American Power Products, Inc. v. CSK Auto, Inc.
241 Ariz. 564
| Ariz. | 2017Background
- American Power Products (American) and CSK Auto (CSK) entered a Master Vendor Agreement (MVA) that awarded reasonable attorneys’ fees to the "prevailing party" and selected Arizona law to govern the parties’ "rights and remedies." The MVA did not define "prevailing party."
- American sued CSK for contract and negligent misrepresentation claims seeking > $5 million; CSK counterclaimed for ~ $950,000.
- CSK served a Rule 68 offer of judgment for $1,000,001 (inclusive of fees/costs). American rejected; after trial American obtained a $10,733 verdict and the court dismissed CSK’s counterclaims.
- The trial court found American the "prevailing party" under the MVA and awarded American $775,000 in fees; the court denied Rule 68 sanctions. The court of appeals affirmed the fee award but reversed denial of Rule 68 sanctions for further comparison under the rule.
- The dispositive legal question was whether A.R.S. § 12-341.01(A)’s provision deeming an offeror the "successful party" (if judgment is equal or less favorable than an earlier rejected written settlement offer) applies to define the contract term "prevailing party" where the contract incorporates Arizona law.
Issues
| Issue | Plaintiff's Argument (American) | Defendant's Argument (CSK) | Held |
|---|---|---|---|
| Whether § 12-341.01(A)’s deeming provision applies to a contractual "prevailing party" clause that incorporates Arizona law | The contract’s prevailing-party fee clause controls; the statute is inapplicable where a contract provides for fees and would improperly modify Rule 68 | Because the MVA incorporates Arizona law and does not define "prevailing party," § 12-341.01(A)’s second sentence defines "successful party" and thus makes CSK successful from the offer date | The statute applies to define "successful party" here; CSK is deemed successful from the date of its offer and entitled to fees under the MVA from that date |
| Whether applying § 12-341.01(A) conflicts with the contract’s mandatory fee provision | Applying the statute would improperly alter the contract and duplicate Rule 68 sanctions | The statute supplements but does not conflict with the MVA because the MVA left the term undefined and expressly adopted Arizona law | No direct conflict: the statute is incorporated by operation of law to define "successful party"; where incorporated it triggers the contractual fee entitlement |
| Whether evidence of an unaccepted Rule 68 offer is barred when determining fee entitlement under § 12-341.01(A) | Such evidence is excluded under Rule 68 and would improperly add sanctions | Evidence of an unaccepted offer is barred at trial on merits but is admissible in separate fee proceedings to determine the "successful party" under § 12-341.01(A) | Harmonized: Rule 68 bars admission of the offer at trial, but the offer may be considered in post-trial fee proceedings to determine the "successful party" under the statute |
| Remedy and apportionment on remand | American argues it remains prevailing pre-offer and seeks fees for pre-offer work; opposes full fee reversal | CSK seeks fees incurred after the offer as the successful party from that date | Court reversed award to American for post-offer fees, directed remand to apportion fees: CSK may recover reasonable fees incurred after the offer attributable to defending American’s claims; American may recover fees incurred before the offer |
Key Cases Cited
- Sweis v. Chatwin, 120 Ariz. 249 (App. 1978) (discusses interplay of contractual fee clauses and § 12-341.01)
- Murphy Farrell Dev., LLLP v. Sourant, 229 Ariz. 124 (App. 2012) (uses § 12-341.01 jurisprudence to determine "prevailing party" under contracts lacking a definition)
- Hall v. Read Dev., Inc., 229 Ariz. 277 (App. 2012) (explains that § 12-341.01(A)’s second sentence can shift successful-party designation from the date of an offer)
- Banner Health v. Med. Sav. Ins. Co., 216 Ariz. 146 (App. 2007) (contracts are read to incorporate applicable statutes)
- Jordan v. Burgbacher, 180 Ariz. 221 (App. 1994) (§ 12-341.01 inapplicable only when it directly conflicts with an express contractual fee provision)
- Associated Indem. Corp. v. Warner, 143 Ariz. 567 (1985) (lists nonexclusive factors for determining reasonable attorney fees)