The possibility of recovering attorneys’ fees after a successful lawsuit may determine whether or not the case is brought in the first place. In situations where attorneys’ fees are not recoverable, a case may not be brought if the recovery is not large enough to cover costs and attorney fees, even if the plaintiff is likely to win. If attorneys’ fees are recoverable, then the plaintiff has a stronger negotiating position during settlement discussions, and may decide the costs of litigation are worthwhile.
Attorney Fees May Be Recoverable in Arizona Contract Cases
A.R.S. § 12.341.01 provides that the prevailing party may receive reasonable attorney fees in any action arising out of a contract. (emphasis added) This broad statute provides an exception to the general American rule, in which each party must pay their own legal fees.
However, just because the statute provides for attorney fee recovery, this does not mean that the contract cannot or should not provide for attorneys’ fees. Parties may wish to provide for post-trial costs or collection costs, and can do so by including a specific attorneys’ fee provision in their contract.
The “prevailing party” does not necessarily mean the party that wins a judgment. If a party offers a settlement which is rejected, and the other party later wins a judgment that is less than the settlement offer, the losing party would actually be considered to have prevailed, and be able to recover their attorneys’ fees, as in Am. Power Prods. v. CSK Auto, Inc., 396 P.3d 600 (May 11, 2017). This means that each settlement offer can potentially shift the risk of attorney fee recovery between the parties. However, the parties may contract for a different definition of the “prevailing party.”
What Cases Arise Out of a Contract?
For tort claims and other cases without a contractual basis, the general American rule still applies unless there is a statutory exception. Sometimes a breach of contract is also a tort, causing difficulty in determining whether the fee-shifting statute should apply.
If a case contains both contract and tort claims, fee-shifting will apply if “the cause of action in tort could not exist but for the breach of the contract.” Sparks v. Republic Nat’l Life Ins. Co., 132 Ariz. 529, 543, 647 P.2d 1127, 1141 (1982). The tort of bad faith would therefore be considered to arise out of a contract because it depends on the existence of a contract.
In addition to fee-shifting in contract cases, Arizona provides for statutory fee-shifting for many other specific actions. Talk to a business litigation attorney to learn more about whether you may be able to recover attorney fees in your case.
Chernoff Law handles business and real estate litigation matters throughout Arizona. Contact us to discuss your case with an experienced real estate attorney.