Arizona Court of Appeals Division One Holds That Courts Must Determine Whether Rule 77(f) Applies Before Imposing Rule 68(g) Sanctions.

Plaintiff Bradshaw sued Defendant Jasso-Barajas for negligence following a car accident.  Jasso-Barajas served an offer of judgment that included taxable costs, which Bradshaw rejected.  Following compulsory arbitration, the arbitrator awarded Bradshaw damages and taxable costs that exceeded the offer of judgment.  Jasso-Barajas appealed the award.  After a jury trial, Bradshaw was awarded damages and taxable costs 22.9% less than the arbitrator’s award and less than the offer of judgment.  Because the difference between the arbitration award and the jury verdict (plus taxable costs) was not greater than 23%, the trial court ordered Jasso-Barajas to pay Bradshaw’s attorneys’ fees as a sanction under Rule 77(f).  The court also ordered Bradshaw to pay Jasso-Barajas a smaller sum as a sanction under Rule 68(g) because the jury verdict (plus taxable costs) was less than the offer of judgment.  Jasso-Barajas timely appealed.

The ArizonaAppeals Court affirmed.  The Court rejected Jasso-Barajas’ argument that the trial court should have taken into consideration the Rule 68(g) sanction against Bradshaw when it applied Rule 77(f); if the trial court had subtracted the Rule 68(g) sanctions from the jury verdict (plus taxable costs), the difference between that total and the arbitration award would have exceeded 23%, eliminating the Rule 77(f) sanction.  The Court explained that the plain language of Rule 68(g) requires trial courts to determine whether to impose offer-of-judgment sanctions only after complying with Rule 77:  “The determination whether a [Rule 68(g)] sanction should be imposed after an arbitration hearing shall be made by reference to the judgment ultimately entered, whether on the award . . . or after an appeal of the award pursuant to Rule 77.”  Accordingly, a trial court must first review the judgment after the appeal of an arbitration award, compare it to the arbitration award pursuant to Rule 77(f), impose any appropriate sanctions under that rule, and then consider the imposition of any Rule 68(g) sanctions.  This is precisely what the trial court did.

Presiding Judge Portley authored the opinion; Judges Orozco and Howe concurred.