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Knightbrook Insurance Co. v. Payless Car Rental System, Inc.

United States District Court, D. Arizona

July 1, 2015

KnightBrook Insurance Company and Knight Management Insurance Services, LLC, Plaintiffs,
v.
Payless Car Rental System, Inc.; PCR Venture of Phoenix, LLC; ABC Corporations I-X; XYZ Partnerships I-X. Defendants.

ORDER

DAVID G. CAMPBELL, District Judge.

Plaintiffs have filed a motion for attorneys' fees. Doc. 380. Defendants have filed a motion to alter or amend the judgment pursuant to Rules 52(b) and 59(e). Doc. 384. The motions are fully briefed, and no party has requested oral argument. The Court will grant Defendants' motion to amend the judgment and award attorneys' fees of $41, 145.

I. Background.

The parties in this case, KnightBrook Insurance Company and Knight Management Insurance Services, LLC (collectively, the "Knight entities"), and Payless Car Rental System, Inc. and PCR Venture of Phoenix, LLC (collectively, the "Payless entities"), were originally sued by Robert and Lorraine McGill for negligence, negligent misrepresentation, breach of contract, and bad faith, among other claims. The Knight entities entered into a settlement with the McGills for $970, 000, and then asserted claims against the Payless entities for breach of contract, negligent misrepresentation, negligence, and equitable indemnification, among others. The Payless entities filed a counterclaim against the Knight entities for insurance bad faith.

At the conclusion of a bench trial, the Court entered judgment in favor of the Knight entities on their claim for equitable indemnification, finding the Payless entities liable for the entire $970, 000. Docs. 376, 377. The Court ruled against the Knight entities on all of their other claims, and found in favor of the Knight entities on the Payless entities' claim for insurance bad faith. Doc. 376 at 7, 12, 24.

In its order awarding the Knight entities $970, 000, the Court also found that they were entitled to recover some attorneys' fees:

"The general rule is that attorney's fees and costs are recoverable as part of the indemnification." Schweber Electronics v. Nat'l Semiconductor Corp., 850 P.2d 119, 125 (Ariz.Ct.App. 1992). There is, however, an important limitation: "the right of indemnity includes a right to attorney's fees incurred in defending the underlying claim, but does not include the right to fees incurred in establishing the right of indemnity." INA Ins., 722 P.2d at 983; see also Howard P. Foley Co. v. Employers-Commercial Union, 488 P.2d 987, 990 (Ariz.Ct.App. 1971) ("[L]egal fees and expenses incurred in connection with trial of the issue of indemnity are not recoverable by the indemnitee."). The Knight entities will be awarded the attorneys' fees they incurred in defending against the McGills' second lawsuit, but not the fees incurred in pursuing their claim against the Payless entities.

Doc. 376 at 23.

The Knight entities have now filed a memorandum seeking attorney's fees. Doc. 380. They seek two categories of fees: $107, 424.00 incurred in defending against the McGills' lawsuit and $68, 575.33 incurred in defending against the Payless entities' counterclaim for bad faith. Doc. 389 at 9; Doc. 390 at 1. The Knight entities do not seek to recover fees incurred in litigating their various claims - including their successful claim for equitable indemnification - against the Payless entities. Doc. 380 at 5.

The Payless entities have filed a motion to alter or amend the Court's judgment. They ask the Court to hold that the Knight entities cannot recover fees as part of their damages in the indemnity claim because the Knight entities failed to include such relief in the joint pre-trial order. Doc. 384. In response, the Knight entities clarify that they do not seek to recover any fees as damages. Doc. 389 at 4 ("The issue regarding [the Knight entities'] attorneys' fees was not included in the [final pretrial order], and witnesses and exhibits were not disclosed concerning proving-up attorneys' fees as damages, because they were not and are not sought in that context."). Rather, the Knight entities seek both categories of their fees under A.R.S. ยง 12-341.01. Doc. 389.

II. Motion to Alter or Amend Judgment.

As quoted above, the Court's order awarding $970, 000 to the Knight entities also held that they could recovery attorneys' fees incurred in defending against the McGill lawsuit. The Court found these fees to be recoverable as indemnification damages. The Court relied on Schweber Electronics v. Nat'l Semiconductor Corp., 850 P.2d 119 (Ariz.Ct.App. 1992), which held that "attorney's fees and costs are recoverable as part of the indemnification. " Id. at 125 (emphasis added); Doc. 376 at 23.

When the Court entered this order, it was not aware that the Knight entities had failed to preserve their right to attorneys' fees as indemnification damages in the final pretrial order. Because a claim for damages not included in a final pretrial order is waived, Rockwell Intern. Corp. v. United States, 549 U.S. 457, 474 (2007), the Court will, by this order, amend its previous order's suggestion that the Knight entities may recover attorneys' fees as indemnification damages. Such damages are not available given the waiver in the final pretrial order. The Court must therefore consider whether the Knight ...


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