Geller v. Lesk

• Decision Date: 25 September 2012
• Docket Number: No. 1 CA–CV 11–0383.,1 CA–CV 11–0383.
• Parties: Earl GELLER and Joyce Geller, as Co–Trustees of the Geller Family Trust; Michael F. Ziegler, a married man; Robert S. Aronson, a married man; Joan S. Brisk, a married woman; Jack Lipton, a married man; and Gerald B. Jackson and Betty S. Jackson, husband and wife, Plaintiffs/Appellees, v. Brian D. LESK, Defendant/Appellant.
• Court: Arizona Court of Appeals

285 P.3d 972

644 Ariz. Adv. Rep. 4

Earl GELLER and Joyce Geller, as Co–Trustees of the Geller Family Trust; Michael F. Ziegler, a married man; Robert S. Aronson, a married man; Joan S. Brisk, a married woman; Jack Lipton, a married man; and Gerald B. Jackson and Betty S. Jackson, husband and wife, Plaintiffs/Appellees,

v.Brian D. LESK, Defendant/Appellant.

No. 1 CA–CV 11–0383.

Court of Appeals of Arizona, Division 1, Department C.

Sept. 25, 2012.

Jeffrey S. Kaufman, Ltd. By Jeffrey S. Kaufman, Scottsdale, Attorneys for Appellees.

The Frutkin Law Firm, PLC By Jonathan B. Frutkin, and Shannon E. Hennessey, Phoenix, Attorneys for Appellant.

OPINION

KESSLER, Judge.

¶ 1 Defendant/appellant Brian D. Lesk (“Lesk”) appeals from the amount of attorneys' fees awarded to plaintiff/appellees Earl Geller and Joyce Geller, as co-trustees of the Geller Family Trust, Michael F. Ziegler, Robert S. Aronson, Joan S. Brisk, Jack Lipton, Gerald B. Jackson, and Betty S. Jackson (collectively “the Geller Group”). Lesk argues that the trial court erred in awarding an amount based on a contingency agreement rather than based on a reasonable rate and the amount of time actually expended. We vacate the fee award and remand for further proceedings because the award was based on a contingency fee agreement which was not facially reasonable and not supported by adequate evidence of reasonableness under McDowell Mountain Ranch Community v. Simons, 216 Ariz. 266, 270, ¶ 16, 165 P.3d 667, 671 (App.2007).

FACTUAL AND PROCEDURAL HISTORY

¶ 2 The Geller Group sued Lesk for breach of contract to recover the balance owed on a promissory note. After several months of litigation, the superior court granted the Geller Group summary judgment and awarded it $380,000 in principal, $320,394.92 in late charges, penalties and interest on the note, reasonable attorneys' fees, costs, and interest on the judgment.

¶ 3 The Geller Group sought attorneys' fees under Arizona Revised Statutes (“A.R.S.”) section 12–341.01 (2003) and pursuant to a paragraph in the promissory note titled “Lender's Rights.” The promissory note provided that in the event of default on the note, Lesk would pay the costs of collecting on the note, including attorneys' fees.¹ In seeking to collect on the note, the Geller Group entered into a contingency fee agreement with an attorney which provided counsel would be entitled to a fee equal to twenty-five percent of the total amount of the judgment. Accordingly, the Geller Group requested a $175,098.73 fee award. Alternatively, the Geller Group sought fees based on an hourly rate. In the affidavit supporting the application, the Geller Group's attorney stated that he believed the contingency fee requested, or in the alternative, his hourly rate of $300, was reasonable. He also stated that he did not keep time slips or otherwise contemporaneously keep a record of the time expended, but he believed he spent in excess of 100 hours on the case.

¶ 4 Lesk argued the amount requested was unreasonable, noting that if the Geller Group's counsel spent approximately 100 hours working at his stated hourly rate of $300 per hour, the fee award would be only $30,000. Lesk also noted that his counsel had spent a total of 50.2 hours on the case, and that the Geller Group's counsel would have had to spend approximately 583 hours at his stated hourly rate to equal the amount of fees requested. Lesk asserted that evidence of reasonableness was required, even in contingency fee cases. He argued that he was obligated to pay reasonable fees under A.R.S. § 12–341.01, but was not bound to the amount agreed between the Geller Group and its counsel. Lesk proposed that he pay no more than $15,000 in fees or the equivalent of approximately fifty hours of work at the rate of $300 per hour.

¶ 5 In reply, the Geller Group argued that if the court was inclined to award fees based on the amount of time expended, the court should consider the contingency fee arrangement and multiply the reasonable hourly fee multiple times to account for the risk involved in such an agreement.

¶ 6 The court awarded the Geller Group $175,098.73 in attorneys' fees, the full amount requested. Lesk filed a timely notice of appeal. This court has jurisdiction pursuant to A.R.S. § 12–2101(A)(1) (Supp.2011).

DISCUSSION

¶ 7 Lesk agrees that the Geller Group is entitled to an award of fees, but argues that any fees recovered under A.R.S. § 12–341.01 must be reasonable, that the lodestar method ² is the presumptive method of calculating reasonableness, and that a contingency agreement is not evidence of reasonableness or a basis for enhancing a reasonable rate under a fee-shifting statute. As Lesk points out, to justify a lodestar fee of $175,098.73 for 100 hours of work, the hourly rate would have to exceed $1,750. The Geller Group argues that: (1) the lodestar method is not applicable because the fee is based on a contingency fee agreement and that arrangement takes into account any risk in collecting on the debt, and (2) the purpose of the Lender's Rights clause in the note is to ensure that the lender would be made whole in the event of a default. If the court reduces the fee award to $15,000, the Geller Group would not be made whole because it would have to pay an additional $160,000 to its attorney.

¶ 8 We review the trial court's award of attorneys' fees for an abuse of discretion, but review issues of law de novo, including the authority to use a specific method to determine attorneys' fees. Charles I. Friedman, P.C. v. Microsoft Corp., 213 Ariz. 344, 350, ¶ 17, 141 P.3d 824, 830 (App.2006).

¶ 9 The Geller Group requested an award of fees pursuant to A.R.S. § 12–341.01(A) and pursuant to the promissory note.³ Because Lesk and the Geller Group contractually provided for the circumstances under which the Geller Group could recover attorneys' fees and the court awarded the exact amount of fees requested, it is that contractual provision which governs an award and not the statute. SeeA.R.S. § 12–341.01(A) (“This section shall in no manner be construed as altering, prohibiting or restricting present or future contracts or statutes that may provide for attorney fees.”); Connor v. Cal–Az Props., Inc., 137 Ariz. 53, 55 668 P.2d 896, 898 (App.1983) (fee-shifting statute inapplicable given that parties contractually provided for attorneys' fees) (citing Sweis v. Chatwin, 120 Ariz. 249, 252, 585 P.2d 269, 272 (App.1978)); cf. Jordan v. Burgbacher, 180 Ariz. 221, 883 P.2d 458 (App.1994) (“ Sweis v. Chatwin did not hold that any express contractual provision for attorney's fees, however worded, ‘preempts' A.R.S. [§ ] 12–341.01. That case merely recognized that A.R.S. [§ ] 12–341.01 is inapplicable by its terms if it effectively conflicts with an express contractual provision governing recovery of attorney's fees.”); Pioneer Roofing Co. v. Mardian Constr. Co., 152 Ariz. 455, 471, 733 P.2d 652, 668 (App.1986) (stating if contract has attorneys' fee provision for only one party, court will apply contract to determine fee award for that party but may award fees for other party under A.R.S. § 12–341.01(A)).

¶ 10 Generally, we will enforce a contract provision for attorneys' fees according to its terms. First Fed. Sav. & Loan Ass'n of Phoenix v. Ram, 135 Ariz. 178, 181, 659 P.2d 1323, 1326 (App.1982). When a party meets its burden to show a fee request is reasonable, a court may not simply exercise its discretion to deny attorneys' fees under a contractual provision. McDowell Mountain, 216 Ariz. at 269, 270, ¶¶ 14, 16, 165 P.3d at 670, 671. However, the court retains its discretion to limit any such award to a reasonable level. As we explained in McDowell Mountain, we will not enforce a contractual attorneys' fees provision that would result in an award of unreasonable attorneys' fees. Id. at 270, ¶ 16, 165 P.3d at 671. Rather, as the supreme court made clear, when the parties have agreed on an amount for attorneys' fees, such as a definite amount or a percentage of an amount due on a note, the stipulated amount will be enforced only “to the extent that it provides for a reasonable attorneys' fee for services actually rendered in accordance with its terms.” Elson Dev. Co. v. Ariz. Sav. & Loan Ass'n, 99 Ariz. 217, 222–23, 407 P.2d 930, 934 (1965) (quoting Citizens Nat'l Bank of Orange, Va. v. Waugh, 78 F.2d 325, 331 (4th Cir.1935)). The agreed amount “is binding only to the extent that it is reasonable; however, where the services have been rendered, and the amount stipulated is not obviously excessive, the stipulation as to the amount should govern.” Id. at 223, 407 P.2d at 934;McDowell Mountain, 216 Ariz. at 270, ¶ 17, 165 P.3d at 671. If the reasonableness of the amount sought is challenged, the court must determine a reasonable amount. Elson, 99 Ariz. at 223, 407 P.2d at 934;see also McDowell Mountain, 216 Ariz. at 270, ¶ 18, 165 P.3d at 671 (while a fee shifting clause requires the nonprevailing party to pay the prevailing party's fees, Elson “imposes a caveat that such an agreement should not be enforced when the amount requested is ‘obviously excessive.’ ”).

¶ 11 When the parties contractually agree that a party may recover all of its attorneys' fees, the court's discretion is more limited than when awarding “reasonable” fees. McDowell Mountain, 216 Ariz. at 270–71, ¶¶ 20–21, 165 P.3d at 671–72. Once the prevailing party makes a prima facie case that the fees requested are reasonable, the burden shifts to the party opposing the fee request to establish that the amount requested is clearly excessive. Id. at 271, ¶ 20, 165 P.3d at 672. If that party fails to make such a showing of unreasonableness, the prevailing party is entitled to full payment of the fees. Id. If, however, the party opposing the award shows that the otherwise prima facie reasonable fee request is excessive, the court has discretion to reduce the fees to a reasonable level. Seeid. at ¶ 22 (“On remand, the trial court may...