Opinion
CV-21-00093-PHX-MTL
08-02-2024
Marco Yammine, Plaintiff, v. Toolbox for HR Spolka z Ograniczona Odpowiedzialnoscia Spolka Komandytowa, Defendant.
ORDER
Michael T. Liburdi United Slates District Judge
Before the Court is Defendant/Counterclaimant Toolbox for HR Spolka Z Ograniczona Odpowiedzialnoscia Spolka Komandytowa's (“Toolbox”) Motion for Attorneys' Fees and Non-Taxable Expenses. (Doc. 183.) The Motion is fully briefed. (Docs. 183, 186, 190.) For the following reasons, the Court will grant the Motion in part and deny it in part.
I. BACKGROUND
The Court previously set forth the factual background of this case in detail. (See Docs. 65, 126.) As relevant here, in January 2021, Plaintiff/Counter-Defendant Marco Yammine initiated this action against Toolbox, alleging violations under the Anticybersquatting Consumer Protection Act and seeking a declaratory judgment. (Doc. 1.) Toolbox responded in March 2021 with seven counterclaims against Yammine, including breach of fiduciary duty. (Doc. 11.) It did not, however, allege breach of contract. (See id.; see also Doc. 35.)
In June 2022, the parties stipulated to dismissal of Yammine's Complaint. (Doc. 89.) On September 21, 2022, Yammine filed a Motion for Summary Judgment on the remaining counterclaims. (Doc. 101.) The Court granted summary judgment in part, leaving only Toolbox's breach of fiduciary duty counterclaim to proceed to trial. (Doc. 126.) There, the jury returned a verdict in favor of Toolbox, awarding $500,000 in damages. (Doc. 179.)
II. LEGAL STANDARD
A. Attorney's Fees
Under the “American Rule,” a litigant's attorney's fees are not ordinarily recoverable unless there is a statute or enforceable contract that provides for them. Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 717 (1967); see also Astrue v. Ratliff, 560 U.S. 586, 591 (2010); London v. Green Acres Tr., 159 Ariz. 136, 145 (Ct. App. 1988).
Arizona Revised Statutes § 12-341.01, under which Toolbox seeks attorneys' fees, permits a “successful party” to recover reasonable fees for any “contested action arising out of a contract, express or implied.” A.R.S. § 12-341.01(A). A “successful party” is defined as any party that receives a final judgment equal to or greater than any written settlement offers that party made. Id. The fee award need not equal, but cannot exceed, the actual attorneys' fees paid, and it is the role of the Court, not the jury, to award such fees. A.R.S. §§ 12-341.01(B)-(C). Additionally, parties requesting an award of fees must meet the content and formatting requirements outlined in the Local Rules of Civil Procedure. See LRCiv. 54.2.
Arizona courts have interpreted the “arising out of a contract” requirement of A.R.S. § 12-341.01 broadly. See, e.g., Marcus v. Fox, 150 Ariz. 333, 334 (1986) (en banc). The prevailing test for determining whether an action arises out of a contract is whether the cause of action could have existed “but for” the existence of a contract. Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 543 (1982) (en banc). This does not mean that a party must assert an explicit breach of contract claim, however. See ML Servicing Co. v. Coles, 235 Ariz. 562, 570 (Ct. App. 2014). A trial court may award attorneys' fees to the successful party even when tort claims are “interwoven” with contract claims. Rudinsky v. Harris, 231 Ariz. 95, 102 (Ct. App. 2012); see also Sparks, 132 Ariz. at 543 (“Attorney's fees may be recoverable in tort cases which find their basis in contract.”).
But the mere existence of a contract “somewhere in the transaction” is insufficient for the purposes of § 12-341.01. Marcus, 150 Ariz. at 335. If a particular contract “merely puts the parties within tortious striking range of each other, [it] does not convert ensuing torts into contract claims.” Dooley v. O'Brien, 226 Ariz. 149, 152 (Ct. App. 2010) (internal marks and citation removed). Moreover, the fee statute does not apply to purely statutory causes of action or where a contract is a factual predicate to the action but not its essential basis. Hanley v. Pearson, 204 Ariz. 147, 151 (Ct. App. 2003); see also Kennedy v. Linda Brock Auto. Plaza, Inc., 175 Ariz. 323, 325 (Ct. App. 1993).
Thus, when analyzing whether a particular tort claim is sufficiently connected to the existence of a contract, a trial court should ask “whether the defendant would have a duty of care under the circumstances even in the absence of a contract.” Ramsey Air Meds, LLC v. Cutter Aviation, Inc., 198 Ariz. 10, 16 (Ct. App. 2000). If the duty breached is one implied by law based on the relationship of the parties, that claim sounds fundamentally in tort, not contract. Id.
B. Other Costs
Under 54(d)(1), Fed. R. Civ. P., costs other than attorney's fees should be allowed to the prevailing party unless a federal statute, the rules, or a court order provides otherwise. Marx v. Gen. Revenue Corp., 568 U.S. 371, 375-76 (2013). This rule establishes a presumption in favor of awarding costs to the prevailing party, but it does not grant courts unrestricted discretion to award any costs they deem appropriate. Id. at 377.
The Supreme Court, in Crawford Fitting Co. v. J. T. Gibbons, Inc., 482 U.S. 437 (1987), clarified that only those costs explicitly enumerated in 28 U.S.C. § 1920 may be taxed by the Court. Id. at 441-42. Section 1920 lists the following categories of recoverable costs:
(1) Fees of the clerk and marshal; (2) Fees for printed or electronically recorded transcripts necessarily obtained for use
in the case; (3) Fees and disbursements for printing and witnesses; (4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case; (5) Docket fees under [28 U.S.C. §] 1923; (6) Compensation of court-appointed experts, compensation of interpreters, and salaries, fees, expenses, and costs of special interpretation services under section [28 U.S.C. §] 1828.28 U.S.C § 1920.
The Court may, in its discretion, decline to tax as costs items listed in § 1920. Little Oil Co. v. Atl. Richfield Co., 852 F.2d 441, 448 (9th Cir. 1988). But it does not have the discretion to tax costs beyond those enumerated in § 1920 without explicit statutory authorization or a Federal Rule of Civil Procedure allowing otherwise. Crawford Fitting Co., 482 U.S. at 441-42. The Local Rules of Civil Procedure provide for additional taxable costs allowable under Rule 54(d), Fed.R.Civ.P. See LRCiv 54.1(e).
III. DISCUSSION
A. Attorney's Fees
There is no dispute that Toolbox was the successful party on its breach of fiduciary duty claim. Finding for Toolbox, the jury awarded $500,000 in damages. (Doc. 179.) Whether that claim arose out of a contract within the meaning of A.R.S. § 12-341.01 is, however, a subject of contention.
Toolbox asserts that two contracts “shaped and defined the nature and terms of [the] fiduciary” duty that is “at issue in this case.” (Doc. 183 at 6.) These contracts have been identified as the “independent contractor agreement” and the “employment agreement.” In support of its Motion, Toolbox cites several provisions of these agreements, maintaining that they were necessary to prove that a fiduciary relationship existed and noting that the contracts came up in testimony at trial and during closing arguments. (Id. at 3-6; Doc. 190 at 3-4.) But Toolbox does not identify or discuss the applicable test that courts use to determine whether an action “aris[es] out of a contract.” See A.R.S. § 12-341.01(A).
Yammine, opposing the Motion, argues that Toolbox has recharacterized its breach of fiduciary duty claim as contractual after, throughout this litigation, it has based its claim in Arizona common law. (See Doc. 186 at 4-6, 11-12.)
The Court finds that Toolbox's characterization of its claim for breach of fiduciary duty as one arising out of a contract is inconsistent with the record in this case. Toolbox has indeed consistently asserted that Yammine owed Toolbox fiduciary duties as a matter of Arizona law. At most, it has relied on the independent contractor and employment agreements merely to establish the existence of an agent-principal and, later, employee-employer relationship.
For example, in its First Amended Answer and Counterclaims, Toolbox did not allege that Yammine owed it a fiduciary duty because of the agreements it now references. (See generally Doc. 35.) Instead, it generally stated that “[a]n agent owes fiduciary duties to its principal, including the duty of loyalty and the duty of care. As a fiduciary, Yammine had the duty to act with the utmost good faith in the interest of his employer [Toolbox] both when he was an employee and when he was a contractor.” (Id. at 29.) Similarly, in Toolbox's opposition to Yammine's motion to dismiss, Toolbox only discussed whether Yammine owed Toolbox a fiduciary duty under Arizona law. (See Doc. 55 at 24-25.) Later, in opposition to Yammine's motion for summary judgment, Toolbox took the same position. (See Doc. 112 at 10-11.) It did not rely on specific contractual obligations in either brief. (See Doc. 55 at 24-25; Doc. 112 at 10-11.) Even in the Final Pretrial Order, Toolbox failed to ground its position in contractual obligations, instead stating that, “[a]s an employee, Marco Yammine owed a duty of fidelity to be honest in his dealing with Toolbox and not use information or resources obtained through Toolbox for his own benefit.” (Doc. 157 at 3 (emphasis added).) Each of these arguments stem from the alleged breach of fiduciary duty under Arizona common law.
Contrary to Toolbox's arguments in its Motion, it maintained this position at trial. In its closing argument, Toolbox emphasized the Court's instructions that “if you are under Arizona law an employee, any employee, you owe a duty of loyalty to your employer.” (Doc. 194 at 167 (emphasis added).) It further stated that “the reason Arizona has [a duty of loyalty] is because they want their employees to be loyal to their employers .... That's Arizona law. Loyalty to your employer.” (Id. at 168 (emphasis added).) Finally, when reviewing the jury's verdict form and discussing whether Yammine owed Toolbox a fiduciary duty, Toolbox stated:
“[Yammine] signed an employment agreement . . . So that's an automatic yes. Because, as I told you, if you read page 10 of the jury instruction, Arizona law says if you're an employee-and he wasn't just a low-level employee-you have a fiduciary duty. So that's an easy question to answer, because the law actually compels that answer once you look at the employment agreement.”(Id. at 190 (emphasis added).) Toolbox's statements exemplify what the record overwhelmingly demonstrates-that while Toolbox occasionally relied on the independent contractor and employment agreements to establish the existence of those relationships, it has grounded its claim for breach of fiduciary duty in Arizona common law rather than specific contractual obligations.
Though neither party cites the case, the Court finds its decision in Rindlisbacher v. Steinway & Sons Inc., No. CV-18-01131-PHX-MTL, 2021 WL 2434207, (D. Ariz. May 26, 2021) aff'd Nos. 20-17331, 21-16085, 2021 WL 6067258 (9th Cir. Dec. 20, 2021) provides a helpful contrast. There, the plaintiffs, experienced piano retailers, entered into a dealer agreement under which they were permitted to sell the defendant's high-end pianos. Id. at *1. After the deal soured, the plaintiffs asserted several claims, but only their allegations of constructive fraud and fraudulent omissions survived the motion to dismiss stage. Id. Those claims were dismissed at summary judgment. Id. The defendants then sought attorneys' fees under § 12-341.01, but only those that it incurred defending the plaintiffs' tort claims. Id. The Court agreed with the parties that the plaintiffs' tort claims arose out of a contract largely because “[t]hroughout th[e] case, the [plaintiffs] argued that [the defendant] had a duty to disclose certain facts because of the parties' contractual relationship . . .” Id. at *4 (emphasis added). As stated, Toolbox has not done the same, except to argue that the agreements established a relationship upon which Arizona law imposes certain fiduciary duties.
This case is therefore closer to Dooley. In that case, the plaintiff joined with the defendants to develop real estate. Dooley, 226 Ariz. at 151. The arrangement fell apart and the plaintiff sued asserting, among other claims, that the defendants breached their fiduciary duties. Id. After prevailing at summary judgment on all but one claim, the defendants requested attorneys' fees under § 12-341.01(A). Id. The plaintiff argued that the claims did not arise out of a contract within the meaning of that statute. Id. The trial court disagreed and granted the request. Id. at 151-52.
On appeal, the Arizona Court of Appeals held that the plaintiff's claim for breach of fiduciary duty did not arise out of a contract. Id. at 153-54. The court emphasized that “the relationship between the parties is that of directors and officers of a corporation to its shareholders” and that while, as here, “a contract created that relationship,” Arizona law provides that “a director of a corporation owes a fiduciary duty to the corporation and its stockholders.” Id. at 153 (internal marks and citation removed). It noted that, “unlike fiduciary duties expressly created by contract, the duties of a director or officer of a corporation are implied by law.” Id. at 154. The court therefore concluded “that the fundamental nature of [the] plaintiff's claim was the enforcement of the fiduciary duties to which [the] defendants were subject as a matter of law by virtue of their status as directors or officers of a corporation.” Id. (cleaned up).
As in Dooley, “the fundamental nature of [Toolbox's] claim is the enforcement of the fiduciary duties to which [Yammine] was subject as a matter of law.” Id. (cleaned up). The agreements are merely a “factual predicate to the action [and] not the essential basis of it.” Hanley, 204 Ariz. at 151; contra Jerman v. O'Leary, 145 Ariz. 397, 402-03 (Ct. App. 1985) (awarding attorneys' fees because the explicit terms of the implicated contract were essential to the result). And while Toolbox is correct that, unlike in Dooley, the agreements at issue imposed specific contractual obligations upon Yammine, Toolbox consistently failed to rely on those specific contractual obligations, instead emphasizing the fiduciary duties imposed as a matter of Arizona law. The gravamen of Toolbox's action, thus, has its basis in tort. The Court finds that Toolbox's claim does not arise out of a contract within the meaning of § 12-341.01. ...
B. Costs and Other Non-Taxable Expenses
In addition to attorneys' fees, Toolbox requests costs and nontaxable expenses.(Docs. 185, 189.) The Court will grant the requested costs that fall within the scope of 28 U.S.C. § 1920, including $2,332.40 in court reporter fees and $178.58 for printed materials.
Toolbox submitted a bill of costs for $265.75, which covered cost of service and parking expenses. (Doc. 184.) Yammine did not object, and the Clerk of Court entered a taxation judgment of $165.75. (Doc. 196.) The bill of costs did not reference court reporter fees or printing costs. (See Doc. 184.) But Toolbox did request such costs in its Motion for Attorneys' Fees and Non-Taxable Expenses. (Doc. 183 at 1-2, 7; Doc. 185-1 at 5, 11.) Additionally, Toolbox supplemented the Motion with a request for food, lodging, and other incidental travel expenses. (Doc. 185-1.)
Toolbox, however, fails to cite any applicable authority for its non-taxable expenses, as required by the Local Rules of Civil Procedure. (See Docs. 183, 185, 189, 190); see also LRCiv 54.2(c). In fact, Toolbox fails to provide any discussion of its non-taxable expenses and fails to meet the content requirements set forth under Rule 54.2(c), LRCiv. (See Docs. 183, 185, 189, 190.) The request for lead counsel's non-taxable expenses will, therefore, be denied. See, e.g., arrivia Inc. v. Rowley, No. CV-23-01039-PHX-DLR, 2024 WL 3010935, at *4 (D. Ariz. June 14, 2024) (denying request for non-taxable expenses where the defendants did not identify a basis for recovery).
The Court also notes that lead counsel accumulated exorbitant non-taxable expenses. For example, lead counsel spent over $3,000 each at their hotel during their five-day stay, despite their room rate being $245.52 per night. (Doc. 185-1 at 14-17.)
C. Sanctions
Yammine requests that the Court impose sanctions in the form of costs for responding to the Motion. (Doc. 186 at 11-12.) To impose sanctions under 28 U.S.C. § 1927, the Court must find that the attorney facing sanctions acted unreasonably and vexatiously, which requires more than a finding that the attorney's arguments were without merit. Id. Sanctions under § 1927 are an “extraordinary remedy” that should only be imposed when there is evidence of bad faith or conduct tantamount to bad faith. Lake v. Hobbs, 643 F.Supp.3d 989, 997 (D. Ariz. 2022).
While the Court finds that Toolbox's motion for attorneys' fees under A.R.S. § 12-341.01 is not supported by the applicable legal standards and appears inconsistent with the position it took throughout this litigation, it's conduct does not meet
the exceedingly high bar required for sanctions. Therefore, the Court denies Yammine's request for fees under 28 U.S.C. § 1927.
III. CONCLUSION
Accordingly, IT IS ORDERED granting in part and denying in part Defendant/Counterclaimant Toolbox for HR Spόlka Z Ograniczoną Odpowiedzialnoṡcią Spόlka Komandytowa's Motion for Attorneys' Fees and Non-Taxable Expenses Against Plaintiff/Counter-Defendant Marco Yammine. (Doc. 183) as stated in this Order.
IT IS FURTHER ORDERED awarding Defendant/Counterclaimant $2,510.98 for taxable costs.
IT IS FINALLY ORDERED denying Plaintiff/Counter-Defendant Marco Yammine's Request for Fees Under 28 U.S.C. § 1927 (Doc. 186 at 11-12).