Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-01213/USCOURTS-azd-2_05-cv-01213-2/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Declaratory Judgment

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NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

James River Ins. Co., 

Plaintiff, 

vs.

Hebert Schenk, P.C., 

Defendant. 

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No. CV-05-1213-PHX-FJM

ORDER

The court has before it James River's motion for attorneys' fees and costs (doc. 50) and

memorandum and supplement in support thereof (docs. 62, 70); Hebert Schenk, P.C.'s

("Hebert Schenk") responses (docs. 64, 72); and James River's reply (doc. 66).

James River filed a declaratory judgment action seeking a declaration of its rights and

responsibilities under a professional liability insurance policy (the "Policy") issued to Hebert

Schenk, who in turn filed a counterclaim for breach of contract and insurance bad faith. We

granted James River's motions for summary judgment, concluding that no coverage was

available and that James River had not breached the insurance contract or its covenant of

good faith and fair dealing. 

James River now asserts that it is entitled to attorneys' fees and costs pursuant to

A.R.S. § 12-341.01(A), (C) and A.R.S. § 12-349. Under § 12-341.01(A), a court may award

attorneys' fees to the prevailing party in an action arising out of a contract. A court may also

Case 2:05-cv-01213-FJM Document 74 Filed 08/16/06 Page 1 of 4
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award attorneys' fees under § 12-341.01 for interrelated contract and tort claims, such as

breach of an insurance contract and bad faith claims. Sparks v. Republic Nat'l Life Ins. Co.,

132 Ariz. 529, 544, 647 P.2d 1127, 1142 (1982) ("[A]n action alleging insurer's bad faith is

one 'arising out of a contract' within the meaning of § 12-341.01(A)."). James River argues

that it is entitled to attorneys' fees related to both its prosecution of the declaratory judgment

action and the defense of Hebert Schenk's counterclaim. 

In evaluating a motion for fees under A.R.S. § 12-341.01, we consider a number of

factors, including (1) whether the unsuccessful party's claim or defense was meritorious; (2)

whether the litigation could have been avoided or settled; (3) whether assessing fees would

cause extreme hardship; (4) whether the successful party prevailed with respect to all relief

sought; (5) whether the legal question was novel; and (6) whether the award would

discourage other parties with tenable claims from litigating them. Associated Indem. Corp.

v. Warner, 143 Ariz. 567, 570, 694 P.2d 1181, 1184 (1985). No one particular factor is

determinative of whether fees should be awarded, and we will consider all relevant factors

in exercising our discretion. Wilcox v. Waldman, 154 Ariz. 532, 538, 744 P.2d 444, 450 (Ct.

App. 1987). An award of attorneys' fees pursuant to this statute is discretionary in nature and

the prevailing party in an action arising out of contract is not presumed to be entitled to an

award of fees. Associated Indem. Corp., 143 Ariz. at 569, 694 P.2d at 1183. An award is

made to "mitigate the burden of the expense of litigation" and "need not equal or relate to"

the fees incurred. A.R.S. § 12-341.01(B).

We first consider the motion for fees related to the declaratory judgment action. With

regard to the first and fifth factors, Hebert Schenk presented a meritorious argument

interpreting a contract provision that was an issue of first impression in this jurisdiction. We

note that there is arguably some inconsistency in the interpretation of similar provisions in

other jurisdictions. We conclude that Hebert Schenk's claim was both meritorious and novel,

and therefore these factors weigh in favor of Hebert Schenk. Second, settlement attempts

were made by the parties without success. This factor is neutral. Third, Hebert Schenk

asserts that the relative economic positions of the parties are disparate. James River is a

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Because we award fees under A.R.S. § 12-341.01(A), we need not consider James

River's arguments under A.R.S. §§ 12-341.01(C) or 12-349. 

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multi-million dollar insurance company, while Hebert Schenk is a small local law firm

consisting of 14 lawyers. Although Hebert Schenk does not assert that an award of fees

would result in an extreme hardship, the disparate economic power of the parties counts in

favor of Hebert Schenk. The fourth is the only factor that clearly weighs in favor of James

River, who was the prevailing party with respect to all relief sought. Finally, because this

was a novel issue of law, an award of fees in this case may discourage other parties from

litigating tenable contract claims of first impression. Based on the foregoing, we conclude

that the overall balance of factors weighs heavily in favor of Hebert Schenk, and accordingly

we decline to award fees related to the declaratory judgment action. 

The motion for fees relating to the defense of the counterclaim presents a different

issue. Hebert Schenk's counterclaim for breach of contract and bad faith was based on its

assertion that James River was not providing a defense in the underlying action, when the

undisputed evidence established that James River was in fact providing a defense. Hebert

Schenk made conclusory allegations of bad faith, each of which challenged the process

employed by James River to determine whether coverage existed for the Nolan claim.

Notwithstanding its coverage assessment, however, James River proceeded with a defense

of the Nolan claim. Accordingly, this factor weighs strongly in favor of awarding fees.

There is no indication the parties attempted a settlement on the bad faith/breach of contract

issues. There is no indication Hebert Schenk would suffer an extreme hardship if fees related

to the counterclaim were awarded. James River prevailed with respect to the counterclaim

in its entirety. The legal question related to the counterclaim was far from novel. And there

is no indication that a fee award would discourage a bona fide breach of contract or bad faith

claim. Based on the foregoing, we conclude that an award of attorneys' fees related to the

counterclaim is warranted.1

 

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On the other hand, the counterclaim should have taken little time to eliminate. The

fee request generally reflects disproportionate time entries. In our discretion, we award fees

to James River on the counterclaim in the amount of $5,000. 

IT IS THEREFORE ORDERED GRANTING in part and DENYING in part

James River's motion for an award of attorneys' fees (doc. 50). Fees are allowed in the

amount of $5,000. Costs are allowed in the amount of $250. 

DATED this 16th day of August, 2006.

Case 2:05-cv-01213-FJM Document 74 Filed 08/16/06 Page 4 of 4