A.R.S. 12-341.01 TEXT OF THE LAW

Here is the text of the statute.

Recovery of attorney fees

A. In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees. If a written settlement offer is rejected and the judgment finally obtained is equal to or more favorable to the offeror than an offer made in writing to settle any contested action arising out of a contract, the offeror is deemed to be the successful party from the date of the offer and the court may award the successful party reasonable attorney fees. This section shall not be construed as altering, prohibiting or restricting present or future contracts or statutes that may provide for attorney fees.

B. The award of reasonable attorney fees pursuant to this section should be made to mitigate the burden of the expense of litigation to establish a just claim or a just defense. It need not equal or relate to the attorney fees actually paid or contracted, but the award may not exceed the amount paid or agreed to be paid.

C. The court and not a jury shall award reasonable attorney fees under this section.

Attorney Steve® Tip: This section allows parties who have a written agreement to sue for breach of contract and seek to recover their attorney fees, if they are deemed the prevailing party to the litigation. However, please note, that if the contract between the parties spells out when attorney fees shall be awarded, and the amounts to be awarded, the contract will control. The Arizona courts will not craft a remedy if the contract is clear on this point. So, the contract terms will typically control, but if there is no attorney fee shifting provision, this statute can be used as a means to recover attorney fees.

AZ A.R.S. 12-341.01 CASE LAW

Here are a few snippets from Arizona case law that show how the AZ courts view this important statutory code section.

• Section 12-341.01(A) provides that in an action arising out of contract, the trial court "may award the successful party reasonable attorney fees." This section, however, cannot "be construed as altering, prohibiting or restricting" the contract terms.

• Our supreme court outlined the factors that may be considered to determine the amount of a fee award under § 12-341.01. Id. at 570, 694 P.2d at 1184. Those potentially applicable here include the merits of the claim presented by TEPOA, whether the litigation could have been avoided or settled, whether fees would cause extreme hardship to the unsuccessful party, whether the successful party prevailed with respect to all relief sought, novelty of the legal questions, and whether awarding fees would discourage parties from prosecuting legitimate contract claims. See Tucson Estates Prop. Owners Ass'n v. McGovern (Ct.App. 2016) 239 Ariz. 52, 56 [366 P.3d 111, 115].)

• Awarding attorney fees as punishment for bad faith has been codified in former subsection C. London v. Green Acres Trust, 159 Ariz. 136, 765 P.2d 538, 11 Ariz. Adv. Rep. 83, 1988 Ariz. App. LEXIS 245 (Ariz. Ct. App. 1988).

  The purpose of awarding fees to a successful litigant is not to provide the lawyer with a double payment bonus but to defray the client's litigation expenses. In re Struthers, 179 Ariz. 216, 877 P.2d 789, 169 Ariz. Adv. Rep. 4, 1994 Ariz. LEXIS 74 (Ariz. 1994).

• Where the underlying contract was rescinded, but the successful party recovered quantum merit damages based on a theory of quasi-contract, award of attorney fees was proper; the action still arose out of a contractual relationship. See Murdock-Bryant Constr. v. Pearson, 146 Ariz. 57, 703 P.2d 1206, 1984 Ariz. App. LEXIS 645 (Ariz. Ct. App. 1984), aff'd in part, rev'd, 146 Ariz. 48, 703 P.2d 1197, 1985 Ariz. LEXIS 222 (Ariz. 1985).

• Having determined that claim arose out of a contract does not result in an award of attorney fees; such an award is discretionary and there is no presumption that the successful party is entitled to attorney fees. See Layne v. Transamerica Fin. Servs., 146 Ariz. 559, 707 P.2d 963, 1985 Ariz. App. LEXIS 646 (Ariz. Ct. App. 1985).
• Attorney fees may be awarded in any contested action arising out of a contract. Bar J Bar Cattle Co. v. Pace, 158 Ariz. 481, 763 P.2d 545, 19 Ariz. Adv. Rep. 7, 1988 Ariz. App. LEXIS 323 (Ariz. Ct. App. 1988).
• The existence of a contract that merely puts the parties within tortious striking range of each other does not convert ensuing torts into contract claims; rather, a tort claim will “arise out of a contract” only when the tort could not exist “but for” the breach or avoidance of contract. See Ramsey Air Meds, L.L.C. v. Cutter Aviation, Inc., 198 Ariz. 10, 6 P.3d 315, 323 Ariz. Adv. Rep. 14, 2000 Ariz. App. LEXIS 86 (Ariz. Ct. App. 2000).

HOW TO DETERMINE "PREVAILING PARTY" OR "SUCCESSFUL PARTY"

Here is some case law that addresses this point:

• The term “successful party” appears in both § 12-341.01 and this section. The trial court has discretion to determine who is the “successful party” in multiple-party litigation. See Pioneer Roofing Co. v. Mardian Constr. Co., 152 Ariz. 455, 733 P.2d 652, 1986 Ariz. App. LEXIS 703 (Ariz. Ct. App. 1986).
• As a matter of law, defendant should not have been declared the “successful party” where it prevailed on plaintiff's complaint, but lost on its own counterclaim. See Coldwell Banker Commercial Group v. Camelback Office Park, 156 Ariz. 214, 751 P.2d 530, 1987 Ariz. App. LEXIS 660 (Ariz. Ct. App. 1987), vacated, 156 Ariz. 226, 751 P.2d 542, 3 Ariz. Adv. Rep. 25, 1988 Ariz. LEXIS 33 (Ariz. 1988).
• When a plaintiff's complaint is dismissed because of plaintiff's failure to prosecute, the defendant may be considered the “successful party” for purposes of recovering costs. See Harris v. Reserve Life Ins. Co., 158 Ariz. 380, 762 P.2d 1334, 8 Ariz. Adv. Rep. 28, 1988 Ariz. App. LEXIS 145 (Ariz. Ct. App. 1988).
• In cases involving various competing claims, counterclaims and setoffs all tried together, the “successful party” is net winner. See Ayala v. Olaiz, 161 Ariz. 129, 776 P.2d 807, 38 Ariz. Adv. Rep. 26, 1989 Ariz. App. LEXIS 197 (Ariz. Ct. App. 1989).