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St. Paul Guardian Insurance Co. v. Town of Colorado City

United States District Court, D. Arizona

August 8, 2016

St. Paul Guardian Insurance Company, et al. Plaintiffs,
v.
Town of Colorado City, et al., Defendants.

          ORDER

          JAMES A. TEILBORG Senior United States District Judge.

         On May 17, 2016, the Court closed this case in light of a stipulation between the parties acknowledging that all outstanding issues had been resolved by settlement in a separate action, United States v. Town of Colorado City et al, No. CV12-08123-PCT-HRH. (Doc. 81). On May 27, 2016, Defendant Town of Colorado City (“Colorado City”) filed the pending motion seeking “an award of . . . reasonable attorney’s fees incurred in defending this declaratory judgment action” pursuant to Local Rule of Civil Procedure 54.2. (Doc. 82). Having considered the parties’ filings, the Court now rules on the motion.

         I.

         Under Arizona law, “[i]n any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees.” A.R.S. § 12-341.01(a). There is no dispute that this action arises out of a contract. The Court must first determine whether Colorado City is the “successful party” within the meaning of A.R.S. § 12-341.01(a). If an affirmative finding is made, the Court must then decide whether awarding fees is appropriate. Finally, the Court must determine if the amount of fees Colorado City seeks is reasonable.

         A. Successful Party Status

         The Court has “substantial discretion” in determining who is a successful party. Fulton Homes Corp. v. BBP Concrete, 155 P.3d 1090, 1096 (Ariz.Ct.App. 2007) (quoting Pioneer Roofing Co. v. Mardian Constr. Co., 733 P.2d 652, 664 (Ariz.Ct.App. 1986)); Sanborn v. Brooker & Wake Prop. Mgmt., Inc., 874 P.2d 982, 987 (Ariz.Ct.App. 1994). Indeed, the decision “is within the sole discretion of the trial court, and will not be disturbed on appeal if any reasonable basis exists for it.” Maleki v. Desert Palms Profl Properties, L.L.C., 214 P.3d 415, 422 (Ariz.Ct.App. 2009) (quoting Sanborn v. Brooker & Wake Prop. Mgmt., Inc., 874 P.2d 982, 987 (Ariz.Ct.App. 1994)).

         “[S]uccessful parties” are “not limited to those who have a favorable final judgment at the conclusion of the” action. Wagenseller v. Scottsdale Meml Hosp., 710 P.2d 1025, 1048 (Ariz. 1985) (en banc), superseded by statute on other grounds, Ariz. Rev. Stat. § 12-341.01. As such, “[a]n adjudication on the merits is not a prerequisite to recovering attorney’s fees under [§ 12-341.01].” Fulton Homes, 155 P.3d at 1096.

         Where, as here, the matter involves multiple claims and a degree of success, the Court “may apply a ‘percentage of success’ or a ‘totality of the litigation’ test.” Berry v. 352 E. Virginia, L.L.C., 261 P.3d 784, 788-89 (Ariz.Ct.App. 2011) (quoting Schwartz v. Farmers Ins. Co. of Ariz., 800 P.2d 20, 25 (Ariz.Ct.App. 1990)); Nataros v. Fine Arts Gallery of Scottsdale, 612 P.2d 500, 505 (Ariz. App. 1980). Under this analysis, there are no “strict factors” to consider. Medical Protective Co. v. Pang, 25 F.Supp.3d 1232, 1240 (D. Ariz. 2014) (citing Berry, 261 P.3d at 788-89). Rather, the Court has discretion to review the entirety of the litigation. The Court will thus consider “‘the totality of the circumstances and the relative success of the litigants’ to determine whether there is a successful party.” Id. at 1239 (quoting McAlister v. Citibank, 829 P.2d 1253, 1263 (Ariz.Ct.App. 1992)).

         This declaratory judgment action was initiated by Plaintiffs St. Paul Guardian Insurance Company (“St. Paul”) and The Travelers Indemnity Company (“Travelers”) on December 10, 2013. (Doc. 1). Plaintiffs sought a determination as to whether they had a duty to defend and indemnify their insured, Colorado City, in separate litigation, a suit brought by the United States Department of Justice (“DOJ”) against Colorado City for violations of various federal statutes. (Doc. 59 at 1-2). Generally, the DOJ alleged that Colorado City-among others not a party to this action-had “engaged in a pattern or practice of illegal discrimination against individuals who are not members of the Fundamentalist Church of Jesus Christ of Latter-day Saints (“FLDS”).” (Id.).

         Specifically, the DOJ brought three causes of action against Colorado City. The first cause of action was for engaging in a pattern or practice of conduct that deprived persons of rights, privileges, or immunities secured or protected by the United States Constitution in violation of Title 42 U.S.C. § 14141 (2012) (the “First Cause of Action”). (Doc. 59 at 2). The second cause of action was for discriminating on the basis of religion in the availability and rental of housing and for interfering with the exercise of statutorily granted rights in violation of the Fair Housing Act (the “Second Cause of Action”). (Id.). The third cause of action was for violating the Civil Rights Act by depriving individuals “of equal utilization of a public facility” (the “Third Cause of Action”). (Id.). By the time dispositive motions were filed in the instant matter, the third cause of action had been dismissed, leaving only the first and second causes of action in the underlying litigation. (Id.).

         On January 23, 2015, Plaintiffs filed a Motion for Summary Judgment or, in the Alternative, for Partial Summary Judgment. (Doc. 44). The Court was tasked with interpreting three insurance policies covering the years 2009-2011 and 2013-2014 to determine whether the agreements established as a matter of law that Plaintiffs had no duty to defend and indemnify Colorado City. (Doc. 59 at 2-3). On July 13, 2015, the Court issued an Order granting in part, and denying in part Plaintiff’s motion. (Id. at 19).

         Interpreting these insurance policies, the Court found that with respect to the First Cause of Action, Plaintiffs had established as a matter of law that under the 2009-2011 insurance policies, there was no coverage through the (1) Public Entity General Liability, (2) the Law Enforcement Liability Protection, and (3) the Public Entity Management Liability Protection provisions. (Doc. 59 at 18). Considering the Second Cause of Action, there was no coverage through the (1) Public Entity General Liability Protection and (2) Public Entity Management Liability Protection provisions. (Id.). But Plaintiffs failed to show as a matter of law that no coverage existed for the First Cause of Action and the Second Cause of Action through “the Umbrella Excess Liability Protection and Excess Errors and Omissions Liability Protection coverage parts” of the 2009-2011 insurance policies. Additionally, there was potential coverage for the Second Cause of Action through the Law Enforcement Liability Protection coverage portion of the 2009-2011 insurance policies.[1] (Id.). Thus, Plaintiffs had not established as a matter of law that they had no duty to defend Colorado City in the underlying litigation. Whether there was a duty to indemnify Colorado City depended “on the facts to be proved” in the underlying litigation. (Id. at 19).

         On October 5, 2015, the Court reiterated that its prior Order “did not grant summary judgment in favor of” Colorado City on the issue of Plaintiffs’ duty to defend in the underlying litigation, but found that Plaintiffs had “failed to establish-as a matter of law-that all applicable insurance policies did not provide coverage for [Colorado City] against both causes of action in the underlying litigation.” (Doc. 68 at 2-3). Trial was necessary to resolve the issue. Upon Plaintiffs’ motion, (Doc. 61), the Court subsequently stayed these proceedings pending the return of a verdict in the underlying litigation. (Doc. 71 at 2). On April 13, 2016, the Court lifted the stay, (Doc. 77), and on April 28, 2016, the parties notified the Court that the substantive issues before it-Plaintiffs’ duty to defend and indemnify Colorado City-had been resolved via settlement in the underlying litigation. (Doc. 78 at 1-2). On May 17, 2016, “[b]ased on stipulation of the parties, ” the Court dismissed with prejudice the issue of Plaintiffs’ duty to indemnify, and found that the issue of the duty to defend Colorado City had been resolved by Plaintiffs’ agreement to “defend . . . Colorado City in the underlying litigation . . . through any necessary post-trial proceedings (including the enforcement of any injunction).” (Doc. 81 at 1, amended by Doc. 85).

         The Court acknowledges the difficulty in determining whether a successful party emerged in the instant action. The case was stayed following adjudication of Plaintiffs’ dispositive motion, and a party’s measure of success in this case is largely defined by the impact on the underlying litigation. The Court is also cognizant of other courts declining to award attorney’s fees where each party experiences success to a varying degree. See First Ascent Ventures Inc. v. DLC Dermacare LLC, No. CV06-1794-PHX-JAT, 2007 U.S. Dist. LEXIS 47956, at *5 (D. Ariz. June 27, 2007) (citations omitted) (citing to Arizona case law declining to award attorney’s fees where there is no clear victor). Nonetheless, having examined the totality of the litigation, the Court finds that Colorado City is the successful party, and eligible for reasonable attorney’s fees under A.R.S. § 12-341.01(a).

         Ultimately, the goal behind Plaintiffs’ action was to absolve themselves of the duty to provide coverage for Colorado City. As the Complaint makes clear, this action was directly related to the June 21, 2012, action brought against Colorado City, i.e., the underlying litigation. (See Doc. 1 at 3-4, 20-22). A valid insurance policy imposes two distinct duties on the insurer: (1) the duty to defend the insured, and (2) the duty to indemnify the insured for any claims that fall within the scope of the policy’s coverage. Colo. Cas. Ins. Co. v. Safety Control Co., 288 P.3d 764, 796 (Ariz.Ct.App. 2012). Here, the Court never arrived at the issue of the duty of indemnification, as the settlement resolving the underlying litigation rendered it moot. (See Doc. 78 at 1-2). The issue was thus dismissed by party stipulation, (see Doc. 81 at 1, amended by Doc. 85), and its adjudication does nothing to illuminate who the successful party is. Success in this matter turns on the duty to defend.

         The duty to defend “arises at the earliest stage of litigation and generally exists regardless of whether the insured is ultimately found liable.” Regal Homes, Inc. v. CNA Ins., 171 P.3d 610, 615 (Ariz.Ct.App. 2007). A favorable resolution on the issue in this matter was critical to Plaintiffs’ involvement in the underlying litigation. As noted supra, Plaintiffs filed a Motion for Summary Judgment or, in the Alternative, for Partial Summary Judgment, on January 23, 2015. (Doc. 44). The Court granted in part and denied in part Plaintiffs’ motion, and a successful summary judgment motion is a piece in the totality of the litigation that may be considered by the Court. Wagenseller, 710 P.2d at 1047-48. Since Plaintiffs were successful in ...


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