REPORT AND RECOMMENDATION
JACQUELINE M. RATEAU, Magistrate Judge.
Pending before the Court is Defendant Life Care Centers of America, Inc.'s unopposed Motion for Award of Attorneys' Fees (Doc. 64). The Magistrate Judge recommends that Life Care's Motion be granted in part and award Defendant attorneys' fees in the amount of $3,452.85.
I. Factual and Procedural Background
Plaintiff filed his original complaint on October 10, 2016, asserting two claims: (1) wrongful termination under the Arizona Employment Protection Act (AEPA), and (2) breach of the implied covenant of good faith and fair dealing. After Plaintiff filed his Complaint and before Defendant filed any responsive pleading, the parties exchanged settlement offers, but were unable to resolve the case. Fiore Decl. ¶ 13.
Defendant moved to dismiss the case in its entirety on December 21, 2016. Doc. 10. In response, Plaintiff filed an Amended Complaint alleging the same two causes of action. Doc. 12. The parties then stipulated to the filing of the Amended Complaint and giving Defendant 30 days to answer or otherwise respond to the Amended Complaint. Docs. 15 (Stipulated Motion), 16 (Order granting motion). Defendant did not renew the Motion to Dismiss; rather, it filed an Answer to the Amended Complaint on February 27, 2017. Doc. 17.
On June 2, 2017, the Court issued a scheduling order and the parties proceeded to conduct discovery. See Docs. 21, 30, 38, 49, 50 (Plaintiff's discovery notices); 20, 27, 28, 29, 31, 32, 33, 34, 35, 37, 43, 44, 45 (Defendant's discovery notices). During discovery, Defendant inquired about settlement. Plaintiff made a revised settlement demand, to which Defendant responded on December 14, 2017. Fiore Decl. ¶ 15. Plaintiff's counsel stated that he would relate the offer to his client and respond, but he never responded. Id. Defendant's counsel subsequently called Plaintiff's counsel to inquire about the offer and to move settlement discussions forward. Id. On March 6, 2018, Defendant's counsel sent a letter to Plaintiff's counsel that reiterated the December 14, 2017 settlement offer and noted that Plaintiff had yet to respond to it. Id. Defendant specifically noted that it hoped to resolve the case prior to the parties incurring significant fees associated with a motion for summary judgment. Id. Plaintiff neither responded to the letter nor made any new settlement overture. Id.
On March 30, 2018, after the close of discovery, Defendant filed its Motion for Summary Judgment requesting dismissal of the two claims alleged in the Amended Complaint. Doc. 51. Plaintiff responded to the motion, arguing that summary judgment should not be granted on his claim under the AEPA, but offering no argument in support of his claim for breach of the implied covenant of good faith and fair dealing. Doc. 56. Defendant replied in support of the motion and noted that Plaintiff had made no attempt to save his claim for breach of the implied covenant of good faith and fair dealing. Doc. 11.
On August 17, 2018, the Court issued its Report and Recommendation to the District Court recommending that Defendant's Motion for Summary Judgment be granted. Doc. 59. Approximately 7 pages of discussion in the Report and Recommendation addressed the parties' AEPA-related arguments. One page of the discussion addressed Plaintiff's claim for breach of the implied covenant of good faith and fair dealing. Id. No objections were filed and, on November 5, 2018, the District Court adopted the Report and Recommendation, granted Defendant's Motion for Summary Judgment, and ordered the case dismissed with prejudice. Doc. 60.
II. Discussion
In the motion before the Court, Defendant requests and award of attorneys' fees under A.R.S. § 12-341.01. Specifically, Defendant requests a fee award in the amount of $38,132.50 (36.17% of its total fees), which represents all fees incurred in the preparation, drafting and finalizing of its Motion to Dismiss and its Motion for Summary Judgment. Alternatively, Defendant requests a fee award in the amount of $3,452.00, which is an approximated percentage of the fees attributable to defending against Plaintiff's claim of breach of the implied covenant of good faith and fair dealing. The Court recommends that the District Court grant the fee request in the amount of $3,452.85.
A. Eligibility Under A.R.S. § 12-341.01
Under A.R.S. § 12-341.01(A), "[i]n any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees." The Ninth Circuit has recognized that A.R.S. § 12-341.01 itself "makes clear that a fee award may not exceed the amount necessary to defend against those claims for which such fees are appropriate." Harris v. Maricopa County Superior Court, 631 F.3d 963, 972 (9th Cir. 2011). Defendant argues that it is entitled to fees for both claims alleged in the Amended Complaint under § 12-341.01(A) because both "aris[e] out of a contract." To determine whether a claim "arise[s] out of a contract," the Court examines whether the "claim could not exist `but for' the breach or avoidance of contract." Ramsey Air Meds, L.L.C. v. Cutter Aviation, Inc., 6 P.3d 315 (Ariz. App. 2000); see also A.H. By and Through White v. Arizona Property and Cas. Ins. Guar. Fund, 950 P.2d 1147 (Ariz. 1997) (en banc). A defendant is entitled to an award of attorney's fees under the statute if the court finds that no contract existed or if the plaintiff was unsuccessful in recovering on the contract. Chevron U.S.A., Inc. v. Schirmer, 11 F.3d 1473, 1480 (9th Cir. 1993) (citation omitted).
Addressing first Plaintiff's claim alleging breach of the covenant of good faith and fair dealing, the Court finds an award of attorneys' fees appropriate. A breach of an implied covenant of good faith and fair dealing can lead to liability in either contract or tort depending on the circumstances. See Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Tr. Fund, 38 P.3d 12, 28-29 (Ariz. 2002). In the Amended Complaint, Plaintiff asserts that the breach in this case occurred "when the Defendant, through their agent and his supervisor, terminated [Plaintiff's] employment for bad cause." Doc. 13, ¶ X. As is relevant to Plaintiff's claim of breach of the implied covenant of good faith and fair dealing, the AEPA provides that an employment relationship is at-will and severable by either party unless the parties "have signed a written contract to the contrary setting forth that the employment relationship shall remain in effect for a specified duration of time." A.R.S. § 23-1501(A)(2). "An employee has a claim against an employer for termination of employment only if . . . (a) The employer has terminated the employment relationship of an employee in breach of an employment contract. . . . A.R.S. § 23-1501(A)(3). Under the requirements of the AEPA, Plaintiff's bad faith claim was potentially viable only if he could prove the existence of an employment contract. See White v. AKDHC, LLC, 664 F.Supp.2d 1054, 1065 (D. Ariz. 2009) (the implied duty of good faith and fair dealing "protects an employee only to the extent that the employer denied the terminated employee benefits agreed to in the employment contract."). Here, Defendant defeated the claim by showing that, in fact, no such contract existed. See Doc. 59, pp. 12-13 (Report and Recommendation), Doc. 60 (order adopting R&R). Therefore, on the claim of breach of the implied covenant of good faith and fair dealing, Defendant meets the threshold requirements for an award of fees under A.R.S. § 341.01. See Chevron, 11 F.3d at 1480 (fees available under § 12-341.01 because plaintiff's complaint alleged the existence of contracts).
Defendant argues that it is entitled to an award of attorneys' fees for work performed in relation to Plaintiff's retaliatory-discharge claim because the claim is "interwoven" with Plaintiff's claim of breach of the implied covenant of good faith and fair dealing. However, while the Court recognizes that the two claims implicated many of the same facts, Plaintiff's AEPA claim did not arise out of a contract for purposes of A.R.S. § 12-341.01(A).
Under the AEPA, an "employment relationship is severable at the pleasure of either the employee or the employer." A.R.S. § 23-1501(A)(2). The statute does, however, allow employees to sue for wrongful termination under limited circumstances. See A.R.S. § 23-1501(A)(3); Johnson v. Hispanic Broadcasters of Tucson, Inc., 2 P.3d 687, 689 (Ariz. App. 2000) (explaining that "[t]he legislature's stated intent in enacting § 23-1501 was to limit the circumstances in which a terminated employee can sue an employer"). Although Plaintiff did not reference the AEPA in either his original or amended complaint, Defendant and the Court recognized that Plaintiff's wrongful termination claim was based upon either A.R.S. § 23-1501(3)(c)(i) or A.R.S. § 23-1501(3)(c)(ii). See Doc. 10, pp. 1-3 (Defendant's Motion to Dismiss); Doc. 51, pp. 6-14 (Defendant's Motion for Summary Judgment); Doc. 59, pp. 5-12 (Report and Recommendation). Section 23-1501(3)(c)(i) prohibits the termination of an employee based on the employee's refusal to violate an Arizona law, and section 23-1501(3)(c)(ii) prohibits the termination of an employee based on the employee's disclosure of a belief that the employer was violating Arizona law. Neither section provides for a contractual claim. Rather, both provide for statute-based claims and A.R.S. § 12-341.01(A) does not apply to such statutory claims. See Vera v. Sun Land Beef Co., No. 1 CA-CV 07-0479, 2009 WL 532625, at *5 (Ariz. App. Mar. 3, 2009) (holding that plaintiff's "retaliatory-discharge claim did not arise out of a contract for purposes of A.R.S. § 12-341.-01(A)") (citing Kennedy v. Linda Brock Auto. Plaza, Inc., 856 P.2d 1201, 1203 (Ariz. App.1993)). As such, fees related to the retaliatory discharge claim are not recoverable under § 12-341.01(A).
Even though the retaliatory discharge claim did not arise out of a contract, Defendant contends that the claim was so interwoven with Plaintiff's contractual claim fees should nevertheless be awarded. The Arizona courts have held that "when two claims are so intertwined as to be indistinguishable, a court has discretion to award attorney fees under § 12-341.01 even though the fees attributable to one of the causes of action would not be recoverable under this statute." Zeagler v. Buckley, 219 P.3d 247, 249 (Ariz. App. 2009) (citations omitted). In this case, the Court finds that such an award is not warranted. The two claims alleged in the Amended Complaint were readily distinguishable—one was a statutory claim and the other a contractual claim. The significance of each claim is illustrated by the attention paid to each by the Defendant and Court. Argument on the statutory claim consumed approximately eight pages in the Defendant's Motion for Summary Judgment, while argument related to the contract claim required little over one page. See Doc. 51, pp. 6-15. Similarly, discussion of the retaliatory discharge claim consumed seven pages of the Court's Report and Recommendation, while the contractual claim required only one page. See Doc. 59, pp. 5-13. A review of the Defendant's argument and the Court's discussion establish that the contractual claim was readily disposable because Plaintiff could not show he was anything other than an at-will employee and did not even argue that an employment contract existed between he and Defendant. Given these circumstances, the Court finds it would be inappropriate to recommend a fee award on the statutory retaliatory discharge claim when it so clearly predominated over the contractual claim and because the latter claim required little argument to defeat.
B. Associated Indemnity Factors
A finding of eligibility for an award of attorneys' fees does not end the Court's inquiry. After eligibility is established, the Court must examine the factors listed in Associated Indem. Corp. v. Warner, 694 P.2d 1181 (Ariz. 1985), to determine if fees should be granted. See Sanborn v. Brooker & Wake Prop. Mgmt., Inc., 874 P.2d 982, 987 (Ariz. App. 1994). The Arizona courts have identified the following factors as useful in making an attorney's fee determination: (1) the merits of the claim or defense presented by the unsuccessful party; (2) whether the litigation could have been avoided or settled and the successful party's efforts were completely superfluous in achieving the results; (3) whether assessing fees against the unsuccessful party would cause an extreme hardship; (4) whether the successful party did not prevail with respect to all the relief sought; (5) the novelty of the legal question presented; (6) whether such claim or defense had previously been adjudicated in this jurisdiction; and (7) whether the award in any particular case would discourage other parties with tenable claims or defenses from litigating or defending legitimate contract issues for fear of incurring liability for substantial amounts of attorney's fees. Associated Indem. Corp., 694 P.2d at 1184.
Applying the Associated factors first requires the Court look at the merits of Plaintiff's position throughout this case. The Court finds that Plaintiff's breach of the implied covenant of good faith and fair dealing lacked merit from the outset because Plaintiff never signed a written employment contract with Defendant. This being the case, Plaintiff was clearly an at-will employee. See A.R.S. § 23-1501(A)(2) ("The employment relationship is severable at the pleasure of either the employee or the employer unless both the employee and the employer have signed a written contract. . . .").
The second factor considers whether the case could have been settled or avoided. Defendant asserts that its settlement offers were rejected early in the litigation and later completely ignored. Considering Defendant's representations, which are uncontroverted, the Court concludes that Defendant should be credited with its efforts to settle the case and Plaintiff should be discredited for his counsel's failure to convey or respond to settlement offers.
The third factor requires the Court to determine whether assessing attorneys' fees against Plaintiff would cause him extreme hardship. Plaintiff, who apparently has been abandoned by his counsel, did not respond the motion for attorneys' fees and has therefore presented no evidence that would support a finding of extreme hardship.
Fourth, the Court must consider whether Defendant prevailed with respect to all relief sought. This factor weighs in favor of awarding attorneys' fees as the Court granted summary judgment for Defendant on both of Plaintiff's claims.
As to the fifth factor, which addresses the novelty of the legal issues presented in this case, and the sixth factor, which addresses whether such claim or defense has previously been adjudicated in Arizona, the Court finds that similar breach of contract issues have been litigated in Arizona and the only novel or challenging aspect of the case involved the claim alleged under the AEPA. The contract claim was not novel and, as discussed above, was disposed of readily
The last factor requires the Court to determine if an attorneys' fee award in this case would deter others from bringing meritorious claims. No chilling effect results where a contract claim should have been dismissed early on. See Fulton Homes Corp. v. BBP Concrete, 155 P.3d 1090, 1096-97 (Ariz. App. 2007). This is particularly so where, as here, the fees requested are not exorbitant and an award would encourage parties to thoroughly consider and investigate their contractual claims before filing them. Id.
After considering the Associated factors, the Court finds that awarding Defendant's attorneys' fees in relation to Plaintiff's contractual claim is appropriate and recommends that fees be awarded in the amount of $3,452.85.
III. Recommendation
Based on the foregoing, the Magistrate Judge RECOMMENDS that the District Court, after its independent review, GRANT IN PART AND DENY IN PART Defendant's Motion for Award of Attorneys' Fees (Doc. 64) and enter an attorneys' fees award in the amount of $3,452.85.
This Recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of the District Court's judgment.
However, the parties shall have fourteen days from the date of service of a copy of this recommendation within which to file specific written objections with the District Court. See 28 U.S.C. § 636(b)(1) and Rules 72(b), 6(a) and 6(e) of the Federal Rules of Civil Procedure. Thereafter, the parties have fourteen days within which to file a response to the objections. Replies shall not be filed without first obtaining leave to do so from the District Court. If any objections are filed, this action should be designated case number: CV 16-741-TUC-RCC. Failure to timely file objections to any factual or legal determination of the Magistrate Judge may be considered a waiver of a party's right to de novo consideration of the issues. See United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc).
