Arizona Court of Appeals Division One holds that attorneys’ fees may be properly awarded under A.R.S. § 12-341.01 on a claim for breach of the implied warranty of workmanship and habitability.

Homeowners hired a contractor to dig a basement and build exterior walls.  The homeowners did not pay the contractor’s final invoice and he sued for breach of contract.  The homeowners then asserted various counterclaims based on alleged defects in the contractor’s work.  At trial, the jury found in the contractor’s favor on his contract claim but also found in the homeowners’ favor on their claim for breach of the implied warranty of workmanship and habitability.  The contractor was awarded $31,374 and the homeowners were awarded $297,782.  The trial court also awarded attorneys’ fees to the homeowners under A.R.S. § 12-341.01, concluding that the warranty of workmanship and habitability was implied in the construction contract and that the homeowners were the successful party because their damages award was much larger than the contractor’s award.  The contractor appealed the award of attorneys’ fees and the trial court’s denial of his request for prejudgment interest on his damages award, which the trial court denied as untimely. 

The Court of Appeals affirmed in part and reversed in part.  Under A.R.S. § 12-341.01, a court may award the “successful party” its attorneys’ fees in an “action arising out of a contract.”   The contractor argued that the homeowners had not prevailed on any claim to enforce the construction contract and that fees were therefore unavailable.   The Court disagreed, finding that the warranty of workmanship and habitability was implied in the construction contract between the contractor and the homeowner.  Thus, the homeowners’ claim for breach of that warranty enforced a term or provision of the construction contract.  The Court also rejected the contractor’s argument that he was actually the prevailing party for purposes of §12-341.01 because he had prevailed on his breach of contract claim and affirmed the trial court’s conclusion that the homeowners were the prevailing parties because of their larger damages award. 

Judge Howe authored the opinion of the Court; Judges Cattani and Thumma concurred.