American Power Products, Inc. v. CSK Auto, Inc., 761 Ariz. Adv. Rep. 33 (March 23, 2017) (J. Pelander)

WHERE CONTRACT PROVIDES “PREVAILING PARTY” IN CONTRACT DISPUTE IS ENTITLED TO RECOVER ATTORNEYS' FEES BUT DOES NOT DEFINE “PREVAILING PARTY” ARS SEC. 12-341.01 CONTROLS/PARTY THAT OBTAINS JUDGMENT LESS FAVORABLE TO SETTLEMENT OFFER IS NOT PREVAILING PARTY 

American Power Products entered into a master vendor contract with CSK Auto, Inc. to sell it electric scooters and other items.  In 2005, American sued CSK for breach of contract and negligent misrepresentation, seeking more than $5 million in damages. CSK asserted various affirmative defenses and counterclaims and sought damages of approximately $950,000. In 2011, several months before trial, CSK served American with an offer of judgment under Rule 68, Ariz. R. Civ. P., in the amount of $1,000,001, "inclusive of all damages, taxable court costs, interest and attorneys' fees." American did not accept the offer and, after trial, obtained a jury verdict in the amount of $10,733. The trial court then awarded American Power $775,000 in attorneys' fees and the Arizona Court of Appeals affirmed. The Arizona Supreme Court vacated and remanded the trial court and vacated in part the court of appeals.

Under Arizona law, a court may award reasonable attorney fees to the successful party in a contested contract action. A.R.S. §12-341.01(A). If a party makes a written settlement offer that is rejected and the final judgment is more favorable to the offering party, that party "is deemed to be the successful party from the date of the offer." If the contract between the parties provides otherwise it will normally control. However, whereas here, the contract provides the “prevailing party” is entitled to recover attorneys' fees and does not define “prevailing party” but does specify that Arizona law governs interpretation of the contract, A.R.S. §12-341.01(A) controls.

The trial court is directed to assess fees against American Power for fees incurred by CKS defending after the offer of judgment and against CKS in American Power's favor for fees incurred defending CKS' failed counterclaim.