American Power Products v. CSK Auto – 3/23/2017
The Arizona Supreme Court holds that when a contract (1) contains a provision awarding fees to the “prevailing party,” and (2) states that Arizona law governs the rights and remedies available under the contract, then A.R.S. § 12-341.01 provides the applicable definition of “prevailing party.”
Two companies entered into a contract regarding the sale of electric scooters. The contract provided that in the event of an action arising out of the contract the “prevailing party” could recover its attorney fees. It further provided that Arizona law would govern the rights and remedies available to the parties.
A.R.S. § 12-341.01 provides that the “successful party” in an action arising out of contract is entitled to recover its attorney fees, and that a party that makes a written offer of settlement “is deemed to be the successful party from the date of the offer” if the offeror ultimately obtains a final judgment that is “equal to or more favorable to” its offer. Section 12-341.01 further provides that it “shall not be construed as altering, prohibiting or restricting present or future contracts or statutes that may provide for attorney fees.”
The seller brought an action against the buyer for breach of contract and negligent misrepresentation and sought approximately $5 million in damages. The buyer counterclaimed and sought approximately $950,000 in damages. The buyer then served the seller with an offer of judgment under Arizona Rule of Civil Procedure 68. The buyer offered $1,000,001, inclusive of all damages, costs, and attorneys’ fees. The seller rejected the offer and ultimately obtained a verdict of $10,733. The trial court applied a totality-of-the-litigation test and ruled that the seller was the “prevailing party” for purposes of awarding attorney fees. The court of appeals affirmed, reasoning that the buyer was not the “successful party from the date of the offer” because A.R.S. § 12-34.01 cannot override a contractual agreement regarding fee awards.
The Arizona Supreme Court disagreed. It reasoned that § 12-341.01 is inapplicable only to the extent it conflicts with an express contractual provision. The Court concluded that, because the contract in this case did not provide its own definition of “prevailing party,” applying the definition contained in § 12-341.01 would not create a conflict. The Court then held that the buyer was the “successful party from the date of the offer” and was therefore entitled to fees incurred in defending against the seller’s claims from the date of its offer. The Court further concluded that the trial court did not abuse its discretion in holding that the seller was the successful party during the period prior to the buyer’s offer, and therefore the seller was entitled to its attorney fees for that period of time.
The dissent reasoned that § 12-341.01, by its express terms, cannot “alter, prohibit or restrict” a contract, and therefore should not be invoked where, as here, applying the statute alters the amount of fees that a party would have been entitled to under the contract alone.
Vice Chief Justice Pelander authored the opinion of the Court, in which Chief Justice Bales and Justices Brutinel and Bolick joined. Justice Timmer dissented.