Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_03-cv-01950/USCOURTS-azd-2_03-cv-01950-1/pdf.json

Nature of Suit Code: 442
Nature of Suit: Civil Rights Employment
Cause of Action: 42:2000e Job Discrimination (Employment)

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

JOHN KILLINGSWORTH, 

Plaintiff, 

vs.

STATE FARM MUTUAL

AUTOMOBILE INSURANCE

COMPANY; DAVE GONZALES, 

Defendants. 

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No. CV 03-1950-PHX-NVW

ORDER

[Not For Publication]

Before the court is Defendant's Motion for Attorneys' Fees and Non-Taxable Expenses

(doc. # 283) and Memorandum (doc. # 294), the Response (doc. # 295), and the Reply (doc.

# 299). Though the motion addresses taxation of costs under federal and state statutes, the

federal statute applies in this federal court. Since the clerk taxed costs on December 27,

2005(doc. # 297) and no review of that taxation was sought, the portion of the motion that

addresses taxation of costs is denied. 

The nature of the claims alleged and their disposition are stated in detail in the court's

prior orders. (Docs. ## 193 and 280.) In summary, Plaintiff John Killingsworth alleged

various employment discrimination claims against his former employer Defendant State

Farm Mutual Automobile Insurance Company and breach of contract, promissory estoppel,

and breach of the implied covenant of good faith and fair dealing for deferring, rather than

granting immediately, his request for an independent agency. Killingsworth contended that

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when he was recruited as a management employee in 1980, he was promised an agency if

and when he terminated as an employee. The court held any such claim was extinguished

by the integration clauses in several later-signed contracts. The parties discussed an agency

in June 2001, but State Farm's undisputed caveat in all those discussions that there were “no

promises” precluded any contractual obligations arising from those discussions. 

Killingsworth also sued his co-employee Defendant Dave Gonzales for tortious

interference with his contractual relations with State Farm. The court granted summary

judgment against this claim as well because, as a manager for State Farm acting within the

scope of his employment, Gonzales was not separate from State Farm and therefore could

not have interfered with the contract of a third party, a requirement for such liability. Mintz

v. Bell Atl. Sys. Leasing Int'l, Inc., 183 Ariz. 550, 905 P.2d 559 (Ariz. Ct. App. 1999);

Barrow v. Ariz. Bd. of Regents, 158 Ariz. 71, 761 P.2d 1435 (Ariz. Ct. App. 1988); Payne

v. Pennzoil Corp., 138 Ariz. 52, 672 P.2d 1322 (Ariz. Ct. App. 1983). 

I. THE EXTENT OF LIABILITY UNDER A.R.S. § 12-341.01(A) IN THIS CASE.

The court in its discretion may award reasonable attorneys fees to the successful party

in “any contested action arising out of contract.” A.R.S. § 12-341.01(A). State Farm and

Dave Gonzales seek award under this statute of their fees incurred in successfully defending

against Killingsworth's claims of breach of contract, promissory estoppel, breach of implied

covenant of good faith and fair dealing, and tortious interference with contract. The parties

disagree over which of these claims are compensable under the statute.

Killingsworth agrees that the breach of contract claim is within the scope of the

statute. He has not disputed that the claim for breach of the implied covenant of good faith

and fair dealing is contractual and within the statute. State Farm concedes that promissory

estoppel does not “arise out of contract” within the meaning of the statute, Double AA

Builders, Ltd. v. Grand State Construction, LLC, 210 Ariz. 503, 114 Ariz. 503, 114 P.3d 835

(Ariz. Ct. App. 2005), but argues that time spent resisting that theory is nevertheless

compensable because “interwoven” with the compensable breach of contract claim.

Killingsworth disputes the compensability of the fees for defending the claim of tortious

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interference with Killingsworth's employment contract with State Farm. Killingsworth also

denies the adequacy of the proof that the fees claimed were incurred on compensable claims

and not other claims.

As to the claims for which the statute authorizes award of fees, the parties disagree

over whether proper discretion should lead to an award. 

A. Promissory Estoppel Claim “Interwoven” With Breach of Contract.

State Farm's otherwise uncompensable fees incurred on the promissory estoppel claim

cannot be awarded nonetheless as “interwoven” with the compensable fees incurred on the

breach of contract claim. It is not enough for attorney fees recovery under A.R.S. § 12-

341.01(A) that tort (or other theories outside the statute) and contract liabilities be

“interwoven” in a transactional sense. Rather, the non-compensable claim must be

interwoven with the breach of contract such that there would be no other liability without the

breach of contract liability. Sparks v. Republic National Life Insur. Co., 132 Ariz. 529, 543,

647 P.2d 1127, 1131 (1982). The court of appeals restated this in Bar J Bar Cattle Co. v.

Pace, 158 Ariz. 481, 486, 763 P.2d 545, 550 (Ariz. Ct. App. 1988), as “where a single act

constitutes both a tort and a breach of contract” and the tort claim could not exist but for the

breach of contract. This test was expanded in Marcus v. Fox, 150 Ariz. 333, 684, 723 P.2d

682, 336 (1986), to “include those cases in which a contract is entered into and later found

void due to a claim of fraudulent inducement.” The Arizona cases are well reviewed and

summarized by Judge Ackerman in Ramsey Air Meds, LLC v. Cutter Aviation, Inc., 198 Ariz.

10, 15, 6 P.3d 315, 320 (App. 2000):

 From these authorities, we distill the following principles for determining whether

a tort claim "arises out of a contract." In analyzing this issue, the court should look to

the fundamental nature of the action rather than the mere form of the pleadings. The

existence of a contract that merely puts the parties within tortious striking range of

each other does not convert ensuing torts into contract claims. Rather, a tort claim will

"arise out of a contract" only when the tort could not exist "but for" the breach or

avoidance of contract. When the duty breached is one implied by law based on the

relationship of the parties, that claim sounds fundamentally in tort, not contract. In

such cases, it cannot be said that the plaintiff's claim would not exist "but for" the

contract. The test is whether the defendant would have a duty of care under the

circumstances even in the absence of a contract.

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A promissory estoppel claim plainly can exist without a breach of contract. Double

AA Builders, Ltd. v. Grand State Construction, LLC, 210 Ariz. 503, 114 Ariz. 503, 114 P.3d

835 (Ariz. Ct. App. 2005). Indeed, its role is to provide an equitable remedy when there is

no contract to breach. State Farm's attorneys fees incurred solely on the promissory estoppel

claim may not be awarded under A.R.S. § 12-341.01(A).

B. Tortious interference with contract.

Claims for tortious interference with contract generally do not come within the reach

of A.R.S. § 12-341.01(A) because the duty not to interfere is imposed by law, rather than by

contract. Bar J Bar Cattle Co. v. Pace, 158 Ariz. 481, 486, 763 P.2d 545, 550 (Ariz. Ct.

App. 1988). But that generalization may not be the end of the inquiry for a case like this in

which the tortious interference claim was asserted against an employee (Gonzales) of the

contracting party (State Farm) for allegedly causing his employer to breach its contract with

the plaintiff. Gonzales was granted summary judgment precisely because he cannot be

personally liable for breaching or inducing breach of his employer's contract, acting in the

course and scope of his employment. In this case the manager is the employer, so there is

no third party, which is the gist of the action for tortious interference. (Doc. # 193, pp. 8-10.)

In these circumstances the supposed tort of interference with the contract collapses into the

claim of breach of contract itself.

Authority for Gonzales' position is found in Rutledge v. Arizona Board of Regents,

147 Ariz. 534, 557, 711P.2d 1207, 1230 (Ariz. Ct. App. 1985), affirming an award of fees

to an employer sued in respondeat superior and managers sued for tortious interference with

their employer’s contract. The opinion held the tort could not exist without the breach of

contract–a rationale later rejected in Ramsey Air Meds in light of intervening Arizona

Supreme Court authority in Barmat v. John and Jane Doe Partners A-D, 155 Ariz. 519, 474

P.2d 1218 (1987). While the stated rationale of Rutledge is now muted, the case has not

been overruled explicitly, and its facts are materially identical to those of this case. 

A corporation is a fictional principal which can act only through its agents, mostly

natural persons. A suit against a corporate employee/manager for causing his corporation

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in the course and scope of his employment to breach its contract proves too much if it proves

anything. Corporate agents are not personally liable for their corporations’ breaches of

contract effectuated by the agent. Restatement (Second) of Agency § 328 (1958). In Rutledge

as in this case, the interference tort against the corporate agents for being the breaching

instrument is invalid because it draws a personal tort out of nothing more than the

corporation’s breach of contract. Stripped of its false dressing in tort, it is an attempted

liability in contract. Thus understood, Rutledge on its facts is probably still good law in

Arizona. Assertion of a tort of interfering with one’s own contract is an invalid attempt to

extend contract duty, not just a tort that missed the mark. The invalidity of the tort is the

counterpart to the contract law principle that the agents of their principals’ contract breaches

are not liable for their principals’ breaches. Thus the rejection of the fallacious tort theory

flows from the recognition of the true boundaries of contract law.

Absent an overruling of Rutledge, a successful agent sued for interfering with the

contract he administers for his principal has sufficiently vindicated rights arising out of

contract to recover fees under A.R.S. § 12-341.01(A). Whether it is sufficient that he proved

no breach of contract, as in Rutledge, in this case the employee also defeated the fallacious

tort theory for its clash with contract doctrine. Therefore, Gonzales may be awarded fees

incurred in defending against the tortious interference claim in the circumstances of this case.

II. EXERCISE OF DISCRETION.

The factors concerning exercise of its discretion to award fees under A.R.S. § 12-

341.01(A) are stated in Associated Indemnity Corp v. Warner, 143 Ariz. 567, 570, 694 P.2d

1181, 1184 (1985). The principal considerations are as follows. 

1. The merits of the unsuccessful party's claim. State Farm prevailed entirely and on

the substantive merits. That factor weighs substantially in favor of a fee award. 

2. Whether the successful party's efforts were superfluous in achieving the ultimate

result. Killingsworth rejected an early settlement offer of $90,000, so State Farm's efforts

were essential to achieving the result it did. This factor weighs substantially in favor of a fee

award. 

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3. Whether assessing fees against the unsuccessful party would cause extreme

hardship. Killingsworth concedes that an award would not be an extreme hardship. This is

a commercial dispute between commercial parties. This factor does not weigh against a fee

award.

4. Whether the successful party prevailed with respect to all relief sought. This factor

weighs in favor of a fee award.

5. Whether the legal question presented was novel or had been previously

adjudicated. The case presented a novel but preliminary question of the meaning of the oneyear statute of limitations in A.R.S. § 12-541(3). The direction in which this factor pulls is

uncertain. Though Killingsworth prevailed on that issue, State Farm prevailed on the

contract claims on the merits. In general a party who prevails is entitled to award of all fees

incurred even though some issues were unsuccessful.

6. Whether a fee award would discourage other parties with tenable claims from

litigating. This factor does not weigh against a fee award, as Killingsworth's contract claims

were not tenable.

These factors show much in favor of an award and little or nothing against an award.

The court therefore exercises its discretion to award fees to State Farm and Dave Gonzales

pursuant to A.R.S. § 12-341.01(A) in the amount otherwise shown to be occasioned by the

contract claims.

III. QUANTIFICATION OF RECOVERABLE FEES.

The court has previously noted that this case has been hard fought. (Doc. # 262, p.

4.) Defendant incurred $868,409.43 in fees and disbursements through the November 29,

2005 billing. While this may be a very high defense cost for an employment case,

Killingsworth's settlement demand was $7,450,000,00, and he has not questioned the

reasonableness of this level of defense in light of his own initiatives in the case.

Killingsworth does not dispute the reasonableness of the hourly rates State Farm claims, and

the court finds them to be reasonable for the Phoenix market.

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State Farm seeks $75,697 of those fees as allocable to the breach of contract,

promissory estoppel, breach of implied covenant of good faith and fair dealing, and

interference with contract claims. In reaching this number, State Farm “assumed” that a

quarter of all fees and expenses incurred before dismissal of the tortious interference claim

and one sixth of the fees and expenses incurred thereafter “were related to the contract

claim.” (Doc. # 283, p. 3.) However, State Farm seeks all of the fees incurred on the issue

of statute of limitations for the contract claims and all the fees incurred concerning damages.

State Farm’s contention that a stated percentage of all time incurred in the general

defense of the case is allocable to the contract must meet the fee claimant’s duty under

LRCiv 54.2(e)(2) to “adequately describe the services rendered so that the reasonableness

of the charge can be evaluated.” Where a district court, as finder of fact, can make such an

allocation and does so with basis, it will be upheld on appeal. Salstrom v. Citicorp Credit

Services, Inc., 74, 183, 185 F.3d (9th Cir. 1996); Hudson v. Moore Business Forms, Inc., 898

F.2d 684, 686-87 (9th Cir. 1990) (frivolous prayer for $4.2 million in damages “and the legal

claims were so closely connected that it was appropriate to allocate 25% [17.27 hours] of the

time spent investigating the claims to the sanction award” for the frivolous damage prayer).

The authorities do not, however, authorize this court to quantify fees on whim, hunch, or

assumption. The burdens of proof and persuasion as to the amount of fees incurred because

of the qualifying contract claims are with the claimant. 

This court has studied all of the 192 submitted time entries, and with the added benefit

of that study it cannot directly determine what portion of the total fees in the general defense

of the case were incurred on the contract claims. Moreover, it was feasible to record time

to support a claim for the legal services added to this case by the contract claims. Defendant

was aware from the outset of the prospect of fee recovery under A.R.S. § 12-341.01(A) for

the contract claims. Marginal services expended on those claims could have been quantified

in the time records. The Local Rules of this Court require fee applications to state “[t]he time

devoted to each individual unrelated task performed on such day.” LRCiv 54.2(e)(1)(B).

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While State Farm has not block billed unrelated tasks, it could have noted what portion of

a task related to the fee-recoverable claims.

 Having failed to segregate most of the recoverable from the non-recoverable time

when recording it, the working lawyers and paralegals have also failed to construct an afterthe-fact allocation. While such estimates could not be perfect on every time entry, they could

be adequate in general because made with diligence, in good faith, and with attention to

counsel’s professional responsibility and their oath. When the working lawyers and

paralegals themselves, who are best able to do so, have not undertaken to estimate how much

of their work, within a given description on a given day or by broader categories, was

expended on recoverable matters, they cannot expect the court to do it for them. LRCiv 54.2.

While it is apparent that State Farm did substantial work concerning damages on the

contract claim, it is not apparent, and State Farm does not explain, why all the damage work

in the case should be recoverable under the contract claim. Nor has State Farm informed the

court of what damage work was done by which damage experts. 

Another consideration is whether the inherent conservatism of the fee application–9%

of the total defense cost–supports the request as a reasonable allocation. The court's own

review of all the submitted time entries based on the narrative descriptions yields the

following times and amounts directly allocable to the qualifying contract claims, without

apportionment to non-contract claim work:

10-23-03 DJS 3.6 hours 175 $ 630.00

11-06-03 DJS 2.3 hours 175 $ 402.50

2-20-04 DJS 1.0 hours 175 $ 175.00

2-24-04 LVB 0.5 hours 110 $ 55.00

2-24-04 DJS 0.3 hours 175 $ 52.50

3-08-04 LVB 1.2 hours 110 $ 132.00

3-09-04 LVB 1.2 hours 110 $ 132.00

5-10-04 MSS 6.9 hours 180 $ 1,242.00

6-03-04 DJS 1.8 hours 175 $ 315.00

6-04-04 DJS 2.1 hours 175 $ 367.50

6-08-04 DJS 2.6 hours 175 $ 455.00

6-10-04 DJS 1.1 hours 175 $ 192.50

7-09-04 MTC 3.0 hours 225 $ 675.00

7-12-04 LVB 0.4 hours* 110 $ 44.00

7-12-05 MTC 4.3 hours* 225 $ 967.50

7-13-04 MTC 8.5 hours* 225 $ 1,912.50

7-13-04 MDM 0.5 hours* 275 $ 137.50

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7-22-04 MDM 1.0 hours* 275 $ 275.00

8-31-04 LVB 0.9 hours 110 $ 99.00

8-31-04 MTC 1.5 hours 225 $ 337.50

9-12-04 MSS 1.6 hours 180 $ 288.00

9-14-04 MSS 3.1 hours 180 $ 558.00

9-15-04 MSS 4.9 hours 180 $ 882.00

9-17-04 CLC 1.0 hours 275 $ 275.00

9-17-04 MSS 5.2 hours 180 $ 936.00

9-20-04 LVB 0.3 hours 110 $ 33.00

9-20-04 CLC 1.0 hours 275 $ 275.00

9-20-04 MSS 5.9 hours 180 $ 1,062.00

9-21-04 MSS 7.1 hours 180 $ 1,278.00

9-21-04 TJW 8.4 hours 110 $ 924.00

9-22-04 TJW 5.8 hours 110 $ 638.00

9-22-04 MSS 7.8 hours 180 $ 1,404.00

9-23-04 MSS 6.3 hours 180 $ 1,134.00

9-25-05 MSS 3.1 hours 180 $ 558.00

9-27-04 MSS 3.8 hours 180 $ 684.00

10-01-04 MSS 5.0 hours 180 $ 900.00

10-04-04 LVB 3.8 hours 110 $ 418.00

11-04-04 TJW 1.0 hours 110 $ 110.00

11-05-04 TJW 2.2 hours 110 $ 242.00

11-07-04 MSS 1.7 hours 180 $ 306.00

11-08-04 MSS 0.5 hours 180 $ 90.00

11-09-04 MSS 0.7 hours 180 $ 126.00

Total: $21,720.00

* tortious interference claim

This review also leaves the court firmly convinced that the contract claim work

includes substantial additional services encompassed within the general time entries for

discovery, briefing, court appearances, damage preparation, and other matters. The

conservatism of the fee request together with the certainty that the fees allocable to the

contract claims substantially exceed the above enumeration of time entries solely addressed

the contract claim persuade the court that a just assessment of fees is $50,000.00. In reaching

this number, the court resolves doubts in Killingsworth's favor and further exercises its

discretion to reach a conservative award.

. . .

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. . .

. . .

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IT IS THEREFORE ORDERED that Defendant's Motion for Attorneys' Fees and

Non-Taxable Expenses (doc. # 283) and Memorandum (doc. # 294) are granted in the

amount of $50,000.00. The clerk shall enter judgment pursuant to Rules 54(d)(2) and 58 in

favor of Defendants State Farm Mutual Automobile Insurance Company and Dave Gonzales

against Plaintiff John Killingsworth in the amount of $50,000.00.

DATED this 16th day of February 2006.

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