Donges et al v. USAA Federal Savings Bank

Filing 99

ORDER that Defendant's Motion for Attorneys' Fees (Doc. 86 ) is denied. Defendant will not recover its costs or attorneys' fees. Signed by Judge Rosemary Marquez on 10/31/2019. (MFR)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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William R Donges, et al.,
Plaintiffs,

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ORDER

v.

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No. CV-18-00093-TUC-RM

USAA Federal Savings Bank,

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Defendant.

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Pending before the Court is Defendant USAA Federal Savings Bank’s Motion for

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Attorneys’ Fees. (Doc. 86.) Plaintiff homeowners brought this action against Defendant

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seeking to enjoin the foreclosure and trustee’s sale of their house. (Doc. 35.) Plaintiffs

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asserted, among other things, that Defendant had exceeded the statute of limitations to

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bring a foreclosure action stemming from Plaintiffs’ default on a Home Equity Line of

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Credit (“HELOC”). (Id.) The Court granted summary judgment on all claims in favor of

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Defendant. (Doc. 83.) The Court, however, enjoined the trustee’s sale of the home

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pending Plaintiffs’ appeal to the Ninth Circuit. (Doc. 98.) Defendant requests an order

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awarding $114,928.91 in attorneys’ fees and nontaxable expenses. (Doc. 86.) Plaintiffs

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have filed a Response in Opposition (Doc. 94) and Defendant has filed a Reply (Doc. 95).

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A.

Contractual Entitlement to Fees and Costs

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Defendant first alleges that the deed of trust securing Plaintiffs’ loan requires the

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recovery of attorneys’ fees and costs. (Doc. 86 at 2.) That deed of trust secured the first of

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multiple HELOC loans and provided that “[i]f Grantor breaches any covenant in this

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Security Instrument, Grantor agrees to pay all expenses Lendor incurs in performing such

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covenants or protecting its security interest in the Property.” (Doc. 65-3 at 4.) It specified

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that such “amount may include, but is not limited to, attorneys’ fees, court costs, and

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other legal expenses.” (Id.)

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Arizona’s statute governing the award of attorneys’ fees arising from a contract

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does not “alter[], prohibit[], or restrict[]” a contract that otherwise “provide[s] for

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attorney fees.” A.R.S. § 12-341.01. Consequently, “when a contract has an attorney’s fee

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provision it controls to the exclusion of the statute.” Am. Power Prods., Inc. v. CSK Auto,

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Inc., 396 P.3d 600, 604 (Ariz. 2017) (quoting Lisa v. Strom, 904 P.2d 1239, 1242 n.2

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(Ariz. App. 1995)). Therefore, if a contractual provision settles the question of fees and

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costs, the Court need not conduct a statutory analysis.

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However, it is far from clear that the contractual provision cited by Defendant

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applies here. This action was brought by Plaintiffs in a collateral challenge to a trustee’s

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sale of property. Plaintiffs based their arguments on A.R.S. § 12-548 and A.R.S. § 33-

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816, which together provide that a trustee’s sale or foreclosure action must take place

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within a six-year statutory period. (Doc. 1-3.)

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As noted, the contractual provision cited by Defendant provides an entitlement to

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attorneys’ fees arising from efforts to protect its security interest following a breach of

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any covenant in the agreement. (Doc. 65-3 at 4.) There is little doubt that Plaintiffs’

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failure to pay on their mortgage constituted a breach of a covenant. Defendant, however,

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has failed to establish that any fees it incurred defending this action were caused by that

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breach. Rather, it appears that any fees incurred in this action were proximately caused by

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Defendant’s decision to postpone acting to preserve its security interest in the property

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until such time had passed that Plaintiffs had gained a colorable argument that the statute

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of limitations had run.

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Moreover, although this Court did ultimately decline to accept Plaintiffs’

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argument that the statute of limitations barred Defendant’s foreclosure action, Defendant

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does not establish that Plaintiffs’ conduct in bringing this collateral action constituted a

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breach of any covenant. Accordingly, the Court finds that the contractual provision cited

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does not govern, and so the Court proceeds to an analysis of the claimed statutory bases

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for an award of costs and fees.

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B.

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Costs
Defendant claims that it incurred nontaxable expenses in the amount of $2,672.41.

(Doc. 86.) Defendant has provided an itemized statement of its costs. (Doc. 86-4.)

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In a diversity action, federal law governs an award of taxable costs. Felix v. Pic–

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N–Run, Inc., No. CV 09-8015-PCT-JAT, 2012 WL 551645, at *4 (D. Ariz. Feb. 21,

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2012) (citing Aceves v. Allstate Ins. Co., 68 F.3d 1160, 1167 (9th Cir.1995) (applying

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federal procedure instead of state procedure to determine the amount of costs); see also

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28 U.S.C. § 1920; Fed. R. Civ. P. 54(d)(1); LRCiv. 54.1(a).

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Although Defendant describes its request as one for “nontaxable costs,” many of

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the listed costs are in fact taxable under LRCiv 54.1(e). Defendant requests costs for

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obtaining a copy of the complaint, which are taxable under LRCiv 54.1(e)(5), various

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filing fees, all of which are taxable under LRCiv 54.1(e)(1), costs of producing court

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copies of filings, which are taxable under LRCiv. 54.1(e)(5), and deposition costs, which

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are taxable under LRCiv. 54.1(e)(3). (Doc. 86-4.)

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Under LRCiv. 54.1(a), a party seeking taxable costs must, within fourteen days,

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file a bill of costs on a form provided by the Clerk of Court and attach documentation

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supporting the requested costs. The docket reflects that no such bill of costs was filed.

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The time for so filing has passed. Defendant will therefore not recover these costs.

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In addition to the above taxable costs, Defendant also requests costs that are

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properly considered nontaxable, including for postage, parking, and delivery fees. (Doc.

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86-4.) Defendant relies on A.R.S. § 12-341.01 as a basis for recovery of these nontaxable

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expenses. But the Arizona Supreme Court has explained that, with limited exceptions,

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non-taxable costs cannot be recovered under § 12-341.01. Ahwatukee Custom Estates

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Mgmt. Ass’n, Inc. v. Bach, 973 P.2d 106, 107 (Ariz. 1999). The exceptions, including the

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cost of computerized legal research and the cost of legal assistant or law clerk services,

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are not applicable here. Id. at 108-09. Defendant is therefore not entitled to recovery of

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these nontaxable costs.

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The Court accordingly declines to award Defendant costs.
C.

Attorneys’ Fees Under Arizona Law

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Arizona law permits a court to award attorneys’ fees to the “successful party” in

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“any contested action arising out of a contract.” A.R.S. § 12-341.01. An award of such

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fees is at the discretion of the court. AmerisourceBergen Corp. v. Dialysist West, Inc.,

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465 F.3d 946, 955 (9th Cir. 2006). A court should analyze six factors in determining

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whether to award such fees to an eligible party. Associated Indem. Corp. v. Warner, 694

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P.2d 1181, 1183 (Ariz. 1985). Those factors are: (1) whether the unsuccessful party’s

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claim or defense was meritorious; (2) whether the litigation could have been avoided or

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settled and so the successful party’s efforts were superfluous; (3) hardship to

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unsuccessful party; (4) whether the successful party prevailed with respect to all of the

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relief sought; (5) whether the legal question presented was novel; and (6) whether the

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award would discourage other parties from litigating legitimate contract issues for fear of

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incurring liability for substantial amounts of attorney’s fees. Id. at 1183-84.

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As a threshold matter, the court finds that USAA Federal Savings Bank is eligible

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for the recovery of attorneys’ fees under the statute. The Court granted summary

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judgment in favor of USAA Federal Savings Bank, making it a “successful party,” and

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this action is fairly characterized as “arising out of a contract.” A.R.S. § 12-341.01.

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However, “[m]ere eligibility” for a fee award does not establish “entitlement” to the

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award, and so the Court turns to the six Warner factors enumerated above. Wagenseller v.

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Scottsdale Mem’l Hosp., 710 P.2d 1025, 1048 (Ariz. 1985).

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The first factor, the merit of Plaintiffs’ claims, weighs against awarding fees here.

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Although Plaintiffs did not prevail, their claims presented substantive legal and factual

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issues that presented a close case at summary judgment and caused the Court to enjoin

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the trustee’s sale pending judgment in the Court of Appeals. (Doc. 98.)

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The second factor, whether the litigation could have been settled without the

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expense of litigation, is not instructive here. Plaintiffs assert that Defendant cut off

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communication with Plaintiffs and provided no opportunity for Plaintiffs to cure their

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failure to pay. (Doc. 94.) Plaintiffs also argue that Defendant rejected multiple settlement

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offers. (Id.) Finally, Plaintiffs also allege that Defendant failed to meaningfully consult

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with Plaintiffs regarding the attorneys’ fee issue before bringing the instant motion. (Id.)

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Defendant in turn argues that Plaintiffs’ settlement offers were unreasonable and that

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Plaintiffs themselves refused to discuss settlement at their depositions. (Doc. 95.) The

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Court concludes that the evidence as to whether this action could have been settled

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without the expense of litigation is in equipoise and that this factor provides little

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guidance.

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The third factor, hardship to the unsuccessful party, weighs heavily against the

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award of attorneys’ fees in this case. Plaintiffs, who have proceeded pro se in this action,

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face foreclosure and a trustee’s sale of their home, pending the outcome of their appeal in

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the Ninth Circuit Court of Appeals. Although Defendant argues that Plaintiffs have

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equity in the property at issue and thus could pay a large attorney’s fee award, Defendant

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has offered no evidence that extinguishing Plaintiffs’ equity in the property would not

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cause Plaintiffs hardship.

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The fourth factor, whether the successful party prevailed with respect to all relief

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sought, weighs in favor of awarding fees in this matter, as Defendant was awarded

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summary judgment on all of Plaintiff’s claims.

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The fifth factor, whether a novel question was presented, weighs against awarding

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fees. As Defendant acknowledges, Plaintiffs’ argument that the reasoning of the Arizona

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Supreme Court in Mertola, LLC v. Santos, 422 P.3d 1028 (Ariz. 2018) should be applied

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to calculating the statute of limitations for bringing a foreclosure action under a HELOC

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presented a novel issue of law. (Doc. 86 at 6.)

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Finally, the sixth factor, whether a fee award would tend to discourage others from

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engaging in legitimate contract litigation, weighs heavily against the award of fees. An

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award of fees in this matter would harm the public interest by chilling other homeowners

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from asserting good-faith but novel challenges to foreclosure actions.

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The Court finds that, overall, the above factors counsel against an award of

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attorneys’ fees in this matter. An award of fees arising from Plaintiffs’ good-faith

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presentation of a novel legal issue would cause Plaintiffs significant hardship and would

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chill other individuals in asserting good-faith challenges to foreclosure actions.

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D.

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LRCiv 54.2 Reasonableness Factors
Defendant argues that its requested fee award is reasonable under Local Rule of

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Civil Procedure 54.2. As the Court in its discretion has determined not to award

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attorneys’ fees in this matter, the Court does not address the reasonableness factors

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provided by LRCiv 54.2.

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Accordingly,

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IT IS ORDERED that Defendant’s Motion for Attorneys’ Fees (Doc. 86) is

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denied. Defendant will not recover its costs or attorneys’ fees.
Dated this 31st day of October, 2019.

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