Gilbert MH LLC v. Gilbert Family Hospital LLC

• Court: District Court, D. Arizona
• Decided: January 26, 2022
• Docket: 2:18-cv-04046
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8

Gilbert M H LLC, ) No. CV-18-04046-PHX-SPL ) 9 ) 10 Plaintiff, ) ORDER vs. ) ) 11 ) Gilbert Family Hospital LLC, et al., ) 12 ) 13 Defendants. ) ) 14 )

15 Before the Court is Plaintiff’s Amended Motion for Attorneys’ Fees (Doc. 115). 16 This case involved a Lease Agreement that provided for the construction and lease of a 17 micro-hospital building (the “Project”), but the Project fell apart before construction ever 18 began. On October 1, 2021, following a bench trial held September 14–17, the Court 19 found that Defendants Justin Hohl and Henry and Karen Higgins were each liable for 20 breaching their personal Guaranties of Lease; that Defendant Gilbert Family, LLC was 21 liable for breaching its Lease Agreement; and that each of the Defendants was liable for 22 breaching the duty of good faith and fair dealing. (Doc. 98). The Court further found that 23 Defendants Henry and Karen Higgins were not liable for fraudulent misrepresentation. 24 (Doc. 98). The Court ordered that judgment be entered in favor of Plaintiff Gilbert MH in 25 the amount of $150,071.31. (Doc. 98). 26 After judgment was entered, Plaintiff and Defendants both filed motions for 27 attorneys’ fees (Docs. 101, 104). In a November 19, 2021 Order, the Court found that 28 Defendants became the prevailing party as of August 26, 2019 when they made a 1 settlement offer that was more favorable than the judgment at trial. (Doc. 113 at 4). The 2 Court therefore awarded Defendants $179,047.50 in attorneys’ fees incurred after August 3 26, 2019. (Doc. 113 at 7). The Court also gave Plaintiff the opportunity to file a new 4 motion for attorneys’ fees consistent with the Court’s Order, (Doc. 113 at 5), which it did 5 and which the Court now addresses. 6 I. Plaintiff is the prevailing party prior to August 26, 2019. 7 The Court previously held that Article 42.1 of the parties’ Lease Agreement and 8 A.R.S. § 12-341.01 are applicable to the award of attorneys’ fees in this case. (Doc. 113 9 at 2). Article 42.1 of the parties’ Lease Agreement provides: 10 If any action, lawsuit, mediation, arbitration or proceeding . . . is brought to recover any Rent or other amount due under this 11 Lease because of any Event of Default, to enforce or interpret 12 any provision of this Lease, or for recovery of possession of the Premises, the party prevailing in such action shall be 13 entitled to recover from the other party reasonable attorneys’ 14 fees . . . . 15 (Trial Ex. 6 at 29). A.R.S. § 12-341.01 provides: 16 In any contested action arising out of a contract . . . the court may award the successful party reasonable attorney fees. If a 17 written settlement offer is rejected and the judgment finally 18 obtained is equal to or more favorable to the offeror than an offer made in writing to settle any contested action arising out 19 of a contract, the offeror is deemed to be the successful party from the date of the offer . . . . 20 21 A.R.S. § 12-341.01(A). 22 The Court previously found that Defendants became the prevailing party on 23 August 26, 2019 due to a settlement offer, but nothing in the Lease Agreement nor the 24 statute precludes Plaintiff from being the prevailing party entitled to its reasonable 25 attorneys’ fees prior to that date. See Am. Power Prods., Inc. v. CSK Auto, Inc., 396 P.3d 26 600, 606 (Ariz. 2017) (holding that the Arizona Supreme Court’s finding that defendant 27 may be the prevailing party after its settlement offer did not upset the trial court’s 28 determination that plaintiff was the prevailing party until that point). Thus, this Court 1 must determine whether Plaintiff is the prevailing party under Arizona law prior to the 2 date of Defendants’ settlement offer. 3 Under A.R.S. § 12-341.01, the Court has discretion to determine the prevailing 4 party “from all the circumstances, the reasonableness of the parties’ positions, and their 5 respective financial positions.” Bobrow v. Bobrow, 391 P.3d 646, 652 (Ariz. Ct. App. 6 2017). The Court may consider factors including the merits of Defendants’ defense, 7 whether the litigation could have been avoided, whether a fee award would cause extreme 8 hardship to Defendants, whether Plaintiff prevailed with respect to all relief sought, the 9 novelty of the legal question presented, whether such claims or defenses had previously 10 been adjudicated in Arizona, and whether a fee award might have a chilling effect on 11 future litigants. See Associated Indem. Corp. v. Warner, 694 P.2d 1181, 1184 (Ariz. 12 1985). “Partial success does not preclude a party from ‘prevailing’ and receiving a 13 discretionary award of attorneys’ fees.” Berry v. 352 E. Va., L.L.C., 261 P.3d 784, 789 14 (Ariz. Ct. App. 2011). 15 In opposition to Plaintiff’s Motion, Defendants argue that the Court should apply a 16 “totality of the litigation” or “percentage of success” test to determine whether Plaintiff 17 should be considered the prevailing party. In other words, Defendants argue that because 18 the $150,071.31 judgment was only about 1.26% of Plaintiff’s $11.9 million claim, 19 Plaintiff should not be considered the prevailing party or, alternatively, should only 20 receive 1.26% of its requested attorneys’ fees. The Court has discretion in deciding 21 whether to apply a “totality of the litigation” or “percentage of success” test. See 22 Schwartz v. Farmers Ins. Co. of Ariz., 800 P.2d 20, 25 (Ariz. Ct. App. 1990). 23 Defendants’ argument is not convincing under the facts and circumstances of this 24 case. Plaintiff successfully proved each of its claims except the fraudulent 25 misrepresentation claim. (Doc. 98). The primary reason that Plaintiff’s award at trial was 26 much less than the damages it claimed was that the Court found that the “Exit Ramp 27 Provision” of the Lease Agreement, rather than the “Default Provision,” applied to 28 determine damages. (Doc. 114 at 35–36). While the Court did not calculate the amount 1 that would have been recoverable under the Default Provision, (Doc. 114 at 21 n.4), 2 Plaintiff would likely have received a much greater judgment had the Default Provision 3 applied. (See Doc. 114 at 17–19). The question of which damages provision applied was 4 hotly contested at the bench trial and was the closest question that the Court had to 5 address. (See Trial Tr. Day 4 at 50:6–13). Thus, Plaintiff’s claim for more damages than 6 it was actually awarded was not frivolous or clearly excessive such that litigation of that 7 specific issue should have been avoided, and the Court will not preclude or reduce 8 Plaintiff’s recovery of attorneys’ fees on that basis. 9 Moreover, Plaintiff prevailed on all but one of its claims, including all of its 10 breach claims and the bad faith claim. All of Defendants’ affirmative defenses failed. 11 (Doc. 114 at 34–35). Defendants have not shown that they would suffer any hardship due 12 to a fee award. To the extent litigation could have been avoided based on Defendants’ 13 settlement offer, Plaintiff is already precluded from recovering fees incurred after that 14 date. The Court finds that the remaining Associated Indemnity factors are not helpful in 15 this case. Accordingly, Plaintiff is deemed the prevailing party entitled to its reasonable 16 attorneys’ fees in this case prior to August 26, 2019. 17 II. Plaintiff is entitled to $100,731.11 in reasonable attorneys’ fees. 18 Pursuant to the Lease Agreement and § 12-341.01, the amount awarded to a 19 prevailing party must be reasonable. “Once a party establishes its entitlement to fees and 20 meets the minimum requirements in its application and affidavit for fees, the burden 21 shifts to the party opposing the fee award to demonstrate the impropriety or 22 unreasonableness of the requested fees.” Nolan v. Starlight Pines Homeowners Ass’n, 23 167 P.3d 1277, 1286 (Ariz. Ct. App. 2007). However, “[i]f that party fails to make such a 24 showing of unreasonableness, the prevailing party is entitled to full payment of the fees.” 25 Geller v. Lesk, 285 P.3d 972, 976 (Ariz. Ct. App. 2012). On the other hand, should “the 26 party opposing the award show[ ] that the otherwise prima facie reasonable fee request is 27 excessive, the court has discretion to reduce the fees to a reasonable level.” Id. at 976. 28 /// a. Plaintiff’s attorneys’ fee request will be reduced by $5,218.00 to account 1 for errors or deficiencies in the application. 2 Initially, Defendants argue that Plaintiff’s Motion for Attorneys’ Fees is deficient 3 in two respects due to noncompliance with the Court’s Orders. First, the Court’s 4 November 19, 2021 Order made clear that Plaintiff could not recover fees incurred on 5 August 26, 2019 or later. (Doc. 113 at 4–5). Plaintiff admits in its Reply that some fees 6 incurred after that date were erroneously included. (Doc. 117 at 5). Plaintiff’s requested 7 attorneys’ fees will be reduced by $1,559.00 to exclude fees incurred on or after August 8 26, 2019.1 (Doc. 115-4 at 18–20). 9 Second, the Court noted in its Amended Finding of Facts and Conclusions of Law 10 that the Court “has already awarded legal fees incurred by Gilbert MH in furtherance of 11 the Project as out-of-pocket costs.” (Doc. 114 at 38 n.12). The Court detailed exactly 12 which legal fees were awarded as out-of-pocket costs. (Doc. 114 at 25 & n.10). The 13 Court warned that any motion for attorneys’ fees 14 should include only fees directly associated with this 15 litigation and should exclude any fees already awarded under these Findings of Fact and Conclusions of Law and the 16 associated Judgment. The Court advises that it will not be 17 inclined to parse through documents or perform recalculations in the event that a party fails to comply with this direction. 18 (Doc. 114 at 38 n.12). Defendants argue that Plaintiff’s Motion includes fees incurred for 19 the development of the Project rather than for litigation of the instant case. 20 Regarding fees billed by Bennett Tueller Johnson & Deere (“BTJD”), Defendants 21 argue that fees for the drafting of an amendment to the Lease Agreement in July 2018 are 22 not recoverable. (Doc. 116 at 5). Plaintiff’s Reply seems to suggest that the Court did not 23 include those fees as out-of-pocket costs in the Findings of Fact and Conclusions of Law. 24 (Doc. 117 at 5; see Doc. 114 at 25 n.10 (stating that the Court did not award “the amounts 25

26 1 Plaintiff’s Reply says the award should be reduced by $1,521, but that amount does not 27 include $38 billed on August 26, 2019. Under A.R.S. § 12-341.01, which makes Defendants the prevailing party “from the date of the offer,” fees incurred on that date are 28 also not recoverable by Plaintiff. 1 found in the invoice at pages 349–50 of [Trial] Exhibit 124 because the fees appear to be 2 incurred based on the dispute between the parties rather than in furtherance of the 3 Project”)). But the fees that Plaintiff requests for work performed by BTJD in July 2018 4 were awarded as out-of-pocket costs; the line items in the application for attorneys’ fees 5 match exactly to an invoice that the Court included in its calculation of out-of-pocket 6 costs. (Compare Doc. 115-3 at 7 with Trial Ex. 124 at 387–388; see Doc. 114 at 25). 7 Plaintiff’s requested attorneys’ fees will therefore be reduced by $3,637.50 to exclude the 8 twelve line items billed by BTJD in July 2018, which were awarded as part of the out-of- 9 pocket costs in furtherance of the Project. (Doc. 115-3 at 7). 10 Regarding fees billed by Koeller, Nebeker, Carlson and Haluck, LLP (“KNCH”), 11 Defendants argue that fees incurred in July, August, and September of 2018 should be 12 considered Project costs rather than litigation costs. The Court disagrees.2 The narratives 13 for the billing entries during those months are replete with mentions of “anticipatory 14 breach,” “demand letters,” “default,” “settlement negotiations,” “dispute,” and litigation 15 “strategy.” (Doc. 119 at 4–8). The Court recognizes the issues being addressed by the 16 KNCH attorneys as issues that were part of Plaintiff’s breach claims at trial, including the 17 incorporation of Gilbert Family Hospital LLC, the estoppel certificate and subordination 18 agreement, and comments on the construction drawings. (Doc. 119 at 4–8). Accordingly, 19 the Court concludes that the fees billed by KNCH were incurred based on the parties’ 20 dispute rather than in furtherance of the Project and are properly included in Plaintiff’s 21 Motion. 22 b. Plaintiff’s requested attorneys’ fees are otherwise reasonable. 23 Defendants advance three additional arguments as to why Plaintiff’s requested 24 attorneys’ fees should be reduced or rejected: (1) the number of hours expended by 25 Plaintiff’s attorneys is unreasonable; (2) Plaintiff’s counsel’s time entries are block

26 2 There is one exception: the September 10, 2018 billing entry with a description of 27 “(Temperature Giant) Communicate with Ms. Autino regarding UCC claim issue” appears to be related to a different matter entirely. (Doc. 119 at 6). The $21.50 billed for 28 that entry will not be awarded. 1 billed; and (3) Plaintiff did not actually incur the attorneys’ fees it seeks. (Doc. 116 at 6– 2 9). 3 First, Defendants argue that the hours expended by Plaintiff’s attorneys prior to 4 August 26, 2019 were unreasonable given the early stage of litigation and the fact that 5 they billed three times as many hours as Defendants’ counsel did during the same time 6 period. (Doc. 116 at 6–7). But Defendants do not specifically identify any excessive, 7 redundant, or unnecessary time entries, and the Court cannot reduce Plaintiff’s attorneys’ 8 fees based on a vague assertion that the number of hours is too high in comparison to 9 Defendants’. See State ex rel. Corbin v. Tocco, 845 P.2d 513, 593 (Ariz. Ct. App. 1992) 10 (“It is not enough for an opposing party simply to state, for example, that the hours 11 claimed are excessive and the rates submitted too high.” (internal quotation marks 12 omitted)); Padgett v. Loventhal, 706 F.3d 1205, 1208 (9th Cir. 2013). Moreover, 13 Plaintiff’s Reply identifies reasons why Plaintiff’s counsel necessarily billed more hours 14 at that stage: Plaintiff disclosed almost three times as many documents as Defendants, 15 and Plaintiff’s expert disclosures took place before August 26, 2019, whereas 16 Defendants’ took place after. (Doc. 117 at 6–7). On its own review, the Court does not 17 see any entries that stand out as excessive, redundant, or unnecessary. 18 Second, Defendants argue that Plaintiff’s attorneys’ fees should be reduced 19 because some entries are block-billed. The Court disagrees. While BTJD’s time sheet 20 often includes multiple tasks in a single entry, it specifically identifies the tasks for which 21 Plaintiff was billed, which is not block-billing. See Maki v. N. Sky Partners II LP, No. 22 CV-15-02625-PHX-SRB, 2018 WL 4042455, at *3 (D. Ariz. May 9, 2018). Even if it 23 were, “neither this Court nor Arizona courts have recognized a per se exclusion of block- 24 billed time.” Id. at *2. Like the time entries challenged in Maki, the entries that 25 Defendants challenge “consist of closely related tasks, each covering no more than a few 26 hours” and “are sufficiently detailed for the Court to assess their reasonableness.” Id. at 27 *3. The Court has given close scrutiny to each time entry, including those that group 28 tasks, and concludes that the hours billed are reasonable. 1 Finally, Defendants argue that Plaintiff cannot recoup attorneys’ fees that it did 2 not actually incur, highlighting that Plaintiff’s bankruptcy filings indicate that Plaintiff 3 has not paid BTJD and KNCH at least some of their fees. (Doc. 116 at 9). However, all of 4 the case law Defendants cite in support of their argument states that a party’s obligation 5 to pay its attorneys is a prerequisite to recovery, not that the party must have actually 6 paid the fees. See Pac. Off. Automation, Inc. v. Duran, No. 2 CA-CV 2016-0052, 2017 7 WL 629245, at *5–6 (Ariz. Ct. App. Feb. 15, 2017) (“[T]he award may not exceed the 8 amount paid or agreed to be paid.” (quoting A.R.S. § 12-341.01(B) (emphasis added)); 9 Arnold v. Standard Pac. of Ariz. Inc., No. CV-16-00452-PHX-DGC, 2016 WL 7046462 10 (D. Ariz. Dec. 5, 2016) (“[A] litigant’s genuine financial obligation to pay her attorney is 11 necessary before any award of attorneys fees may be granted . . . .” (emphasis added)); 12 Moore v. Appleton, No. 1 CA-CV 07-0862, 2008 WL 5057339, at *3 (Ariz. Ct. App. 13 Nov. 25, 2008) (“A client’s lack of a genuine obligation to pay is fatal to his or her claim 14 for attorneys’ fees.” (emphasis added)). There is no evidence that Plaintiff lacks an 15 obligation to pay its attorneys or that any such obligation has been discharged. Rather, the 16 affidavits attached to Plaintiff’s Motion establish that Plaintiff has paid or agreed to pay 17 the requested fees. (Doc. 115-2 at 2; Doc. 115-3 at 2–3). Accordingly, Plaintiff’s request 18 is not barred by A.R.S. § 12-341.01, and Plaintiff is entitled to its reasonable attorneys’ 19 fees. 20 c. Plaintiff may recover $464.86 for online legal research as part of its attorneys’ fees. 21 Plaintiff requests $464.86 for “online legal research” as part of its request for 22 costs. Under Arizona law, these expenses are compensable as attorneys’ fees. The 23 Arizona Supreme Court has expressly “permit[ted] recovery of computerized research 24 expenses as an element of an award of attorneys’ fees.” Ahwatukee Custom Ests. Mgmt. 25 Ass’n, Inc. v. Bach, 973 P.2d 106, 109 (Ariz. 1999); see also Rindlisbacher v. Steinway & 26 Sons Inc., No. CV-18-01131-PHX-MTL, 2021 WL 2434207, at *14 (D. Ariz. May 26, 27 2021). Thus, Plaintiff will be awarded an additional $464.86 as attorneys’ fees. 28 1 d. Summary 2 In sum, the Court awards as Plaintiff’s attorneys’ fees the following: (1) all of the 3 fees itemized in Document 115-3 on pages 7–12 except the entries from July 2018; (2) all 4 of the fees itemized in Document 119 except the first entry dated September 10, 2018 and 5 all of the entries dated on or after August 26, 2019; and (3) expenses for “online legal 6 research” in Document 115-5. Plaintiff is therefore awarded $100,731.11 in attorneys’ 7 fees. 8 III. Plaintiff is not entitled to costs. 9 “In diversity cases, district courts award taxable costs in accordance with federal, 10 not state, law.” Reg’l Care Servs. Corp. v. Companion Life Ins. Co., No. CV-10-2597- 11 PHX-LOA, 2012 WL 2260984, at *5 (D. Ariz. June 15, 2012). Taxable costs under 12 federal law include clerk’s fees and service fees, both of which Plaintiff requests. See 28 13 U.S.C. § 1920; LRCiv 54.1(e)(1); (Doc. 115-5). LRCiv 54.1(a) sets forth the procedure 14 for requesting taxable costs in this District: 15 A party entitled to costs shall, within fourteen (14) days after the entry of final judgment, unless time is extended under 16 Rule 6(b), Federal Rules of Civil Procedure, file with the 17 Clerk of Court and serve upon all parties, a bill of costs on a form provided by the Clerk. 18 Compliance with LRCiv 54.1(a) is mandatory. See Felix v. Pic-N-Run, Inc., No. CV 09- 19 8015-PCT-JAT, 2012 WL 551645, at *5 (D. Ariz. Feb. 21, 2012). Plaintiff did not file a 20 bill of costs with the Clerk, the time to do so has long since passed, and Plaintiff neither 21 requested nor received an extension of time to do so. See id. Accordingly, Plaintiff will 22 not be awarded taxable costs. 23 As for the remaining $26.04 of costs requested by Plaintiff for a public record 24 search and for an overnight delivery, state law applies to nontaxable costs. See Reg’l 25 Care Servs. Corp., 2012 WL 2260984, at *5. “Absent a contractual agreement between 26 parties to pay nontaxable litigation expenses to the prevailing [party], non-taxable costs 27 are not recoverable” under Arizona law. Id. The Lease Agreement refers only to the 28 1 | recovery of attorneys’ fees, so nontaxable costs are not recoverable in this case. (Trial Ex. 2| 6 at 29); see Ahwatukee Custom Ests. Mgmt. Ass’n, Inc., 973 P.2d at 404 (holding non- taxable costs could be awarded where a contract “expressly permit[ted] recovery of more 4| than ‘attorneys’ fees’”). Thus, Plaintiff is not entitled to recover any of its requested costs. 6 IT IS THEREFORE ORDERED that Plaintiff's Amended Motion for Attorneys’ Fees (Doc. 115) is granted in part as modified and denied in part as 8 | follows: 9 1. Plaintiff’s request for attorneys’ fees is granted as modified. Plaintiff is 10 awarded $100,731.11 in attorneys’ fees. 11 2. Plaintiff's request for costs is denied. 12 Dated this 26th day of January, 2022. 13

15 United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28