In Arizona there are very few instances when the winning party in a dispute can make the losing party pay the attorneys’ fees and other costs spent by the winning party. One of the instances when this is allowed is in contract disputes.
The law in Arizona is that if you are the prevailing party in an action “arising out of contract,” the court may make the losing party pay some or all of your attorneys’ fees and other costs spent in prevailing. See Arizona Revised Statute 12-341.01(A). This attorney fee recovery provision applies to both verbal and written contract disputes.
As you might expect, sometimes questions arise regarding who the “prevailing party” is in a contract dispute. For example, if you sue someone for $1,000 and recover $100 are you truly the prevailing party?
Or, if you prevail on a contract claim but lose on all of the other seven non-contract claims, are you truly the prevailing party?
To help make determining who the prevailing party is easier and to encourage parties to settle disputes, the Arizona Legislature enacted a statute that provides that you are the prevailing party if you make a written offer to settle a contract dispute that is rejected and at trial you are awarded an amount greater than the amount you offered to settle, A.R.S. 12-341.01(A).
In other words, if you make a written offer to settle for $100 and at trial you are awarded more than $100, you are the prevailing party and will recover your attorneys’ fees from your opponent. By the same token, if you are the defendant in the case and offered to settle for $100 and the judge or jury awards your opponent $90 at trial, you will be the prevailing party and the other side will have to pay your attorneys’ fees even though the other side recovered $90 from you. So even though you lost the case the other side has to pay your legal fees, which may be larger than the $90 they won.
The offer must be in writing and you are only the prevailing party from the date of your offer forward. So it’s in your best interest to make a written offer early on in a dispute to maximize your legal fees that your opponent must pay.
I recently completed a three-week jury trial in a large business and real estate dispute that had been litigated for five years. The case involved 15 different claims, some of which were breach of contract claims.
Before the lawsuit was filed I encouraged my client to make a defensive written settlement offer, which they agreed to make. Our settlement offer was rejected and for the next five years the parties actively litigated this dispute culminating in a three week jury trial in April.
At trial, the plaintiff recovered nothing on his multiple claims and my clients recovered millions on their counterclaims, including misrepresentation and breach of contract claims.
Because my clients made a written settlement offer five years ago (which was rejected), my clients are the prevailing party and the losing party will have to pay my client’s attorneys’ fees, which in this case are extremely high.
The moral of the story is that if you have a verbal or written contract dispute, you should give serious consideration to making a written settlement offer early on in the case even if it is for an amount you know the other side will not accept. That way if you have to litigate you can make the other side pay for your legal costs.
• Brian Foster is a 20-year Ahwatukee resident and senior partner at Snell & Wilmer L.L.P. in Phoenix. Reach him at (602) 382-6242 or firstname.lastname@example.org.