American Power Products, Inc., a California corporation; LFMG/APP, LLC, an Arizona corporation, Plaintiffs/Counter-Defendants/Appellants/Cross-Appellees,
CSK Auto, Inc., an Arizona corporation, Defendant/Counter-Claimant/Appellee/Cross-Appellant.
from the Superior Court in Maricopa County The Honorable
George H. Foster, Jr., Judge No. CV2005-019594
Decision of the Court of Appeals, Division One 1 CA-CV
12-0855 Filed May 19, 2016
B. Goldstein (argued), John L. Lohr, Jr., Evan B. Schechter,
Hymson Goldstein & Pantiliat, PLLC, Scottsdale, and
Herbert Dodell, Dodell Law Corporation, Woodland Hills, CA,
Attorneys for American Power Products, Inc. and LFMG/APP, LLC
B. Silver (argued), Andrew S. Jacob, Gordon & Rees LLP,
Phoenix, Attorneys for CSK Auto Inc.
Chief Justice Pelander authored the opinion of the Court, in
which Chief Justice Bales and Justices Brutinel and Bolick
PELANDER VICE CHIEF JUSTICE.
Under Arizona law, a court may award reasonable attorney fees
to the successful party in a contested contract action.
A.R.S. § 12-341.01(A). If a party makes a written
settlement offer that is rejected and the final judgment is
more favorable to the offering party, that party "is
deemed to be the successful party from the date of the
In this case, we address the interplay between this statutory
provision and a contractual fee award provision when one
party rejected the other's written settlement offer and
later obtained what appears to be a less favorable judgment.
Because the contract does not itself define "prevailing
party, " but does incorporate Arizona law to determine
the parties' rights and remedies, we hold that the
statute applies for the purpose of determining the successful
party. That is, if the final judgment is more favorable to
the party that made the rejected offer, that party is the
successful party from the date of the offer.
In 2003, American Power Products ("American") and
CSK Auto ("CSK") entered into a Master Vendor
Agreement ("MVA") under which American agreed to
sell electric scooters and other items to CSK on an open
account. The MVA provided that in the event of any action
arising out of the agreement, "the prevailing party
shall be entitled to recover . . . reasonable attorneys'
fees." The agreement did not define "prevailing
party." But the MVA included a broad choice-of-law
provision that Arizona law would govern the parties'
"rights and remedies" under the agreement.
In 2005, American sued CSK for breach of contract and
negligent misrepresentation, seeking more than $5 million in
damages. CSK asserted various affirmative defenses and
counterclaims and sought damages of approximately $950, 000.
In 2011, several months before trial, CSK served American
with an offer of judgment under Rule 68, Ariz. R. Civ. P., in
the amount of $1, 000, 001, "inclusive of all damages,
taxable court costs, interest and attorneys' fees."
American did not accept the offer and, after trial, obtained
a jury verdict in the amount of $10, 733. The trial court
later dismissed CSK's counterclaims with prejudice.
On the parties' post-trial claims for attorney fees, the
trial court ruled that American was the "prevailing
party" at trial despite American having asked the jury
to award it over $10.8 million. Applying a
totality-of-the-litigation test, the court reasoned that
American "must be the prevailing party" because
"after litigating all of the claims" and
counterclaims, American "obtained relief in the form of
monetary damages; [CSK] was awarded nothing." The trial
court then awarded American $775, 000 in attorney fees
(American had requested almost $2 million), plus costs and
interest on the verdict, for a total judgment of
approximately $861, 000. The court denied CSK's request
for sanctions under Rule 68(g), Ariz. R. Civ. P., finding
such sanctions inapplicable.
The court of appeals affirmed the fee award in favor of
American. Am. Power Products, Inc. v. CSK Auto,
Inc., 1 CA-CV 12-0855, at *8 ¶ 14 (Ariz. App. May
19, 2016) (mem. decision). The court reasoned that the trial court
did not abuse its substantial discretion in identifying the
"prevailing party" and "had a reasonable basis
for finding that American was the prevailing party under the
totality of the litigation test." Id. at *4
¶ 6, *6 ¶ 9. Contending that American obtained a
judgment less favorable than CSK's pretrial settlement
offer, CSK argued that A.R.S. § 12-341.01(A) and Rule 68
precluded any award of fees American incurred after the date
of the offer. In rejecting that argument, the court of
appeals stated that "[w]hen attorneys' fees are
based on a contract - as here - the contract controls to the
exclusion of A.R.S. § 12-341.01(A)." Id.
at *6 ¶ 11. The court, however, "reverse[d] the
superior court's denial of CSK's Rule 68 sanction
request and remand[ed] to the superior court for it to make
the comparison required by Rule 68." Id. at *13
We granted review on the attorney fee question because the
interplay between § 12-341.01 and contractual fee
provisions presents legal issues of statewide importance that
are likely to recur. We have jurisdiction under article 6,