Free Order - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

WO

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

) ) ) Plaintiffs, ) ) vs. ) ) Lumbermens Mutual Casualty Company, ) ) ) Defendant. ) ) ) U-Haul International, Inc., et al,

No. CV-04-662-PHX-DGC ORDER

Plaintiffs have filed a motion for attorneys' fees in the amount of $489,754.14. Dkt. #181. The Court has reviewed the memoranda filed by the parties. Dkt. ##181, 187-88. For the reasons discussed below, the Court will grant Plaintiffs' motion in part. I. Background. The primary issue in this matter was whether Defendant, as an excess insurer of Plaintiff U-Haul International ("U-Haul"), was liable for certain amounts claimed by Plaintiffs. Dkt. #162 at 2-3. Plaintiffs and Defendant disagreed on whether payment of indemnity and loss adjustment expenses ("LAE") or the payment of indemnity alone exhausted the $7,000,000 primary insurance limit and triggered Defendant's coverage obligations. Id. at 3. The Court issued a summary judgment that LAE did count toward the exhaustion of U-Haul's primary insurance, and held a bench trial on March 7, 2007 on the issues of equitable estoppel and damages. Id. After issuing its findings of fact and
Case 2:04-cv-00662-DGC Document 190 Filed 05/31/2007 Page 1 of 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

conclusions of law (id.), the Court entered judgment in favor of Plaintiffs in the amount of $1,958,535.69 on March 19, 2007. Dkt. #166. II. Discussion. 1. The Availability of Attorneys' Fees. Arizona law provides for an award of attorneys' fees to the prevailing party "[i]n any contested action arising out of a contract." A.R.S. § 12-341.01(A). The statute applies to insurance contract disputes over which a federal court has diversity jurisdiction. Lozier v. Auto Owners Ins. Co., 951 F.2d 251, 256 (9th Cir. 1991). This action clearly arose out of a contract, and Defendant does not argue otherwise.1 The Court must consider six factors: (1) whether the unsuccessful party's claim or defense was meritorious; (2) whether the litigation could have been avoided or settled and the successful party's efforts were completely superfluous in achieving that result; (3) whether assessing fees against the unsuccessful party would cause an extreme hardship; (4) whether the successful party prevailed with respect to all the relief sought; (5) whether the legal question was novel and whether such claim or defense has previously been adjudicated in this jurisdiction; and (6) whether the award would discourage other parties with tenable claims or defenses from litigating or defending legitimate contract issues for fear of incurring liability for substantial amounts of attorneys' fees. Associated Indemnity v. Warner, 694 P.2d 1181, 1184 (Ariz. 1985). Defendant argues that the first, fifth, and sixth factors weigh against awarding attorneys' fees. Addressing the first factor, Defendant contends that its reliance on two Ninth Circuit cases that it believed were controlling shows that its position was meritorious. Dkt. #187 at 5 (citing Mead Reinsurance v. Granite State Ins. Co., 873 F.2d 1185 (9th Cir. 1998); Planet

Defendant argues that U-Haul is not entitled to attorneys' fees because the case is simply a dispute between two insurance companies and because "LMC has shown that UHaul has not submitted any evidence showing that it was damaged by LMC[.]" Dkt. #187 at 2. After the bench trial, the Court explicitly found that Defendant had damaged Plaintiffs, including U-Haul (Dkt. #162), and reaffirmed these findings in denying Defendant's motion for amended findings, amendment of judgment, and a new trial.
Case 2:04-cv-00662-DGC Document 190

1

-2-

Filed 05/31/2007

Page 2 of 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Ins. Co. v. Mead Reinsurance Corp., 789 F.2d 668 (9th Cir. 1986)). In its summary judgment order, the Court distinguished these cases because they interpreted insurance policy language that differed significantly from the language in this case. Defendant's position nonetheless had some merit, so the first Associated Indemnity factor weighs against the award of attorneys' fees.2 Defendant next argues that the fifth factor does not support attorneys' fees "because this case involved a novel question of the interpretation of the Republic policies in Arizona." Dkt. #187 at 6. Defendant cites cases that it believes stand for the proposition that courts may not award attorneys' fees if the issues were novel. Dkt. #187 at 7 (citing Hart v. Seven Resorts, Inc., 947 P.2d 846, 858 (Ariz. Ct. App. 1997); Stuart v. INA, 730 P.2d 255, 262 (Ariz. Ct. App. 1986)). In Hart, the court denied appellate attorneys' fees for three reasons, one of which was that the case involved the novel issue of whether a provision of the Arizona constitution applied in a wrongful termination suit against a private citizen. 947 P.2d at 858. In Stuart, the court also denied appellate attorneys' fees for three reasons, none of which was that the claim was novel. 730 P.2d at 262. These cases do not preclude the Court from awarding attorneys' fees even for novel legal issues. Even if they did, this case did not involve a novel issue like the issue addressed in Hart. Instead, the case involved a classic contract dispute, and even though the precise terms of the contract may not have been the subject of litigation in Arizona before, the basic contractual dispute and the award of damages did not rest on novel legal theories. This factor does not weigh against awarding attorney's fees. Finally, Defendant contends that an award of attorneys' fees would discourage settlements. Dkt. #187 at 7. It argues that its agreement with Plaintiffs temporarily to set aside the dispute in this case and fund the settlements of the underlying tort suits that

This case differs from Nat'l Indem. Co. v. St. Paul Ins. Co., 724 P.2d 544, 545 (Ariz. 1986), in which the Arizona Supreme Court vacated an award of attorneys' fees when the losing party justifiably relied on what was, at that point, the only Arizona precedent on the issue. Id. Defendant did not rely on precedent that was directly controlling.
Case 2:04-cv-00662-DGC Document 190

2

-3-

Filed 05/31/2007

Page 3 of 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

triggered U-Haul's insurance policies shows that it acted reasonably, and that an award of attorneys' fees would discourage insurance companies in future cases from settling such tort suits. But the settlement of the underlying tort suits is a separate issue from that which the Court addressed in this case, and Defendant does not explain why an award of attorneys' fees would discourage such settlements in the future. Even considering underlying tort suits, the Court does not believe that a fee award in this coverage dispute would in any way discourage settlements of underlying actions or discourage those with meritorious claims or defenses from litigating. As Plaintiffs state, an award of fees will encourage rather than discourage settlements, because future insurers will know that the claims and defenses raised by Defendant are not likely to be effective. Dkt. #188 at 5. Plaintiffs assert, and Defendant does not refute, that Defendant did not even respond to Plaintiffs' settlement offer, apparently believing it would prevail on summary judgment and at trial. See Dkt.#181 at 5-6. Attorneys' fees may encourage a similarly situated defendant to consider a plaintiff's settlement offer more seriously in the future, a result favored by Arizona courts. See Chaurasia v. General Motors Corp., 126 P.3d 165, 177 (Ariz. Ct. App. 2006). After considering the Associated Indemnity factors, the Court concludes that an award of attorneys' fees is proper. 2. The Reasonableness of the Requested Award. Plaintiffs seek a fee award in the amount of $489,745.14. Dkt. #181 at 13. "The most useful starting point for determining the amount of a reasonable fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate." Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). "This figure, commonly referred to as the `lodestar,' is presumed to be [a] reasonable fee[.]" City of Riverside v. Rivera, 477 U.S. 561, 568 (1986). Determining a reasonable fee under the lodestar method involves consideration of twelve factors: (1) the time and labor required of counsel, (2) the novelty and difficulty of the issues presented, (3) the skill required of counsel, (4) the preclusion of other employment,
Case 2:04-cv-00662-DGC Document 190

-4-

Filed 05/31/2007

Page 4 of 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

(5) the customary fee, (6) whether the fee is fixed or contingent, (7) time limitations imposed by the client or the circumstances, (8) the amount of money or value of the rights involved and the results obtained, (9) the experience, reputation, and ability of counsel, (10) the undesirability of the case, (11) the nature and length of the professional relationship, and (12) awards in similar actions. See id. at 568 n.3 (citing Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974)); Hensley, 461 U.S. 434 n.9 (citing Johnson); see also Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 69-70 (9th Cir. 1975) (setting forth the twelve factors); LRCiv 54.2(c)(3)(A)-(L) (same). "The court need not consider all factors, but only those called into question by the case at hand and necessary to support the reasonableness of the fee award." Cairns v. Franklin Mint Co., 292 F.3d 1139, 1158 (9th Cir. 2002) (citation and alteration omitted). a. Time and Labor Required of Counsel. Defendant makes two objections that fall under this factor. First, Defendant argues that the Court should not award attorneys' fees accrued prior to August 15, 2005, when Plaintiffs made a settlement offer. Defendant relies on language in A.R.S. § 12-341.01(A) that states: If a written settlement offer is rejected and the judgment finally obtained is equal to or more favorable to the offeror than an offer made in writing to settle any contested action arising out of a contract, the offeror is deemed to be the successful party from the date of the offer and the court may award the successful party reasonable attorney fees. Contrary to Defendant's assertion, this language does not provide that attorneys' fees may not be awarded for legal services incurred before Plaintiffs made their settlement offer. The language addresses cases where a defendant's settlement offer is rejected and the plaintiff later recovers less than the amount of the offer. The plaintiff ultimately may recover a judgment in such cases, but is not deemed to be the prevailing party for purposes of fees incurred after the defendant's more favorable offer. The case of Greenawalt v. Sun City West Fire Dist., No. CV 98-1408 PHX-ROS, 2006 WL 1663540 (D. Ariz. June 10, 2006), does not, as Defendant asserts (Dkt. #187 at 10), hold that attorneys' fees may be awarded only from the date of a settlement offer.
Case 2:04-cv-00662-DGC Document 190

-5-

Filed 05/31/2007

Page 5 of 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Defendant next objects to attorneys' fees incurred while U-Haul was working on claims against its agent AON and other high level excess carriers and communicating with auditors. Dkt. ##187 at 10-11; 187-4 at 3. Plaintiffs argue that these fees are recoverable because Defendant alleged as part of its defense that AON made misrepresentations to Defendant and because Defendant's position during the litigation required Plaintiffs to examine whether they could recover from other excess insurers. Dkt. #188 at 8-9. Plaintiffs conclude that this work "would not have been necessary had LMC not taken its intractable and meritless positions in this litigation[.]" Id. at 9. The Court will not award fees related to potential claims against AON or other insurers. These fees, and Plaintiffs' communication with auditors regarding the status of the suit, do not directly relate to the wrongful act for which the Court found Defendant liable. b. Novelty and Difficulty of the Issues Presented. Defendant does not dispute Plaintiffs' contention that the many issues in this case, including those resolved on summary judgment and the estoppel and damages issues at trial, were complex issues that required extensive analysis and briefing. Dkt. #181 at 10. c. The Skill Required of Counsel. Defendant does not dispute Plaintiffs' assertions that its attorneys are skilled in the areas of insurance and complex litigation, and that this litigation required attorneys with facility and expertise in these areas. Id. d. The Preclusion of Other Employment. Plaintiffs contend, and Defendant does not dispute, that this factor is not applicable to the litigation. Dkt. #181 at 11. e. The Customary Fee. Hourly fees differed based on the attorney's level of experience and education. Dkt. #181 at 12. Plaintiffs have attached, and Defendant does not dispute, affidavits from counsel attesting to the reasonableness of the fees charged by each attorney. Dkt. #181-6. The Court has reviewed these fee levels and finds them reasonable.

Case 2:04-cv-00662-DGC

Document 190

-6-

Filed 05/31/2007

Page 6 of 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

f. Whether the Fee Agreement was Fixed or Contingent. The agreement between Plaintiffs and their counsel was for hourly rates. g. Any Time Limitations Imposed by the Client or the Circumstances. Plaintiffs contend, and Defendant does not object, that this factor is not applicable. Dkt. #181 at 12. h. The Amount of Money Involved and the Results Obtained. The case involved a substantial amount of money, including a claim for nearly $2 million in insurance coverage and interest by Plaintiffs and a counterclaim of $3.6 million by Defendant. See Dkt. #181 at 12. Ultimately, Plaintiffs were awarded the full amount of their damages, $1,958,535.69. Dkt. #166. i. The Experience, Reputation, and Ability of Counsel. Defendant does not dispute Plaintiffs' statement that their attorneys have extensive experience in and knowledge of insurance coverage and complex commercial litigation. Dkt. #181 at 12-13. j. The Undesirability of the Case. Plaintiffs contend, and Defendant does not dispute, that this factor is not applicable. Id. at 13. h. The Nature and Length of the Relationship. Both of Plaintiffs' law firms have represented Plaintiffs in other matters over the years. Id. l. Awards in Similar Actions. Without citing any cases, Plaintiffs contend that the award is comparable to awards in similar cases. Id. Defendant does not object to this assertion. m. Other Matters Deemed Appropriate Under the Circumstances. Defendant analyzes each of Plaintiffs' billing entries and objects to most of them on one or more of 17 different grounds for failing to comply with Rule 54.2 of the Local Rules of Civil Procedure. The primary objection is that Plaintiffs have engaged in "block billing," characterized by the failure to state the time devoted to each unrelated task in a billing entry.
Case 2:04-cv-00662-DGC Document 190

-7-

Filed 05/31/2007

Page 7 of 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

See Dkt. #187-4 at 1; LRCiv 54.2(e)(1)(B). Consistent with the discussion above, the Court has examined the billing records and concludes that $64,660 should be deducted from Plaintiffs' attorneys' fees. This amount represents fees incurred while preparing for potential litigation with AON and various excess insurers and communicating with auditors, activities that do not relate directly to Defendant's wrongful act.3 The Court is satisfied that the remainder of Plaintiffs' billing entries sufficiently comport with the Local Rule of Civil Procedure. In particular, Plaintiffs did not engage in block billing ­ the tasks in each billing entry are sufficiently related so as not to require a statement of the time devoted to each task. Defendant states that the total amount of legal fees is $477,236.75, not $489,745.14 as Plaintiffs request. The Court has added each billing entry and has arrived at the same number as Defendant. 3. Conclusion. Plaintiffs request a fee award in the amount of $489,745.14, which the Court has revised to $477,236.75. The Court will deduct $64,660 from this amount for the reasons discussed above, and will accordingly award Plaintiffs $412,576.75 in attorneys' fees. This amount is reasonable based on the factors set forth in Local Rule 54.2. Any request for costs will be addressed by the Clerk pursuant to Local Rule 54.1. IT IS ORDERED: 1. Plaintiffs' motion for award of attorneys' fees (Dkt. #181) is granted in part and denied in part as set forth in this order.

See Dkt. ##181-2-5 for excluded time entries on the following dates: 5/11/04; 7/6/04; 10/29/04; 11/3/04; 11/4/04; 11/5/04; 11/7/04; 11/9/04; 11/10/04; 11/12/04; 11/15/04; 11/23/04; 11/29/04; 11/30/04; 12/1/04; 12/2/04; 12/3/04; 1/5/05; 1/6/05; 1/7/05; 1/10/05; 1/11/05; 1/12/05; 1/18/05; 1/19/05; 1/27/05; 1/31/05; 3/23/05; 3/24/05; 3/28/05; 3/29/05; 4/7/05; 4/8/05; 4/12/05; 4/13/05; 4/29/05; 5/3/05; 5/4/05; 5/5/05; 5/6/05; 6/17/05; 6/22/05; 6/23/05; 7/5/05; 7/6/05; 7/7/05; 8/26/05; 4/5/06; 11/16/06.
Case 2:04-cv-00662-DGC Document 190

3

-8-

Filed 05/31/2007

Page 8 of 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

2.

Plaintiffs are awarded $412,576.75 in attorneys' fees to be paid by Defendant.

DATED this 30th day of May, 2007.

Case 2:04-cv-00662-DGC

Document 190

-9-

Filed 05/31/2007

Page 9 of 9