National Union Fire Insurance Company of Pittsburgh, PA v. Aero Jet Services LLC et al

Filing 33

ORDER Defendant 757BD's motion for an award of attorneys' fees (Doc. 27 ) is granted. Pursuant to A.R.S. § 12-341.01(A), attorneys' fees in the amount of $22,275 are awarded in favor of 757BD and against National Union. Signed by Judge David G Campbell on 2/16/2012.(KMG)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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National Union Fire Insurance Company of
Pittsburgh, Pennsylvania, a Pennsylvania
Corporation,

No. CV11-1212-PHX-DGC
ORDER

Plaintiff,

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vs.

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Aero Jet Services, LLC; 757BD, LLC,
Defendants.

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Defendant 757BD filed a motion for attorneys’ fees related to its motion to

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dismiss which the Court granted on October 7, 2011. Doc. 27; see Doc. 25. The motion

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has been fully briefed. Docs. 30, 32. For reasons that follow, the court will grant the

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motion.

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I.

Background.

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On July 26, 2011, Plaintiff, National Union Fire Insurance Company of Pittsburg,

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Pennsylvania, filed a complaint under the Federal Declaratory Judgment Act (“FDJA”)

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seeking a judgment that it had no obligation to defend or indemnify its insured, Aero Jet

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Services, in an underlying state court lawsuit brought against Aero Jet by 757BD, LLC.

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Doc. 1. Defendant 757BD filed a motion to dismiss (Doc. 14), and Defendant Aero Jet

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joined the motion (Doc. 16), arguing that the Court should abstain from exercising its

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jurisdiction over the FDJA claim because Plaintiff could bring its request for declaratory

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judgment in state court. The Court granted Defendants’ motion, finding that National

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Union had an adequate remedy in state court and that the relevant 9th Circuit factors

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weighed in favor of abstention. Doc. 25 at 6-11. 757BD now asks the Court to award

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attorneys’ fees, estimated to be approximately $20,000, in connection with this action.

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Doc. 27. 757BD filed a memorandum and documentation in support of its motion.

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Doc. 29.

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II.

Analysis.

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757BD argues that it is entitled to an award of attorneys’ fees under A.R.S. § 12-

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341.01(A) as a successful party in a contested contract action. Doc. 29 at 2. National

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Union raises three arguments in opposition: (1) the action before this Court was never

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contested, so there is no statutory basis for an award; (2) even if the motion has a

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statutory basis, the relevant factors do not support awarding fees; and (3) even if a fee

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award is proper, the claimed fees are unreasonable. Doc. 30 at 5-12.

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A.

Statutory Basis for the Requested Fees.

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Section 12-341.01(A) states, in relevant part, that “[i]n any contested action

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arising out of a contract, express or implied, the court may award the successful party

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reasonable attorney fees.” Ariz. Rev. S. § 12-341.01(A). 757BD argues on the basis of

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Lozier v. Auto Owners Ins. Co., 951 F.2d. 251, 256 (9th Cir. 1991), that this statute

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applies to insurance contract disputes in federal court. Doc. 29 at 2. 757BD also argues

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on the basis of Fulton Homes Corp. v. BBP Concrete, 155 P. 3d 1090, 1096 (Ariz. Ct.

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App. 2007), and Britt v. Steffen, 205 P.3d 357, 359 (Ariz. Ct. App. 2008), that

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adjudication on the merits is not required and a party that obtains dismissal is a successful

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party under the statute. Id. 757BD also cites Nationwide Mut. Ins. Co. v. Granillo, 573

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P.2d 80, 85-86 (Ariz. 1977), demonstrating that a successful party in an insurance

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declaratory judgment action need not be party to the insurance contract, and additional

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cases showing that Arizona law allows for the recovery of fees incurred in a post-

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judgment action seeking attorneys’ fees. Id. (citing cases).

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National Union responds that § 12-341.01(A) requires a party seeking attorneys’

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fees to have prevailed in a “contested action” and that National Union’s FDJA complaint

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was not “contested” because the Court exercised its discretion to dismiss the case and
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Defendants never filed an answer addressing the merits. Doc. 30 at 5, 9-13. National

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Union relies on a number of cases, principally Morrison v. Shanwick Int’l Corp., 804

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P.2d 768 (Ariz. Ct. App. 1990), for the proposition that an action is contested where “‘the

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defendant has appeared and generally defends against the claims and demands made by

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the plaintiff.’” Doc. 30 at 10 (quoting 804 P.2d at 775) (emphasis added by National

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Union); 11.

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defendants filed an answer to the complaint. Id. (citing 804 P.2d at 775-76).

National Union notes that Shanwick found the action contested where

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National Union argues that Lozier is inapposite because the plaintiff was awarded

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attorneys’ fees when she prevailed on the merits of her third-party insurance claim after a

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six-day bench trial. Id.; see 951 F.2d at 253. National Union also distinguishes Fulton

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Homes because the parties awarded attorneys’ fees – subcontractors named to indemnify

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defendant home-builders in a home-owners’ class action – participated in several rounds

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of pleadings before having the suit dismissed. Doc. 30 at 11-12 (see 155 P.3d at 1096).

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National Union similarly discounts Britt and Granillo because the prevailing parties

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answered the complaints and thus contested the actions. Id. at 12.

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The cases cited by the parties do not support a blanket requirement that the

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prevailing party answer the substantive claims in the complaint for an action to be

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contested and for that party to be eligible for attorneys’ fees under § 12-341.01(A).

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Neither do the cases where defendants filed answers or prevailed at trial appear to make

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the nature of the pleadings the determining factor for awarding fees. In Fulton Homes,

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the court stated that “[a]lthough the claims asserted in Fulton’s third-party complaint

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were never litigated,” the subcontractors

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were forced to expend money engaging in discovery, attempting to obtain a
stipulation from the homeowners regarding the damages sought, filing a
joint status conference report, and filing a request for permission to file a
motion for summary judgment, among other activities, all in an attempt to
extricate themselves from a lawsuit in which the trial court concluded they
should never have been forced to participate.

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155 P.3d at 1096. The rationale for awarding fees in Fulton Homes is not that the

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defendant filed an answer, but that the prevailing party was compelled to expend
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resources in its bid to get the suit dismissed. Neither does Fulton Homes require that the

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suit be improper or the dismissal process be protracted. See id. at 1094 (“Assuming that

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the third-party complaint was entirely proper . . . and that Fulton did not delay dismissing

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the complaint for even one minute longer than necessary, that fact would not protect

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Fulton from a fee award under A.R.S. § 12-341.01.”).

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Granillo and Britt do not persuade the court that § 12–341.01(A) is inapplicable

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where defendants never answered the complaint but nonetheless litigated the propriety of

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the Court’s jurisdiction. Those cases never addressed whether an answer to the complaint

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is required. In Granillo, the Arizona Supreme Court ruled that the state court erred when

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it determined that a declaratory judgment action was not the type of case for which

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attorneys’ fees could be awarded, and it further rejected the argument that the party

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requesting attorneys’ fees must be a party to the insurance contract. 573 P.2d at 85. That

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case, as here, involved an insurance company seeking declaratory judgment regarding its

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coverage against both its insured and the claimant against the insured. Id. at 82, 85. The

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court reached the merits of the claim and ruled that the insurance company owed

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coverage. Id. at 82. The Arizona Supreme Court’s rationale for finding that the trial

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court should have awarded attorneys’ fees was that “[t]hough [defendants] prevailed, they

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were forced to incur legal expenses.” Id. at 86. The court quoted the statute as stating

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“[t]he award of reasonable attorneys’ fees should be made to mitigate the burden of the

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expense of litigation for a just claimant.” Id. (quoting A.R.S. § 12–341.01(B)).1

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Granillo suggests that a party that prevails in defending against a declaratory

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judgment action is entitled to recover attorneys’ fees if it took actions in its own defense

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and incurred expenses in doing so. Britt is not to the contrary. The issues in Britt were

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(1) whether a party requesting attorneys’ fees after the court dismissed a complaint for

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lack of prosecution qualified as a “successful party” and (2) whether the court could rule

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on a subsequent request for attorneys’ fees even though the court had dismissed the

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The 1978 Amendments substituted “a just claim or just defense” for “a just
claimant.” See Historical and Statutory Notes, Ariz. Rev. S. § 12-341.01 (B).
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action and no longer had jurisdiction over the underlying claims. 205 P.3d at 357, 359.

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The Arizona Court of Appeals held that a defendant who succeeds in having an action

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dismissed without prejudice “is still considered a ‘successful party’ for purposes of

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A.R.S. § 12–341.01(A) even though such a dismissal does not operate as an adjudication

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on the merits.” Id. It further held that the court is not precluded from awarding fees

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“until the underlying merits of the cause are finally determined.” Id. at 360. The Court

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finds no reason why the rationale for awarding fees applied in Granillo and Britt does not

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apply here, where the requesting party did not answer the complaint but nonetheless

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incurred expenses to obtain dismissal of the case.

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Mark Lighting Fixture Co., Inc. v. General Elec. Supply Co., 745 P.2d 123 (Ariz.

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Ct. App. 1986) (overruled on other grounds by statute), cited in Britt, supports this

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conclusion. In Mark Lighting, the Arizona Court of Appeals noted the key difference

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between § 12-348, permitting fees for a party “which prevails by an adjudication on the

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merits,” and § 12-341.01, permitting fees for a successful party in an “action” arising out

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of contract. 745 P.2d at 128 (citing Wagenseller v. Scottsdale Memorial Hosp., 710 P.2d

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1025 (Ariz. 1985)). The court stated that “[i]t is apparent . . . that our legislature intended

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to allow recovery of costs and attorney’s fees when a party succeeds in the particular

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proceeding, which is the ‘action,’ without regard to whether the substantive allegations

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presented therein were disposed of at that time.” 745 P.2d at 129. The court continued:

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“It is not relevant . . . whether the dismissal, purported to be without prejudice, operates

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as a complete dismissal . . . or whether the underlying claim is still viable and will be

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determined in a subsequently filed action. The only relevant point is that the defendants

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were successful in the particular action in question.” Id.

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Here, Defendants contested National Union’s request that this Court take

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jurisdiction of its FDJA claim and issue declaratory judgments on its behalf. Defendants

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were successful parties in this action even though the Court did not reach the substance of

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National Union’s FDJA claims and National Union may yet prevail on its claims by

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bringing a subsequent action in state court. Accordingly, § 12–341.01(A) provides an
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appropriate statutory basis for 757BD’s motion for attorneys’ fees.

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B.

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Section 12–341.01(A) is a discretionary statute. Even if it is applicable, the Court

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must determine the appropriateness of awarding fees. The Arizona Supreme Court has

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articulated six factors to consider. Wagenseller, 710 P.2d at 1049 (Ariz. 1985).

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Appropriateness of Awarding Fees.

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Whether the Claim or Defense was Meritorious.

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757BD argues that National Union’s attempt to seek declaratory judgment in

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federal court lacked merit. Doc. 29 at 3. 757BD cites several cases from this district in

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which courts have dismissed similar FDJA actions. Id. (citing cases). National Union

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responds that the Court never addressed the merits of its claims for relief, so this factor

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weighs against awarding fees. Doc. 30 at 13. 757BD replies that National Union’s claim

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in the context of the motion to dismiss was that the Court should exercise jurisdiction and

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that this claim lacked merit. Doc. 32 at 5-6.

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The court’s jurisdiction is part of any claim for relief. Fed. R. Civ. P. 8(a)(1).

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National Union had a statutory basis for requesting the Court’s jurisdiction, but that basis

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was discretionary. The FDJA states that federal courts “may declare the rights and other

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legal relations of any interested party seeking such a declaration.” 28 U.S.C. § 2201(a)

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(emphasis added). In light of the fact that Arizona courts have held that attorneys’ fees

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are appropriate in any successful “action,” including one for dismissal on jurisdictional

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grounds, the issue is whether National Union’s claim that the Court should exercise its

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discretionary jurisdiction and grant relief under the FDJA was meritorious. In granting

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the motion to dismiss, the Court concluded that the long-standing Brillhart factors

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weighed against jurisdiction. Doc. 25 at 3-4, 11. The Court reviewed settled Ninth

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Circuit case law showing that this was particularly true where, as here, the parties were

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involved in an underlying state court action involving the same factual issues, and the

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coverage determination – which was subject to state insurance law – could be made in

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state court. See Doc. 25 at 4-7, 9-10. The Court concludes that National Union’s claim

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of federal jurisdiction of its declaratory judgment action lacked merit. The cases 757BD
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cites support this conclusion. This factor weighs in favor of awarding attorneys’ fees.
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Whether the Litigation Could Have Been Avoided or Settled.

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757BD argues that this litigation could have been avoided because National Union

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rejected a request by defense counsel to dismiss the declaratory judgment action and re-

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file in state court. Doc. 29 at 3; see Doc. 24-1 (Ex. A). National Union argues that this

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factor does not apply because the jurisdictional issue was not susceptible to settlement or

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other resolution on the merits. Doc. 30 at 5. National Union appears to argue that

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because only the federal court could rule on whether it would take jurisdiction of

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National Union’s FDJA claims, that issue could not have been avoided or settled by

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taking the action to state court. National Union’s reference to the merits of the suit

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suggests that National Union also had no other vehicle to resolve the coverage issue.

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The Court agrees that the jurisdictional issue could not have been resolved or

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settled but for litigating it in federal court. The need to litigate that issue could have been

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avoided, however, if National Union had sought declaratory relief in state court as the

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Court ultimately ruled would be appropriate in this case. It is not true that National

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Union had no other avenue for addressing the merits of its declaratory judgment claim.

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See Doc. 25 at 5-7, 9, 10. This factor weighs in favor of awarding attorneys’ fees.

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Whether Assessing Fees Would Cause Extreme Hardship.

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757BD argues on the basis of data made publicly available by the Arizona

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Department of Insurance that National Union is a large insurance company with

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extensive assets and that the instant request for attorneys’ fees will not pose an extreme

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hardship. Doc. 29 at 3 (see http://www.id.state.az.us.). National Union responds that – in

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the broad context – awarding fees in this case could result in undue hardship and

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increased premiums because it could act as a disincentive to seek declaratory judgments

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and thus lead to future payments of uncovered claims. Doc. 30 at 14. National Union’s

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speculation of future harm does not support a finding of extreme hardship. Even if an

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award of fees would dissuade National Union from bringing similar cases in federal

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court, National Union could still pursue these actions in state court. This factor weights
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in favor of awarding attorneys’ fees.
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Whether the Successful Party Prevailed With Respect to All
of the Relief Sought.

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757BD argues that the Court granted all the relief Defendants sought when it

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granted their motion to dismiss. Doc. 29 at 3. National Union responds that Defendants

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prevailed on no claims for relief. Doc. 30 at 14. As discussed in Part A, the relevant

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inquiry for purposes of awarding fees is whether the party requesting fees prevailed on

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the particular action in question. Here, 757BD requests attorneys’ fees related to filing its

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motion to dismiss. Defendants prevailed with respect to all the relief sought in that

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motion. This factor weighs in favor of awarding attorneys’ fees.
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Whether the Legal Question Presented Was Novel and
Whether Such Claims or Defenses Have Previously Been
Adjudicated in this Jurisdiction.

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757BD argues that the jurisdictional question presented in its motion to dismiss

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was not novel and that courts in this district have consistently dismissed similar FDJA

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actions. Doc. 29 at 4. National Union responds only that no “legal question” was

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presented because the Court dismissed its action before any such question could be

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considered. Doc. 30 at 14. The Court does not agree. As previously discussed, an award

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of attorneys’ fees under § 12–341.01(A) pertains to any contested action under contract

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upon which the claimant prevailed. Here, Defendants’ prevailed on a motion to dismiss.

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The question of whether the Court should have exercised jurisdiction of National Union’s

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FDJA claims was not novel. As demonstrated in the Court’s prior order, this question

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has been repeatedly adjudicated in this district. This factor weighs in favor of awarding

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attorneys’ fees.

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6.

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Whether the Award Would Discourage Other Parties with
Tenable Claims or Defenses from Litigating or Defending
Legitimate Contract Issues for Fear of Incurring Liability for
Substantial Amounts of Attorney's Fees.

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757BD argues that this factor supports an award of attorneys’ fees because

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insurers seeking declaratory relief would not be discouraged from seeking relief in state
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court. Doc. 29 at 4. National Union responds that denying federal court jurisdiction

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already deprives a party of its choice of forum “and undermines the federal interest in

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providing a neutral forum free of an appearance of favoritism against an out-of-state

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party.” Doc. 30 at 14 (quoting Allstate Ins. Co. v Davis, 430 F. Supp. 2d 1112, 1121

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(D. Haw. 2006)). National Union concludes that awarding attorneys’ fees would “add

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insult to injury.” Id.

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The Court is not persuaded that an award of attorneys’ fees in this case will

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discourage other insurance companies with tenable claims from litigating their contract

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issues.

A fee award may discourage parties from bringing insurance declaratory

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judgment actions in federal court, particularly where, as here, an underlying state court

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action is pending based on the same factual issues. Because the state court already

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provides an appropriate forum for such relief, however, this is unlikely to discourage

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parties from litigating or defending legitimate contract issues. Moreover, an award of

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attorneys’ fees in this case would not discourage insurance companies from seeking

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declaratory relief in federal court for coverage issues – such as those the Court

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distinguished from this case in its prior order – in which no related state court action has

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been filed (see Doc. 25 at 6) or in which the state court has already concluded the

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underlying insurance claims without addressing the coverage issue (see id. at 9). On

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balance, an award of attorneys’ fees in this case would not discourage other parties with

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tenable claims from litigating and defending their contract issues. This factor weighs in

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favor of awarding attorneys’ fees.
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Summary.

The six factors considered by the Court all favor an award of fees. The Court
accordingly concludes that an award of attorneys’ fees is appropriate in this case.

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C.

Reasonableness of the Requested Fees.

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757BD requests a total of $19,937.50 in fees, representing $18,755 expended

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through October, 2011, and an additional $1,182.50 expended in connection with this

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motion. Doc. 29 at 4-5. These fees are based on an hourly rate of $275. Id. at 4. 757BD
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argues that these fees are reasonable. Id. at 5. 757BD filed appropriate documentation,

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including a copy of its fee agreement, a task-based itemized statement of fees, and an

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affidavit of counsel as required by Local Rule 54.2(d). Doc. 29-1; See LRCiv 54.2(d)(1)-

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(5). In its reply brief, 757BD requests an additional $2,337.50 in connection with 8.5

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hours spent analyzing the arguments in National Union’s opposition motion, researching

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issues, and drafting and revising its reply. Doc. 32 at 11.

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National Union responds that the requested fees are unreasonable. Specifically,

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National Union argues that the 53.5 hours counsel spent on the 7 page motion to dismiss

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and the 11 page reply brief are excessive. Doc. 30 at 15. Even if counsel were “starting

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from scratch,” National Union argues that two full days of billable work, or 16 hours,

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would have been sufficient for the motion to dismiss, and one additional day, or 8 hours,

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would have been sufficient to write the reply. Id. National Union further argues that

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counsel in this case did not “start from scratch,” but substantially recycled a prior motion

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to dismiss and reply brief filed in Great American Assurance Co. v. Bartell, No. 2:07-

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CV-1341-PHX-EHC, 2008 WL 1927333 (D. Ariz. 2008). Id. National Union asks the

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Court to reduce by half the amount suggested above and award fees of $3,300, which

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represents 12 hours at counsel’s $275 hourly rate. National Union also argues that denial

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of fees spent on the motion for attorneys’ fees is proper because this motion was not

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grounded in tenable legal claims and it also recycled significant portions of a motion

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counsel filed in a similar matter. Doc. 30 at 16. National Union asks that if the Court

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does award fees for this motion, it limit the award to $750, reflecting three hours of work.

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Id. In sum, National Union asks that the total award of fees, if granted, not exceed

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$4,050. Id.

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757BD argues in reply that National Union has not objected to the reasonableness

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of counsel’s hourly rate, but only the amount of hours claimed. Doc. 32 at 8. As to the

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hours, 757BD argues that National Union has not complied with the specificity

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requirements of Local Rule 54.2(f) which states that a memorandum in opposition “shall

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identify with specificity all disputed issues of material fact and shall separately identify
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each and every disputed time entry or expense item.” Id. (citing LRCiv 54.2(f)). Instead,

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National Union “has made the conclusory assertion that 53.5 hours of attorney time is

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excessive for the work described.”

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objections fail as a matter of law and that National Union’s argument that the fees should

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be reduced because counsel only “recycled” previous work lacks merit. Id. at 9. In

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particular, 757BD states that there are numerous differences between this litigation and

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Bartell. 757BD identifies three key differences. First, counsel spent substantial time

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developing the “background” section of the motion to dismiss, which initially included a

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lengthy discussion of the underlying state litigation that had generated volumes of

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documents over a period of three years. Id. 757BD argues that a detailed understanding

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of this litigation was necessary to address the numerous coverage issues raised in

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National Union’s denial letter and its complaint. None of this work was aided by

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counsel’s prior work in Bartell because the state court litigation and coverage issues in

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each case were distinct. Id. Second, the motion to dismiss addressed an additional

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pleading defect with regard to diversity jurisdiction not raised in Bartell that required

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further research and investigation before counsel ultimately decided to de-emphasize this

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argument. Id. at 10. Third, counsel spent considerable time updating case law since

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Bartell and analyzing and responding to dozens of cases cited by National Union in its

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response. Id. With respect to the motion for attorneys’ fees, 757BD argues that although

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counsel used the same outline as it had in a prior motion, the substance and exhibits of

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the memoranda were substantially different. Id. at 11. 757BD also states that counsel

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spent an additional 8.5 hours on its reply brief, analyzing and addressing specific

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arguments National Union raised in its response. 757BD argues that this was reasonable

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in light of National Union’s claim that its fee request was “baseless.” Id.

Id.

757BD argues both that National Union’s

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Upon review of Defendants’ motion to dismiss and the motion that counsel

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submitted in Bartell, the Court agrees with National Union that many sections of

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Defendants’ motion are taken directly from counsel’s earlier work. The Court also agrees

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with 757BD that the motion supports additional work, as reflected in the background
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section (see Doc. 14 at 1-3) and the section related to “other pertinent factors” (see id.

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at 6-7), showing that counsel had to expend time becoming familiar with the underlying

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litigation and the precise coverage issues presented in this case. Additionally, review of

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counsel’s itemized statement of fees shows that counsel billed considerable time for calls

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and emails to 757BD and Aero Jet, as well as to National Union’s counsel, regarding

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such things as coverage issues, the stipulation for extension, a settlement proposal, and

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the stipulation on the diversity jurisdiction issue. Counsel also billed for time analyzing

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documents, including the complaint, Aero Jet’s insurance policies, and National Union’s

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denial letter. National Union makes no specific objection to these time expenditures, and

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the Court does not find them unreasonable. By the Court’s calculations, counsel billed

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approximately 16 hours for tasks directly related to additional case-law research and

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drafting and revising the motion to dismiss.

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unreasonable.

The Court does not find this to be

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The Court also agrees with National Union that significant portions of 757BD’s

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reply brief mirror portions of counsel’s earlier work. 757BD is correct, however, that

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counsel made substantive changes and additions, particularly by incorporating

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discussions of recent District of Arizona cases, including Bartell.

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calculations, counsel billed approximately 25 hours for tasks directly related to additional

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case-law research and drafting and revising its reply. Given that National Union’s

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opposition motion was 17 pages and cited 67 cases, the Court is not persuaded that the

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time claimed for additional research is unreasonable. 757BD’s motion for attorneys’ fees

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also follows the outline of a prior motion but differs in substantive content and supporting

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documentation. The Court is not persuaded that the 4.3 hours billed for preparing this

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motion was excessive. Additionally, the Court finds that it was not unreasonable for

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counsel to bill an additional 8.5 hours for time spent researching National Union’s

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objections to its motion for attorneys’ fees and drafting the reply.

By the Court’s

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Having considered the record as a whole and the relevant fee award factors, see

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Associated Indemnity Corp. v. Warner, 694 P.2d 1181, 1184 (Ariz. 1985), the Court finds
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the requested fee award under § 12-341.01(A) to be reasonable and appropriate. See also

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LRCiv 54.2(c)(3)(A)-(M) (listing factors bearing on the reasonableness of a fee award);

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Hensley v. Eckerhart, 461 U.S. 424, 429-30 & n.3 (1983). The Court will grant 757BD=s

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motion for a fee award against National Union in the amount of $22,275.

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IT IS ORDERED:

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1.

granted.

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Defendant 757BD’s motion for an award of attorneys’ fees (Doc. 27) is

2.

Pursuant to A.R.S. § 12-341.01(A), attorneys’ fees in the amount of
$22,275 are awarded in favor of 757BD and against National Union.

Dated this 16th day of February, 2012.

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