Opinion
2:23-cv-00592-PHX-SMM (JZB)
07-01-2024
Pritikin ICR, LLC Plaintiff, v. Apricus Health MSO, LLC and Kishlay Anand, Defendants.
TO THE HONORABLE STEPHEN M. MCNAMEE, SENIOR UNITED STATES DISTRICT JUDGE.
REPORT AND RECOMMENDATION
HONORABLE JOHN Z. BOYLE, UNITED STATES MAGISTRATE JUDGE.
Pending before the Court is Plaintiff's Motion for Attorneys' Fees and Costs pursuant to Federal Rule of Civil Procedure 54 and the contract between the parties. The Court recommends granting the Plaintiff's motion, in part, and awarding attorneys' fees and costs in the amount of $42,970.46.
I. Background.
On April 7, 2023, Plaintiff filed the Complaint alleging breach of contract claims arising from a loan in the form of a Promissory Note (“the Note”) between Plaintiff and Defendant Apricus Health, MSO, LLC (“Apricus”), and a Guaranty of the Note executed by Defendant Anand, the President of Apricus. (Doc. 1.) Plaintiff, the lender, issued the Note to Apricus on January 20, 2022, for the principal sum of $500,000. Id. Kishlay Anand (“Defendant Anand” or “Guarantor”) executed a personal guaranty of the Note dated January 20, 2022 (“the Guaranty”). (Id.) In the Guaranty, Defendant Anand unconditionally and irrevocably guaranteed to Plaintiff full and prompt payment, as well as performance of all obligations owed under the note. (Id.) Defendants defaulted under the terms of the Note by disposing or selling substantially all of Apricus's assets, and failed to pay all amounts due, upon Plaintiff's demand, pursuant to the Note. (Id.)
On April 13, 2023, through its registered agent, Defendant Apricus was served with a copy of the Summons, Complaint, and other initial case documents. (Doc. 6.) Defendant Anand was served on April 23, 2023. (Doc. 9.) Defendants failed to answer or respond, and the Clerk entered default against the Defendants on July 14, 2023. (Doc. 13.) On March 18, 2024, the Court entered default judgment against Defendants for the amount due under the Note and Guaranty. (Doc. 19.) Accounting for the principal and prejudgment interest at 6.9%, the Court awarded Plaintiff $529,900.00. (Id.) The Clerk of Court entered judgment against Defendants on March 22, 2024. (Doc. 20.)
II. Legal Standard.
The Court exercises diversity jurisdiction in this matter pursuant to 28 U.S.C. § 1332. (Doc. 1 at 2; Doc. 18 at 4.) “[F]ederal courts sitting in diversity apply state substantive law and federal procedural law.” Feldman v. Allstate Ins. Co., 322 F.3d 660, 666 (9th Cir. 2003) (citing Erie R.R. v. Tompkins, 304 U.S. 64 (1938)). “Existing Ninth Circuit precedent has applied state law in determining not only the right to fees, but also in the method of calculating the fees.” Mangold v. Cal. Pub. Utilities Comm'n, 67 F.3d 1470, 1478 (9th Cir. 1995) (citations omitted). “Thus, while the motion for attorneys' fees and related costs was brought pursuant to applicable federal procedural rules, . . . the Court decides the motion by applying the substantive law of Arizona.” JBS Tolleson Inc. v. Ammonia Refrigeration Inc., No. CV-21-00688-PHX-JJT, 2022 WL 18495257 at *1 (D. Ariz. Dec. 1, 2022).
Under Arizona law, “[i]n any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees.” A.R.S. § 12-341.01(A). “[A] contested action is one in which the defendant has appeared and generally defends against the claims and demands made by the plaintiff.” Morrison v. Shanwick Int'l Corp., 804 P.2d 768, 775 (Ariz.Ct.App. 1990). Here, Defendants failed to appear and defend and, consequently, this is not a contested action. E.g., Arthur v. Rotor X Aircraft Mfg. Co., No. CV-23-01937-PHX-ASB, 2024 WL 1270076, at *2 (D. Ariz. Mar. 26, 2024); Ungerer & Co. v. Alkaline88 LLC, No. CV-23-01153-PHX-MTM, 2024 WL 663459 (D. Ariz. Feb. 16, 2024). Importantly, however, “When a contract includes an attorneys' fees provision, fees are awarded ‘in accordance with the terms of the contract' and the trial court ‘lacks discretion to refuse to award fees under the contractual provision.'” A. Miner Contracting, Inc. v. Toho-Tolani Cnty. Imp. Dist., 311 P.3d 1062, 1074 (Ariz.Ct.App. 2013) (quoting Heritage Heights Home Owners Ass'n v. Esser, 565 P.2d 207, 210 (Ariz.Ct.App. 1977); Chase Bank of Arizona v. Acosta, 880 P.2d 1109, 1121 (Ariz.Ct.App. 1994); Ariz. Prac. Arizona Trial Handbook § 38:14, Attorney's fees-Generally (“Of course, independent of the fee statutes, attorney's fees may also be awarded according to the parties' contract.”) The Note at issue in this action contains the following provision,
Obligor [(Defendant)] shall pay to Holder [(Plaintiff)], upon demand, all expenses, costs, charges, disbursements, and reasonable attorneys' fees incurred by Holder in connection with the . . . enforcement or collection of the Loan, the Obligations or the Credit Documents, and the creation, perfection, and enforcement of liens, if any, granted under the Credit Documents, and all such amounts incurred by Holder shall be part of the Obligations.(Doc. 1-2 at 7.)
Similarly, the Guaranty provides,
If the Lender [(Plaintiff)] makes a demand upon Guarantor [(Defendant)] under this Guaranty, Guarantor shall be held and bound to the Lender directly as debtor in respect of the payment of the amounts guaranteed by this Guaranty. All costs and expenses, including actual and reasonable attorneys' fees and expenses, incurred by the Lender in obtaining performance of or collecting payments due under this Guaranty shall be deemed part of the Obligations guaranteed by this Guaranty.(Doc. 1-2 at 16.)
Here, both the Note and the Guaranty provide for reasonable attorneys' fees and expenses, and reasonable fees can be awarded pursuant to the parties' agreement.
III. Analysis.
A. Legal Basis for the Fee.
Plaintiff demonstrated entitlement to an award of fees by the terms of the Note and Guaranty permitting the Plaintiff to recover reasonable attorneys' fees from Defendants for “enforcement or collection of the Loan.” (Doc. 1-2 at 7, 16, Doc. 19.)
In this action the Plaintiff incurred fees and costs as a direct result of Defendants' breach of the Loan documents and the Plaintiff's efforts to collect money due under the Loan. (Doc. 21 at 3.) The Court awarded judgment in favor of the Plaintiff on all claims against the Defendant, including breach of the Note and Guaranty. (Doc. 19.) The Note, Guaranty, and other loan documents suggest no reasonable dispute that the Plaintiff is entitled to attorneys' fees. The Court finds Plaintiff is entitled to an award for reasonable attorneys' fees. See Tucson Ests. Prop. Owners Ass'n v. Jenkins, 451 P.3d 1201, 1204 (Ariz.Ct.App. 2019) (“[C]ontracts for payment of attorneys' fees are enforced in accordance with the terms of the contract.”).
B. Reasonableness of Requested Award.
“The beginning point in a development of a reasonable fee is the determination of the actual billing rate which the lawyer charged in the particular matter.” Schweiger v. China Doll Rest., Inc., 673 P.2d 927, 931 (Ariz.Ct.App. 1983). In commercial litigation, “the rate charged by the lawyer to the client is the best indicator of what is reasonable under the circumstances of the particular case.” Id. Because this is commercial litigation, the billing rates agreed to between the lawyer and client should be considered reasonable. Schweiger, 673 P.2d at 931-32. Per counsel's affidavit, attorney Matthew Layfield's hourly billable rate was $620, attorney Diana Ferguson's rate was $400, attorney Dan Slawski's rate was $480, and paralegal Rebecca O'Brien's rate was $260. (Doc. 21-1 at 3); China Doll, 673 P.2d at 932 (“[T]he affidavit submitted in connection with an application for fees must indicate the agreed upon hourly billing rate between the lawyer and the client for the services performed in connection with the appeal.”).
The prevailing party is further “entitled to recover a reasonable attorney's fee for every item of service which, at the time rendered, would have been undertaken by a reasonable and prudent lawyer to advance or protect his client's interest in the pursuit[.]” Id. at 932. “Just as the agreed upon billing rate between the parties may be considered unreasonable, likewise, the amount of hours claimed may also be unreasonable. If a particular task takes an attorney an inordinate amount of time, the losing party ought not be required to pay for that time.” Id. “[W]hen enforcing a contract that provides for reasonable attorney fees and costs, a trial court retains broad discretion to evaluate the reasonableness of requested attorney fees and costs when the non-prevailing party has not appeared, even if the prevailing party has filed affidavits and fee applications in accordance with China Doll." Jenkins, 451 P.3d at 1206.
Counsel provides an itemized statement of fees, costs, and billing rates in their motion for attorneys' fees. (Doc. 21-1 at 3, 7-24.) The Court will reduce counsels' hours spent supplementing the record regarding the citizenship of the parties, as the basis for this Court's jurisdiction should have been established in the Complaint and in the Motion for Default Judgment. See Jenkins, 451 P.3d at 1206. (“[A] trial court retains broad discretion to evaluate the reasonableness of requested attorney fees and costs when the non-prevailing party has not appeared[.]”) The Court will recommend striking the following entries for billable hours:
• 01/29/24 Analysis and review of Judge's Order regarding citizenship and entity ownership concerning plaintiff in filing of case in AZ district Court. MSLAY 0.90 [(hours),] [$]630.00
• 02/12/24 Review of responsive Notice to Court Order regarding Citizenship of parties and related information for Court to enter Default Judgment. MSLAY 0.40 [(hours)] [$]280.00
• 02/12/24 Coordinate filing and service of Notice of Parties as requested by Judge Boyle. MSLAY 0.30 [(hours)] [$]210.00
• 02/12/24 Review of correspondence with T. Rogers regarding citizenship of parties.
Further analysis of diversity citizenship issues and coordinate legal strategy and response to Judge's order with D. Ferguson. MSLAY 0.90 [(hours)] [$]630.00
• 02/12/24 Draft updated notice dated January 29, 2024 of corporate disclosure statement based on order by court DEFER 1.10 [(hours)] [$]495.00
• 02/12/24 Final preparation and filing of Notice of Citizenship with the U.S. District
Court for Arizona. RMOBR 0.50 [(hours)] [$]150.00
The total amount of these deductions is $2,395.00.
The Court will also reduce counsels' entries for repeated follow-up calls to chambers and the Clerk of Court, several of which netted Plaintiff's counsel approximately $50 for brief telephone conversations that did not materially expedite the matter, and that occurred when the Motion for Default Judgment was pending less than 60 days. (Doc. 211 at 21-23.) The Court also notes an effort to “[c]oordinate and escalate ongoing Judgment demand with Phoenix counsel and personnel to Judge Boyle's chambers[,]” which strikes the Court as an imprudent use of time, especially when it amounts to $560 in fees. (Doc. 21-1 at 22.) The Court will recommend striking the following entries:
• 09/22/23 Follow-up call to clerk regarding status of motion for default. DEFER 0.10 [(hours)] [($)]45.00
• 09/25/23 Multiple correspondences regarding Clerk delay in entering Judgment and potential options to enforce/encourage Judge to rule on Default Motion. MSLAY 0.50 [(hours)] [($)]350.00
• 09/25/23 Follow-up call to clerk on status of motion for default judgment. DEFER 0.10 [(hours)] [($)]45.00
• 10/03/23 Contact court clerk to determine whether default judgment will be entered.
• DEFER 0.10 [(hours)] [($)]45.00
• 10/16/23 Conference with multiple members of Arizona team regarding Judge Boyle's Chambers procedures and [redacted]. MSLAY 0.40 [(hours)] [($)]280.00
• 10/23/23 Multiple correspondences with T. Rogers concerning status of entered Judgment. Coordinate and escalate ongoing Judgment demand with Phoenix
counsel and personnel to Judge Boyle's chambers. Additional follow up and work with D. Coppens on same matter and issues. MSLAY 0.80 [(hours)] [($)]560.00
• 11/06/23 Work with D. Coppens in attempts to get Judgment entered by Court.
MSLAY 0.20 140.00.The total amount of these deductions is $1,465.00.
The Court deems the remaining hours reasonable. The Court will recommend an award of fees totaling $41,988.91, which reflects these deductions.
C. Costs.
Counsel for Plaintiff requests $981.55 in costs. (Doc. 21 at 2.) These costs are comprised of court filing and service fees. (Doc. 21-1 at 15-16.) The terms of the loan provide that the Defendant shall pay to the Plaintiff the reasonable costs of collection. (Doc. 1-2 at 6.) Such reasonable costs include fees, expenses, and other costs associated with the action. (Id.) The Court finds that the Plaintiff is entitled to the compensable costs requested because of the loan document terms.
The sum of Plaintiff's compensable costs ($981.55) and the reasonable attorneys' fee ($41,988.91) results in an overall award of $42,970.46.
Accordingly, IT IS RECOMMENDED that the Court GRANT, in part, Plaintiff's Motion for Award of Attorneys' Fees pursuant to the terms of the Note and Guaranty (Doc. 1-2), by awarding $41,988.91 for attorney fees and $981.55 in costs.
IT IS FURTHER RECOMMENDED the Court find Defendants jointly and severally liable for payment of attorneys' fees and costs.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of the district court's judgment. The parties shall have 14 days from the date of service of a copy of this Report and Recommendation within which to file specific written objections with the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(b) and 72. Thereafter, the parties have 14 days within which to file a response to the objections. Failure to timely file objections to the Magistrate Judge's Report and Recommendation may result in the acceptance of the Report and Recommendation by the district court without further review. See United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003). Failure to timely file objections to any factual determinations of the Magistrate Judge will be considered a waiver of a party's right to appellate review of the findings of fact in an order of judgment entered pursuant to the Magistrate Judge's Report and Recommendation. See Fed.R.Civ.P. 72.