The party that wins a judgement at trial will not always be the party that is awarded attorney fees under A.R.S. § 12-341.01(A), and the Arizona Supreme Court used the definition of a “successful party” found in that statute to supplement an ambiguous contract provision in American Power Products v. CSK Auto.
The case involved a contract between American Power Products (“American”) and CSK Auto (“CSK”) where American agreed to sell electric scooters and other items to CSK on an open account. The contract provided that reasonable attorney fees would be recoverable by the prevailing party in the event of any action arising out of the agreement.
American sued CSK in 2005 for breach of contract and negligent misrepresentation, while CSK counterclaimed. Before trial, CSK offered to settle the case for $1,000,001, but American rejected the offer. American later won a settlement of $10.733.
Both parties made post-trial claims for attorney fees. Under A.R.S. § 12-341.01(A), if an offeror makes a settlement offer that is rejected, and the final judgment is more favorable to the offering party, then the offeror is deemed the successful party from the date of offer, and may be awarded reasonable attorney fees.
However, the contract between American and CSK provided that the prevailing party would be entitled to recover reasonable attorney fees from the other party. The term “prevailing party” was not defined, and the court had to determine which party should be considered to have prevailed in this case. American won a judgment, while CSK did not win any judgment in its claims, but American received substantially less than the amount offered in the settlement by CSK.
The Arizona Supreme Court used A.R.S. § 12-341.01(A) to clarify the definition of a prevailing party under the contract. The court was not persuaded by arguments that the statute should not apply when a contract contains an attorney fee provision. While the statute could not be used to replace a conflicting contract provision, it would apply to supplement the contract in cases such as this one, where a definition of an essential was not included in the contract.
Deeming CSK the prevailing party as of the date of its settlement offer also furthered the policy of encouraging parties to settle rather than litigate. It also encourages careful contract drafting because the parties could have avoided this outcome by defining their terms and expressly stating that they would use a definition that is different from that found in the statute.
The dissent stated that the court was too quick to supplement the contract with a statutory definition, and should instead define terms according to their ordinary meaning. In this case, the dissent believed that the ordinary meaning of a prevailing party would be the one who had obtained a judgment.