EZconn Corporation v. PCT International Incorporated

Filing 70

ORDER granting 22 Motion for Attorney Fees and Related Non-Taxable Expenses. The Clerk shall enter judgment in favor of Plaintiff EZconn Corporation and against Defendant PCT International, Inc. in the amount of $269,087.74 for attorney fees, plus post-judgment interest at the federal rate of 1.78% from the date of this judgment until paid. Signed by Senior Judge Neil V Wake on 1/3/18. (DXD)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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EZconn Corporation,
Plaintiff,

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No. CV-16-00508-PHX-NVW
ORDER

v.
PCT International, Inc.,
Defendant.

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Before the Court is EZconn Corporation’s Motion for an Award of Attorneys’

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Fees and Related Non-Taxable Expenses (Doc. 22).

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I.

BACKGROUND

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This case arises out of a business relationship between EZconn and PCT

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International, Inc., which included contracts for EZconn to manufacture and provide

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products to PCT. During 2012 and 2013, EZconn supplied products to PCT, and PCT

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made partial payments on some of the invoices for those products. After credit for partial

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payments and offsets, the total unpaid amount of outstanding invoices was $6,629,046.55

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and the accrued interest through October 31, 2016, on the unpaid balance was

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$2,283,535.87. PCT did not dispute the amount owed for the unpaid invoices or the

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amount of accrued interest EZconn claimed on the unpaid invoices.

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On February 24, 2016, EZconn sued PCT for breach of contract to recover and

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collect all amounts due regarding the unpaid invoices. On August 30, 2017, the Court

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granted summary judgment in EZconn’s favor.

Judgment was entered in favor of

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EZconn and against PCT for (1) the principal amount of $6,629,046.55, plus (2) pre-

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judgment interest to August 30, 2017, in the amount of $2,833,837.54 at the rate of 10%

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per annum simple interest, plus (3) post-judgment interest on $9,462,884.09, the sum of

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amounts (1) and (2), at the federal rate of 1.23% per annum from the date of entry of

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judgment (August 30, 2017) until paid. The August 30, 2017 judgment awarded EZconn

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all of the relief it sought.
EZconn seeks award of attorney fees under A.R.S. § 12-341.01(A).

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II.

ANALYSIS
A.

Whether to Award Attorney Fees

A.R.S. § 12-341.01(A) provides:

“In any contested action arising out of a

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contract, express or implied, the court may award the successful party reasonable attorney

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fees.” An award of fees under § 12-341.01 is discretionary. Fulton Homes Corp. v. BBP

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Concrete, 214 Ariz. 566, 569, 155 P.3d 1090, 1093 (Ct. App. 2007). The statute does not

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establish a presumption that attorney fees be awarded in contract actions. Associated

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Indem. Corp. v. Warner, 143 Ariz. 567, 569, 694 P.2d 1181, 1183 (1985). In determining

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whether attorney fees should be granted under § 12-341.01, trial courts may consider the

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following factors: the merits of the unsuccessful party’s case, whether the litigation

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could have been avoided or settled, whether assessing fees against the unsuccessful

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would cause an extreme hardship, the degree of success by the successful party, any

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chilling effect the award might have on other parties with tenable claims or defenses, the

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novelty of the legal questions presented, and whether such claim had previously been

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adjudicated in this jurisdiction. Id. at 570, 694 P.2d at 1184.

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EZconn contends, and PCT does not dispute, that all of the relevant factors weigh

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in favor of awarding EZconn attorney fees under § 12-341.01. EZconn was entirely

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successful in this action. The legal questions were not novel, and many breach of

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contract claims had previously been adjudicated in this jurisdiction. PCT did not dispute

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the amount it owed EZconn for the unpaid invoices and could have avoided this litigation

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by paying its debt. PCT does not assert that a fee award would cause it extreme hardship.
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B.

What Constitutes Reasonable Attorney Fees

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“Once a litigant establishes entitlement to a fee award, the touchstone under

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§ 12-341.01 is the reasonableness of the fees.” Assyia v. State Farm Mut. Auto. Ins. Co.,

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229 Ariz. 216, 222, 273 P.3d 668, 674 (Ct. App. 2012). “The award of reasonable

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attorney fees pursuant to [§ 12-341.01] should be made to mitigate the burden of the

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expense of litigation to establish a just claim or a just defense. It need not equal or relate

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to the attorney fees actually paid or contracted, but the award may not exceed the amount

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paid or agreed to be paid.” A.R.S. § 12-341.01(B).

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To determine reasonable attorney’s fees in commercial litigation, courts begin by

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determining the actual billing rate that the lawyer charged in the particular matter.

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Schweiger v. China Doll Rest., Inc., 138 Ariz. 183, 187, 673 P.2d 927, 931 (Ct. App.

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1983). If persuaded that the contracted hourly rates are unreasonable, courts may use a

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lesser rate. Id. at 188, 673 P.2d at 931.

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Under the Arizona Supreme Court’s Rules of Professional Conduct, factors to be
considered in determining the reasonableness of an attorney fee include the following:
(1) the time and labor required, the novelty and difficulty of the questions
involved, and the skill requisite to perform the legal service properly;

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(2) the likelihood, if apparent to the client, that the acceptance of the
particular employment will preclude other employment by the lawyer;

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(3) the fee customarily charged in the locality for similar legal services;

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(4) the amount involved and the results obtained;

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(5) the time limitations imposed by the client or by the circumstances;

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(6) the nature and length of the professional relationship with the client;

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(7) the experience, reputation, and ability of the lawyer or lawyers
performing the services; and

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(8) the degree of risk assumed by the lawyer.

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A.R.S. Sup. Ct. Rules, Rule 42, Rules of Prof. Conduct, ER 1.5. In addition, Local Rules

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require consideration of whether the fee contracted between the attorney and the client is

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fixed or contingent, the “undesirability” of the case, and awards in similar actions.

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LRCiv 54.2(c).

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EZconn entered into engagement agreements with its counsel through which it

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agreed to pay 70% of counsel’s standard hourly rates upon receipt of monthly invoices

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and to pay all out-of-pocket costs and expenses. EZconn agreed to pay a contingent fee

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consisting of the remaining 30% of counsel’s standard hourly rates if EZconn’s claim

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was resolved, plus 20% of the net amount recovered as a result of resolution of EZconn’s

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claim.

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EZconn’s counsel billed EZconn at 70% of usual rates for a total of 469.2 hours

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from January 12, 2016, through September 12, 2017, which totaled $176,642.30. Under

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its engagement agreement, EZconn must also pay contingent hourly fees at 30% of the

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usual rates for those hours, which is $75,703.84. Thus, the total amount of attorney fees

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incurred through September 12, 2017, at the usual hourly rates is $252,346.14. In its

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reply brief, EZconn seeks an additional $19,171.60 for post-judgment discovery and

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preparing the reply brief for 54.2 hours at 70% of the usual rates. Therefore, the total

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fees requested based on hourly rates is $271,517.74.

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reasonableness of the hourly rates or the amount of time spent with two exceptions.

PCT does not challenge the

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First, PCT identified $14,520.00 in fees that it contends are not recoverable

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because they appear to be related to litigation other than this case or to clerical work.

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This case was related to other cases because PCT’s primary defense in this case was that

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it was entitled to offset its debt on the unpaid invoices by amounts it hoped to recover on

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claims initially brought in Nevada against EZconn for which PCT sought documents

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disclosed in a patent case brought in Arizona. It was necessary for EZconn’s counsel in

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this case to provide some services related to those cases.

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between EZconn’s counsel in this case and EZconn’s counsel in Taiwan was necessary to

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avoid duplicative litigation against PCT. Justification for most of the time entries is

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demonstrated by the task description or by EZconn’s explanation. However, three time

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entries do not appear to be related to related cases and will be excluded. They are: 1.8
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Further, communication

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hours ($810) on 2/4/16, 0.1 hours ($45) on 2/15/16, and 0.1 hours ($45) on 3/9/16.

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Therefore, $900.00 will be excluded from the amount to be awarded.

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Second, PCT contends that EZconn may not recover $1,530.00 for ten time entries

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for services performed by legal assistants. Legal assistant services may properly be

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included in attorney fee applications and awards under A.R.S. § 12-341.01, both in the

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trial court and on appeal. Cont’l Townhouses East Unit One Ass’n v. Brockbank, 152

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Ariz. 537, 544, 733 P.2d 1120, 1127 (Ct. App. 1986). “[P]roper use of legal assistants

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. . . should be encouraged to facilitate providing the most cost-effective legal services to

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the public.” Id. However, to be compensable, the services must be performed by a

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person qualified through education, training, or work experience, under the ultimate

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direction and supervision of an attorney, of specifically delegated substantive legal work

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that requires a sufficient knowledge of legal concepts that, absent such assistant, the

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attorney would perform the task. Id. at 545, 733 P.2d at 1128. “[S]ince the legal

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assistant must perform legal work and be supervised by an attorney, the fee application

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must contain enough details to demonstrate to the court that these requirements have been

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met . . . .” Id. EZconn’s fee application does not provide any information regarding the

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qualifications of the legal assistants or their supervision by an attorney.

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descriptions for the ten contested time entries do not show that the tasks involved

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substantive legal work requiring legal knowledge. Therefore, $1,530.00 will be excluded

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from the amount to be awarded.

The task

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PCT’s principal objection is to EZconn’s request for $1,839,910.54, which is 20%

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of the net amount of recovery, in addition to fees based on EZconn’s counsel’s usual

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hourly rates.

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recovery” minus fees actually paid based on hourly rates and costs and expenses actually

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paid. It defines “gross recovery” as “anything of value obtained or received directly or

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indirectly by [EZconn] from any of the Claims,” including money, reduction of debt, etc.

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Although EZconn obtained a judgment of more than $9 million against PCT, EZconn

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does not assert that it has received anything of value yet from PCT to satisfy the

EZconn’s engagement agreement defines “net recovery” as “gross

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judgment. Therefore, an award of attorney fees based on any amount EZconn hopes to

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recover from PCT would be speculative.

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PCT contends that adding more than $1.8 million to fees charged at the usual

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hourly rate imposes on PCT an unreasonable attorney fee equivalent to more than $4,000

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per hour for partners, associates, and legal assistants. EZconn reasons that it is entitled to

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the additional contingency fee of 20% of net recovery because its counsel risked

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receiving fees based on rates discounted by 30% and because its counsel spent more than

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1,000 hours defeating PCT’s claims in CV-15-01810, which PCT contended would offset

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EZconn’s recovery in this case.

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Neither reason justifies shifting the additional

contingency fee to PCT.

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Therefore, EZconn will be awarded attorney fees based on its counsel’s usual

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hourly rates. Subtracting $2,430.00 from the amount requested based on hourly rates,

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i.e., $271,517.74, the total fee award will be $269,087.74.

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IT IS THEREFORE ORDERED that EZconn Corporation’s Motion for an Award
of Attorneys’ Fees and Related Non-Taxable Expenses (Doc. 22) is granted.

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IT IS FURTHER ORDERED directing the Clerk to enter judgment in favor of

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Plaintiff EZconn Corporation and against Defendant PCT International, Inc. in the

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amount of $269,087.74 for attorney fees, plus post-judgment interest at the federal rate of

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1.78% from the date of this judgment until paid.

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Dated this 3rd day of January, 2018.

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