Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-02670/USCOURTS-azd-2_05-cv-02670-7/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1330 Breach of Contract

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1

Though oral argument was requested on the Motion, because both the parties

submitted memoranda discussing the law and evidence in support of their positions and oral

argument would not have aided the Court’s decisional process, the Court will not set oral

argument. See e.g., Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998); Lake at Las Vegas

Investors Group, Inc. v. Pacific. Dev. Malibu Corp., 933 F.2d 724, 729 (9th Cir. 1991).

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Mark H. Goldberg and Sherry R.

Goldberg, et al.,

Plaintiffs, 

vs.

Pacific Indemnity Company, et al.,

Defendants. 

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No. CV 05-2670-PHX-JAT

ORDER

Currently before the Court is a Motion for Attorneys’ Fees and Related Non-Taxable

Expenses Including an Award of Sanctions Pursuant to Rule 68 of Arizona Rules of Civil

Procedure (“Motion”) (Dkt. #783) filed by Defendants Pacific Indemnity Company and

Federal Insurance Company (collectively “Defendants”). Plaintiffs Mark H. Goldberg,

Sherry R. Goldberg, and the MH & SR Goldberg Family Trust (collectively “Plaintiffs”)

filed a Response (Dkt. #843), and Defendants filed a Reply (Dkt. #844). Determining oral

argument unnecessary, the Court now issues the following Order.1

Case 2:05-cv-02670-JAT Document 848 Filed 05/13/09 Page 1 of 19
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I. BACKGROUND

On or about July 29, 2005, Plaintiffs initiated the instant action alleging claims for

breach of contract and bad faith. The Court granted summary judgment in favor of

Defendants on Plaintiffs’ bad-faith and punitive damage claims on February 21, 2008. (Dkt.

#625.) The Court’s Order further granted summary judgment in favor of Defendants on

Plaintiffs’ stigma damages issue relating to the breach of contract claim. (Id.) The case

proceeded to trial in August 2008 on Plaintiffs’ remaining breach of contract claim.

Following a four-week trial, the jury returned a verdict in favor of Defendants on the

remaining claim, and the Court entered Judgment accordingly on September 24, 2008. (Dkt.

#779.) Defendants filed their timely Motion on October 8, 2008. (Dkt. #783.)

II. ATTORNEY’S FEES

Generally, state statutes allowing for the recovery of attorney’s fees are substantive

for Erie purposes. “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

attorney’s 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 state law to Defendants’ request for attorneys’ fees.

A. Award of Attorney’s Fees under Arizona Law

A.R.S. § 12-341.01 provides, in pertinent part: “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). “[A]n action alleging insurer’s bad faith is one “arising out

of contract” within the meaning of s 12-341.01(A).” Sparks v. Republic National Ins. Co.,

647 P.2d 1127, 1141-42 (Ariz. 1982). 

Defendants prevailed on the breach of contract and bad faith claims. Therefore, the

Court, in its discretion, may award Defendants their reasonable attorney’s fees. See A.R.S. §

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12-341.01(A); Assoc. Indem. Corp. v. Warner, 694 P.2d 1181, 1183 (Ariz. 1985) (A.R.S. §

12-341.01 vests discretion on trial court to award reasonable attorney’s fees to a successful

contract litigant).

Courts should consider six factors in determining whether to make a discretionary fees

award under Arizona law. See Newbery Corp. v. Fireman’s Fund Ins. Co., 95 F.3d 1392,

1405-06 (9th Cir. 1996) (applying Arizona law). 

The Arizona Supreme Court has outlined six factors which

courts should use in determining whether to grant attorneys’ fees

and costs. Those factors are (1) whether the unsuccessful

party’s claims or defenses were 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 an 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.

Id. (citing Assoc. Indem., 694 P.2d at 1184). “The weight given to any one factor is within

the Court’s discretion.” Moedt v. Gen. Motors Corp., 60 P.3d 240, 246 (Ariz. App. 2000).

1. Merits of the claim

 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, 1099 (Ariz. App. 1990). Here,

this Court granted summary judgment in favor of Defendants on Plaintiffs’ bad faith claim

and the stigma damages portion of Plaintiffs’ breach of contract claim. (Dkt. #625.) In

granting summary judgment, the Court found that “no reasonable juror could find that

Federal knowingly acted in an unreasonable manner. (Id. at 15.) (emphasis in original). This

Court went on to state: “Plaintiffs obviously disagree with the ultimate conclusion of

Federal’s investigation. But Plaintiffs’ disappointment with Federal’s refusal to raze and

rebuild their home does not mean that Federal acted unreasonably in adjusting the claim or

in its ultimate refusal to comply with the raze and rebuild demand.” (Id.) Further, in

reference to the stigma damages issue, this Court found that “[t]he plain language of the

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provision in question and the remainder of the Policy clearly limit coverage to physical loss

to the home. . . . Purely economic loss, like stigma damages, does not fall under the meaning

of ‘physical loss.’” (Id. at 19.) Accordingly, the Court finds that Plaintiffs’ stigma damages

and bad faith claims were not meritorious.

However, this matter did proceed to trial on Plaintiffs’ breach of contract claim.

While both parties continue to dispute the cause of the odors in the El Maro residence,

neither party disputes that odors did in fact exist at some point. The mere fact that the jury

disagreed with their raze/rebuild contract position does not mean that Plaintiffs’ breach of

contract claim did not have merit. See Clark, 791 P.2d at 1099. As such, the Court finds that

Plaintiffs’ breach of contract claim had merit. 

Balancing the fact that Plaintiffs’ breach of contract claim was meritorious, while their

stigma damages and bad faith claims were not, the Court finds that the first Associated

Indemnity factor marginally favors Plaintiffs.

2. Settlement

 Defendants contend that this case should have settled without going to trial, and that

“[b]ut for the Plaintiffs’ unrelenting and singular insistence that the El Maro residence had

to be razed to the dirt and rebuilt in its entirety, this matter could have been and should have

been resolved years ago.” (Motion at 1.) Plaintiffs counter that settlement efforts were

“scuttled” by Defendants in the last stages of finalizing an acceptable settlement agreement.

(Response at 3.) Specifically, Plaintiffs argue that Defendants interjected unreasonable

demands into the settlement negotiations, and after rejecting Plaintiffs’ June 6, 2007

settlement proposal, Defendants did not present a counter offer and effectively ended

settlement negotiations by service of a $1.25 million Offer of Judgment. (Id. at 4.)

However, Defendants did in fact serve Plaintiffs with an Offer of Judgment in July

2007. Plaintiffs contend that the July 2007 offer was “unreasonably low” and “would not

have even covered [Plaintiffs] attorneys’ fees and expert expenses incurred in this action as

of July 2007.” (Id. at 3) Although Defendants’ offer of judgment appeared unreasonably

low to Plaintiffs at the time, in hindsight, Defendants were economically justified in offering

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2

The Court notes that while it may not know the exact net worth of Plaintiffs, the

Court does know that Plaintiffs, at one time at least, could afford to purchase a multi-million

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to settle this matter for that amount. Had Plaintiffs accepted Defendants’ Offer of Judgment,

this matter could have avoided trial. Moreover, Plaintiffs had other opportunities to settle,

for instance, by accepting Defendants offer to purchase the El Maro residence at a reasonable

price. As such, the Court finds that the second Associated Indemnity factor favors

Defendants.

3. 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 Company v. Ryan, 199 P. 124, 129 (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, Plaintiffs merely assert that

they are in their sixties and “would have limited time to recoup a financial hit of the

magnitude requested by Defendants.” (Response at 8.) That, however, is not the same as

saying that an award would cause extreme hardship; Plaintiffs merely assert that they would

have trouble making the money back, rather than that they would suffer financial hardship

by being required to pay such an award. Accordingly, the Court finds that Plaintiffs fail to

present specific facts to determine whether an award of attorney’s fees in this case would

constitute extreme hardship.

However, Plaintiffs point to the fact that they have already “suffered the extreme

financial and sentimental loss of their dream home,” and that their “catastrophic property loss

should not be compounded by an award of attorneys’ fees . . . .” (Response at 6.) Plaintiffs

cite to Scottsdale Mem’l Health Sys., Inc. v. Clark, 791 P.2d 1094 (Ariz. App. 1990), for the

proposition that the Court may consider an inequitable result an extreme hardship despite

lacking knowledge of the financial condition of either the plaintiff or defendant.2

 Id. at 1100.

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dollar home.

3

The Court is also unclear as to the extent of the loss suffered by Plaintiffs. While the

El Maro residence was damaged by the alleged urine contamination in the home, Plaintiffs

received a state court settlement from the contractors responsible for the damages. Though

the settlement may not have been enough to fully compensate Plaintiffs for the damage to

their home, at the least, it would offset some of the loss claimed by Plaintiffs. 

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In Clark, the trial court declared the defendant’s mechanic’s lien, in the amount of

$181,736.17, forfeit. In considering the plaintiff’s request for fees, the trial court found that

the plaintiff had prevailed due to the defendant’s “failure to comply with a statutory

provision which, until the supreme court decision, was unclear in its application.” Clark, 791

P.2d at 1100. The trial court further held that “the outcome of the case [was] harsh as to

Defendant and represents something of a windfall to Plaintiff . . . .” Id. at 1097-98. In

affirming, the Court of Appeals held that, under the circumstances, it was not unreasonable

for the trial court to conclude that imposing attorney’s fees, on top of denying the defendant

the right to enforce its lien, would impose a substantial hardship. Id. at 1100.

Here, Defendants were not responsible for the damage to the El Maro residence and

are not the recipients of a substantial windfall. Moreover, while the amount of attorneys’

fees is quite large, Plaintiffs have not shown an inability to pay. While the Court is not

unsympathetic to Plaintiffs’ loss,3

 the Court cannot find that an imposition of fees in this case

would create an inequitable result merely because Plaintiffs did not prevail on the merits.

As such, the Court finds that Plaintiffs fail to establish that an award of attorney’s fees would

cause extreme hardship. The third Associated Indemnity favor favors Defendants.

4. Successful party prevails with respect to all relief sought

The parties do not dispute that Defendants prevailed against all of Plaintiffs’ claims.

The Court therefore finds that this factor strongly favors Defendants.

5. Novel legal question

Plaintiffs contend that “in all their research for the myriad of issues and motion

practice in this case they have never come upon a case of urine odor permeation that resulted

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in a diminution of market value of a home as well as a stigma loss under an insurance

policy.” (Response at 5.) Although no previous Arizona case had dealt with whether

diminution of the market value of a home as well as stigma damages allegedly caused by

urine permeation are covered under an insurance policy, this case did not present a novel

legal question. 

Essentially, the parties argued different interpretations of the insurance contract.

Plaintiffs contended that economic losses, such as diminution of market value and stigma

damages, were covered under the insurance policy. Defendants argued that such damages

were not recoverable. Basically, the parties had a policy coverage dispute. The case

certainly presented novel facts, but not necessarily novel legal theories. The Court finds this

case did not present a novel legal question merely because both parties were required to

spend considerable time and effort to support their interpretations due to the unusual factual

circumstances of this case. The Court therefore finds that the fifth Associated Indemnity

factor favors Defendants.

6. Chilling effect

In Associated Indemnity, 694 P.2d at 1184, the court stressed that courts should

consider “whether the award in any particular case 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.” Plaintiffs contend that such

a large award would have a chilling effect on future meritorious claims. Defendants counter:

“[t]hese sophisticated Plaintiffs ignored [the] well-known [risk of paying their opponent’s

attorney’s fees] with their unyielding insistence on a single, extraordinary raze-and-rebuild

method for satisfying their demands, and by stretching this litigation on for years despite

numerous efforts to resolve this matter short of trial.” (Memorandum in Support at 7.) 

The Court recognizes that any award of this magnitude could possibly chill future

plaintiffs from bringing meritorious claims; however, the particular circumstances of this

case must also be considered. Here, Plaintiffs brought breach of contract and bad faith

claims. Plaintiffs’ breach of contract claim sought, at a minimum, $8,300,000 in damages.

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Plaintiffs also sought punitive damages under their bad faith claim. Given the amount of

damages sought by Plaintiffs, the Court cannot say that an award of the magnitude requested

by Defendants would automatically deter future litigants presented with similar

circumstances from litigating their claims. 

Further, prior to trial, the Court specifically put each party on notice that they would

likely be liable for a significant amount of attorney’s fees in the event that judgment was

entered against them. Yet, Plaintiffs proceeded to trial, knowing full well the possible

consequences of their actions. The Court cannot find that a plaintiff that is fully informed

of the consequences of proceeding with their action would be discouraged from litigating

contract issues merely because of the prospect of a significant adverse fee award. It certainly

did not dissuade Plaintiffs. 

Lastly, given the unusual factual allegations asserted by Plaintiffs, it is unlikely that

potential plaintiffs would look to this case in deciding whether to bring a suit. The Court

therefore finds that the particular circumstances of this case weigh against a finding that an

award would discourage other plaintiffs from litigating legitimate contract claims. But, given

the sheer magnitude of the award requested, the Court finds that the sixth Associated

Indemnity factor only marginally favors Defendants. 

After considering the relevant Associated Indemnity factors, the Court finds that an

award of attorney’s fees under A.R.S. § 12-341.01 for Defendants’ defense of the breach of

contract and bad faith claims is appropriate.

B. Amount of Award

Finally, the Court must determine whether the fees requested are reasonable. When

analyzing attorney’s 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. See

Schweiger v. China Doll Rest., Inc., 673 P.2d 927, 931-32 (Ariz. App. 1983).

In determining a reasonable hourly rate, “the rate charged by the lawyer to the client

is the best indication of what is reasonable under the circumstances of the particular case.”

Id. The Court has reviewed the affidavits of Robert Sullivan and Gerald McMahon in

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4

Plaintiffs also contend that Defendants “loaded this case with partner-level

attorneys.” (Response at 13.) However, for the reasons stated above, the Court will not

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support of Defendant’s Motion (Dkt. 838, Exs. A, B), and notes that Plaintiffs have not

objected to the hourly rates charged by Defendants’ counsel. The Court therefore finds that

the hourly rates charged are reasonable.

In analyzing the reasonableness of hours expended, the Court looks to the amount of

hours that would be expended by a “reasonable and prudent lawyer.” China Doll, 673 P.2d

at 932. Further, “[i]n order for the court to make a determination that the hours claimed are

justified, the fee application must be in sufficient detail to enable the court to assess the

reasonableness of the time incurred.” Id. An award may also be reduced for hours not

“reasonably expended.” As the United States Supreme Court explained in Hensley v.

Eckerhart, 461 U.S. 424 (1983), 

Counsel for the prevailing party should make a good faith effort

to exclude from a fee request hours that are excessive,

redundant, or otherwise unnecessary, just as a lawyer in private

practice ethically is obligated to exclude such hours from his

fees submission.

Id. at 434.

Plaintiffs have raised a number of objections to the reasonableness of the hours

claimed by Defendants. Plaintiffs challenge Defendants’ fee application because 19

attorneys (12 partners and 7 associates) worked on the case, which Plaintiffs claim

necessarily involves duplication of effort and inefficiencies. Undoubtably, the more

timekeepers a firm has working on a case, the higher the likelihood of duplication of effort

and wasted time. More time will be spent bringing new timekeepers “up to speed;” and more

time will be needed to supervise and coordinate the large trial group. On the other hand,

litigation of this magnitude, complexity, and challenge, demands the resources of a wellstaffed, well-financed, and well-organized group of experienced and sophisticated lawyers.

The Court cannot say whether Defendants needed 19 attorneys for this case, but the Court

will not criticize the number.4

 The Court, however, will take into account specific

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criticize Defendants for how they staffed this case.

5

A majority of the entries lacking sufficient detail are due to redactions made by

Defendants’ counsel. Defendants argue that such redactions are minimal and are permitted

under the rules, and as such, should not be deducted from their award. However, LRCiv.

54.2 provides: “counsel should be sensitive to matters giving rise to issues associated with

the attorney-client privilege and attorney work-product doctrine, but must nevertheless

furnish an adequate nonprivileged description of the services in question.” LRCiv. 54.2(e)(2)

(emphasis added). Here, Defendants failed to provide an adequate nonprivileged description.

6

Plaintiffs have not objected to the 50% outbound and 25% inbound formula requested

by Defendants. The Court finds such a reduction to be reasonable under the circumstances

and will award 50% of the fees incurred for outbound travel and 25% of the fees incurred for

inbound travel.

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inefficiencies in its fee award.

Plaintiffs also claim that Defendants’ entries lack sufficient detail to determine

reasonableness, and therefore should be deducted under LRCiv. 54.2. In reviewing the fee

application, the Court notes that Defendants’ counsel used an excellent billing system.

However, in some instances, Defendants’ task descriptions lack the detail necessary for the

Court to determine reasonableness.5

 Accordingly, the Court will reduce the award for entries

lacking sufficient detail to determine reasonableness under LRCiv. 54.2.

Plaintiffs further challenge Defendants’ fee application because Defendants request

payment for 50% of their outbound travel time and 25% for inbound travel. (Dkt. 843,

Affidavit of Erin McGuiness, p. 5.) LRCiv. 54.2 provides that “[o]rdinarily air travel time

should not be charged. If services were performed during such time, then describe such

services rather than charging for the travel time.” LRCiv. 54.2(e)(2)(D). Accordingly, in

cases where Defendants described services performed during air travel time, the Court will

award fees for that time.6

Lastly, Plaintiffs contend that certain work performed by Defendants’ paralegals

appears to be clerical work. For example, the most common entry for Seltzer Caplan

McMahon Vitek paralegals is “review/categorize/analyze correspondence and/or documents

among parties counsel.” The Court does not agree that such work is necessarily clerical

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work, especially given the number of hours attributed to such tasks. However, the Court is

left with some descriptions that lacks sufficient detail to determine the specific task being

performed by Seltzer Caplan paralegals. As such, the Court will reduce the award for any

descriptions that lack sufficient detail to determine reasonableness under LRCiv. 54.2.

Having addressed Plaintiffs’ specific objections, the Court now determines a

reasonable number of hours expended in this case.

1. Broening Oberg Woods & Wilson (“BOWW”)

As an initial matter, the Court notes that effective November 1, 2005, BOWW

increased its hourly rate charged for attorneys and staff. For this reason, the Court will

review the first BOWW billing statement (August 17, 2005 to December 31, 2005) separate

from the remaining billing statements provided by Defendants’ counsel.

Jane Foster billed 279.7 hours to this case from August 17, 2005 to December 31,

2005. 44.3 hours were billed at $70 per hour and 235.4 hours were billed at $80 per hour.

The Court finds the hours expended and the hourly rates reasonable. The Court therefore

awards $21,933 for work performed by Ms. Foster from August 17, 2005 to December 31,

2005.

Alicyn Freeman billed 18.9 hours to this case from August 17, 2005 to December 31,

2005. 4.2 hours were billed at $125 per hour ($525) and 14.7 hours were billed at $165 per

hour ($2425.50). Therefore, the total amount billed to Defendants should have been

$2950.50. However, BOWW only billed Defendants $2,780 for that time period. The Court

therefore will only award the amount actually billed to Defendants by BOWW. See A.R.S. §

12-341.01(B) (“The award of reasonable attorney fees pursuant to subsection A shall be

made to mitigate the burden of the expense of litigation to establish a just claim or defense.

It need not equal or relate to the attorneys fees actually paid or contracted, but the award may

not exceed the amount paid or agreed to be paid.”). The Court finds that the amount charged

and hours expended are reasonable. Accordingly, the Court awards $2780 for work

performed by Ms. Freeman from August 17, 2005 to December 31, 2005.

Robert Sullivan billed 189.7 hours to this case from August 17, 2005 to December 31,

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On 9/25/07, the task description for work performed merely contained the description

“Jane Ann Foster.”

8

All 79.1 hours have been reduced from work performed by Jane Ann Foster.

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2005. 73.7 hours were billed at $125 per hour and 116.0 hours were billed at $165 per hour.

The Court finds the hours expended and the hourly rates reasonable. The Court therefore

awards $28,352.50 for work performed by Mr. Sullivan from August 17, 2005 to December

31, 2005.

James Broening billed 97.5 hours from August 17, 2005 to December 31, 2005. 38.0

hours were billed at $165 per hour ($6,270) and 59.5 hours were billed at $205 per hour

($12,197.50). Therefore, the total amount billed to Defendants should have been $18,467.50.

However, BOWW only billed Defendants $18,399.50 for that time period. Therefore, the

Court will only award the amount actually billed to Defendants by BOWW. See A.R.S. §

12-341.01(B). The Court will reduce the amount of hours requested by the following amount

for lack of reasonable detail under LRCiv. 54.2: 2.0 hours at $165 per hour and 0.8 hours at

$205 per hour. Accordingly, the Court awards $17,905.50 for work performed by Mr.

Broening from August 17, 2005 to December 31, 2005.

BOWW paralegals billed 3,549.8 hours to this case after December 31, 2005. In

reviewing the fee application, the Court will reduce the amount of hours requested by 2.6

hours7

 for lack of reasonable detail under LRCiv. 54.2 and 79.1 hours8 for clerical work

performed by BOWW paralegals. Accordingly, the Court awards 3,468.1 hours at $80 per

hour. The Court therefore awards Defendants $277,448 in BOWW paralegal fees incurred

after December 31, 2005.

BOWW associates billed 799.9 hours to this case after December 31, 2005. The Court

will reduce the amount of hours requested by the following amounts for

excessive/duplicative work: Alicyn Freeman - 12.8 hours; Alex Campbell - 12.0 hours; Tyler

Abrahams - 7.9 hours. In addition, the Court will reduce the hours billed by Alex Campbell

by 2.8 hours for lack of detail under LRCiv. 54.2. Accordingly, the Court awards 2.5 hours

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Mr. Suffecool’s hourly rate during that time period should have been $165.00 per

hour pursuant to the fee agreement. However, according to Defendants’ counsel’s billing

records, Mr. Suffecool was billed out at a rate of $125.00 from September 1, 2006 to August

31, 2006.

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at $125.00 per hour (Christopher Suffecool)9

 and 761.9 hours at $165.00 per hour. The Court

therefore awards Defendants $126,026 in BOWW associate fees incurred after December 31,

2005.

BOWW partners and shareholders billed 5,104.6 hours to this case after December

31, 2005. The Court will reduce the amount of hours requested by the following amount for

excessive/duplicative work: James Broening - 55.1; Robert Moore - 33.1 hours; Robert

Sullivan - 69.6 hours. In addition, the Court will reduce the amount requested by the

following amount for lack of reasonable detail under LRCiv 54.2: James Broening - 13.2

hours; Robert Moore - 9.1 hours; Robert Sullivan - 94.7 hours. Accordingly, the Court

awards 3,635.7 hours at $180 per hour, and 1,194.1 hours at $205 per hour. The Court

therefore awards $899,216.50 in BOWW partner and shareholder fees incurred after

December 31, 2005.

That brings the total to $1,373,661.50. However, the fee award also must be reduced

for air travel time improperly billed under LRCiv. 54.2(e)(2)(D) ($12,563.00), for fees

incurred in drafting certain motions in limine which this Court required to be reduced from

the fee application ($17,288.50), and for appeal related fees ($5,354.50). Defendants have

also requested an additional $15,000 for fees reasonably anticipated to be incurred through

final judgment. “The ultimate successful party is entitled to recover reasonable attorney’s

fees for all stages of the litigation . . . .” Larkin v. State Ex. Rel. Rottas, 857 P.2d 1271, 1283

(Ariz. App. 1992) (citing Leo Eisenberg & Co., Inc. v. Payson, 785 P.2d 49, 55 (Ariz.

1989)). The Court notes that Plaintiffs have not objected to this request, and finds the

amount requested to be a reasonable approximation of the fees likely to be incurred. The

Court, therefore, awards Defendants $15,000 for fees anticipated to be incurred through final

judgment

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10SCMV’s billing records did not denote which paralegal performed the task described

in the bill until September 2007. As such, the Court will consider the award in terms of the

hourly rate billed rather than in reference to the person that billed for the service.

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Defendants total fee award for BOWW fees is $1,353,455.50. 

2. Seltzer Caplan McMahon Vitek (“SCMV”)

As an initial matter, the Court notes that until January 2008, SCMV’s fee agreement

with Defendants provided for different billing rates for each attorney that worked on the case.

Additionally, the fee agreement provided for yearly rate increases. For these reasons, the

Court will review the SCMV fee request in reference to the attorneys that worked on this

case on a person by person basis.

SCMV billed for 1.0 hours of librarian research at $50 per hour. The Court finds the

hours expended and the hourly rate reasonable. The Court therefore awards $50 in librarian

research fees.

SCMV law clerks billed 3.3 hours at $150 per hour. The Court finds the hours

expended and the hourly rate reasonable. The Court therefore awards $495 in SCMV law

clerk fees.

SCMV paralegals billed 1,285.1 hours to this case.10 The Court will reduce the

amount of hours requested by the following amount for lack of reasonable detail under

LRCiv. 54.2: Paralegals at $100 per hour - 155.6; Paralegals at $125 per hour - 9.2 hours;

Paralegals at $130 per hour - 195.1 hours; Paralegals at $135 per hour - 659.0 hours;

Paralegals at $140 per hour - 44.6 hours. Accordingly, the Court awards 79.7 hours at $100

per hour, 20.8 hours at $125 per hour, 110.9 hours at $130 per hour, and 10.2 hours at $140

per hour. The Court therefore awards $26,415.00 in SCMV paralegal fees.

Hope Chan and Daniel Eisman billed 6.8 hours and 31.5 hours, respectively, at $170

per hour. Rhonda Crandall billed 0.7 hours at $225 per hour. Kirsten Zittlan billed 2.3 hours

at $265 per hour. Elinor Meredith billed 0.5 hours at $300 per hour. The Court finds the

hours expended and the hourly rate reasonable. The Court therefore awards $7,428.

Gerald McMahon billed 241.5 hours to this case. The Court will reduce the amount

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of hours requested by 10.5 hours for lack of reasonable detail under LRCiv. 54.2. In

addition, the Court will reduce the amount requested by 46.2 hours for excessive/duplicative

work. Accordingly, the Court awards 14.0 hours at $475 per hour, 92.5 hours at $495 per

hour, 36.9 hours at $515 per hour, and 41.4 hours at $525 per hour. The Court therefore

awards $93,176.

Michael Nardi billed 132.8 hours to this case. The Court will reduce the amount of

the hours requested by 8.6 hours for lack of reasonable detail under LRCiv. 54.2. In

addition, the Court will reduce the amount requested by 2.5 hours for excessive/duplicative

work. Accordingly, the Court awards 115.9 hours at $360 per hour, 0.8 hours at $375 per

hour, and 5.0 hours at $475 per hour. The Court therefore awards $44,399.

James Delphey billed 196.4 hours to this case. The Court will reduce the amount of

hours requested by 16.8 hours for excessive/duplicative work. Accordingly, the Court

awards 159.7 hours at $435 per hour and 19.9 hours at $475 per hour. The Court therefore

awards $78,842.

Daniel Andrist billed 577.6 hours to this case. The Court will reduce the amount of

hours requested by 29.7 hours for excessive/duplicative work. Accordingly, the Court

awards 166.1 hours at $330 per hour, 306.5 hours at $350 per hour, and 75.3 hours at $475

per hour. The Court therefore award $197,855.50.

David Zubkoff billed 1,833.6 hours to this case. The Court will reduce the amount

of hours requested by 85.8 hours for lack of reasonable detail under LRCiv. 54.2. In

addition, the Court will reduce the amount requested by 81.3 hours for excessive/duplicative

work. Accordingly, the Court awards 1,089.8 hours at $330 per hour, 372.6 hours at $360

per hour, and 204.1 hours at $475 per hour. The Court therefore awards $590,717.50.

Robert Traylor billed 2,064.6 hours to this case. The Court will reduce the amount

of hours requested by 71.7 hours for lack of reasonable detail under LRCiv. 54.2. In

addition, the Court will reduce the amount requested by 90.8 hours for excessive/duplicative

work. Accordingly, the Court awards 731.4 hours at $290 per hour and 1,170.7 hours at

$360 per hour. The Court therefore awards $633,558.

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11Arizona Rule 68 differs significantly from Federal Rule 68. While Federal Rule 68

allows the offeror to recover its post-offer costs, Arizona Rule 68 does not provide for the

recovery of costs. Compare Fed.R.Civ.P. 68 with Ariz.R.Civ.P. 68. Rather, Arizona Rule

68 sanctions an offeree that rejects an offer that is more favorable than the judgment

received. See Ariz.R.Civ.P. 68(g). Under Arizona Rule 68, the offeree is required to pay the

expert witness fees and double the taxable costs incurred after the offer of judgment, and

prejudgment interest on unliquidated claims accruing from the date of the offer. See id.

12Nevada law provides that a defendant shall be awarded reasonable attorneys’ fees

incurred from the time of an offer of judgment if the plaintiff rejects it and fails to receive

a more favorable result. See Nev.Rev.Stat. § 17.115; see also Nev.R.Civ.P. 68. 

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That brings the total to $1,672,936. Again, the fee award must be reduced for air

travel improperly billed ($47,323.13), for the motions in limine ($38,195.50), and for appeal

related fees ($9,766.50). Defendants have also requested an additional $35,000 for fees

reasonably anticipated to be incurred through final judgment. Since Plaintiffs have not

objected and the Court finds the fee request reasonable (given the higher rates charged by

SCMV), the Court awards Defendants $35,000 for fees anticipated to be incurred through

final judgment. See Larkin, 857 P.2d at 1285.

Defendants total fee award for SCMV fees is $1,612,650.87. Plaintiffs therefore shall

pay $2,966,106.37 in total attorneys’ fees.

III. SANCTIONS PURSUANT TO RULE 68 OF THE ARIZONA RULES OF

CIVIL PROCEDURE

Defendants contend that Rule 68 of the Arizona Rules of Civil Procedure (“Arizona

Rule 68") mandates sanctions against Plaintiffs.11 Specifically, Defendants argue that Rule

68 of the Federal Rules of Civil Procedure (“Federal Rule 68") does not apply to cases in

which the defendant obtains judgment, and under Ninth Circuit authority, in those

circumstances, state law governs – notwithstanding Federal Rule 68. (Motion at 5) (citing

MRO Communications, Inc. v. AT & T Corp., 197 F.3d 1276, 1280 (9th Cir. 1999)).

However, Defendants give MRO Communications too expansive a reading. 

In MRO Communications, the Ninth Circuit Court of Appeals upheld an award of

attorneys’ fees under Nevada law.12 MRO Communications, 197 F.3d 1276. The Court of

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13Rule 54 of the Federal Rules of Civil Procedure provides in pertinent part:

Claims for attorneys’ fees and related nontaxable expenses shall

be made by motion . . . . Unless otherwise provided by statute

or order of the court, the motion must be filed and served no

later than 14 days after the entry of judgment; must specify the

judgment, and the statute, rule or other grounds entitling the

moving party to the award; and must state the amount or provide

a fair estimate of the amount sought.

Fed.R.Civ.P. 54(d)(2) (emphasis added).

14In fact, the Court of Appeals analysis indicates that the state counterpart to Federal

Rule 68 does not apply in federal cases even where the defendant obtains judgment. In

determining whether to permit the defendant to recover attorneys’ fees under Nev.R.Civ.P.

68, the Court determined that the procedural requirements of Nev.R.Civ.P. 68, such as

requiring a party to specify the statute or rule which allows for the recovery of fees or costs

to be cited in an offer of judgment, were not applicable in federal court. See MRO

Communications, 197 F.3d at 1282. The Court of Appeals stated that the “[t]he only

procedure for notifying a plaintiff of an offer of judgment in federal court is set forth in

Federal Rule 68.” Id. 

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Appeals noted that Federal Rule 68 does not apply to cases where the defendant obtains

judgment. It therefore analyzed whether the defendant was entitled to recover attorney’s

fees under Rule 54 of the Federal Rules of Civil Procedure.13 Id. at 1280. Indeed, the Court

of Appeals focuses its entire discussion on the availability of attorney’s fees in diversity

actions. In affirming the award, the Court of Appeals relied on Nev.Rev.Stat. § 17.115 and

Nev.R.Civ.P. 68 as the statute, rule or other grounds required to permit a party to recover

attorneys’ fees under Fed.R.Civ.P. 54(d)(2). Id. at 1281-82. The Court of Appeals, however,

did not hold that Nev.R.Civ.P. 68 was to be applied in federal court where the defendant

obtains judgment;14 it just happened to be the rule that provided the grounds for recovering

attorneys’ fees under Nevada law. The Court therefore finds that MRO Communications is

distinguishable because attorney’s fees are available under A.R.S. § 12-341.01. The equitable

concerns at issue in MRO Communication are not present here.

The Court will apply Federal Rule 68 to this case, not Arizona Rule 68. The Court’s

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15The Court also notes that this matter was removed from state court to this Court.

Yet, despite removing the action to federal court, Defendants are requesting that this Court

impose sanctions under Arizona Rule 68. Defendants had their chance to avail themselves

of the procedural safeguards available under the Arizona Rules of Civil Procedure and chose

to remove the matter to federal court. The Court believes that it would be unjust to permit

Defendants to recover sanctions under Arizona Rule 68 after removing the action from state

court.

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jurisdiction in this case is based on diversity of citizenship. In such cases, the Court applies

state substantive law, and federal procedural law. See Erie, 304 U.S. 64 (1938). Arizona

Rule 68 is procedural, rather than substantive. See Pima County v. Hogan, 3 P.3d 1058,

1060-61 (Ariz. App. 1999), overruled on other grounds by Salt River Project Agr. Imp. and

Power Dist. v. Miller Park, LLC, 183 P.3d 497, 503 (Ariz. 2008); see also Pima County, 3

P.3d at 1062 (Howard, J., dissenting) (“[Arizona Rule 68] is a procedural device and its

purpose is to encourage settlement of actions filed in superior court . . . .”). As such, the

Court finds that Arizona Rule 68 is not applicable and Defendants are not entitled to

sanctions under Arizona Rule 68.15

IV. CONCLUSION

The Court finds that an award of attorneys’ fees for Defendants’ defense of Plaintiffs’

breach of contract and bad faith claims is appropriate under A.R.S. § 12-341.01. But because

Arizona Rule 68 is a procedural rule inapplicable in federal court, the Court will not award

sanctions.

IT IS THEREFORE ORDERED that Defendants’ Motion for Attorneys’ Fees and

Related Non-Taxable Expenses Including an Award of Sanctions Pursuant to Rule 68 of

Arizona Rules of Civil Procedure (Dkt. #783) is GRANTED IN PART and DENIED IN

PART. Defendants’ request for an award of attorneys’ fees for their defense of the breach

of contract and bad faith is GRANTED. Defendants are awarded attorneys’ fees in the

following amount: BOWW fees - $1,353,455.50; SCMV fees - $1,612,650.87. Defendants’

total fee award is $2,966,106.37.

IT IS FURTHER ORDERED that Defendants’ request for an award of sanctions

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pursuant to Rule 68 of the Arizona Rules of Civil Procedure is DENIED.

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

this Order. 

DATED this 13th day of May, 2009.

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