United States District Court, D. Arizona
V. Wake Senior United States District Judge
the Court is Defendant's Motion for Recovery of
Attorneys' Fees and Costs (Docs. 82, 85), Plaintiff's
Responses (Docs. 90, 91), and Defendant's Reply (Doc.
96). The Court grants the motion in part and will award fees
against Plaintiff. The Court denies the motion for fees and
sanctions against Plaintiff's counsel.
November 16, 2016, this Court granted summary judgment for
defendants Calypso Systems Incorporated and Eden Kim
(“Calypso”) in an action filed by plaintiff Barry
Atkins. (Doc. 80.) That action alleged various contract and
tort claims stemming from a 2008 conversion agreement between
the two parties. The facts are discussed at length in that
order. The following summary recaps those findings pertinent
to the present motion.
saga began in 2007 when Atkins, a long-time financial
investor, provided a bridge financing loan to Calypso, a
Silicon Valley startup. (Technically speaking, the loan was
furnished by “Adventure Ventures, ” a corporation
owned and operated by Atkins and his wife. Atkins acted as an
agent of Adventure during all times relevant to this case,
and all of Adventure's interests in Calypso were
transferred to Atkins personally prior to this action.) The
initial loan was for $125, 000. Upon Calypso's request
Atkins increased it to $137, 000 as of January 2008.
2008, amid talks to merge with another company, Calypso
reached out to all its investors and asked them to convert
their outstanding debt interests into stock, essentially
discharging Calypso from its debts to them in exchange for
ownership shares in the company. Atkins was one such
investor. During 2008, Atkins and Calypso exchanged and
signed documents that, by their express terms, converted
Atkins's loan debt into Calypso stock. A number of
subsequent written communications between the two reflected
that both parties believed this mutually. In 2014, however,
Atkins demanded Calypso repay its loans after its merger
efforts fell through. When Calypso refused because of the
debt-to-stock conversion, Atkins filed this action alleging
breach of contract and the torts of fraud, negligent
misrepresentation, conversion, and unjust enrichment.
complaint and subsequent affidavits, Atkins purported that
Eden Kim, Calypso's founder and CEO, made a number of
oral assurances to the effect that the conversion would not
be final until the company actually merged and that
Atkins's debt would eventually be repaid. Atkins
maintained over the course of litigation that no one from
Calypso ever told him they believed the debt had converted to
stock. He further maintained that Kim “lulled”
him into letting various statutes of limitation pass by
repeatedly assuring him a merger was imminent. However, as
discovery progressed, more and more evidence emerged that
Atkins knew (and, until 2014, did not contest that) his loan
debt had converted to Calypso stock pursuant to a contract he
himself signed. In June of 2016, after moving for summary
judgment but before submitting its brief in reply to
Atkins's response, Calypso learned from a third party
that Atkins had also been deposed in a separate 2009
proceeding but had not turned over the deposition transcript
in the course of discovery. The deposition transcript showed
Atkins admitting point blank that as of 2009, Calypso had in
fact communicated to him their position that the loan debt
had converted into stock.
filed a motion to dismiss on March 2, 2015, which this Court
granted in part and denied in part. The Court dismissed
Atkins's claim of fraud, which was insufficiently pled
pursuant to Federal Rule of Civil Procedure 9(b). The Court
permitted the rest of his claims to move forward on the facts
alleged. After several of the discovery revelations described
above, Calypso filed a motion for summary judgment on May 3,
2016. This Court granted that motion in full.
ATTORNEYS' FEES AGAINST ATKINS
default rule for an action seeking attorneys' fees is the
so-called “American Rule”: regardless of the
outcome, litigants pay their own fees unless a statute or
contract specifies otherwise. Marx v. General Revenue
Corp., - U.S. -, 133 S.Ct. 1166, 1175 (2013). However,
it is well-accepted that “federal courts have inherent
power to award attorney's fees in a narrow set of
circumstances, including when a party brings an action in bad
addition, Arizona provides a statutory basis for courts to
assess attorneys' fees against a party “[i]n any
contested action arising out of a contract, express or
implied . . . .” Ariz. Rev. Stat. § 12-341.01(A).
An action arises out of a contract “when the duty
breached is ‘created by the contractual relationship,
and would not exist but for the contract.'”
Assyia v. State Farm Mut. Auto. Ins. Co., 229 Ariz.
216, 220, 273 P.3d 668, 672 (Ariz.Ct.App. 2012) (quoting
Barmat v. John & Jane Doe Partners A-D, 155 Ariz.
519, 523, 747 P.2d 1218, 1222 (1987)) (internal quotation
marks omitted). See also ASH, Inc. v. Mesa Unified Sch.
Dist. No. 4, 138 Ariz. 190, 192, 673 P.2d 934, 936
(Ariz.Ct.App. 1983) (“[A]s used in A.R.S. §
12-341.01, the words ‘arising out of a contract'
describe an action in which a contract was a factor causing
the Court's inherent sanctioning power, the parties were
instructed to address in their briefing whether section
12-341.01 calls for attorneys' fees to be assessed
against Atkins for both his breach of contract claims and his
tort claims. (Doc. 88.) Calypso argues the statute does
apply, but that the Court can and should award fees under its
inherent power either way. (Doc. 96 at 2.) As Atkins
correctly points out, this Court previously determined that
he and Calypso chose California law to govern the contract
out of which this dispute arose. (Doc. 43 at 15.) As a
result, Atkins argues section 12-341.01 is inapplicable to
his contract claims and does not justify an award for his
tort claims. (Doc. 91 at 5.) He does not contest the
Court's inherent power to assess fees generally but does
insist fees are not warranted in his case.
applicability of section 12-341.01 to Atkins's contract
claims is somewhat murky given the parties' contractual
California choice-of-law provision. But the issue need not be
decided here, because this Court also has the inherent power
to “assess attorney's fees when a party has acted
in bad faith, vexatiously, wantonly, or for oppressive
reasons.” Chambers v. NASCO, Inc., 501 U.S.
32, 45-46 (1991) (internal quotation marks omitted). Among
the circumstances in which this applies, a court may grant
fees where it finds “that fraud has been ...