104 Recovery of Attorneys' Fees

• Jurisdiction: Arizona

Attorney’s fees are recoverable in contract actions.

Form contracts and related documents used by contractors frequently provide that in the event of breach by the other party, the contractor is entitled to recover resulting costs, including attorneys’ fees. These provisions are routinely upheld by the courts. See, e.g., Davis v. Farmers Pump Co., 12 Ariz. App. 278, 469 P.2d 844 (1970); Wells-Stewart Constr. Co. v. Martin-Marietta Corp., 103 Ariz. 375, 442 P.2d 119 (1968).

A.R.S. § 12-341.01 provides as follows:

A. In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney’s fees. This section shall in no manner be construed as altering, prohibiting or restricting present or future contracts or statutes that may provide for attorney’s fees.

B. The award of reasonable attorney’s fees awarded pursuant to subsection A 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’s fees actually paid or contracted, but such award may not exceed the amount paid or agreed to be paid.

C. Reasonable attorney’s fees shall be awarded by the court in any contested action upon clear and convincing evidence that the claim or defense constitutes harassment, is groundless and not made in good faith. In making such award, the court may consider such evidence as it deems appropriate and shall receive this evidence during trial on the merits of the cause, or separately, regarding the amount of such fees as it deems in the best interest of the litigating parties.

The statute is applicable only to contract actions, and the court will look to the “essence” of the action to determine its true classification. Amphitheater Pub. Schools v. Eastman, 117 Ariz. 559, 574 P.2d 47 (App. 1977), cert. denied, 459 U.S. 1070 (1982). In order to recover attorneys’ fees, however, a party to the contract action need not also be a party to the contract. Nationwide Mut. Ins. Co. v. Granillo, 117 Ariz. 389, 573 P.2d 80 (App. 1977). Furthermore, whether an award of attorneys’ fees is to be made is a matter entirely within the discretion of the court. The language of the statute is permissive, not mandatory. Circle K Corp. v. Rosenthal, 118 Ariz. 63, 574 P.2d 856 (App. 1977).

To recover attorneys’ fees, it is necessary to prove the reasonable value of the services. Crouch v. Pixler, 83 Ariz. 310, 320 P.2d 943 (1958); Taylor v. Security Nat’l Bank, 20 Ariz. App. 504, 514 P.2d 257 (1973). Even through the contract provides a formula for determining the amount of the fees (e.g., 10% of the unpaid principal balance of a promissory note), it is necessary to prove that the amount of fees resulting from application of the formula is reasonable. Elson Dev. Co. v. Arizona Sav. & Loan Ass’n, 99 Ariz. 217, 407 P.2d 930 (1965).

Attorneys’ fees on appeal as well as in trial court actions are covered by A.R.S. § 12-341.01. Gressley v. Patterson Tillage & Leveling Inc., 119 Ariz....