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Maricopa County v. Office Depot, Inc.

United States District Court, D. Arizona

May 10, 2017

MARICOPA COUNTY, a political subdivision of the State of Arizona, Plaintiff,
v.
OFFICE DEPOT, INC., a Delaware corporation, Defendant.

          ORDER MOTION FOR ATTORNEYS' FEES AND NON-TAXABLE EXPENSES

          H. Russel Holland United States District Judge.

         Defendant moves for an award of attorneys' fees and non-taxable expenses.[1] This motion is opposed.[2] Oral argument was requested but is not deemed necessary.

         Background

         This case involves plaintiff Maricopa County's purchase of office supplies from defendant Office Depot Inc. via the U.S. Communities program. U.S. Communities is a cooperative purchasing organization for government and non-profit entities. Certain U.S. Communities' members serve as “lead agencies” which bid out supplier contracts that allow other U.S. Communities members to “piggyback” on the contracts, meaning that they can purchase goods from the supplier at the prices in the lead agency's contract.

         Plaintiff piggybacked on a Master Agreement that was between defendant and Los Angeles County. As the supplier under the Master Agreement, defendant also entered into an Administration Agreement with U.S. Communities.

         Plaintiff commenced this action on May 1, 2014 in state court, which was subsequently removed to this court on the basis of diversity jurisdiction. In its complaint, plaintiff asserted five claims against defendant, three fraud claims (statutory fraud, common law fraud and deceit, and negligent misrepresentation) and two contract claims. Plaintiff sought “no less than $6.75 million in damages....”[3]

         Plaintiff's breach of contract claims were based on allegations that defendant “promised [plaintiff] ... that it would receive the lowest prices offered to any state or local governmental entities in the United States for goods it purchased from” defendant[4] but that defendant “failed to provide [plaintiff] with the lowest prices it offered to any state or local governmental entities....”[5] Plaintiff's fraud claims were based on allegations that defendant had “misrepresented to [plaintiff], among other things, that the prices it charged ... for office supplies were the lowest it charged to any other state and local governmental entity in the United States.”[6]

         Defendant moved to dismiss[7] all of plaintiff's claims. The court granted defendant's motion in part and denied it in part.[8] The court dismissed plaintiff's contracts claims that were based on allegations that defendant breached the Master Agreement, and the court dismissed plaintiff's fraud claims.[9] Plaintiff's contract claims which were based on allegations that defendant breached the Pricing Commitment in the Administration Agreement survived the motion to dismiss.[10] The court concluded that plaintiff was an intended third-party beneficiary of the Administration Agreement with a right to enforce the Pricing Commitment.[11]

         After fact discovery was complete, the parties cross-moved for summary judgment on whether defendant had breached the Administration Agreement. In the cross-motions, the parties advanced different interpretations of the Pricing Commitment. The court found that plaintiff's proposed interpretation was not supported by the extrinsic evidence. The court concluded that defendant had not breached the Administration Agreement and thus granted defendant's motion for summary judgment and denied plaintiff's partial motion for summary judgment.[12] Judgment was entered on December 1, 2016, dismissing plaintiff's complaint with prejudice.[13]

         Defendant now moves for an award of $1, 076, 678.35 in attorneys' fees and $68, 277.29 in non-taxable expenses.

         Discussion

         “A party requesting an award of attorneys' fees and non-taxable expenses must show that it is (1) eligible for an award; (2) entitled to an award; and (3) requesting a reasonable amount of attorneys' fees.” Smith v. Ariz., Case No. CV-13-00332-PHX-SRB, 2014 WL 11342455, at *1 (D. Ariz. Feb. 11, 2014) (citing LRCiv. 54.2(c)).

         Defendant is eligible for attorneys' fees pursuant to A.R.S. § 12-341.01(A), which provides that “[i]n any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees.” Defendant is also eligible for attorneys' fees and non-taxable expenses pursuant to Section 1717(a) of California's Civil Code, which provides that

[i]n any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is deter- mined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs.

         The Administration Agreement, which is to “be governed exclusively by and construed in accordance with the applicable laws of the State of California, ” provides that “[i]f any action at law or in equity is brought to enforce or interpret the provisions of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees and costs....”[14]

         In order to be entitled to fees pursuant to A.R.S. § 12-341.01(A), defendant must first show that this was a “contested action arising out of a contract.” Although plaintiff asserted statutory and tort claims (the fraud claims) as well as contract claims, “‘[i]t is well-established that a successful party on a contract claim may recover not only attorneys' fees expended on the contract claim, but also fees expended in litigating an interwoven tort claim.'” Modular Mining Systems, Inc. v. Jigsaw Technologies, Inc., 212 P.3d 853, 860 (Ariz.Ct.App. 2009) (quoting Ramsey Air Meds., L.L.C. v. Cutter Aviation, Inc., 6 P.3d315, 318 (Ariz.Ct.App. 2000)). Plaintiff's fraud claims and contract claims were interwoven as evidenced by the court's order on defendant's motion to dismiss. The court held that plaintiff's common law fraud claims were barred by the economic loss rule because they were “based on the same alleged conduct as [plaintiff's] contract claims[.]”[15] And, the court found that “[p]laintiff's statutory fraud claim [was] based on allegations that defendant represented that its contracts guaranteed that plaintiff would be charged the lowest governmental pricing for office supplies”, which were “representations as to the meaning of the contract, not representations of fact.”[16] Defendant is entitled to recover fees expended on both plaintiff's fraud claims and plaintiff's contract claims, as long as defendant meets the other requirements of A.R.S. § 12-341.01.

         In order to be entitled to fees under A.R.S. § 12-341.01, defendant must also show that it was the successful party. “To determine whether a party is successful under Section 12-341.01, a court should consider ‘the totality of the circumstances and the relative success of the litigants.'” Medical Protective Co. v. Pang, 740 F.3d 1279, 1283 (9th Cir. 2013) (quoting McAlister v. Citibank, 829 P.2d 1253, 1262 (Ariz.Ct.App. 1992)). “Where, as here, a case involves multiple claims..., ‘the successful party is the net winner.'” Id. (quoting Berry v. 352 E. Va., LLC, 261 P.3d 784, 788 (Ariz.Ct.App. 2011)). “Courts may determine the relative success of the parties by using a ‘percentage of success factor' test, or by looking at the ‘totality of the litigation.'” Id. (quoting Schwartz v. Farmers Ins. Co. of Ariz., 800 P.2d 20, 25-26 (Ariz.Ct.App. 1990)).

         Defendant contends that it is entitled to fees under Section 12-341.01 for the period of time up until its motion to dismiss was granted. Although as plaintiff points out, defendant was only partially successful on the motion to dismiss, all but one of plaintiff's claims were dismissed as a result of defendant's motion to dismiss. In addition to plaintiff's fraud claims being dismissed, the court also dismissed plaintiff's contract claims which were based on the Master Agreement. Plainly, defendant was the successful party as far as the motion to dismiss was concerned.

         “If the court finds that a party is the ‘successful party' as envisioned in A.R.S. §12-341.01, the court may then exercise its discretion on whether to award reasonable attorneys' fees.” Lexington Ins. Co. v. Scott Homes Multifamily Inc., Case No. CV-12-02119-PHX-JAT, 2016 WL 5118316, at *4 (D. Ariz. Sept. 21, 2016). “[T]here is no presumption that a successful party should be awarded attorney fees under § 12-341.01.'” Motzer v. Escalante, 265 P.3d 1094, 1095 (Ariz.Ct.App. 2011).

In determining whether to exercise its discretion to award attorneys' fees under § 12-341.01(A), the Arizona Supreme Court concluded in Associated Indemnity that a court may consider, among other factors, the following:
(1) the merits of the unsuccessful parties' claim or defense; (2) whether litigation could have been avoided or settled; (3) whether assessing fees against the unsuccessful party would cause extreme hardship; (4) whether the successful party prevailed with respect to all relief sought; (5) the novelty of the issues; and (6) whether the award will overly deter others from bringing meritorious suits.

Lexington Ins. Co., 2016 WL 5118316, at *4 (quoting Velarde v. PACE Membership Warehouse, Inc., 105 F.3d 1313, 1319 (9th Cir. 1997)).

         Plaintiff urges the court to exercise its discretion and not award defendant any attorneys' fees under Section 12-341.01(A). Plaintiff argues that fees should not be awarded because doing so would discourage litigants from advancing positions which have merit. Plaintiff argues that its claims had merit and that this was a close case, as evidenced by the fact that one of plaintiff's claims survived the motion to dismiss and that the court found both parties' interpretation of the Pricing Commitment reasonable, if only the four corners of the Administration Agreement were considered.[17] Plaintiff also argues that fees should be not awarded because this case involved a public agency attempting to protect the tax dollars of its constituents. Finally, plaintiff argues that it did not bring its claims in bad faith.

         The court is not persuaded by plaintiff's arguments. While plaintiff's complaint was not frivolous nor brought in bad faith, all of plaintiff's claims lacked merit. Defendant also engaged plaintiff in a serious effort to avoid litigation. Assessing attorneys' fees on a large governmental agency such as plaintiff will not cause extreme hardship. The business arrangement between defendant and plaintiff was novel but the issues to be resolved were not. And, there is no reason to believe that imposing attorneys' fees will deter plaintiff or others from bringing meritorious suits. Defendant is entitled to attorneys' fees under A.R.S. § 12-341.01(A).

         As for defendant's entitlement to attorneys' fees and non-taxable expenses under Section 1717(a) of California's Civil Code, “[w]here a nonsignatory plaintiff sues a signatory defendant in an action on a contract and the signatory defendant prevails, the signatory defendant is entitled to attorney fees only if the nonsignatory plaintiff would have been entitled to its fees if the plaintiff had prevailed.” Cargill, Inc. v. Souza, 201 Cal.App.4th 962, 967 (Cal.Ct.App. 2011) (citation omitted). Plaintiff argues that it would not have been entitled to fees under the Administration Agreement because it was not a party to that agreement. Plaintiff cites to Sessions Payroll Management, Inc. v. Noble Const. Co., 101 Cal.Rptr.2d 127 (Cal.Ct.App. 2000), in support of its argument. There, the attorney fee clause in the contract provided:

In the event it becomes necessary for either party to enforce the provisions of this Agreement or to obtain redress for the violation of any provision hereof, whether by arbitration, or otherwise, the prevailing party shall be entitled to recover from the other party all costs and expenses associated with such action, including statutory interest and reasonable attorney fees.

Id. at 130. The court held that a third-party beneficiary would not be entitled to attorneys' fees under this clause because the recovery of attorneys' fees was expressly limited to “either party.” Id. at 133. The court explained that the word “‘party' limits recovery of attorney fees to a ‘party' to the contract, reflecting the intent of Noble and Mackey to exclude non-signatories, such as Sessions, from the scope of the attorney fee clause.” Id.

         As defendant is quick to point out, the attorney fee clause in the Administration Agreement is quite different from the one in Sessions. While the Sessions clause expressly referred to disputes between the parties to the contract, the clause in the Administration Agreement refers to any action involving enforcement of the terms of the agreement. The attorney fee clause in the Administration Agreement does not reflect an intent to exclude non-signatories, such as plaintiff, from the scope of the clause. Because this was an action involving enforcement of the terms of the Administration Agreement, plaintiff would have been entitled to attorneys' fees as a third-party beneficiary had it prevailed on its claim that defendant breached the agreement. In turn, that means that, under California law, defendant is entitled to attorneys' fees and non-taxable expenses.

         Turning then to the reasonableness of defendant's request for attorneys' fees, “[r]easonability is generally analyzed under the ‘lodestar method[.]” Lexington Ins. Co., 2016 WL 5118316, at *4. “The lodestar method of calculating reasonable attorneys' fees is a two-step process whereby a court multiplies the number of hours reasonably expended by a reasonable hourly rate and then determines if any of the identified lodestar factors favor enhancing or reducing the arrived at product.” Id. (citation omitted). The lodestar factors have been incorporated into Local Rule 54.2(c)(3):

(A) The time and labor required by counsel;
(B) The novelty and difficulty of the questions presented;
(C) The skill requisite to perform the legal service properly;
(D) The preclusion of other employment by counsel because of the acceptance of the action;
(E) The customary fee charged in matters of the type involved;
(F) Whether the fee contracted between the attorney and the client is fixed or contingent;
(G) Any time limitations imposed by the client or the circumstances;
(H) The amount of money, or the value of the rights, involved, and the results obtained;
(I) The experience, ability and reputation of counsel;
(J) The “undesirability” of the case;
(K) The nature and length of the professional relationship between the attorney and the client;
(L) Awards in similar actions; and
(M) Any other matters deemed appropriate under the circumstances.

LRCiv 54.2(c)(3).

         Defendant argues that the $41, 371.00 billed by its local counsel, Osborn Maledon, was reasonable. Plaintiff raises no challenges to the rates billed by the Osborn Maledon attorneys ($575, $290, $240) or the Osborn Maledon document clerk ($70).[18] Plaintiff also does not contend that the number of hours billed by Osborn Maledon (100.4 hours) was unreasonable.

         The court finds that the rates billed by Osborn Maledon were reasonable as were the number of hours billed. The lodestar amount for Osborn Maledon is $41, 371.00. There are no lodestar factors that would require an increase or reduction to this amount. Defendant is entitled to $41, 371.00 in attorneys' fees for the work done by Osborn Maledon.

         Defendant also argues that the $1, 035, 307.35 in fees billed by Williams & Connolly, the Washington D.C. firm that represented defendant, was reasonable. First. defendant argues that the rates billed by Williams & Connolly were reasonable.[19] The seven attorneys who worked on this case billed at the following rates:

2014 rate

2015 rate

2016 rate

Daniel Katz

756

n/a

$801

Paul Hourihan

$616.50

$639

$661.50

William Ashworth

$553.50

n/a

n/a

Juli Ann Lund

$526.50

$544.40

$562.50

Elise Baumgarten

n/a

$441

$495

Tracey Fung

$382.50

n/a

n/a

Noah Weiss

$355.50

$396

$445.50

         The four paralegals who worked on this case billed at the following rates:

2014 rate

2015 rate

2016 rate

Alice Kim

n/a

n/a

$175.50

Sarah Winstead

$220.50

$229.50

$238.50

Hiwot Woldesemiat

n/a

n/a

$229.50

Denise Zdelar

$229.50

n/a

n/a


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