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Apollo Education Group, Inc. v. National Union Fire Insurance Group of Pittsburgh, PA

United States District Court, D. Arizona

July 18, 2018

Apollo Education Group, Inc., an Arizona corporation, Plaintiff,
v.
National Union Fire Insurance Company of Pittsburgh, PA, a Pennsylvania corporation, Defendant.

          ORDER

          HONORABLE STEVEN P. LOGAN UNITED STATES DISTRICT JUDGE.

         Before the Court is Defendant National Union Fire Insurance Company of Pittsburgh, PA's Motion for Attorneys' Fees (the “Motion”). (Doc. 113) For the following reasons, the Motion will be granted.

         I. Background

         Apollo Education Group, Inc. (“Apollo”) purchased an insurance policy from National Union Fire Insurance Company of Pittsburgh, PA (“National Union”). (Doc. 1 at 2) Apollo was the defendant in a class action lawsuit, which settled for $13.125 million in April 2014. (Doc. 1 at 5) Apollo filed a claim with National Union to fund the settlement, but National Union refused to fund any of the settlement amount. (Doc. 1 at 6) Apollo then initiated this suit against National Union for wrongful and bad faith refusal to pay the claim related to the settlement agreement and reimbursement for the $13.125 million Apollo paid out of pocket. (Doc. 1 at 2) National Union successfully moved for summary judgment on all of Apollo's claims, and it now moves for an award of attorneys' fees. (Doc. 119 at 2)

         II. Standard of Review

         Federal Rule of Civil Procedure 54(d)(2) provides “[a] claim for attorney's fees […] must be made by motion unless the substantive law requires those fees to be proved at trial as an element of damages.” Fed.R.Civ.P. 54. National Union is moving for an award of attorneys' fees pursuant to Fed.R.Civ.P. 54(d)(2)(B) and A.R.S. § 12-341.01. There are six factors to consider in a request for such fees under A.R.S. § 12-341.01(A). Associated Indem. Corp. v. Warner, 694 P.2d 1181, 1184 (Ariz. 1985). These factors are: (1) whether the unsuccessful party's claim was meritorious; (2) whether the litigation could have been avoided or settled and the successful party's efforts were completely superfluous in achieving the result; (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) whether the legal question presented was novel and whether such a claim had previously been adjudicated in this jurisdiction; and (6) whether an award in the case would discourage other parties with tenable claims from litigating legitimate contract issues for fear of incurring liability for substantial amounts of attorneys' fees. Id. The Court must consider each factor as no one factor is determinative. Wilcox v. Waldman, 744 P.2d 444, 450 (Ariz.Ct.App. 1987).

         III. Entitlement to Attorney's Fees

         The Court finds that the Warner factors weigh in favor of awarding National Union attorneys' fees.

         A. Merit

         The Court finds that Apollo's claims had merit because the claims centered on an ambiguous contractual agreement. It is first important to note that “[a]n unsuccessful claim is not necessarily one that lacks merit.” Biltmore Assocs., L.L.C. v. Twin City Fire Ins. Co., 2007 WL 496766 at *3 (D. Ariz. 2007). Apollo and National Union had a Consent-to-Settle provision as part of their contracts which stated that “Insurer's consent [to settlements] shall not be unreasonably withheld.” (Doc. 75-3 at 14) Arizona courts have yet to interpret what “unreasonably” means in the present context. However, according to the Restatement (Second) of Property, Apollo must prove that National Union withheld its consent “as a result of unreasonable caprice, whim, or personal prejudice.” Restatement (Second) of Property § 15.2 Comment g (1977); Tucson Med. Ctr. v. Zoslow, 712 P.2d 459, 462 (Ariz.Ct.App. 1985). Apollo argues that the applicable standard is that an insurer is obligated to provide consent as long as the settlement is reasonable. The Court finds that because of the ambiguity of the provision in terms of the word “unreasonably” and lack of Arizona precedent on the specific issue, the case had merit despite the summary judgement ruling. This factor weighs against awarding attorneys' fees.

         B. Settlement Efforts

         The settlement efforts in this case present a neutral factor in determining awards of attorneys' fees. Both parties argue that the other side was unreasonable in their mediation efforts. Apollo acknowledges its failure to make counteroffers, but claims, and appears to offer no proof, that National Union promised to increase its settlement offers at each mediation. On the other hand, National Union argues that it should not be required to “bid against itself” and increase settlement offers if Apollo does not give a counteroffer. The records of what actually occurred at the settlement negotiations are sealed. The Court finds that this factor does not weigh in favor of either party because neither side appeared willing to work together to reach an agreed settlement.

         C. Extreme Hardship

         The Court finds that due to the size and revenue of Apollo, the requested attorneys' fees would not cause extreme hardship. “This factor asks whether assessing fees against an unsuccessful party would cause extreme hardship given the parties' relative economic positions.” Biltmore, 2007 WL 496766 at *4. It is the burden of the party asserting financial hardship to show prima facie evidence of financial hardship. Woerth v. City of Flagstaff, 808 P.2d 297, 305 (Ariz.Ct.App. 1990). National Union argues that paying the requested attorneys' fees would not cause undue hardship because Apollo is “a global company that reported $2.1 billion in net revenue for its fiscal year ending August 31, 2016.” (Doc. 113 at 9) Additionally, in its Form 10-K, Apollo asserted that the $13.125 million settlement was an “immaterial” amount that was paid for without the liquidation of assets. (Doc. 113 at 9) Apollo had the burden of proving potential financial hardship if attorneys' fees were awarded, but failed to do so. Not only did Apollo fail to present an argument ...


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