Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_04-cv-01951/USCOURTS-azd-2_04-cv-01951-3/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 28:1332 Diversity-Insurance Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

OAIC Commercial Assets, LLC, 

Plaintiff, 

vs.

Stonegate Village, LP, et al.,

Defendant. 

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No. CV 04-1951-PHX-MHM

ORDER

Currently pending before the Court is Defendant Stonegate Village, LP, et al.’s

Motion for Attorney Fees, (Dkt.#142). After reviewing the record and determining oral

argument unnecessary, the Court issues the following Order. 

There is no need to go through the history of this lawsuit in much detail for purposes

of the instant Order. On July 21, 2009, the Court granted Defendants’ Motion to Dismiss

based on principals of issue preclusion, or what is also referred to as collateral estoppel. (See

Dkt.# 137 at p. 10-11.) Plaintiff OAIC subsequently appealed the Court’s decision to the

Ninth Circuit, where it currently awaits resolution. (See Dkt.#144.) Defendants argue in their

Motion for Attorney Fees that attorney fees are appropriate under both A.R.S.

§12-341.01(A) and A.R.S. §12-349. For reasons explained below, the Court finds that

neither statute supports an award of fees under Arizona law. 

Case 2:04-cv-01951-MHM Document 155 Filed 02/16/10 Page 1 of 4
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A.R.S. § 12-341.01(A) permits a prevailing party to recover reasonable attorney fees

“[i]n any contested action arising out of a contract, express or implied . . ..” See Id.

Although OAIC’s Complaint sets forth claims for a constructive trust on Stonegate’s

property, fraud, conspiracy to commit fraud, misrepresentation, the cancellation of liens

wrongly placed on that property, and statutory liability under A.R.S. §§ 33-707(a) and

33-420(a), none of these causes directly sound under the law of contracts. Defendants

nevertheless assert that the entire Complaint is predicated upon OAIC’s contention that it was

the successor in interest to AFC Equities’ interest in the Stonegate Village partnership

agreement.

Arizona courts have stated that a tort “arises out of a contract” for purposes of A.R.S.

§ 12-341.01(A) only when “the tort could not exist ‘but for’ the breach or avoidance of

contract.” Ramsey Air Meds, L.L.C. v. Cutter Aviation, Inc., 6 P.3d 315, 320-21 (Ariz. Ct.

App. 2000). Furthermore, the Arizona Court of Appeals recently held that A.R.S. § 12-

341.01(A) does not apply to “purely statutory causes of action,” “[n]or does it apply if the

contract is a factual predicate to the action but not the essential basis of it.” See Keystone

Floor & More, L.L.C. v. Arizona Registrar of Contractors, 219 P.3d 237, 240 (Ariz. Ct. App.

2009) (internal citations and quotations omitted). As the Parties are aware, the Texas Court

of Appeals has already determined that “OAIC [was not] a limited partner, an unadmitted

assignee, and/or the purchaser of an interest in [the Stonegate partnership],” and that OAIC

lacked standing to enforce AFC Equities’ interest in the Stonegate partnership agreement.

Because the Texas courts have already ruled that there was not a valid contractual

relationship between OAIC and Defendants vis a vis the Stonegate partnership agreement,

a breach or avoidance of a contract could not have been the “but for” cause of OAIC’s tort

claims. Similarly, a contract could not have been the “factual predicate” for OAIC’s claims

under A.R.S. §§ 33-707(a) and 33-420(a), when the Texas Court of Appeals has already

determined that a valid, enforceable contract between the Parties did not exist under Texas

state law.

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Defendants next contend that an award of attorney fees is justified under A.R.S. §

12-349. A.R.S. § 12-349 permits a court to award, at its discretion, reasonable attorney fees

and expenses against a party or attorney who “[b]rings or defends a claim without substantial

justification,” “[b]rings or defends a claim solely or primarily for delay or harassment,”

“[u]nreasonably expands or delays the proceeding[s],”or engages in discovery abuse. See

A.R.S. § 12-349(A)(1)-(4). 

The Court is quite familiar with the procedural posture of this dispute. On September

17, 2004, Defendants removed the instant case to federal court. As the litigation in this Court

was pending, a similar action in the Texas state court system was also underway. Although

OAIC was initially able to secure a sizable jury verdict in its favor in Texas state trial court,

on August 16, 2007, the Texas Court of Appeals vacated the verdict and dismissed the case

on the grounds that OAIC lacked standing under the Stonegate partnership agreement. OAIC

filed a motion for rehearing with the Texas Court of Appeals, which was denied. OAIC then

requested review in the Texas Supreme Court. On March 3, 2008, while OAIC’s petition for

review was pending, this Court issued an Order staying the instant matter until the related

state action in Texas was conclusively resolved. (Dkt. #109.) On October 10, 2008, the

Texas Supreme Court denied the request for review, effectively ending the state case; shortly

thereafter Defendants filed a Motion to Dismiss based on the law of preclusion. (Dkt.#127.)

On July 21, 2009, the Court granted Defendants’ Motion to Dismiss. (Dkt.#137.) 

While the Court did not ultimately agree with OAIC’s arguments relating to the

preclusive effect of the Texas state court judgment, the Court cannot find that OAIC’s claims

were taken in bad faith or were objectively groundless. See Phoenix Newspapers v. Dep't of

Corr., 934 P.2d 801 (Ariz. Ct. App. 1997) (noting that imposition of fees under A.R.S. §

12-349 requires “evidence that the [] claim constituted harassment, was groundless and not

made in good faith”). In addition, contrary to Defendants’ assertion, the stay imposed during

the course of this litigation did not unreasonably delay or expand the proceedings. In fact,

the opposite is true. Proceeding forward with this case in lieu of a stay would have resulted

in the Parties and the Court spending valuable time and resources litigating issues that had

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already been resolved by another court of competent jurisdiction whose judgment is entitled

to Full Faith and Credit under Article IV of the U.S. Constitution and 28 U.S.C. § 1738. As

such, Defendants’ claim for attorney fees pursuant to A.R.S. § 12-349 also fails.

Accordingly,

IT IS HEREBY ORDERED denying Defendant Stonegate Village LP et al.’s

Motion for Attorney Fees, (Dkt.#142).

IT IS FURTHER ORDERED denying Plaintiff OAIC Commercial Assets, LLC’s

Motion to Strike, (Dkt.#153).

DATED this 11th day of February, 2010.

Case 2:04-cv-01951-MHM Document 155 Filed 02/16/10 Page 4 of 4