§ 2.2 INTRODUCTION

• Jurisdiction: Arizona

Under the "American rule," which prevails in Arizona, each party in a lawsuit ordinarily bears its own attorneys' fees unless there is a contractual or statutory provision that authorizes an award of fees. Hensley v. Eckerhart, 461 U.S. 424, 429 (1983); Marcus v. Fox, 150 Ariz. 333, 334, 723 P.2d 682, 683 (1986); Sellinger v. Freeway Mobile Home Sales, Inc., 110 Ariz. 573, 577, 521 P.2d 1119, 1123 (1974); RS Indus., Inc. v. Candrian, 240 Ariz. 132, ¶ 8, 377 P. 3d 329, 322 (App. 2016); Bennett v. Baxter Group, Inc., 223 Ariz. 414, 419, ¶ 19, 224 P.3d 230, 235 (App. 2010). One such statutory provision is A.R.S. § 12-341.01(A), which provides:

In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees. If a written settlement offer is rejected and the judgment finally obtained is equal to or more favorable to the offeror than an offer made in writing to settle any contested action arising out of a contract, the offeror is deemed to be the successful party from the date of the offer and the court may award the successful party reasonable attorney fees. This section shall not be construed as altering, prohibiting or restricting present or future contracts or statutes that may provide for attorney fees.

Subsection (B) of A.R.S. § 12-341.01 describes the purpose of subsection (A) as follows:

The award of reasonable attorney fees awarded pursuant to this section should be made to mitigate the burden of the expense of litigation to establish a just claim or a just defense. It need not equal or relate to the attorney fees actually paid or contracted, but the award may not exceed the amount paid or agreed to be paid.

Under Subsection (C) of the statute, the court, not a jury, determines whether to award fees: "The court and not a jury shall award reasonable attorney fees under this section."

A.R.S. § 12-341.01 is a fee-shifting statute intended to promote the out-of-court resolution of disputes. Halt v. Gama, 238 Ariz. 352, 356, ¶ 15, 360 P.3d 148, 152 (App. 2015) ("[T]he purpose of fee-shifting statutes [is] to promote settlement of disagreements out of court. . . Unless each party is on notice before each stage of the lawsuit that its opponent intends to ask for attorneys' fees, it cannot properly evaluate whether and when to settle"). The courts have emphasized that the risk of paying the prevailing party's fees under the statute was intended by the legislature to encourage more careful analysis of cases before they are filed. Chaurisia v. Gen. Motors Corp., 212 Ariz. 18, 29, ¶ 43, 126 P.3d 165, 176 (App. 2006) ("The legislature intended that risk of paying the opposing party's attorneys' fees would encourage more careful analysis prior to filing suit. (citation omitted). There is no indication that the legislature intended to especially exempt consumers from paying attorneys' fees"); All-Way Leasing, Inc. v. Kelly, 182 Ariz. 213, 219, 895 P.2d 125, 131 (App. 1994) ("One purpose of § 12-341.01(A) is to encourage litigants in contract actions to consider [the risk of paying their opponents' fees] before filing suit").

Consistent with the statute's stated purpose?to mitigate the burden of the expense of litigation?the courts have held a fee award under A.R.S. § 12-341.01(A) may not exceed, but need not equal, a litigant's fee obligation. Associated Indem. Corp. v. Warner, 143 Ariz. 567, 570, 694 P.2d 1181, 1184 (1985); Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 544-45, 647 P.2d 1127, 1142-43, cert. denied, 459 U.S. 1070 (1982); Pueblo Santa Fe Townhomes Owners' Ass'n v. Transcontinental Ins., Co., 218 Ariz. 13, 25, ¶ 53, 178 P.3d 485, 497 (App. 2008); Jerman v. O'Leary, 145 Ariz. 397, 403, 701 P.2d 1205, 1211 (App. 1985) (use of "lodestar" to determine amount of fee award under subsection (A) improper because parties and attorney had expressly agreed on the fees to be charged). Moreover, the recovery of reasonable attorneys' fees is not restricted to those litigants "who could not otherwise afford to litigate." First Nat'l Bank of Ariz. v. Continental Bank, 138 Ariz. 194, 199, 673 P.2d 938, 943 (App. 1983). The mere fact that the losing party lacks substantial financial resources or is an organization "serving a worthwhile purpose, does not by itself prevent application of the statute in favor of the prevailing party." Catalina Foothills Ass'n Inc. v. White...