Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-01402/USCOURTS-azd-2_08-cv-01402-1/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:2201 Declaratory Judgment (Insurance)

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Essex Insurance Co., 

Plaintiff, 

vs.

W.G.S., LLC et al., 

Defendant. 

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No. CV 08-1402-PHX-JAT

ORDER

Plaintiff Essex Insurance Co. (“Essex”) moves this Court for an award of attorneys’

fees and related expenses. (Doc. 57 Plaintiff’s Motion for Award of Attorneys’ Fees and

Related Non-Taxable Expenses); (Doc. 62 Plaintiff’s Memorandum of Points and

Authorities). Defendant Charles Nikias (“Nikias”) responded. (Doc. 59 Defendant’s

Response); (Doc. 63 Defendant’s Memorandum of Points and Authorities). Having

considered the parties’ pleadings, the Court now finds that Essex is entitled to reasonable

attorneys’ fees and expenses in the amount of $18,392.00.

I. Factual Background

Defendant Nikias used to work for Defendant Brown & Recker, LLC; W.G.S. d/b/a

World Gym (referred to collectively as “World Gym”) as a kickboxing instructor at the

World Gym located on East Hayden Road in Scottsdale. (Doc. 54 at 1). World Gym

terminated Nikias in January of 2005. Id. On February 7, 2005, Nikias returned to the E.

Hayden World Gym to retrieve some property he used in teaching his classes and he got into

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The purpose of a cooperation clause in an insurance policy is to protect the “insurer’s

right to a fair adjudication of the insured’s liability and to prevent collusion between the

insured and the injured person.” Arizona Prop. and Cas. Ins. Guar. Fund v. Helme, 753 P.2d

451, 458 (Ariz. 1987).

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a physical altercation with a World Gym employee. Id. at 1-2. As a result, Nikias suffered

serious injuries. Id. at 2.

Essex had issued an insurance contract to World Gym. Id. Essex originally agreed

to defend World Gym and the two individual employees against Nikias’ claims with a

reservation of rights. Id. Essex thereafter lifted its reservation of rights as to World Gym and

agreed to defend World Gym without reservation. Id. Essex did not lift its reservation of

rights as to the two individual employees. Id. Nikias entered into a settlement agreement

with the two individual employees, but Essex sought a declaratory judgment from this Court

saying that the insurance policy with World Gym did not cover these two individual

employees. Id. Essex prevailed in that case. Id.

On January 17, 2008, a few days before Nikias’ trial against World Gym was set to

begin, Nikias made a settlement proposal to World Gym whereby World Gym would

stipulate to a judgment against it and transfer to Nikias all of its rights against Essex in

exchange for Nikias’ covenant not to execute on the judgment against World Gym. Id.

Essex objected to the settlement proposal and refused to give its consent to the agreement.

Id. Essex advised World Gym that by entering into the agreement, World Gym would breach

the insurance policy’s cooperation clause, among other clauses, and void coverage. Id. The

cooperation clause provides that in the event of a claim or suit the insured, World Gym, must

“Cooperate with [Essex] in the investigation or settlement of the claim or defense against the

‘suit’: and . . . [n]o insured will, except at the insured’s own cost, voluntarily make a

payment, assume any obligation, or incur any expense, other than for first aid, without

[Essex’s] consent.”1

 (Doc. 41, ¶85). World Gym nonetheless accepted the settlement

proposal and executed a settlement agreement with Nikias. (Doc. 54 at 2).

On July 29, 2008, Essex filed a Complaint for Declaratory Judgment seeking to have

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this Court find that World Gym breached the insurance policy by settling with Nikias and

that, in light of this breach, Essex had no obligation to defend World Gym or pay damages

or judgments rendered against it. (Doc. 1). The Court agreed and granted summary

judgment to Essex. (Doc. 54). Essex now moves for an award of attorneys’ fees and costs.

(Doc. 57, Doc. 62).

II. Legal Standard

Generally, federal courts follow state statutes allowing for the recovery of attorneys’

fees. “In an action where a district court is exercising its subject matter jurisdiction over a

state law claim, so long as ‘state law does not run counter to a valid federal statute or rule of

court, and usually it will not, state law denying the right to attorneys’ fees or giving a right

thereto, which reflects a substantial policy of the state, should be followed.’” MRO

Communications, Inc. v. AT & T Corp., 197 F.3d 1276, 1281 (9th Cir.1999) (citing Alyeska

Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 259 n.31 (1975) (quoting 6 Moore's

Federal Practice § 54.77[2] (2d ed.1974))). Accordingly, the Court will apply Arizona law

to Essex’s request for attorneys’ fees.

III. Discussion

Under Arizona law, “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). Courts have discretion to award attorneys’ fees to the prevailing party based on

six factors outlined by the Arizona Supreme Court in Associated Indemnity Corp. v. Warner.

694 P.2d 1181, 1184 (Ariz. 1985). If a court finds that an award of attorneys’ fees is

appropriate, it must then determine whether the amount of fees requested is reasonable. See

Schweiger v. China Doll Rest., Inc., 673 P.2d 927, 931 (Ariz. App. 1983). This Court’s local

rules provide thirteen factors under which courts assess the reasonableness of an attorneys’

fees award. LRCiv 54.2.

In this case, there is no dispute that Essex is the successful party or that the case arises

out of a contract dispute. The parties dispute whether this Court should, as a matter of

discretion, grant Essex an attorneys’ fees award. (Doc. 62 at 2-9); (Doc. 63 at 2-3); see

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A.R.S. § 12-341.01(A) (“the court may award . . . reasonable attorney fees”) (emphasis

added). Nikias also asserts that the number of hours billed by Essex’s counsel is

unreasonable. (Doc. 63 at 6). The Court finds that: (1) an attorneys’ fees award is

appropriate in this case based on the Associated Indemnity factors; and (2) a fee award of

$18,392.00 is reasonable.

A. Appropriateness of Fee Award Under Associated Indemnity Factors

In Associated Indemnity, the Arizona Supreme Court announced six factors that courts

should use to determine whether an award is appropriate:

(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 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.

Newberry Corp. v. Fireman’s Fund Ins. Co., 95 F.3d 1392, 1405-6 (9th Cir. 1996) (citing

Associated Indemnity Corp. v. Warner, 694 P.2d 1181, 1184 (Ariz. 1985)). No single factor

is determinative, and the Court must weigh all factors when determining whether to award

attorneys’ fees. Wilcox v. Waldman, 744 P.2d 444, 450 (Ariz. App. 1987); see also Moedt

v. Gen. Motors Corp., 60 P.3d 240, 246 (Ariz. App. 2000) (“The weight given to any one

factor is within the Court’s discretion”). When weighing the above factors, the party

requesting attorneys’ fees has the burden of proving entitlement. Woerth v. City of Flagstaff,

808 P.2d 297, 305 (Ariz. App. 1991).

Because the Court determines four of the factors weigh in Essex’s favor and only two

weighs in Nikias’ favor, the Court finds that the Associated Indemnity factors weigh in favor

of awarding attorneys’ fees to Essex. Each Associated Indemnity factor is discussed in turn.

1. Whether Nikias’ Claim Was Meritorious

Nikias’ claim was not meritorious. The Court notes that “[a] claim can have merit,

even if it does not succeed.” Scottsdale Mem’l Health Sys., Inc. v. Clark, 791 P.2d 1094,

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Insurers are generally said to have an implied duty to give equal consideration to their

own interests and to their insured’s interests when faced with a settlement offer. State Farm

Mut. Auto. Ins. Co. v. Peaton, 812 P.2d 1002, 1014 (Ariz. App. 1990). Even if no explicit

settlement offer exists, the duty of equal consideration may be present where a potential

settlement could exceed the insurance policy’s payout limit. Id.

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1099 (Ariz. App. 1990). For example, in Clark the Arizona Court of Appeals found that a

losing claim did have merit because the losing litigant had prevailed at both the trial court

and the appeals court, only to be reversed by the Arizona Supreme Court. Id. Even the

Arizona Supreme Court remarked that it “must choose . . . among two plausible statutory

interpretations,” urged by each party. Scottsdale Mem’l Health Sys. v. Clark, 759 P.2d 607,

615 (Ariz. 1988).

Here, Nikias succeeded on his argument that Essex owed World Gym a duty of equal

consideration,2

 even though Nikias could not show that Essex breached this duty. (Doc. 54

at 5-6). Given that Nikias’ succeeded on one of his legal arguments, the Court could find that

his claim had some merit. See Clark, 791 P.2d at 1099. However, in the summary judgment

Order, the Court found that Nikias had not established even one of the eight factors under

which courts determine whether an insurer breached its duty to give its insured equal

consideration when assessing settlement offers. (Doc. 54 at 6); see also Pruett v. Farmers

Ins. Co. of Ariz., 857 P.2d 1301, 1305-06 (Ariz. App. 1993). Despite the benefit of

discovery, Nikias could not establish a single fact tending to show that Essex breached any

duty it had under the insurance policy. This is distinguishable from Clark, where different

courts grappled with two plausible statutory interpretations. Clark, 791 P.2d at 1099. As

such, Nikias’ claim was not meritorious. Therefore, this factor weighs in favor of awarding

attorneys’ fees to Essex.

2. Whether Litigation Could Have Been Avoided

This case probably could not have avoided litigation. Nor is the litigation that has

occurred superfluous. Once World Gym chose to settle without Essex’s blessing, Essex at

all times maintained that it would not cover any of World Gym’s liability because World

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Gym breached its insurance policy. (Doc. 54 at 2-3). The Court found Essex was within its

right not to cover World Gym’s liability. (Id.). Meanwhile, Nikias obtained the right to

indemnify Essex as part of his settlement agreement with World Gym. (Id. at 2). If Nikias

valued this right enough to accept it as settlement, it is likely that he would attempt to receive

a judgment against Essex. Therefore, neither party would have been willing to settle. Since

litigation could not have been avoided, this factor gives the Court no reason to depart from

the standard practice of letting the parties pay their own attorneys’ fees. Therefore, this

factor weighs for Nikias and against awarding attorneys’ fees to Essex.

3. Whether Award Would Cause Extreme Hardship

Nikias has not shown that awarding attorneys’ fees to Essex would cause him extreme

hardship. “[A]lthough the party requesting fees has the burden of proving his entitlement to

an award of fees, the party asserting financial hardship has the burden of coming forward

with prima facie evidence of financial hardship.” Woerth v. City of Flagstaff, 808 P.2d 297,

305 (Ariz. App. 1990) (citing Southwest Cotton Co. v. Ryan, 199 P. 124, 129 (Ariz. 1921)).

Unsworn and unproven assertions are not facts admissible in evidence; Plaintiffs are required

to present specific facts by affidavit or testimony. See id.

Here, Nikias has provided the Court with only unsworn, unproven assertions that he

“is in his 50's, has permanent injuries and is currently working two jobs . . . is barely able to

make ends meet, and does not have sufficient funds to pay any attorneys’ fees award.” (Doc.

63 at 4). None of these assertions are in the form of evidence. Nor can the Court verify

Nikias’ claim of “future medical needs.” (Id.). Furthermore, Nikias makes no mention of

the value of his settlements with the two individual Defendants. (Doc. 54 at 2). Since Nikias

has not come forth with prima facie evidence of extreme hardship, the Court finds that this

factor weighs in favor of awarding attorneys’ fees to Essex.

4. Whether Essex Prevailed on All Forms of Relief Sought

It is undisputed that Essex prevailed on all forms of relief sought. (Doc. 63 at 5);

(Doc. 62 at 4). Therefore, this factor weighs heavily in favor of Essex.

5. Whether the Legal Question Was Novel

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Nikias did not present a novel legal question. Nikias asserts that, “[a]t the time of this

Court’s ruling, there was no case known to Defendant that included an offer to settle within

policy limits and a refusal by the insurance company to lift its policy limits and defend the

case.” (Doc. 63 at 5). When an insurer refuses a settlement offer within its policy limits, a

conflict of interests arises between the insurer and the insured. Peaton, 812 P.2d at 1014.

In such a case, the insurer must give equal consideration to the insured’s interests. Id. There

is a legal test, found in Clearwater v. State Farm Mut. Auto. Ins. Co., that courts use to

determine whether an insurer breached a duty of equal consideration to its insured. 792 P.2d

719, 722 (Ariz. 1990) (citing General Accident Fire & Life Assur. Corp. v. Little, 443 P.2d

690, 694 (Ariz. 1968)). This test has been applied by prior Arizona courts. See, e.g., Pruett,

857 P.2d at 1305-06.

The Court applied this test in its summary judgment Order. (Doc. 54). Although the

application of this legal test to these facts is undoubtedly novel, the Court does not consider

the legal question presented by this case to be novel. See, e.g., Pruett, 857 P.2d at 1305-06;

Goldberg v. Pacific Indem Co., 2009 WL 1327528 (D. Ariz. 2009) (where “case certainly

presented novel facts, but not necessarily novel legal theories,” this factor weighs in favor

of the prevailing party). Therefore, this factor weighs in favor of awarding attorneys’ fees

to Essex. 

6. Whether the Award Would Discourage Other Valid Litigants

Awarding attorneys’ fees in this type of case may discourage other valid litigants.

Essex did not want World Gym to settle with Nikias precisely because it believed Nikias’

claim against World Gym was not valid. (Doc. 54 at 7). Therefore, Essex argues, an

attorneys’ fees award would not discourage valid litigants. (Doc. 62 at 5). In the Court’s

summary judgment Order, the Court found that Nikias had not made a showing of any of the

eight factors courts use to determine whether an insurer breached its duty of equal

consideration. (Doc. 54 at 6); see also Pruett, 857 P.2d at 1305-06. Unlike Nikias, a valid

litigant would consider whether they could prove these eight factors before bringing suit.

However, to prove most of these eight factors, litigants would require information that

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Among the eight factors that would require information within the insurer or the

insured’s possession are, “. . . (2) attempts by the insurer to induce the insured to contribute

to a settlement; (3) failure of the insurer to properly investigate . . . (4) insurer’s rejection of

advice of its own attorney; (5) failure of the insurer to inform the insured of a compromise

offer . . . (7) fault of the insured in inducing the insurer’s rejection of the compromise offer

by misleading it as to the facts; and (8) any other factors tending to establish or negate bad

faith on the part of the insurer.” Pruett, 857 P.2d at 1305-06.

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is in the insurer’s possession, or at least the insured’s possession, and not in the injured

litigant’s possession.3

 It is entirely possible that the prospect of attorneys’ fees would, prior

to discovery, discourage a valid litigant from suing an insurer on behalf of the insured for

breaching a duty of equal consideration. Although in this case Essex quickly realized that

Nikias’ claim was not valid, Nikias could not have known this conclusively until discovery.

Therefore, this factor weighs slightly in favor of Nikias and against awarding attorneys’ fees

to Essex. But since it is one of two factors weighing in Nikias’ favor, the Court still finds

that an award of attorneys’ fees to Essex is appropriate.

B. Reasonableness of Fee Award

The Court may award the successful party in a contract action reasonable attorney's

fees. A.R.S. § 12-341.01(a). When analyzing attorneys’ fees for reasonableness, the Court

must determine that: (1) the hourly billing rate is reasonable; and (2) the hours expended on

the case are reasonable. Schweiger, 673 P.2d at 931-32. This Court’s Local Rule lists 12

factors that courts should consider when determining whether the amount of attorneys’ fees

is reasonable. LRCiv 54.2(c)(3). These factors are:

(A) The time and labor required by counsel;

(B) The novelty and difficulty of the questions presented;

(C) The skill requisite to perform the legal service properly;

(D) The preclusion of other employment by counsel because of the acceptance

of the action;

(E) The customary fee charged in matters of the type involved;

(F) Whether the fee contracted between the attorney and the client is fixed or

contingent;

(G) Any time limitations imposed by the client or the circumstances;

(H) The amount of money, or the value of the rights, involved, and the results

obtained;

(I) The experience, ability and reputation of counsel;

(J) The “undesirability” of the case;

(K) The nature and length of the professional relationship between the attorney

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Although Essex charged different billing rates for different billing entries, Essex

charged $150 for these two billing entries. (Doc. 62 at Exhibit A).

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and the client;

(L) Awards in similar actions; and

(M) Any other matters deemed appropriate under the circumstances.

LRCiv 54.2(c)(3). Once a party submits an itemized list of fees with sufficient detail and

establishes entitlement to fees, the burden then shifts to the party challenging the fees to

show that the fees are unreasonable. See Nolan v. Starlight Pines Homeowners Ass’n, 167

P.3d 1277, 1286 (Ariz. App. 2007). 

Here, Essex has submitted an itemized list of fees for this case, (Doc. 62 at Exhibit

A), along with explanations for why the fee sought is reasonable under Local Rule 54.2. (Id.

at 5-9). The burden therefore shifts back to Nikias to show that these fees are unreasonable.

See Nolan, 167 P.3d at 1286. The only specific objection that Nikias makes to Essex’s

computation of attorneys’ fees is to the 10.7 hours Essex spent on January 22 and 25, 2010

preparing a Response to Notice of Companion Case Ruling from State Court. (Doc. 63 at

6). That Response was stricken from the record because it contained supplemental briefing

filed without leave of the Court. (Doc. 52). The Court agrees that the 10.7 hours used to

prepare this document should not be part of the fee award. See LRCiv 54.2(c)(3)(M) (courts

may consider “any other matters deemed appropriate” when determining reasonableness of

attorneys’ fees). 10.7 hours multiplied by $150 per hour4

 equals $1,605. Thus, Essex’s

suggested attorneys’ fees award of $19,997.00 is reduced by $1,605 to $18,392.00.

Nikias has presented no other evidence that any other billing entry is unreasonable or

that the billing rate is unreasonable. Nor does the Court find anything else unreasonable

about Essex’s fee request. Therefore, an attorneys’ fees award of $18,392.00 is reasonable.

IV. Conclusion

The Court finds that an attorneys’ fees award of $18,392.00 is both appropriate and

reasonable.

Accordingly,

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IT IS ORDERED that Plaintiff’s Motion for Award of Attorneys’ Fees and Related

Non-Taxable Expenses (Doc. 57) is granted in part and denied in part as follows: The Court

awards Plaintiff $18,392.00 in attorneys’ fees

IT IS FURTHER ORDERED that the Clerk of the Court shall enter judgment in the

amount of $18,392.00, plus interest from the date of judgment until paid, in favor of the

Plaintiff and against the Defendant.

DATED this 16th day of August, 2010.

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