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11333 Inc. v. Certain Underwriters at Lloyd's, London

United States District Court, D. Arizona

March 30, 2018

11333, Inc., f/k/a Investors Mortgage Holdings, Inc., Plaintiff,
Certain Underwriters at Lloyd's, London, Subscribing to Policy No. MBB0756586A08, MBB0856586A09, and B066456586B09; HUB International Insurance Services, Inc., Defendants.


          Neil V. Wake Senior United States District Judge.

         Before the Court is Defendant Certain Underwriters at Lloyd's, London Subscribing to Policy Number MBB0756586A08's Motion for Award of Attorneys' Fees (Doc. 185), 11333 Incorporated's response, Underwriter's reply, 11333 Incorporated's sur-reply, and Underwriters' objection to 11333 Incorporated's sur-reply.

         I. BACKGROUND

         11333 Incorporated (“11333”) is a licensed mortgage broker that arranges and services mortgage loans. In 2003, 11333 was designated as the exclusive manager of IMH Secured Loan Fund, LLC (“the Fund”), a limited liability company that makes commercial and subdivision real estate loans. Until 2010, 11333 was a separate entity from the Fund.

         In 2006, the Fund made an $18 million mortgage loan to Avocet Oceanfront Villas (“Avocet”), a subdivision land developer. Avocet used the loan to obtain and develop 146 acres for an oceanfront subdivision in Galveston, Texas. In 2007, Avocet defaulted on its mortgage loan, and its property insurance was canceled for non-payment of premium. In April 2008, the Fund foreclosed and took ownership of the Avocet property.

         HUB International Insurance Services, Inc. (“HUB”) is an insurance broker. In 2007, HUB procured for 11333 a “Mortgage Bankers/Brokers Errors and Omissions” policy (“the Policy”) from Certain Underwriters at Lloyd's, London (“Underwriters”). The Policy named 11333 as the insured; it did not name the Fund as an insured. It had coverage limits of $5 million minus a $25, 000 deductible. The Policy remained in effect until June 22, 2009.

         In September 2008, Hurricane Ike struck the Texas Gulf Coast and caused damage to the Avocet property, which 11333 discovered by March 2009. By at least March 2009, 11333 also knew that it did not have flood insurance for the physical damage.

         In June 2010, the Fund acquired 11333 as a wholly owned subsidiary. In March 2011, the Fund submitted a claim under a Mortgage Bankers/Brokers Errors and Omissions Policy that was effective from 2010 to 2011. The claim was denied, litigated, rejected on summary judgment, and settled on appeal.

         In January 2014, 11333 submitted a claim to Underwriters under the 2008-09 Policy. In March 2014, Underwriters denied coverage. On September 10, 2014, 11333 filed this action. It alleged against Underwriters breach of contract by failing to indemnify 11333's losses caused by 11333's negligent failure to procure flood insurance and breach of the duty of good faith and fair dealing by depriving 11333 of the benefit of its bargain with respect to the Policy. It alleged against HUB negligence, professional negligence, breach of contract, and breach of the duty of good faith and fair dealing, arising out of HUB's contract with 11333 to procure mortgage bankers/brokers insurance for 11333.

         On June 13, 2017, Underwriters' and HUB's motions for summary judgment were granted, and judgment was granted in their favor on all of 11333's claims. Underwriters seek an award of attorney fees under A.R.S. § 12-341.01(A) in the amount of $1, 112, 137.50, which is comprised of $124, 359.50 The Cavanagh Law Firm billed to Underwriters, which was paid in full by Underwriters, and $987, 778.00 Clyde & Co U.S. LLP billed to Underwriters, which also was paid in full by Underwriters.

         II. LEGAL STANDARD UNDER A.R.S. § 12-341.01(A)

         A.R.S. § 12-341.01(A) provides: “In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees.” Under § 12-341.01(A), attorney fees may be awarded based upon facts that show a breach of contract, the breach of which may also constitute a tort. Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 543, 647 P.2d 1127, 1141 (1982). Intertwining of contract and tort legal theories does not preclude a fee award if the cause of action in tort could not exist but for the breach of contract. Id.; Ramsey Air Meds, L.L.C. v. Cutter Aviation, Inc., 198 Ariz. 10, 13, 6 P.3d 315, 318 (Ct. App. 2000). “[W]hen two claims are so intertwined as to be indistinguishable, a court has discretion to award attorney fees under § 12-341.01 even though the fees attributable to one of the causes of action would not be recoverable under this statute.” Zeagler v. Buckley, 223 Ariz. 37, 39, 219 P.3d 247, 249 (Ct. App. 2009). “Moreover, when . . . claims are so interrelated that identical or substantially overlapping discovery would occur, there is no sound reason to deny recovery of such legal fees.” Id.

         Although state and federal statutes direct courts to award a successful party certain taxable costs, A.R.S. § 12-341.01 does not permit courts to award non-taxable costs. Ahwatukee Custom Estates Mgmt. Ass'n, Inc. v. Bach, 193 Ariz. 401, 404, 973 P.2d 106, 109 (1999). An award of attorney fees under § 12-341.01 may include legal assistant services and the cost of computerized legal research. Id. at 403-04, 973 P.2d at 108-09.

         An award of fees under § 12-341.01 is discretionary. Fulton Homes Corp. v. BBP Concrete, 214 Ariz. 566, 569, 155 P.3d 1090, 1093 (Ct. App. 2007). The statute does not establish a presumption that attorney fees be awarded in contract actions. Associated Indem. Corp. v. Warner, 143 Ariz. 567, 569, 694 P.2d 1181, 1183 (1985). In determining whether to award attorney fees under § 12-341.01, trial courts may consider the following non-exclusive factors pertinent to discretion: the merits of the unsuccessful party's case, whether the litigation could have been avoided or settled, whether assessing fees against the unsuccessful party would cause an extreme hardship, the degree of success by the successful party, any chilling effect the award might have on other parties with tenable claims or defenses, the novelty of the legal questions presented, and whether such claim had previously been adjudicated in this jurisdiction. Id. at 570, 694 P.2d at 1184.

         “The award of reasonable attorney fees pursuant to [§ 12-341.01] should be made to mitigate the burden of the expense of litigation to establish a just claim or a just defense. It need not equal or relate to the attorney fees actually paid or contracted, but the award may not exceed the amount paid or agreed to be paid.” A.R.S. § 12-341.01(B). “Once a litigant establishes entitlement to a fee award, the touchstone under § 12-341.01 is the reasonableness of the fees.” Assyia v. State Farm Mut. Auto. Ins. Co., 229 Ariz. 216, 222, 273 P.3d 668, 674 (Ct. App. 2012). To determine reasonable attorney fees in commercial litigation, courts begin by determining the actual billing rate that the lawyer charged in the particular matter. Schweiger v. China Doll Rest., Inc., 138 Ariz. 183, 187, 673 P.2d 927, 931 (Ct. App. 1983). If persuaded that the contracted hourly rates are unreasonable, courts may use a lesser rate. Id. at 188, 673 P.2d at 931.

         Under the Arizona Supreme Court's Rules of Professional Conduct, factors to be considered in determining the reasonableness of an attorney fee include the following:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) the degree of risk assumed by the lawyer.

A.R.S. Sup. Ct. Rules, Rule 42, Rules of Prof. Conduct, ER 1.5. In addition, Local Rules require consideration of whether the fee contracted between the attorney and the client is fixed or contingent, the “undesirability” of the case, and awards in similar actions. LRCiv 54.2(c).

         A motion for award of attorney fees must include a task-based itemized statement of fees, which identifies the date on which the service was performed, the time devoted to each individual unrelated task performed on the date, a description of the service provided, and the identity of the person performing the service. LRCiv 54.2(e)(1).

The party seeking an award of fees must adequately describe the services rendered so that the reasonableness of the charge can be evaluated. In describing such services, however, counsel should be sensitive to matters giving rise to issues associated with attorney-client privilege and attorney work-product doctrine, but must nevertheless furnish an adequate nonprivileged description of the services in question. If the time descriptions are incomplete, or if ...

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