Dev., Inc., __Ariz. Adv. Rep.__ 1 CA-CV 10-0175 (App. Div. I, April 12, 2012) (J. Brown)

IN CALCULATING WHETHER A PARTY BEAT A WRITTEN OFFER TO SETTLE AT TRIAL TO JUSTIFY AN AWARD OF ATTORNEYS' FEES UNDER ARS SEC. 12-341.01 (A) COURT SHOULD INCLUDE FEES AND COSTS THE COURT AWARDS PREVAILING PARTY UP TO THE DATE OF THE WRITTEN OFFER IN JUDGMENT

Plaintiffs bought a used home. They found structural defects and sued the defendant builder for breach of the implied covenant of habitability, for recission and for negligent and intentional infliction of emotional distress. The trial court granted defendant summary judgment on the recission claims because plaintiff lacked privity of contract and judgment as a matter of law on the negligent infliction of emotional distress claim. The jury awarded plaintiffs $30,000 for breach of the implied warranty but found for defendant on the intentional infliction of emotional distress. Both parties sought attorneys' fees under ARS 12-341.01 (A). The trial court determined plaintiff to be the successful party and awarded fees of $227,500 then deducted $2,500 for the fees defendant was entitled to for prevailing upon the rescission claim. The Arizona Court of Appeals affirmed.

ARS sec. 12-341.01 (A) was amended in the legislature in 1999 to provide:

In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees.If a written settlement offer is rejected and the judgment finally obtained is equal to or more favorable to the offeror than an offer made in writing to settle any contested action arising out of a contract, the offeror is deemed to be the successful party from the date of the offer and the court may award the successful party reasonable attorney fees.
Here the defendant had offered to settle for $40,000 which exceeds the $30,000 verdict. However, because the statute states the comparison to be made is to the "judgment finally obtained" once the attorneys' fees awarded by the trial court under ARS sec. 12-341.01 (A) are added to the judgment, the judgment "finally obtained" exceeds the defendant's offer making the plaintiff the successful party on the breach of contract claim thus entitling them to fees and costs incurred subsequent to the plaintiff's settlement offer.

Although the statute is silent as to what fees to consider in determining the successful party, the court found that reading this statute consistent with Rule of Civil Procedure 68 regarding offers of judgment, the calculation should be made based upon those fees and costs incurred prior to the offer. Here, because every written offer to settle by the defendant was less than the $30,000 awarded plus fees and costs incurred reasonably prior to those offers, plaintiff was the prevailing party and entitled to recover fees. Notably, the defendant did not challenge any of the fees in question as to their reasonableness.

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