RS Industries, Inc. v. Candrian
240 Ariz. 132
| Ariz. Ct. App. | 2016Background
- Scott and Beverly Candrian exchanged their Sun Mechanical stock for a 25% interest in RS Industries; disputes arose over alleged breaches and stock value.
- Parallel federal and state suits were filed; the federal action was dismissed in favor of arbitration and the parties executed an arbitration agreement covering all disputes.
- A four-day arbitration resolved nearly all claims for the Candrians: an award of about $5,083,245 on the merits.
- The Candrians requested $1,032,411.50 in attorney's fees and $211,240.41 in expenses; the arbitrator awarded nearly the full amount, citing the arbitration agreement, RS bylaws, Iowa indemnity law, and A.R.S. § 12-341.01(A).
- RS moved to vacate the fee/expense awards in superior court; the court confirmed the arbitration award and separately awarded the Candrians $54,781.33 in fees and $243 in taxable costs for the confirmation proceeding.
- RS appealed, challenging whether the arbitrator and court had authority under the arbitration agreement and Arizona law to award the fees and various expenses.
Issues
| Issue | Plaintiff's Argument (Candrian) | Defendant's Argument (RS) | Held |
|---|---|---|---|
| 1) Could the arbitrator award attorney's fees for pre-arbitration litigation and the arbitration? | Agreement expressly allowed recovery of reasonable fees for arbitration and for fees previously incurred "under any applicable statute, rule, or contract." | Arbitrator exceeded powers; statute/contract law (Iowa or Arizona) did not authorize the fees; res judicata bars recovery. | Arbitrator had authority; appellate review limited to exceedance of powers, not correctness of legal rulings; award confirmed. |
| 2) Could the arbitrator award non-taxable litigation expenses (e.g., expert fees, travel, lodging, copying)? | RS bylaws and Iowa indemnity law permit indemnification of directors for reasonable expenses; arbitrator can interpret and apply those laws. | Many expenses are not taxable costs under A.R.S. § 12-332 and thus beyond arbitrator's authority. | Arbitrator could award expenses if authorized by applicable law or contract; his legal interpretations are final absent showing he exceeded powers; award confirmed. |
| 3) Could the superior court award attorney's fees for the confirmation proceeding under A.R.S. § 12-3025(C)? | Prevailing party on confirmation is entitled to reasonable post-award fees; the Candrians sought such fees and the court properly awarded them. | Amounts were unreasonable (block billing, unnecessary travel by three lawyers). | Court did not abuse discretion; billing was sufficiently detailed and RS did not show rates or hours were excessive. |
| 4) Could the superior court award non-taxable "expenses of litigation" for the confirmation proceeding under § 12-3025(C)? | § 12-3025(C) authorizes reasonable expenses beyond narrow taxable costs to discourage frivolous challenges. | Should be limited to taxable costs under other statutes. | § 12-3025(C) permits reasonable litigation expenses beyond taxable costs; award affirmed as consistent with arbitration-finality policy. |
Key Cases Cited
- City of Cottonwood v. James L. Fann Contracting, Inc., 179 Ariz. 185 (App. 1994) (Arizona public policy favors arbitration and judicial review of arbitration awards is limited)
- Atreus Communities Group of Ariz. v. Stardust Dev., Inc., 229 Ariz. 503 (App. 2012) (arbitrator's factual and legal decisions are final; review limited)
- Sanders v. Boyer, 126 Ariz. 235 (App. 1980) (attorney's fees generally unavailable unless authorized by statute or contract)
- Reyes v. Frank's Serv. & Trucking, LLC, 235 Ariz. 605 (App. 2014) (clarifies what deposition- and expert-related expenses are recoverable as taxable costs)
- Bennett v. Baxter Group, Inc., 223 Ariz. 414 (App. 2010) (photocopying, facsimile, shipping, and travel expenses are generally not taxable costs)