Aqua Management, Inc. v. Abdeen – 3/23/2010

April 27, 2010

Arizona Court of Appeals Division One Holds That in Performing a Rule 77(f) Analysis , Trial Courts Should Consider Attorneys’ Fees Included in an Arbitration Award and Prejudgment Interest Included in the Trial Court’s Judgment, But Not Post-Judgment Interest on the Arbitration Award.

Following an arbitration hearing on their breach of contract action, the arbitrator entered a notice of decision under Arizona Rule of Civil Procedure 76(a) and awarded Aqua Management, Inc. (“AMI”) $7650.00 in damages.  The arbitrator did not award prejudgment interest but awarded attorneys’ fees and costs.   The Abdeens appealed and following a bench trial, the trial court awarded AMI $7076.76 in damages and prejudgment interest but declined to award attorneys’ fees.  AMI moved for attorneys’ fees pursuant to Rule 77(f).  The trial court concluded that the judgment was not 23% more favorable to AMI than the arbitration award because the attorneys’ fees included in the arbitration award were not part of the monetary relief to be considered and denied the motion.  AMI filed a motion for reconsideration, arguing that because the Abdeens appealed they were the party required to obtain a judgment 23% more favorable than the arbitration award under Rule 77(f).  Before the court could rule, AMI filed an appeal arguing that the trial court misapplied Rule 77(f).

 The Arizona Appeals Court vacated the trial court’s denial of AMI’s request for Rule 77(f) sanctions and remanded for further proceedings.  Pursuant to Rule 77(f), if the judgment on the trial de novo is not at least 23% more favorable than the monetary relief granted by the arbitration award, then the court shall award costs and fees to the appellee unless it finds that such an award would create such a substantial economic hardship as not to be in the interests of justice.  The Court concluded that the term “arbitration award” includes awards of attorneys’ fees or costs and therefore the trial court erred in failing to include the attorneys’ fees portion of the arbitration award as part of the Rule 77(f) analysis.  The Court further held that the trial court erred by failing to include the awarded prejudgment interest in the Rule 77(f) analysis.   The Court reasoned that because AMI sought prejudgment interest in its complaint, the Abdeens were on notice at the time they appealed the arbitration award that the trial court could grant this form of relief, and should have considered this award in assessing whether to appeal.  The Court also held that post-judgment interest on the arbitration award should not be considered as part of the Rule 77(f) analysis.  The Court explained that post-judgment interest is not part of the “monetary relief” granted by the arbitration award, but rather is an enforcement mechanism designed to encourage timely satisfaction of judgments.   Moreover, once the appeal was filed, the arbitration award was no longer subject to becoming an enforceable judgment and therefore was not capable of accruing post-judgment interest.  Finally, the Court reasoned that allowing post-judgment interest to be considered in the Rule 77(f) analysis would create an incentive for defendants to delay the resolution of the case in an effort to inflate the total amount of the arbitration award. 

Because the Abdeens did not obtain a judgment that was 23% more favorable than the arbitration award, the trial court should have awarded AMI its attorneys’ fees, costs, and expert fees necessitated by the appeal unless it determined that substantial economic hardship would result for the Abdeens. 

Judge Portley authored the opinion, Judges Johnsen and Barker concurred.