KnightBrook Insurance Company v. Payless Car Rental System Inc

1 WO [5] 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA [8] 9 KnightBrook Insurance Company; and No. CV12-01671-PHX-DGC Knight Management Insurance Services, 10 LLC, ORDER 11 Plaintiffs, 12 v. 13 Payless Car Rental System, Inc.; and PCR Venture of Phoenix, LLC, [14] Defendants. [16] 17 Defendants Payless Car Rental System, Inc. and PCR Venture of Phoenix, LLC 18 (together, “Payless”) seek to recover attorneys’ fees under A.R.S. § 12-341.01 from 19 Plaintiffs KnightBrook Insurance Company and Knight Management Insurance Services, 20 LLC (collectively, “KnightBrook”). Doc. 457. Payless seeks to recover fees for its 21 ultimately successful defense against KnightBrook’s claim for equitable indemnity. See 22 Doc. 444. The motion is fully briefed, and no party requests oral argument. The Court 23 will grant the motion in part.1 24 I. Section 12-341.01. 25 Section 12-341.01 provides that “[i]n any contested action arising out of a 26 contract, express or implied, the court may award the successful party reasonable attorney [27] 28 1 Relevant background facts can be found in KnightBrook Ins. Co. v. Payless Car Rental Sys., Inc., 356 F. Supp. 3d 856 (D. Ariz. 2018). 1 fees.” A.R.S. § 12-341.01(A). The parties disagree on whether KnightBrook’s equitable 2 indemnity claim arises out of contract. To resolve this issue, the Court must consider 3 whether the claim would exist but for a breach of a contract. See Schwab Sales, Inc. v. 4 GN Constr. Co., 992 P.2d 1128, 1132 (Ariz. 1998); In re Gorilla Companies LLC, No. 5 CV10-1029-PHX-DGC, 2011 WL 5519910 , at *3-4 (D. Ariz. Nov. 14, 2011). If 6 KnightBrook’s claim would not exist but for a contract, then the claim arises out of the 7 contract and § 12-341.01 applies. Id. 8 KnightBrook’s equitable indemnity claim arose out of contract. The Ninth Circuit 9 and Arizona Supreme Court ruled in this case that KnightBrook could obtain equitable 10 indemnity from Payless only if it discharged an “actual obligation” of Payless. See 11 KnightBrook Ins. Co. v. Payless Car Rental Sys., Inc., 356 F. Supp. 3d 856, 858 (D. 12 Ariz. 2018 ). KnightBrook argued that the actual obligation of Payless arose from the SLI 13 policy – a contract of insurance created at the time of the car rental. See, e.g., Docs. 433 14 at 2 (for KnightBrook to prevail, the Court “must find that . . . [Payless] and KnightBrook 15 were actually liable to Michael Bovre on the breach of contract claim for failing to 16 provide SLI coverage”); 441 at 8 (“KnightBrook paid to fix that mistake, thereby 17 extinguishing the parties’ coextensive contractual liability.”) (emphasis added). The 18 equitable indemnification claim would not have existed without the alleged SLI policy. 19 Plaintiffs’ citations to equitable indemnity law, including the Court’s order of 20 April 1, 2015, are not relevant. See Docs. 376 at 23, 460 at 2. Defendants seek to 21 recover attorneys’ fees under § 12-341.01, not under traditional indemnity law. 22 Nor are the parties’ and the Court’s previous assertions with respect to § 78 of the 23 Restatement First of Restitution relevant. That section required only that an 24 indemnification plaintiff discharge a “supposed obligation” of the indemnification 25 defendant. See Restatement (First) of Restitution § 78 (1937); KnightBrook Ins. Co. v. 26 Payless Car Rental Sys., Inc., 100 F. Supp. 3d 817, 829 (D. Ariz. 2015), aff’d in part, 27 vacated in part, 731 F. App’x 632 (9th Cir. 2018). The Arizona Supreme Court, on 28 referral from the Ninth Circuit, declined to adopt that approach and instead required that 1 the indemnification plaintiff discharge an “actual obligation” of the indemnification 2 defendant. KnightBrook Ins. Co. v. Payless Car Rental Sys. Inc., 409 P.3d 293 , 295 3 (Ariz. 2018). The “actual obligation” asserted by Plaintiffs, as discussed above, is a 4 contract – the SLI policy – bringing the equitable indemnification claim within the scope 5 of § 12-341.01. 6 II. Warner Factors. 7 Payless seeks an award of fees for the work of the Taylor Anderson firm in the 8 amount of $21,066.20, for the Covington firm in the amount of $134,408.00, and for the 9 Gust Rosenfeld firm in the amount of $5,820.00, for a total of $161,294.20. Doc. 457. 10 As explained in the motion, this fee request has been substantially discounted from actual 11 fees incurred in this case. See Doc. 457. In Associated Indem. Corp. v. Warner, 694. 12 P.2d 1181 (Ariz. 1985), the Arizona Supreme Court identified several factors the Court 13 should consider in deciding whether to award fees under § 12-341.01. These include: 14 (1) the merits of the claim or defense presented by the unsuccessful party; (2) whether the 15 litigation could have been avoided or settled and whether the successful party’s efforts 16 were completely superfluous in achieving the result; (3) whether assessing fees against 17 the unsuccessful party would cause an extreme hardship; (4) whether the successful party 18 prevailed with respect to all of the relief sought; (5) the novelty of the legal question 19 presented; (6) whether the claim or defense had previously been adjudicated in this 20 jurisdiction; and (7) whether the award would discourage other parties with tenable 21 claims or defenses from litigating or defending legitimate contract issues for fear of 22 incurring liability for the opposing party’s fees. Id. at 1183-84. 23 KnightBrook makes various arguments with respect to the Warner factors, but the 24 Court does not find them persuasive. Doc. 400 at 4-6. On the first factor, Payless 25 prevailed on the merits of all of KnightBrook’s claims. Although KnightBrook prevailed 26 on an interim basis with respect to its indemnification claim, it ultimately was 27 unsuccessful. This factor is neutral. Second, both parties identify settlement 28 opportunities the other side rejected. Payless notes, however, that it felt compelled to 1 litigate this case to a conclusion in order to avoid an adverse precedent with respect to its 2 many existing SLI policies. This is not a situation where the successful party’s efforts 3 were completely superfluous in achieving the result. This factor favors an award of fees. 4 The third and fourth factors also favor a fee award. KnightBrook does not assert that a 5 fee recovery in this case would cause it extreme hardship and Payless prevailed entirely 6 on the equitable indemnity claim for which it seeks fees, and on all other claims asserted 7 by KnightBrook. Fifth, novel legal questions were litigated by both sides. This factor is 8 neutral. Sixth, the claims and defenses had not been previously litigated in this 9 jurisdiction, and, as noted, Payless felt compelled to litigate them fully in order to protect 10 its business interest in many other SLI policies. This factor favors a fee award. And 11 finally, this was a lawsuit between two large and sophisticated corporations, so an award 12 of fees would not discourage tenable claims or defenses. This factor also favors a fee 13 award. 14 Five of the seven factors identified by the Arizona Supreme Court in Warner favor 15 awarding attorneys’ fees in this case. 694 P.2d at 1184. The Court will award fees. 16 III. Discretionary Adjustments to the Fee Award. 17 KnightBrook has not shown that attorney Nesbitt’s later disciplinary problems 18 affected his billings in this case. The Court will, however, reduce the Taylor Anderson 19 fees by $1,000 in light of the block billing by Mr. Williams.2 20 The hourly rates charged by the Covington firm are excessive for the Phoenix 21 legal market and for this case. The Court will reduce the Covington fees by 25% to bring 22 them in line with fees typically seen in this Court. 23 Finally, the Court concludes that the Gust Rosenfeld fees include some degree of 24 unnecessary duplication of work performed by Covington lawyers, and therefore will 25 reduce the Gust Rosenfeld fees by 25%. [26] 27 2 This represents a one-third reduction in the amount Payless seeks for Mr. Williams’ time ($15,234 x .20 (the discount offered by Payless) = 3,046.80 x .33 = 28 $1,005.44). See Doc. 461 at 8 n.6. The Court does not ascribe to the one-tenth reduction suggested by the parties for block billing. Id. 1 The Court accordingly will award Payless $20,066.20 for the work of Taylor 2|| Anderson, $100,806.00 for the work of Covington, and $4,365.00 for the work of Gust 3|| Rosenfeld, for a total of $125,237.20. 4 IT IS ORDERED that Defendants’ motion for attorneys’ fees (Doc. 457) is 5 || granted in part and denied in part. Defendants are awarded $125,237.20 in attorneys’ 6|| fees against Plaintiffs. The Clerk is directed to enter judgment accordingly and terminate this action. 8 Dated this 22nd day of October, 2019. [9] Danl 6 Courpltt 11 TT David G. Campbell 12 Senior United States District Judge [28] _5-