American Power Products, Inc. v. CSK Auto, Inc.
242 Ariz. 364
Ariz.
2017

Background

  • American Power Products (American) and CSK Auto (CSK) executed a Master Vendor Agreement (MVA) providing that the "prevailing party" in any action arising out of the MVA is entitled to reasonable attorneys’ fees; the MVA did not define "prevailing party" and included a broad choice-of-law clause applying Arizona law to the parties’ rights and remedies.
  • American sued CSK in 2005 for breach and misrepresentation seeking >$5M; CSK counterclaimed for ~ $950,000.
  • In June 2011 CSK served a Rule 68 offer for $1,000,001 ("inclusive of ... attorneys’ fees"); American rejected it, proceeded to trial, obtained a $10,733 jury verdict, and CSK’s counterclaims were dismissed with prejudice.
  • The trial court found American the prevailing party under a totality-of-litigation test and awarded American $775,000 in contractual attorney fees (plus costs and interest), denying Rule 68 sanctions to CSK.
  • The court of appeals affirmed the fee award but remanded to calculate Rule 68 comparisons; it reasoned that a contractual fee provision controls "to the exclusion" of A.R.S. § 12-341.01(A).
  • The Arizona Supreme Court reviewed whether the statutory definition of "successful party" in A.R.S. § 12-341.01(A) (added 1999) applies to the MVA’s "prevailing party" when the contract incorporates Arizona law.

Issues

Issue Plaintiff's Argument (American) Defendant's Argument (CSK) Held
Whether § 12-341.01(A)’s statutory definition of "successful party" applies when a contract entitles the "prevailing party" to fees but does not define that term and incorporates Arizona law Contractual fee clause governs to exclusion of the statute; court should apply totality-of-litigation test and may award contractual fees; applying § 12-341.01(A) would conflict with the contract and Rule 68 Because the MVA applies Arizona law and does not define "prevailing party," the statute’s second sentence (deeming an offeror the successful party if final judgment is ≤ offer) is incorporated and controls the definition of successful/prevailing party The Court held the statute applies to define the successful party for purposes of the MVA (to the extent it does not conflict with the contract); if CSK’s $1,000,001 offer exceeds the final judgment, CSK is deemed successful from the offer date and entitled to fees for that period; American may recover fees only for work before the offer.

Key Cases Cited

  • Murphy Farrell Dev., LLLP v. Sourant, 272 P.3d 355 (Ariz. App. 2012) (discussing application of § 12-341.01 in determining prevailing party under contract provisions)
  • Sweis v. Chatwin, 585 P.2d 269 (Ariz. 1978) (contractual fee provisions may make statute inapplicable where contract unqualifiedly mandates fees)
  • Geller v. Lesk, 285 P.3d 972 (Ariz. App. 2012) (parties’ contractual fee provision—not the statute—governs when it sets conditions for recovery)
  • Lisa v. Strom, 904 P.2d 1239 (Ariz. App. 1995) (contractual fee clause controls to the exclusion of § 12-341.01 when it provides recovery conditions)
  • Connor v. Cal-Az Properties, Inc., 668 P.2d 896 (Ariz. App. 1983) (stating § 12-341.01 need not be considered where contract provides conditions for fee recovery)
  • Jordan v. Burgbacher, 883 P.2d 458 (Ariz. App. 1994) (statute inapplicable if it conflicts with an express contractual fee provision)
  • Banner Health v. Med. Sav. Ins. Co., 163 P.3d 1096 (Ariz. App. 2007) (statutes applicable to contracts are incorporated by operation of law)
  • Yeazell v. Copins, 402 P.2d 541 (Ariz. 1965) (valid statute is automatically part of any contract affected by it)
  • Hall v. Read Dev., Inc., 274 P.3d 1211 (Ariz. App. 2012) (explaining that § 12-341.01(A)’s second sentence narrows discretion by requiring comparison of offer to judgment)
  • Pioneer Roofing Co. v. Mardian Constr. Co., 733 P.2d 652 (Ariz. App. 1986) (statute may apply to fill gaps where contractual fee provisions are unilateral)
  • McDowell Mountain Ranch Cmty. Ass’n v. Simons, 166 P.3d 667 (Ariz. App. 2007) (contractual mandatory fee provisions remove trial court discretion to deny fees)
  • Associated Indem. Corp. v. Warner, 694 P.2d 1181 (Ariz. 1985) (nonexclusive factors for awarding fees under § 12-341.01)
Read the full case