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American Power Products, Inc. v. CSK Auto, Inc.

Supreme Court of Arizona

May 11, 2017

American Power Products, Inc., a California corporation; LFMG/APP, LLC, an Arizona corporation, Plaintiffs/Counter-Defendants/Appellants/Cross-Appellees,
v.
CSK Auto, Inc., an Arizona corporation, Defendant/Counter-Claimant/Appellee/Cross-Appellant.

         Appeal from the Superior Court in Maricopa County The Honorable George H. Foster, Jr., Judge No. CV2005-019594

         Memorandum Decision of the Court of Appeals, Division One 1 CA-CV 12-0855 Filed May 19, 2016

          David 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

          Leon B. Silver (argued), Andrew S. Jacob, Gordon & Rees LLP, Phoenix, Attorneys for CSK Auto Inc.

          Vice Chief Justice Pelander authored the opinion of the Court, in which Chief Justice Bales and Justices Brutinel and Bolick joined.

          OPINION

          PELANDER VICE CHIEF JUSTICE.

         ¶1 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 offer." Id.

         ¶2 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.

         I.

         ¶3 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.

         ¶4 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.

         ¶5 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.

         ¶6 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).[1] 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 ¶ 30.

         ¶7 We granted review on the attorney fee question because the interplay between ยง 12-341.01 and contractual fee provisions presents legal issues of statewide importance that are likely to recur. We have jurisdiction under article 6, ...


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