Arizona Court of Appeals Division One Holds That Superior Court Judicial Review of Administrative Disciplinary Action Against Licensed Contractor Does Not Arise Out of Contract For Purposes of Attorneys' Fees Award Under A.R.S. § 12-341.01.

The Arizona Registrar of Contractors (“ROC”) issued a citation and complaint charging a licensed contractor (“Contractor”) with statutory violations stemming from a tile installation project for a private party (“Customer”).  The ROC complaint alleged wrongful or fraudulent conduct, failure to perform work in a workmanlike manner, and failure to take appropriate corrective action.  After a hearing, an administrative law judge (“ALJ”) found the ROC had proved two of the three charged violations and recommended revocation of the Contractor’s license.  The ROC adopted the ALJ’s decision and ordered the revocation of the Contractor’s license. 

Contractor filed a complaint in Superior Court against the ROC and the Customer seeking judicial review of the ROC decision under the Arizona Administrative Review Act, A.R.S. § 12-901 et. seq.  The ROC appeared in the Superior Court proceeding as a nominal party only.  The customer, in answering the complaint, asserted that the action arose out of contract and requested an award of attorneys’ fees under A.R.S. § 12-341.01(A) (allowing fee award to successful party in an action arising out of contract).

 After briefing and oral argument, the Superior Court affirmed the ROC decision.  The customer then applied for an award of attorneys’ fees under § 12-341.01(A) for fees incurred in connection with the Contractor’s appeal to Superior Court.  Over the Contractor’s objection, the Superior Court granted the Customers’ fee application.  The contractor appealed the fee award.

 The Court of Appeals reversed the fee award.  The Court held that, unlike the administrative proceeding below, the Superior Court review of the ROC decision did constitute an “action” as contemplated by § 12-341.01 (the “fee statute”).  That action, however, did not arise out of the contract for purposes of the fee statute.  The fee statute does not apply to purely statutory causes of action.  Although the contract between Contractor and Customer was a factual predicate to the action, it was not the essential basis of the action.  Instead, the Contractor’s violations of its statutory duties as a contractor provided the basis of the action.  Although a breach of contract suit against the Contractor would arise out of the contract under the fee statute, the disciplinary action did not.

Judge Gemmill wrote the opinion; Judges Norris and Kessler concurred.