Arizona Court of Appeals Division Two Holds That Under A.R.S. § 12-341.01 a Trial Court Can Award the Prevailing Party in a Contract Action Attorney’s Fees Incurred During a Bankruptcy Proceeding that is Intertwined with a Contract Dispute.

Zeagler sued Buckley and others for breach of contract.  Thereafter, Buckley sought bankruptcy protection.  During the pendency of Buckley’s bankruptcy petition, Zeagler conducted discovery on matters relevant to the contract action.  Buckley eventually dismissed her bankruptcy petition, and the contract action resumed in state court.  Following a bench trial, the trial court entered judgment against Buckley.  Zeagler subsequently requested an award of his attorney’s fees, a portion of which Zeagler incurred during the bankruptcy.  Buckley objected, arguing that those fees should not be awarded because they related exclusively to the bankruptcy.  The trial court awarded some of the requested amounts.  This appeal followed.

The Arizona Appeals Court held that the trial court correctly awarded the fees despite that they were incurred during a bankruptcy proceeding.  The Court explained that “when two claims are so intertwined as to be indistinguishable, a court has discretion to award attorney fees under § 12-341.01 even though the fees attributable to one of the causes of action would not be recoverable under this statute.”  Because the discovery Zeagler conducted during the bankruptcy proceeding was substantially intertwined with the contract dispute, the trial court did not abuse its discretion in awarding the fees incurred for that discovery.

Judge Espinosa authored the opinion; Judges Howard and Timmer concurred.