Free Order on Motion for Attorney Fees - District Court of Arizona - Arizona

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Case 2:03-cv-00100-ROS-MEA Document 215 Filed 01/31/2008 Page 1 of 5

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Cathleen Channel, et al., Plaintiffs, vs.

) ) ) ) ) ) ) ) ) ) ) )

No. CV 03-100-PHX-ROS ORDER

Before the Court is Plaintiffs' Motion for Attorney's Fees. This motion will be granted. BACKGROUND Plaintiffs Cathleen Channel, Theresa Wharry, Stacie Hanson, and Monique Nichols are former employees of Home Mortgage, Inc. ("HMI"), an Arizona corporation. (Doc. 1). HMI stopped paying Plaintiffs' wages in early 2002, and eventually ceased operations. Id. On January 15, 2003, Plaintiffs filed suit against HMI for unpaid wages pursuant to the Arizona Wage Payment Act, Ariz. Rev. Stat. § 23-350, et seq. Id. On April 21, 2003, Plaintiffs filed an application for default, (Doc. 6), and the clerk of court entered default on April 24, 2003 (Doc. 7). On June 24, 2003, Plaintiffs obtained a default judgment for $232,241.34 in combined damages, $285 in costs, and $4,390.82 in attorney fees on June 24, 2003. (Doc. 17). This judgment was later amended to award $232,241.34 in combined damages, $285 in costs, $4,390.82 in attorney fees, pre-judgment

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interest of $8,386.43, and post-judgment interest on their recovery rate of .97% per annum from July 20, 2003 until the judgment is completely satisfied. (Doc. 46). Plaintiffs then sought to hold Defendants Carl and Molly Brown liable for that judgment under two legal theories: (1) joint liability under the Arizona Wage Payment Act, or (2) piercing the corporate veil. (Docs. 22, 24). The Court rejected the first on March 31, 2005. (Doc. 76). The Court held a bench trial on the sole remaining issue of piercing the corporate veil on September 18-19, 2007. (Docs. 178-79). On September 20, 2007, the Court issued an order finding that HMI was the alter ego of Carl and Molly Brown, and disregarding HMI's separate legal status was necessary to prevent injustice. (Doc. 184). The Court, therefore, pierced the corporate veil, and ordered Defendants Carl and Molly Brown to pay the judgment against HMI to Plaintiffs. Id. The Court also ordered Defendants to pay an amount in attorney fees to be determined. Id. Plaintiffs requested $79,577.50 in attorney fees and $2,565.14 in costs. (Doc. 197). Defendants Carl and Molly Brown assert that Plaintiffs are not entitled to any amount of attorney fees, or, in the alternative, ask the Court to limit the amount awarded to the time expended in piercing the corporate veil. (Doc. 203). ANALYSIS In the Ninth Circuit, "courts in diversity actions apply state law with regard to the allowance (or disallowance) of attorneys' fees." Diamond v. John Martin Co., 753 F.2d 1465, 1467 (9th Cir. 1985). The Court previously found, and the parties do not dispute, that Arizona law applies. (Doc. 77). Accordingly, Plaintiffs' request for attorney fees must be evaluated pursuant to Arizona law. Plaintiffs have requested relief under Arizona Revised Statute Sections 12-341.01(A) and 12-349. Because the Court finds that attorney fees are appropriately awarded under Section 12-341.01(A), it will not address the request for an award under Section 12-349.

I. Attorney Fees Pursuant to A.R.S. § 12-341.01(A) -2Document 215 Filed 01/31/2008 Page 2 of 5

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"In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees." A.R.S. § 12-341.01(A). Defendants assert the Court is not authorized to award attorney fees because, even though the underlying unpaid wages claim was arising out of contract, the piercing-the-corporate-veil claim was not. This is incorrect. The Court may award attorneys fees to a prevailing party that successfully pierces the corporate veil in order to recover on an action arising out of contract. See Nunez v. Interstate Corp. Sys., Inc., 799 P.2d 30, 31 (Ariz. App. 1990) (statutory authority to award attorneys fees in the initial action applied to any action to enforce the judgment obtained in that initial action). When interpreting the phrase "arising out of contract," Arizona courts "broadly interprete[] what types of transactions are included within this clause." Marcus v. Fox, 723 P.2d 682, 683-84 (Ariz. 1986) (collecting cases). Therefore, "[t]he statute permits recovery for a non-contract action if that action could not exist but for the breach of contract." Chaurasia v. General Motors Corp., 126 P.3d 165, 173 (Ariz. App. 2006) (citing Sparks v. Republic Nat. Life Ins. Co., 647 P.2d 1127, 1141 (Ariz. 1982)). There is no question the employment contract between HMI and Plaintiffs is the but-for cause of the piercing-the-corporate-veil action. As the alter egos of HMI, Defendants Carl and Molly Brown are liable for the breach of that employment agreement. Therefore, the Court is authorized to award attorney fees to Plaintiffs under Section 12-341.01(A). Having determined that it is authorized to award attorneys' fees, the Court must consider: (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 the result; (3) whether assessing fees against the unsuccessful party would cause an extreme hardship; (4) whether the successful party prevailed with respect to all of the relief sought; (5) whether the legal question presented was novel and whether such claim or defense have 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 attorney's fees. AmerisourceBergen Corp. v. Dialysist West, Inc., 465 F. 3d 946, 956 (9th Cir. 2006)

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Based on an evaluation of these factors, Plaintiff is entitled to an award of fees. First, Defendants' defense was not meritorious. It was in most respects frivolous and based upon Defendant Carl Brown's efforts to obfuscate the truth. Second, Plaintiffs tried to avoid litigation and additional attorneys' fees altogether by issuing a demand letter prior to filing suit, but Defendants responded by offering Plaintiffs significantly less than the wages they had earned. Plaintiffs also participated in two settlement conferences. During both conferences, Defendants refused to participate in any meaningful way. Third, Defendants have not indicated that assessing attorney fees against them would constitute an extreme hardship. Fourth, Plaintiffs prevailed with respect to all of the relief sought. Fifth, the legal questions presented with respect to joint liability under Arizona Wage Act was a relatively novel legal question, but the legal questions related to piercing the corporate veil were not. And finally, there is no indication that a fee award in this case will discourage other litigants from advancing tenable claims. Considered together, the balance of factors weighs heavily in favor of awarding attorneys' fees to Plaintiffs. II. Reasonableness of Award As Plaintiffs argue, the amount of attorney fees that have been incurred in this case are attributable in substantial part due to Defendants' failure to timely produce requested documents. Plaintiffs also incurred additional costs due to Defendant Carl Brown's misrepresentations to Plaintiffs. Plaintiffs have systematically and orderly documented their incurred fees and costs, and Defendants agree that Plaintiffs' counsel's rates are reasonable. As such, the Court finds Plaintiffs' request reasonable. Accordingly, IT IS ORDERED that this Motion (Doc. 197) is GRANTED. IT IS FURTHER ORDERED that Carl and Molly Brown shall pay to Plaintiffs within 14 days of this Order the amount of $79,577.50 in attorney's fees and $2,565.14 in taxable costs.

DATED this 31st day of January, 2008. -4Document 215 Filed 01/31/2008 Page 4 of 5

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