Arizona Court of Appeals Division One Sets Forth New Factors for Determining Reasonableness of Attorneys’ Fees in Appeals from Compulsory Arbitration.

John Granville sued Vince Howard for injuries Granville sustained in a car accident.  Because the amount in controversy was less than $50,000, the case was referred to compulsory arbitration.  The arbitrator found in favor of Granville.  Howard appealed, and after a trial de novo a superior court jury found in favor of Howard.  The court of appeals reversed that defense verdict and remanded for a new trial.  On remand, a new jury found in favor of Granville, the original plaintiff, and set his damages at $918.50.  The superior court entered judgment in favor of Granville for approximately $86,000, which included $72,000 in attorneys’ fees.  Howard appealed the award of attorneys’ fees as unconstitutional and excessive, and Granville cross-appealed, arguing that the court should have awarded him the full amount of his attorneys’ fees.

Arizona Rule of Civil Procedure 77 allows a party to appeal a compulsory arbitration award.  If an appealing party does not obtain a 23% more favorable ruling after a superior court trial de novo, Rule 77(f) requires the court to impose certain costs and fees, including reasonable attorneys’ fees related to the appeal.  Relying on an appellate opinion issued on the same day as this opinion (Fisher v. Edgerton, 1 CA-CV 13-0428), the court of appeals summarily rejected Howard’s argument that Rule 77 is unconstitutional.  The constitutional scrutiny of punitive damages awards does not apply to Rule 77 fee awards.

Regarding the amount of the attorneys’ fee award, the court of appeals noted that the benchmark for such an award is “reasonableness.”  For the first time, the court set forth multiple, non-exclusive factors for assessing reasonable attorneys’ fees that are unique to the context of an arbitration appeal.  Those unique factors include:  1) whether good faith existed for the arbitration appeal; 2) how close the appealing party came to meeting the 23% threshold; 3) the amount in controversy; 4) whether post-arbitration litigation could have been avoided or settled; 5) whether failure to meet the 23% threshold was attributable to a change in evidence at the trial de novo; 6) the amount of fees the requesting party is required to pay his attorney; and 7) whether the fee-shifting provision of Rule 77(f) caused some of the fees at issue.  The court also noted that other factors used in other fee award contexts, such as cases involving contracts or probate proceedings, are relevant in the Rule 77 context. 

The court of appeals rejected Granville’s argument that the trial court should have awarded him his attorneys’ fees incurred in the appeal from the first jury award.  The court had previously held that no right to attorneys’ fees incurred in the court of appeals existed in the predecessor rule to Rule 77, and this court saw no reason to deviate from that holding.  Furthermore, Granville neglected to seek his attorneys’ fees during the first appeal. 

The court of appeals noted that the $72,000 in attorneys’ fees seemed high in comparison to the actual damages set by the jury.  The court of appeals remanded the case to the trial court for reconsideration of its attorney’s fee award in light of the new factors for fee awards in the arbitration appeal context. 

Judge Downie authored the opinion, and Judges Jones and Kessler concurred.