Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_14-cv-00673/USCOURTS-azd-2_14-cv-00673-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

American Realty Capital Properties 

Incorporated, 

Plaintiff, 

v. 

Jeffrey C. Holland, et al., 

Defendants. 

No. CV-14-00673-PHX-DGC

ORDER 

 Defendants Jeffery C. Holland (“Holland”) and The Carlyle Group, LP (“Carlyle”) 

have moved for an award of attorneys’ fees pursuant to Federal Rule of Civil Procedure 

54(d)(2) and Local Rule 54.2(b). Doc. 28. The motion is fully briefed. The Court will 

grant the motion in part and award $46,140 in attorneys’ fees.1

 

I. Background. 

A. The Complaint and Underlying Dispute. 

 In its complaint, Plaintiff American Realty Capital Properties Incorporated 

(“ARCP”) alleged that from December 2010 until February 5, 2014, Holland was 

employed as a senior executive with Cole Real Estate Investments, Inc. (“Cole”). Doc. 1, 

¶ 21. Holland’s primary responsibility at Cole was to build a “distribution network” for 

shares in real estate investment trusts sponsored and managed by Cole. Id., ¶¶ 21-22. On 

 

1

 The request for oral argument is denied because the issues have been fully briefed and oral argument will not aid the Court’s decision. See Fed. R. Civ. P. 78(b); 

Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). 

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February 7, 2014, Cole was acquired by ARCP. Id., ¶ 19. At that time, Holland 

represented to ARCP that he had decided to “take some time off” rather than join ARCP 

and had no intention of joining another company in the foreseeable future. Id., ¶ 32. 

Holland thereby induced ARCP to treat his departure as a termination without cause in 

the wake of a change of control, which entitled him to $5.4 million in severance pay. Id. 

ARCP also signed a written Consulting/Covenants Agreement with Holland, which 

ARCP alleged in its complaint was governed by Arizona law, pursuant to which Holland 

agreed to serve as a part-time consultant for six months for an additional $100,000. Id., 

¶¶ 32-34. 

 As a condition of Holland’s employment at Cole, he was required to execute a 

written Employment Agreement containing two restrictive covenants. Id., ¶ 27. First, 

Holland agreed that he would not solicit any of the financial advisors whose clients had 

invested in Cole or ARCP funds for 12 months after terminating his employment. Id. 

Second, Holland committed not to use or disclose any confidential information he learned 

through his relationship with Cole and ARCP. Id. 

 In January 2014, ARCP received word that Holland had joined Carlyle as a senior 

executive with duties substantially identical to the duties he had performed at Cole. Id., 

¶¶ 37-40. ARCP alleged that “given the breadth of distribution networks of ARCP and 

Cole, Holland will inevitably exploit both the goodwill that he developed with 

independent financial advisors across the country at ARCP’s expense, and Confidential 

Information about which independent financial advisory firms, and which individual 

financial advisors, are most likely to sell ‘alternative investments’ such as those offered 

by ARCP or Carlyle.” Doc. 1 at 3. 

 ARCP instituted this action on April 1, 2014 asserting three claims, including 

breach of contract (id., ¶¶ 47-52), tortious interference with contractual relations (id., 

¶¶ 53-57), and fraud in the inducement (id., ¶¶ 58-63). 

B. The Application for TRO and Aftermath. 

 On April 2, 2014, ARCP moved for entry of a four-pronged TRO that enjoined 

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(1) Holland from soliciting any investors in ARCP or any of the funds that it manages, 

(2) Holland from using or disclosing any “Confidential Information” as defined in the 

June 18, 2013 Employment Agreement between Holland and Cole and in the February 7, 

2014 Consulting/Covenants Agreement between Holland and ARCP, (3) Carlyle from 

tortiously interfering with Holland’s contract with ARCP, and (4) Carlyle from using or 

disclosing any of ARCP or Cole’s Confidential Information as the term is defined in 

Holland’s employment contracts. Doc. 9. 

 On April 3, 2013, the Court entered a minute entry refusing to enter a TRO 

without notice and directing ARCP to notify Defendants of the TRO hearing that was rescheduled for April 8, 2014. Doc. 12. On April 7, 2013, Defendants filed their 

opposition to ARCP’s motion for a TRO. Doc. 16. On April 8, 2013, both parties 

appeared at a TRO hearing. Doc. 22. The Court entered an order denying the TRO, 

finding that ARCP had not shown that it was likely to succeed on the merits. Doc. 23. 

The Court reasoned that the non-solicitation and confidentiality provisions in the 

Employment Agreement and Consulting/Covenants Agreement were unreasonably broad 

and unenforceable. Doc. 23 at 2. 

 ARCP voluntarily dismissed the case two days after the Court entered its order 

denying ARCP’s motion for a TRO. Doc. 24. 

II. Legal Standard. 

 Pursuant to Local Rule 54.2(b), a party seeking to recover attorney fees must file 

and serve a motion and a supporting memorandum of points and authorities “within 

fourteen (14) days of the entry of judgment.” LRCiv 54.2(b)(2).2

 Pursuant to Rule 

54.2(c), the supporting memorandum “shall include a discussion of the following matters 

with appropriate headings and in the [following] order: (1) Eligibility[;] (2) Entitlement[;] 

[and] (3) Reasonableness of Requested Award.” LRCiv 54.2(c)(1)-(3). Local rule 

 

2

 Any responsive or reply memoranda must be filed “in accordance with the 

deadlines set forth in Rule 7.2[.]” LRCiv 54.2(b)(3). “The responsive memorandum . . . shall identify with specificity all disputed issues of material fact and shall separately identify each and every disputed time entry or expense item. The respondent may attach controverting affidavits.” LRCiv 54.2(f). 

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54.2(c) sets forth in detail the issues, factors, and legal authority that must be addressed in 

the memorandum’s separate Eligibility and Entitlement sections. LRCiv 54.2(c)(1)-(2). 

The memorandum’s separate Reasonableness of Requested Award section “should 

discuss, as appropriate, the various factors bearing on the reasonableness of the requested 

attorneys’ fees award, including, but not limited to,” the thirteen factors listed in Rule 

54.2(c)(3)(A)-(M). 

III. Analysis. 

 Defendants seek an award of attorneys’ fees in the amount of $134,182. Doc. 28 

at 2. ARCP argues that Defendants are not eligible or entitled to an award of attorneys’ 

fees and that, even if they were, the requested award is not reasonable. Doc. 31. 

A. Eligibility. 

 Defendants are eligible to recover attorneys’ fees pursuant to A.R.S. § 12-341.01, 

which provides that the court may award the successful party reasonable attorneys’ fees 

in any contested action arising out of contract. A.R.S. § 12-34.01(A). 

 ARCP argues that A.R.S. § 12-341.01 does not apply to claims arising out of the 

Employment Agreement, which is governed by Maryland law. Doc. 31 at 8; see Aspect 

Sys., Inc. v. Lam Research Corp., No. CV 06-1620-PHX-NVW, 2009 WL 1390837, at 

*12 (D. Ariz. May 14, 2009) (holding that because the parties’ agreement contained 

choice-of-law provisions applying California law, attorneys’ fees may not be awarded 

under A.R.S. § 12-341.01). Because Defendants have failed to differentiate between fees 

incurred in defense of claims arising out of the Employment Agreement as opposed to 

those arising out of the Consulting/Covenants Agreement, ARCP asserts that Defendants 

are not entitled to any attorneys’ fees. Doc. 31 at 10. 

 Defendants respond that while A.R.S. § 12-341.01 does not entitle them to fees for 

work performed to defend against claims arising out of the Employment Agreement, 

“ARCP has no basis to demand that Defendants retrospectively deconstruct their legal 

work as if the case were neatly severable into Arizona and Maryland claims.” Doc. 38 at 

2. Because each of ARCP’s claims relied on both contracts, the Court concludes that the 

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Arizona- and Maryland-law claims were “inextricably interwoven” and “overlapping,” 

and Defendants are therefore eligible to recover fees for all of their work. Modular 

Mining Sys., Inc. v. Jigsaw Techs., Inc., 212 P.3d 853, 860 & n.10 (Ariz. Ct. App. 2009). 

 ARCP also argues that Defendants are not prevailing parties because ARCP 

dismissed this case without prejudice and immediately thereafter initiated a substantially 

identical case in New York. Doc. 31 at 10. ARCP argues that while Defendants 

“avoided temporary injunctive relief without discovery, there has been no final resolution 

of the dispute.” Id. “To determine whether a party is successful under Section 12-34.01, 

a court should consider the totality of the circumstances and the relative success of the 

litigants.” Med. Prot. Co. v. Pang, 740 F.3d 1279, 1283 (9th Cir. 2013). Doing so, the 

Court finds that Defendants are prevailing parties. Defendants secured a ruling that the 

contract provisions are likely unenforceable and successfully opposed the TRO motion 

that had been filed against them. Doc. 23. The fact that ARCP then dismissed this case 

without prejudice does not change these facts. C.f. Britt v. Steffen, 205 P.3d 357, 359 

(Ariz. Ct. App. 2008) (“When [a contract] action has been dismissed without prejudice, 

the defendant is still considered a ‘successful party’ for purposes of A.R.S. § 12-

341.01(A) even though such dismissal does not operate as an adjudication upon the 

merits.”). 

B. Entitlement. 

 In determining whether a successful party is entitled to recover fees under § 12-

341.01, Arizona courts consider: (1) the merits of the unsuccessful party’s claim; 

(2) whether the claim could have been avoided or settled; (3) whether the successful 

party’s efforts were completely superfluous in achieving the result; (4) whether assessing 

fees against the unsuccessful party would cause extreme hardship; (5) whether the 

successful party did not prevail with respect to all of the relief sought; (6) the novelty of 

the legal question presented; and (7) whether an award to the prevailing party would 

discourage other parties with tenable claims from litigating legitimate contract issues for 

fear of incurring liability for attorneys’ fees. Fulton Homes Corp. v. BBP Concrete, 155 

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P.3d 1090, 1093 (Ariz. Ct. App. 2007) (citing Associated Indem. Corp. v. Warner, 694 

P.2d 1181, 1184 (Ariz. 1985) (en banc)). ARCP does not contest Defendants’ assertion 

that the third, fourth, and seventh factors support the requested award. It does argue, 

however, that the other factors are the most relevant factors and do not support the 

request. Doc. 31 at 11. 

 ARCP argues that the first factor does not favor an award because “ARCP’s 

claims were made in good faith based on two agreements between highly sophisticated 

parties.” Doc. 31 at 11. But the first factor does not ask whether ARCP had a good faith 

basis for its claim. Such a basis is a prerequisite to any claim in federal court. Fed. R. 

Civ. P. 11(b) & (c). In its order denying the TRO, the Court found that ARCP was not 

likely to succeed on the merits because the agreements contained unreasonably broad 

non-solicitation and confidentiality provisions. Doc. 23 at 3. The first factor favors an 

award of attorneys’ fees. 

 ARCP asserts that the second factor does not favor an award because Defendants’ 

conduct prevented the possibility of settlement or other accommodations. Doc. 31 at 11. 

The relevant conduct to which ARCP refers includes Defendants’ failure to respond 

within a week to ARCP’s letters that Defendants not breach the employment contracts, 

and Defendants’ refusal to discuss “substantive resolution or exploring the possibility of 

mutually beneficial accommodations” two days before the TRO hearing. Id. at 11-12. 

The Court cannot agree. ARCP filed a lawsuit and sought an ex parte TRO within a 

week of sending the demand letters to Holland and Carlyle. Defendants’ counsel advised 

ARCP on April 6, 2014 that Carlyle had been and remained prepared to discuss the issues 

on a principal-to-principal basis, but ARCP declined to participate in such discussions. 

Doc. 38 at 5. The second factor favors an award of attorneys’ fees. 

 ARCP argues that the fifth factor does not favor an award because Defendants did 

not achieve a total dismissal of the underlying action and the dispute has been effectively 

transferred to New York state court. Doc. 31 at 12. The Court disagrees. Defendants 

successfully defeated all relief that was sought in this case. The fact that ARCP chose to 

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dismiss the claim and pursue further relief elsewhere does not change this fact. 

 ARCP asserts that the sixth factor does not favor an award because this litigation 

involved breach of contract and tort claims that did not force Defendants to “deal with 

any esoteric or novel areas of law,” and that “the claims in this case were governed by 

well-developed law in Maryland and Arizona on restrictive covenants.” Doc. 31 at 12. 

The Court agrees that the underlying law governing restrictive covenants is welldeveloped and that it appeared, given the facts of this case, that ARCP’s claims were 

unlikely to succeed. But Defendants nonetheless were required to respond to a TRO 

motion on short notice, and to appear and defend against ARCP’s claims at the TRO 

hearing. These tasks require able counsel. The Court concludes that the sixth factor is 

neutral. 

 Six out of seven relevant factors favor an award of attorneys’ fees. Defendants 

therefore are entitled to recover fees under A.R.S. § 12-341.01. 

C. Reasonableness of Requested Award. 

 Defendants seek a total of $134,182 in attorneys’ fees for five days’ work. The 

Court understands the urgency of responding to the TRO petition and the high stakes in 

retaining Mr. Holland as a Carlyle executive, but cannot conclude that this fee request is 

reasonable. 

 Responding to the TRO motion in Arizona required quick mobilization by able 

lawyers, but the Court cannot agree that four lawyers, each billing ten or more hours most 

days, were needed. As already noted, the legal and factual issues in this case were not 

particularly complicated. The restrictive covenant case law of Arizona and Maryland 

was clear. And the papers prepared by these four lawyers in opposition to the TRO 

totaled less than 20 pages. The Court will award fees for the work of two defense 

attorneys – a partner and an experienced associate. 

 The Court also finds that the hourly rates charged by defense counsel are too high 

for this district. The requested rates range from $440 per hour for the most junior 

associate to $830 per hour for the most senior partner. These rates are higher than typical 

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rates charged by able lawyers in this district. Based on its experience, the Court 

concludes that $600 per hour is reasonable for an experienced and effective partner and 

that $300 per hour is reasonable for a seasoned associate. 

 The defense attorneys also engaged in “block billing,” a practice which lumps 

together all tasks performed over the course of a day in one billing entry. A reviewing 

court (or client) cannot determine from such entries how much time was devoted to any 

particular task and therefore cannot determine whether the time recorded was reasonable. 

As a result, this Court’s local rules do not permit fee applications that include block 

billing. They instead require lawyers to identify “[t]he time devoted to each individual 

unrelated task[.]” See LRCiv. 54.2(d) & (e). Rather than deny the fee request entirely on 

this basis, however, the Court concludes that reducing the fee award to two attorneys and 

reasonable Phoenix rates will arrive at a reasonable fee despite the fact that the Court 

cannot evaluate individual time entries for reasonableness. 

 The Court will award fees for the time invested in this case by the most senior 

partner and the mid-level associate, Mr. Van Kirk and Mr. Blumenstein. The Court will 

award hourly rates for their time of $600 and $300 respectively. This results in a fee 

award of $49,740. Defense counsel reduced their fee request for $8,790 for travel time, 

explaining that this represented 6 hours or travel time for Mr. Van Kirk and six hours for 

Mr. Wilson. Doc. 28-1 at 9 n.1. Because the Court is awarding time only for Mr. Van 

Kirk and Mr. Blumenstein, it will reduce the award by 6 hours of travel time ($3,600) for 

Mr. Van Kirk. This results in a total fee award of $46,140, which the Court views as 

reasonable for the work performed. 

IT IS ORDERED: 

1. Defendants motion for attorneys’ fees (Doc. 28) is granted in part and 

denied in part. 

 

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2. Defendants are awarded attorneys’ fees in the amount of $46,140. 

Dated this 24th day of July, 2014. 

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