American Power Products Inc. v. Csk Auto Inc. , 241 Ariz. 564 ( 2017 )


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  •                                        IN THE
    SUPREME COURT OF THE STATE OF ARIZONA
    AMERICAN POWER PRODUCTS, INC., A CALIFORNIA CORPORATION;
    LFMG/APP, LLC, AN ARIZONA CORPORATION,
    Plaintiffs/Counter-Defendants/Appellants/Cross-Appellees,
    v.
    CSK AUTO, INC., AN ARIZONA CORPORATION,
    Defendant/Counter-Claimant/Appellee/Cross-Appellant.
    No. CV-16-0133-PR
    Filed March 23, 2017
    Appeal from the Superior Court in Maricopa County
    The Honorable George H. Foster, Jr., Judge
    No. CV2005-019594
    REVERSED AND REMANDED
    Memorandum Decision of the Court of Appeals, Division One
    1 CA-CV 12-0855
    Filed May 19, 2016
    VACATED IN PART
    COUNSEL:
    David B. Goldstein (argued), John L. Lohr, Jr., Evan B. Schechter, Hymson Goldstein &
    Pantiliat, PLLC, Scottsdale, and Herbert Dodell, Dodell Law Corporation, Woodland
    Hills, CA, Attorneys for American Power Products, Inc. and LFMG/APP, LLC
    Leon B. Silver (argued), Andrew S. Jacob, Gordon & Rees LLP, Phoenix, Attorneys for
    CSK Auto Inc.
    AMERICAN POWER PRODUCTS v. CSK AUTO
    Opinion of the Court
    VICE CHIEF JUSTICE PELANDER authored the opinion of the Court, in which CHIEF
    JUSTICE BALES and JUSTICES BRUTINEL and BOLICK joined. JUSTICE TIMMER
    dissented.
    VICE CHIEF JUSTICE PELANDER, opinion of the Court:
    ¶1            Under Arizona law, a court may award reasonable attorney fees to the
    successful party in a contested contract action. A.R.S. § 12-341.01(A). If a party makes a
    written settlement offer that is rejected and the final judgment is more favorable to the
    offering party, that party “is deemed to be the successful party from the date of the
    offer.” 
    Id. ¶2 In
    this case, we address the interplay between this statutory provision and
    a contractual fee award provision when one party rejected the other’s written settlement
    offer and later obtained a less favorable judgment. Because the contract does not itself
    define “prevailing party,” but does incorporate Arizona law to determine the parties’
    rights and remedies, we hold that the statute applies for the purpose of determining the
    successful party. That is, the party that made the rejected offer is the successful party
    from the date of the offer.
    I.
    ¶3              In 2003, American Power Products (“American”) and CSK Auto (“CSK”)
    entered into a Master Vendor Agreement (“MVA”) under which American agreed to
    sell electric scooters and other items to CSK on an open account. The MVA provided
    that in the event of any action arising out of the agreement, “the prevailing party shall
    be entitled to recover . . . reasonable attorneys’ fees.” The agreement did not define
    “prevailing party.” But the MVA included a broad choice-of-law provision that
    Arizona law would govern the parties’ “rights and remedies” under the agreement.
    ¶4             In 2005, American sued CSK for breach of contract and negligent
    misrepresentation, seeking more than $5 million in damages. CSK asserted various
    affirmative defenses and counterclaims and sought damages of approximately $950,000.
    In 2011, several months before trial, CSK served American with an offer of judgment
    under Rule 68, Ariz. R. Civ. P., in the amount of $1,000,001, “inclusive of all damages,
    taxable court costs, interest and attorneys’ fees.” American did not accept the offer and,
    after trial, obtained a jury verdict in the amount of $10,733. The trial court later
    dismissed CSK’s counterclaims with prejudice.
    ¶5           On the parties’ post-trial claims for attorney fees, the trial court ruled that
    American was the “prevailing party” at trial despite American having asked the jury to
    award it over $10.8 million. Applying a totality-of-the-litigation test, the court reasoned
    that American “must be the prevailing party” because “after litigating all of the claims”
    2
    AMERICAN POWER PRODUCTS v. CSK AUTO
    Opinion of the Court
    and counterclaims, American “obtained relief in the form of monetary damages; [CSK]
    was awarded nothing.” The trial court then awarded American $775,000 in attorney
    fees (American had requested almost $2 million), plus costs and interest on the verdict,
    for a total judgment of approximately $861,000. The court denied CSK’s request for
    sanctions under Rule 68(g), Ariz. R. Civ. P., finding such sanctions inapplicable.
    ¶6            The court of appeals affirmed the fee award in favor of American. Am.
    Power Products, Inc. v. CSK Auto, Inc., 1 CA-CV 12-0855, at *8 ¶ 14 (Ariz. App. May 19,
    2016) (mem. decision).1 The court reasoned that the trial court did not abuse its
    substantial discretion in identifying the “prevailing party” and “had a reasonable basis
    for finding that American was the prevailing party under the totality of the litigation
    test.” 
    Id. at *4
    ¶ 6, *6 ¶ 9. Based on American having obtained a judgment less
    favorable than CSK’s pretrial settlement offer, CSK argued that A.R.S. § 12-341.01(A)
    and Rule 68 precluded any award of fees American incurred after the date of the offer.
    In rejecting that argument, the court of appeals stated that “[w]hen attorneys’ fees are
    based on a contract — as here — the contract controls to the exclusion of A.R.S.
    § 12-341.01(A).” 
    Id. at *6
    ¶ 11. The court, however, “reverse[d] the superior court’s
    denial of CSK’s Rule 68 sanction request and remand[ed] to the superior court for it to
    make the comparison required by Rule 68.” 
    Id. at *13
    ¶ 30.
    ¶7           We granted review on the attorney fee question because the interplay
    between § 12-341.01 and contractual fee provisions presents legal issues of statewide
    importance that are likely to recur. We have jurisdiction under article 6, section 5(3) of
    the Arizona Constitution and A.R.S. § 12-120.24.
    II.
    ¶8           The parties’ MVA contained two provisions that are pertinent here:
    (d) Applicable Law. The MVA is made with reference to
    and under the laws of the State of Arizona which shall be
    deemed to govern the validity and interpretation of the
    MVA and the rights and remedies of the parties hereunder.
    Any legal action instituted by the parties arising out of this
    MVA shall be within, and the parties hereto stipulate to the
    jurisdiction of, the Courts of Maricopa County, Arizona.
    ...
    1      The court of appeals’ decision was rendered after we remanded the case to that
    court “for consideration of . . . the parties’ claims for attorneys’ fees, court costs, and
    other expenses.” American Power Products, Inc., v. CSK Auto, Inc., 
    239 Ariz. 151
    , 157 ¶ 21,
    
    367 P.3d 55
    , 61 (2016).
    3
    AMERICAN POWER PRODUCTS v. CSK AUTO
    Opinion of the Court
    (f) Attorneys’ Fees. In the event either party shall commence
    or be required to defend any action or proceeding against
    the other party arising out of this MVA, the prevailing party
    shall be entitled to recover from the other party its
    reasonable attorneys’ fees and costs through all levels of
    proceedings as determined by the court.
    As noted above, the MVA did not define “prevailing party.”
    ¶9           In pertinent part, A.R.S. § 12-341.01 provides:
    A.       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.
    As originally enacted in 1976, § 12-341.01 contained provisions now mirrored in the first
    and third sentences of subsection (A). The second sentence of that subsection was
    added in 1999.
    ¶10             CSK acknowledges that the trial court and court of appeals correctly
    “equated ‘prevailing party’ in the MVA with ‘successful party’ in § 12-341.01(A).” Am.
    Power Products, Inc., 1 CA-CV 12-0855, at *3 ¶¶ 5-6; see Murphy Farrell Dev., LLLP v.
    Sourant, 
    229 Ariz. 124
    , 132 ¶ 30 & n.8, 134 ¶ 36, 
    272 P.3d 355
    , 364 & n.8, 365 (App. 2012)
    (relying on cases decided under § 12-341.01 in determining which party was “the
    ‘prevailing party’ under the terms of the [parties’] Agreements” when those contracts
    mandated an award of fees to the “prevailing party” but did not define that term).
    Noting that “the parties expressly incorporated Arizona law into their contract” and
    “clearly intended to apply Arizona law to the entire [MVA],” however, CSK argues that
    both courts below erred in failing to apply “the definition in the second sentence of
    § 12-341.01(A).” Under that provision, CSK asserts, it is “the successful party after the
    date of its rejected settlement offer.”
    ¶11          American counters, as the court of appeals determined, that the trial court
    had a reasonable basis for deeming American the prevailing party under the MVA and
    4
    AMERICAN POWER PRODUCTS v. CSK AUTO
    Opinion of the Court
    did not abuse its discretion in awarding fees to American, particularly considering that
    CSK received nothing on its counterclaim for almost $1 million. Relying on the third
    sentence of § 12-341.01(A) and Arizona case law, American argues that the statute does
    not apply when, as here, a contract mandates an award of fees to the prevailing party.
    American further asserts that CSK’s argument, by seeking a sanction not recognized by
    Rule 68, effectively would amend the rule so as to conflict with § 12-341.01.
    ¶12           We review de novo issues of statutory application and contract
    interpretation. See Bell v. Indus. Comm’n, 
    236 Ariz. 478
    , 480 ¶ 6, 
    341 P.3d 1149
    , 1151
    (2015) (statutes); Andrews v. Blake, 
    205 Ariz. 236
    , 240 ¶ 12, 
    69 P.3d 7
    , 11 (2003) (contracts).
    A trial court’s determination of which party is successful and thus entitled to a fee
    award generally will be upheld absent an abuse of discretion. Murphy Farrell 
    Dev., 229 Ariz. at 133
    31, 272 P.3d at 364
    ; Sanborn v. Brooker & Wake Prop. Mgmt., Inc., 
    178 Ariz. 425
    , 430, 
    874 P.2d 982
    , 987 (App. 1994). An error of law in reaching a discretionary
    ruling constitutes an abuse of discretion. Twin City Fire Ins. Co. v. Burke, 
    204 Ariz. 251
    ,
    254, 
    63 P.3d 282
    , 285 (2003).
    III.
    ¶13            As noted above, § 12-341.01 does not “alter[], prohibit[] or restrict[]”
    contracts that “provide for attorney fees,” nor may the statute “be construed” to do so.
    § 12-341.01(A). Based on that statutory language, our court of appeals has repeatedly
    stated that “the statute is inapplicable . . . [when] the parties have provided in their
    contract the conditions under which attorney’s fees may be recovered.” Sweis v.
    Chatwin, 
    120 Ariz. 249
    , 252, 
    585 P.2d 269
    , 272 (App. 1978); see also Geller v. Lesk, 
    230 Ariz. 624
    , 627 ¶ 9, 
    285 P.3d 972
    , 975 (App. 2012) (stating that parties’ contractual attorney fee
    provision, “not the statute,” governs an award of fees); Lisa v. Strom, 
    183 Ariz. 415
    , 418
    n.2, 
    904 P.2d 1239
    , 1242 n.2 (App. 1995) (stating that “when a contract has an attorney’s
    fee provision it controls to the exclusion of the statute”); Connor v. Cal-Az Properties, Inc.,
    
    137 Ariz. 53
    , 55, 
    668 P.2d 896
    , 898 (App. 1983) (stating that Ҥ 12-341.01 is not to be
    considered” when parties’ contract provides conditions under which attorney fees may
    be recovered). In Sweis, the parties’ contract entitled the successful or prevailing party
    to a non-discretionary attorney fee award for enforcing the 
    contract. 120 Ariz. at 251
    n.2, 585 P.2d at 271 
    n.2. To apply § 12-341.01 in those circumstances, the court reasoned,
    would alter the agreement by “in effect cancel[ing] the unqualified contractual right to
    recover attorney’s fees given to the successful party by their agreement, and substitute
    in its place the purely discretionary or permissive right given by the statute.” 
    Id. at 252,
    585 P.2d at 272.
    ¶14          Relying on its prior case law and the third sentence of § 12-341.01(A), the
    court of appeals here rejected CSK’s argument that, based on that subsection’s second
    sentence, CSK was the prevailing party from the date of its offer, holding instead that
    “the contract controls to the exclusion of A.R.S. § 12-341.01(A).” Am. Power Products,
    5
    AMERICAN POWER PRODUCTS v. CSK AUTO
    Opinion of the Court
    Inc., 1 CA-CV 12-0855, at *6 ¶ 11. To the extent prior case law broadly precludes
    application of § 12-341.01 whenever the parties’ contract contains an attorney fee
    provision, regardless of its content, scope, and other provisions in the contract, we
    disagree. Rather, § 12-341.01 “is inapplicable by its terms if it effectively conflicts with
    an express contractual provision governing recovery of attorney’s fees.” Jordan v.
    Burgbacher, 
    180 Ariz. 221
    , 229, 
    883 P.2d 458
    , 466 (App. 1994) (disagreeing with Connor’s
    broad statement and observing that Sweis “did not hold that any express contractual
    provision for attorney’s fees, however worded, ‘preempts’ A.R.S. section 12-341.01”); cf.
    Tucson Estates Prop. Owners Ass’n, Inc. v. McGovern, 
    239 Ariz. 52
    , 54-56 ¶¶ 7-14, 
    366 P.3d 111
    , 113-15 (App. 2016); (stating that when parties’ contract has a unilateral provision
    mandating attorney fee recovery for only one party, § 12-341.01 applies to the other,
    successful party’s claim for attorney fees and affords trial court discretion to award or
    deny fees under the statute); Pioneer Roofing Co. v. Mardian Constr. Co., 
    152 Ariz. 455
    ,
    470-72, 
    733 P.2d 652
    , 667-69 (App. 1986) (same). Thus, rather than being completely
    supplanted by any attorney fee provision in the parties’ contract, the statute —
    consistent with its plain language — applies to “any contested action arising out of
    contract” to the extent it does not conflict with the contract. § 12-341.01(A).
    ¶15           Our conclusion comports with the general rule in Arizona that contracts
    are read to incorporate applicable statutes. See Banner Health v. Med. Sav. Ins. Co., 
    216 Ariz. 146
    , 150 ¶ 15, 
    163 P.3d 1096
    , 1100 (App. 2007) (“It has long been the rule in
    Arizona that a valid statute is automatically part of any contract affected by it, even if
    the statute is not specifically mentioned in the contract.”) (internal citations and
    quotation marks omitted); see also Yeazell v. Copins, 
    98 Ariz. 109
    , 113-14, 
    402 P.2d 541
    ,
    544 (1965). Because the MVA here did not define “prevailing party” and expressly
    provided that Arizona law shall apply and govern “the rights and remedies of the
    parties,” and because the second sentence of § 12-341.01(A) does not directly conflict
    with the MVA’s attorney fee provision, that statutory provision is “incorporated by
    operation of law” into the MVA for the limited purpose of defining “successful party”
    under the circumstances presented here. Banner 
    Health, 216 Ariz. at 150
    15, 163 P.3d at 1100
    .
    ¶16          Contrary to the dissent, infra ¶ 28, our opinion does not “change the
    meaning of ‘the prevailing party’ in the MVA,” inasmuch as the MVA does not define
    that phrase or provide any other interpretative guidance. The dissent also downplays
    the MVA’s broad, unqualified choice-of-law provision, under which the parties agreed
    that Arizona law would govern their rights and remedies under the MVA. As for there
    being two prevailing parties – American before CSK’s offer, and CSK after its offer –
    that paradigm is implicitly contemplated and permitted by § 12-341.01(A)’s second
    sentence, which supplements, but does not alter, the MVA. Cf. Hall v. Read Dev., Inc.,
    
    229 Ariz. 277
    , 283 ¶ 19, 
    274 P.3d 1211
    , 1217 (App. 2012) (recognizing that statute’s
    second sentence could “potentially shift the ‘successful party’ designation for at least
    6
    AMERICAN POWER PRODUCTS v. CSK AUTO
    Opinion of the Court
    part of the litigation”). And such a result is permissible even though § 12-341.01(A), like
    the MVA, limits attorney fee awards to “the” successful party.
    ¶17           American unpersuasively argues that the MVA’s choice-of-law provision
    does not apply to the attorney fee provision because they are separate and the former is
    “general and all-embracing, and not specific to the fees provision.” The choice-of-law
    provision is not limited, and the attorney fee provision does not exclude the former
    from applying to it. See Bradley v. Bradley, 
    164 P.3d 537
    , 542 (Wyo. 2007) (holding that
    broad, general language of choice-of-law provision in parties’ agreement applied to
    other provisions when the agreement contained no specific provision indicating a
    different intent and “[o]ther provisions of the agreement [did] not specifically speak to
    choice of applicable law”).
    ¶18           The courts below thus erred in failing to apply the definition of
    “successful party” under § 12-341.01(A)’s second sentence, which by its terms applies
    here given American’s rejection of CSK’s pretrial settlement offer under Rule 68 and the
    less favorable judgment American obtained after trial. As the court of appeals has
    observed, that statutory provision, “added in 1999, seemingly narrows the trial court’s
    discretion in handling fee determination issues in contract cases, obligating the court to
    compare a written settlement offer against the ‘judgment finally obtained.’” 
    Hall, 229 Ariz. at 279
    9, 274 P.3d at 1213
    . That comparison, in turn, “potentially alter[s] the
    successful party designation from the date of the offer.” 
    Id. at 280
    10, 274 P.3d at 1214
    .
    ¶19           “[A]n offeror is the successful party, even if an offeree obtains a favorable
    judgment, if the offeror previously made a written offer for an amount equal to or
    greater than the final judgment.” 
    Id. at 279
    9, 274 P.3d at 1213
    . That is precisely the
    situation here. CSK’s pretrial offer under Rule 68 in the amount of $1,000,001,
    “inclusive of all damages, taxable court costs, interest and attorneys’ fees,” was greater
    than the total judgment of approximately $861,000 (which included fees, costs, and
    interest on the $10,733 verdict) that American obtained. Thus, CSK “is deemed to be the
    successful party from the date of the offer.” § 12-341.01(A). And from that point
    forward CSK is “entitled to recover from [American] its reasonable attorneys’ fees”
    because the MVA expressly so provides. That is, the statute’s discretionary feature,
    providing that “the court may award the successful party reasonable attorney fees,” 
    id., is inapplicable
    here because, if applied, it would directly conflict with the MVA’s
    mandatory fee provision and thereby impermissibly “alter[]” or “restrict[]” the parties’
    agreement. Id.; see Murphy Farrell 
    Dev., 229 Ariz. at 133
    32, 272 P.3d at 364
    (“Unlike
    discretionary fee awards made pursuant to A.R.S. § 12-341.01(A), the trial court lacks
    discretion to deny a fee award required by the terms of the parties’ contract.”);
    McDowell Mountain Ranch Cmty. Ass’n v. Simons, 
    216 Ariz. 266
    , 269 ¶ 14, 
    165 P.3d 667
    ,
    670 (App. 2007) (same, citing cases).
    7
    AMERICAN POWER PRODUCTS v. CSK AUTO
    Opinion of the Court
    ¶20            Deeming CSK to be the prevailing party from the date of its settlement
    offer also furthers the policy of § 12-341.01 and Rule 68. As the court in Hall pointed
    out, “[t]he purposes of § 12-341.01(A) include: (1) mitigating ‘the burden of the expense
    of litigation to establish a just claim or a just defense’; (2) encouraging ‘more careful
    analysis prior to filing suit’ by imposing the risk of paying the opposing party’s
    attorneys’ fees where legitimate settlement offers are rejected; and (3) promoting
    settlement and thus reducing caseloads involving contractual matters.” 
    Hall, 229 Ariz. at 282
    18, 274 P.3d at 1216
    . By rejecting CSK’s settlement offer and choosing to
    instead pursue costly, protracted litigation, American cannot avoid the legal
    consequences, including attorney fee exposure as determined by the parties’ agreement
    and compatible Arizona law that is specifically made applicable under the agreement’s
    choice-of-law provision.
    ¶21            American unpersuasively asserts that imposing attorney fees against it by
    “incorporat[ing] only part of” § 12-341.01(A) fails to give “the type of fair warning the
    law should provide.” On the contrary, the parties had adequate notice of their potential
    liability for attorney fees, given the MVA’s broad incorporation of Arizona law, the
    clear definition of “successful party” in § 12-341.01(A)’s second sentence, and the lack of
    any inconsistency between that provision and the MVA’s attorney fee provision.
    ¶22           Nor is American correct in arguing that CSK’s position will “alter every
    contract mandating an award of attorneys’ fees by forcing upon parties to contracts the
    standard established in the second sentence of A.R.S. § 12-341.01.A.” Rather, we agree
    with American’s assertion that parties should “have freedom to contract whether they
    want that standard to apply or not.” As long as a contract is legal and enforceable,
    parties of course may fashion all aspects of an attorney fee provision, including a
    definition of “prevailing party” different from the statute, in whatever way they see fit.
    (Unlike the MVA, for example, a contract could not only specifically define “prevailing
    party” but also either include or exclude certain aspects of Arizona law from applying.)
    ¶23            Finally, we reject American’s argument that the result here “conflicts with
    and supersedes Rule 68.” As American conceded at oral argument in this Court, the
    sanctions prescribed in Rule 68(g) are separate and distinct from attorney fees. Cf. Ariz.
    R. Civ. P. 68, State Bar Committee Note (1992 Amendments) (“The term ‘costs’ in Rule
    68 does not include attorneys’ fees, even if they are recoverable in the action.”) (citing
    Boltz & Odegaard v. Hohn, 
    148 Ariz. 361
    , 
    714 P.2d 854
    (App. 1985)). Contrary to
    American’s contention, an award of fees to CSK under the MVA, based on the statutory
    definition of “successful party” in § 12-341.01(A)’s second sentence, does not result in
    “de facto amendment of the rule . . . by imposing an additional sanction” not authorized
    by the rule. Nor does such an award run afoul of Rule 68(d)’s provision that
    “[e]vidence of an unaccepted offer is not admissible except in a proceeding to determine
    sanctions under this rule.” Harmonizing the rule with the statute, we conclude that any
    such evidence is inadmissible at trial or other merits-related proceedings, but is not
    8
    AMERICAN POWER PRODUCTS v. CSK AUTO
    Opinion of the Court
    barred for purposes of identifying the “successful party” under § 12-341.01(A) in
    separate post-trial proceedings regarding attorney fees. See 
    Hall, 229 Ariz. at 283
    ¶¶ 19-
    
    20, 274 P.3d at 1217
    (harmonizing § 12-341.01(A) with Rule 68 to “conclude that
    comparing the ‘judgment finally obtained’ under § 12-341.01(A) to a settlement offer
    should involve only those reasonable fees and costs incurred as of the date the offer was
    made”); see also State v. Hansen, 
    215 Ariz. 287
    , 289 ¶ 7, 
    160 P.3d 166
    , 168 (2007) (stating
    that, whenever possible, we harmonize rules and statutes and read them in conjunction
    with each other).
    IV.
    ¶24           For the reasons stated above, we reverse the trial court’s award of attorney
    fees to American and its ruling that American was the prevailing party in the
    proceedings below even after CSK’s settlement offer under Rule 68. We vacate
    paragraphs 6-16 of the court of appeals’ decision and remand the case to the trial court
    for further proceedings to apportion fees and costs between CSK and American
    consistent with this opinion. On remand, CSK must establish, and the trial court should
    determine, what amount or percentage of CSK’s fees (incurred after its settlement offer)
    was clearly attributable to defending against American’s claims as opposed to the
    unsuccessful prosecution of CSK’s counterclaim, on which CSK was not the prevailing
    party. Based on that determination, the trial court may then decide if, or by how much,
    CSK’s fee award should be reduced. In the end, as CSK acknowledged at oral
    argument, the trial court in its discretion may consider all pertinent factors in
    determining the amount of reasonable fees CSK should be awarded. Cf. Associated
    Indem. Corp. v. Warner, 
    143 Ariz. 567
    , 570-71, 
    694 P.2d 1181
    , 1184-85 (1985) (listing non-
    exclusive factors bearing on attorney fee awards under § 12-341.01); A.R.S. § 12-
    341.01(B) (providing that an award of reasonable fees under the statute “should be
    made to mitigate the burden of the expense of litigation to establish a just claim or a just
    defense”).
    ¶25           Regarding American’s attorney fees incurred before CSK’s offer of
    judgment, this opinion does not alter the trial court’s determination that American was
    the prevailing party up to that point. But American is not entitled to recover any fees
    incurred after CSK’s offer. (CSK conceded at oral argument that American is entitled to
    recover its reasonable attorney fees incurred before the offer.) Therefore, on remand
    American must establish, and the trial court should determine, what amount or
    percentage of the court’s $775,000 fee award to American was attributable to fees
    incurred after the offer, and the court should reduce American’s fee award by that
    amount. American’s request for attorney fees incurred in this Court is denied as it is
    not the prevailing party.
    9
    AMERICAN POWER PRODUCTS v. CSK AUTO
    JUSTICE TIMMER, Dissenting
    TIMMER, J., dissenting.
    ¶26             By its terms, § 12-341.01(A) cannot “alter[], prohibit[] or restrict[] . . .
    contracts . . . that may provide for attorney fees.” By applying § 12-341.01(A) here, the
    majority has done just that. I respectfully dissent.
    ¶27           I begin with the plain language of the MVA. Cf. Smith v. Melson, Inc., 
    135 Ariz. 119
    , 121, 
    659 P.2d 1264
    , 1266 (1983) (“A contract should be read in light of the
    parties’ intentions as reflected by their language and in view of all the circumstances.”).
    American and CSK agreed that “the prevailing party” in any lawsuit “shall be entitled
    to recover” its reasonable attorney fees. The parties did not define “the prevailing
    party,” so the majority, noting the parties’ agreement that Arizona law governs
    interpretation of the contract, skips to § 12-341.01(A) to supply a definition. See supra
    ¶ 15. In doing so, the majority ignores Arizona’s “controlling rule of interpretation”
    that “requires that the ordinary meaning of language be given to words where
    circumstances do not show a different meaning applicable.” Brady v. Black Mountain
    Inv. Co., 
    105 Ariz. 87
    , 89, 
    459 P.2d 712
    , 714 (1969) (citing Restatement (First), Contracts
    § 235(A) (Am. Law Ins. 1932)). There is nothing ambiguous about the fee provision
    here. “The” indicates a particular party, and “prevailing” identifies that party as the
    one that wins the lawsuit. See 
    Smith, 135 Ariz. at 121
    , 659 P.2d at 1266 (noting that
    “the” is “a definite article used in reference to a particular thing”); Webster’s Third New
    International Dictionary 1797 (3d ed. 2002) (defining “prevail” in part as to “win,”
    “triumph,” or to be “successful”); Black’s Law Dictionary 1298 (10th ed. 2009) (defining
    “prevailing party” as the one “in whose favor a judgment is rendered”).
    ¶28          The majority uses § 12-341.01(A) to impermissibly alter the meaning of
    “the prevailing party” in the MVA. The second sentence in § 12-341.01(A) does not
    define the “successful party” in a lawsuit and thus does not shed light on the parties’
    use of “the prevailing party” in the MVA. Instead, the second sentence “deem[s]” the
    unsuccessful party in the lawsuit the “successful party,” and thus eligible for a
    discretionary fee award, if the final judgment is “equal to or more favorable” than a
    previously rejected settlement offer. And that party is only considered “successful”
    from the offer date, meaning the other party can be “successful” and eligible for a fee
    award before the offer date. In essence, the second sentence serves as a fee-shifting
    device to encourage settlement; it does not apply to the party that prevails on the merits
    of the lawsuit. Cf. 
    Hall, 229 Ariz. at 282
    18, 274 P.3d at 1216
    (“The purposes of § 12-
    341.01(A) include . . . promoting settlements and thus reducing caseloads involving
    contractual matters.”). Although it is appropriate to use tests developed under § 12-
    341.01(A) to identify the “prevailing party” overall in light of “multiple claims and
    varied success,” see Murphy Ferrell 
    Dev., 229 Ariz. at 134
    36, 272 P.3d at 365
    , it is not
    appropriate to use § 12-341.01(A) to change the meaning of “the prevailing party” in the
    MVA.
    10
    AMERICAN POWER PRODUCTS v. CSK AUTO
    JUSTICE TIMMER, Dissenting
    ¶29            Rather than respect the parties’ intent to mandate a fee award for the
    single, prevailing party in the lawsuit, the majority uses the second sentence from § 12-
    341.01(A) to redefine “the prevailing party” and require awards for each party. There
    are now two prevailing parties—American before the settlement offer and CSK
    thereafter—and each must be awarded attorney fees. This interpretation alters the
    MVA’s fee provision in violation of the third sentence in § 12-341.01(A). I would affirm
    the trial court’s attorney fee award.
    11