Wagenseller v. Scottsdale Memorial Hospital

HOLOHAN, Chief Justice,

dissenting and specially concurring.

The Court of Appeals held in this case that the personnel manual was not, as a matter of law, part of the employment contract. I concur in that position because I find the analysis of the Court of Appeals more convincing than that advanced by the majority of this court. I, therefore, dissent from the opinion of the court on that issue.

On the remaining issues I concur in the result.

SUPPLEMENTAL OPINION

FELDMAN, Justice.

This supplemental opinion concerns plaintiff’s request for attorney’s fees on appeal and review pursuant to A.R.S. § 12-341.01 and Wenk v. Horizon Moving & Storage Co., 131 Ariz. 131 , 639 P.2d 321 (1982). We granted review under Rule 23(f), Ariz.R. Civ.App.P., 17A A.R.S. We have jurisdiction pursuant to Ariz. Const, art. 6, § 5(3) and A.R.S. § 12-120.24. We consider two issues with regard to fee awards to a successful appellant:

(1) Under Rule 21(c) Ariz.R.Civ.App.P., 1 17A A.R.S., does “briefs on appeal” include petitions for review, and does “oral argument” include the argument on the petition for review'?

(2) Is a party who successfully appeals the trial court’s grant of summary'judgment, but gains only the right to trial, a “successful party” on appeal, entitled to *390 attorney's fees under A.R.S. § 12-341.-01?

FACTS

A full account of the facts is contained in Wagenseller v. Scottsdale Memorial Hospital, 147 Ariz. 370 , 710 P.2d 1025 (1985). We give only those facts necessary to the resolution of the issues we address in this supplemental opinion. After being fired, Catherine Sue Wagenseller (plaintiff) brought an action against her former employer, Scottsdale Memorial Hospital. Plaintiff alleged five counts arising out of the termination of her at-will employment contract. Prior to the scheduled jury trial the trial court granted defendant’s motions for summary judgment on three of the counts. On the first day of trial, the trial court ruled against plaintiff on the remaining counts. Both parties had properly requested attorney’s fees under § 12-341.01 in their pleadings as required by Rule 3.7(e)(1), Super.Ct. Local Prac.Rules, Maricopa County, 17A A.R.S. The trial court granted defendant $2,000 in attorney’s fees as the successful party.

Plaintiff appealed the adverse judgment to the court of appeals. She did not request attorney’s fees as provided by Rule 21(c)(1), which requires that applications for counsel fees be made prior to the submission of the appeal. The court of appeals ruled against plaintiff on four of the five counts. Plaintiff then petitioned for review to this court, but did not request an allowance of fees in the petition for review or by motion before oral argument. Our decision vacated the opinion of the court of appeals and reversed the judgment of the trial court on four of the five counts. Because no request was made to award counsel fees, our decision made no reference to the subject. After the decision plaintiff filed a statement of costs in which she included her request for attorney’s fees. No rule expressly governs the procedure for seeking an allowance of attorney’s fees on petitions for review. The procedure set out in Rule 21(c) speaks to appeals: parties must submit their fee requests in their “briefs on appeal” or in motions filed “prior to oral argument or submission of the appeal " (emphasis added). If the rule’s application is restricted to appeals, parties who petition this court for review or who respond to such petitions will be denied guidance on how and when to submit requests for attorney’s fees. There is no reason for such a denial. Because these rules are to be construed liberally in furtherance of justice, Rule 3, we hold in accordance with Ariz.Const, art. (i, § 5(4) and (5), that the procedures of Rule 21(c) apply to proceedings on a petition for review as well as to appeals.

TIMELINESS OF ATTORNEY’S FEE REQUESTS IN PROCEEDINGS ON PETITION FOR REVIEW

A request for attorney’s fees is timely under Rule 21(c) if it is made in the briefs or prior to the submission of the appeal. Rule 21 does not contemplate that an initial request for allowance of fees should be made in the statement of costs after decision as was done in the present case. It merely provides that if the court has awarded fees, the successful party may seek a determination of the specific amount as part of its statement of costs filed after decision pursuant to Rule 21(a).

Plaintiff concedes that a request for allowance of fees made for the first time in a statement of costs is untimely, but argues that her failure to request fees in a timely fashion was attributable to the lack of correspondence between the procedure contemplated by Rule 21(c)(1) and the actual procedure involved in petitioning for review by the Arizona Supreme Court. Plaintiff claims that petitions for review are not the “briefs” referred to by Rule 21(c) because if this court grants review, it may still order the parties to file additional briefs. See Rule 23(f). Plaintiff similarly claims that because her oral argument took place before we granted review, 2 it could not be *391 the “oral argument” referred to by the rule. Arguing that the procedure followed in this case did not fall strictly within Rule 21(e), plaintiff urges this court to exercise its power under Rule 3 and to suspend the procedural requirements of Rule 21(c).

Statutes and common law practices that require the losing party to pay the successful party’s attorney’s fees are contrary to traditional American jurisprudence. Under the so-called American rule, counsel fees are not regarded as “costs” and each party to litigation generally bears its own attorney’s fees regardless of who prevails. State v. Boykin, 112 Ariz. 109, 113 , 538 P.2d 383, 387 (1975). Over the years, especially in this century, courts and legislatures have fashioned exceptions to this rule. These exceptions are commonly intended 1) to encourage private enforcement of public laws by victims, 2) to discourage non-meritorious litigation, 3) to encourage a just claim or a just defense, or 4) to promote settlement of disagreements out of court. Fee shifting under A.R.S. § 12-341.01(A) serves the last three purposes. Senate Committee on Judiciary, Minutes of Meeting, Mar. 29, 1976 on S.B. 1243 (explanation of Sen. Walsh that the provision “would bring Arizona more in line with a portion of the British system where they have less litigation than the United States”); see also, Rambow, Statutory Attorney’s Fees in Arizona: An Analysis of A.R.S. Section 12-34-1.01, 24 ARIZ.L.REV. 659, 661 (1982). Unless each party is on notice before each stage of the law suit that its opponent intends to ask for attorney’s fees, the last purpose cannot be served. To this end, and to spare courts from considering each case twice—once on the merits and once on the question of fees—local Superior Court Rule 3.7(e) and appellate Rule 21(c) require notice of the fee request before trial or submission of the appeal respectively. Because parties who petition this court for review under Rule 23 may never have the opportunity to submit “additional briefs,” we hold that “briefs” in Rule 21(c) include petitions for review by this court.

Because it is unlikely that petitioners will have two oral arguments before this court, we also hold that “oral argument” includes any oral argument whether prior to or after our grant of review. Thus, to be timely under Rule 21(c) on petitions for review by this court, the request for attorney’s fees must be made either in the petition for review, the response thereto or by separate written motion filed and served prior to oral argument.

We have not previously addressed timeliness of fee requests on petitions for review in this court. Because of the confusing posture of the rules and possible resultant prejudice we suspend the requirements of the rule in this instance as to both parties’ filings to date 3 and reach the merits of the parties’ arguments.

SUCCESSFUL PARTY

A.R.S. § 12-341.01 provides that in “any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney’s fees.” The central issue in this case is whether a party who appeals and succeeds in reversing the trial court’s entry of summary judgment is a “successful party” under the statute, thus eligible to recover attorney’s fees despite not yet having prevailed on the merits of any of the underlying claims. Plaintiff claims she is a successful party because she succeeded on four of the five issues presented to this court. She argues that entitlement to an *392 award for a successful appeal does not depend on the eventual outcome of subsequent trial court proceedings and relies on Wenk v. Horizon Moving & Storage Co., supra, in which this court held attorney’s fees are awardable on appeal under § 12-341.01. In Wenk plaintiffs had prevailed at trial but had been denied an attorney’s fee award. Plaintiffs appealed the adverse ruling on the fees. From the record we could not determine whether

the trial court found that appellants: (1) could not recover in contract; (2) could recover in contract but instead found their recovery in tort; or (3) did recover in contract and could have been awarded attorney’s fees but were not awarded them within the court’s discretion under A.R.S. § 12-341.01(A).

131 Ariz. at 132-33 , 639 P.2d at 322-23 . We therefore remanded the case, instructing the trial court to clarify the basis for its denial of an award of attorney’s fees. 131 Ariz. at 133 , 639 P.2d at 323 . Wenk is not dispositive of the question before us. In that case plaintiffs had already prevailed on the merits, and judgment had been entered in their favor at the trial level. The remand to the trial court for further proceedings was therefore unlike the remand in this case: Wagenseller still faces a trial on the merits.

Defendants argue that plaintiff is not the successful party under § 12-341.01 because she has yet to succeed on the merits of any of her claims. She has merely accomplished reversal of the trial court’s entry of summary judgment against her. Defendants rely on Esmark, Inc. v. McKee, 118 Ariz. 511, 514 , 578 P.2d 190, 193 (App. 1978). Esmark,, like Wenk , did not address the question before us. In Esmark plaintiff was successful in achieving reversal of the summary judgment entered for the defendant. The court of appeals ruled that in light of the outcome of the appeal, the trial court’s award of attorney’s fees to the defendant was premature: “there is as yet no successful party in the action below.” Id. (emphasis supplied). The court did not address the issue of whether plaintiff was the successful party on appeal, which is the question we face. In Huff v. Bekins Moving & Storage Co., 145 Ariz. 496 , 702 P.2d 1341 (App.1985), the court of appeals found unresolved factual issues and reversed, holding the trial court had improperly granted summary judgment. Without discussion, the court awarded plaintiff attorney’s fees in connection with the appeal. 145 Ariz. at 498 , 702 P.2d at 1343 . Review was not sought.

Thus, this court has yet to consider whether a party who is successful in reversing summary judgment, enabling it to have a trial on the merits, is a “successful party.” 4 If the statute expressly defined a successful party we would be bound by the legislative definition. Serna v. Statewide Contractors, Inc., 6 Ariz.App. 12, 15 , 429 P.2d 504, 507 (1967). No such specific definition is provided and we are thus faced with the necessity of construing the provision.

1. Is a Party Who Prevails on an Interim Appeal a “Successful Party” Eligible for Award of Fees I

A.R.S. § 12-341.01 makes no reference to adjudication on the merits as a prerequisite to recovering attorney’s fees as a successful party. See All American Distributing Co. v. Miller Brewing Co., 736 F.2d 530, 532 (9th Cir.1984) (interpreting “prevailing party” for purposes of an attorney’s fees award under A.R.S. § 44-1567(A)). By way of contrast, A.R.S. § 12-348 expressly permits fees only to the party “which prevails by an adjudication on the merits.” Although this comparison is not conclusive on the question, it hints at its resolution.

Other jurisdictions with similarly worded attorney’s fees statutes provide little guidance on the necessity of prior success on the merits under § 12-341.01. Hanrahan *393 v. Hampton, 446 U.S. 754 , 100 S.Ct. 1987 , 64 L.Ed.2d 670 (1980), appears at first to provide the unequivocal answer to our question. In that case the trial court directed a verdict against plaintiffs on three counts. The court of appeals reversed, remanding the case for a new trial, and awarded plaintiffs costs on appeal, including attorney’s fees. The Supreme Court reversed the award of attorney’s fees. 446 U.S. at 759 , 100 S.Ct. at 1990 . It held that because plaintiffs had not yet prevailed on the merits of any of its claims they were not prevailing parties in the sense intended by 42 U.S.C. § 1988 and therefore should be denied attorney’s fees. 446 U.S. at 756 , 100 S.Ct. at 1989 . The basis of the court’s construction of “prevailing party” under 42 U.S.C. § 1988 was congressional intent as shown by the statute’s legislative reports and history: “[i]t seems apparent from these passages that Congress intended to permit the interim award of counsel fees only when a party has prevailed on the merits of at least some of his claims.” 446 U.S. at 757-58 , 100 S.Ct. at 1989 .

In United States v. 329.73 Acres of Land, 704 F.2d 800 (5th Cir.1983), “prevailing party” was given a more flexible interpretation when the court found eligibility for attorney’s fees did not require a final judgment on the merits. Although the United States had prevailed in its action to condemn defendant’s property, the court ruled defendant was the prevailing party for purposes of attorney’s fees: defendant had shown “just compensation” to be substantially greater than what the government had previously offered. Id. at 808-09 . The court defined “prevailing party” differently from Han rah an because the history of the statute establishing the right to fees ( 42 U.S.C. § 2412 ) showed different legislative objectives. The court quoted the following from the legislative reports:

Under existing fee-shifting statutes, the definition of prevailing party has been the subject of litigation. It is the committee’s intention that the interpretation of the term in S.265 be consistent with the law that has developed under existing statutes. Thus, the phrase “prevailing party” should not be limited to a victor only after an entry of a final judgment following a full trial on the merits. A party may be deemed prevailing if he obtains a favorable settlement of his case ...; if the plaintiff has sought a voluntary dismissal of a groundless complaint, ... on all issues. In cases that are litigated to conclusion, a party may be deemed “prevailing” for purposes of a fee award in a civil action prior to the losing party having exhausted its final appeal. A fee award may thus be appropriate where the party has prevailed on an interim order ... which was central to the case, or where an interlocutory appeal is “sufficiently significant and discrete to be treated as a separate unit. ”

Id. (emphasis supplied) (quoting, S.Rep. No. 253, 96th Cong., 1st Sess. 7 (1979) and Van Hoomissen v. Xerox Corp., 503 F.2d 1131, 1133 (9th Cir.1974)).

We draw several conclusions from the foregoing. First, the meaning of an ambiguous statutory term with a special legislative history may have little implication for the identical term in a second statute. Second, it appears there is a definite split in the interpretation of terms such as “successful parties” and “prevailing parties.” Where the language of the statute is susceptible of more than one interpretation, we must adopt that which is fair, sensible and consistent with the legislatively articulated purpose of the statute and with our general legal principles and prior rulings. See City of Phoenix v. Superior Court, 139 Ariz. 175, 178 , 677 P.2d 1283, 1286 (1984).

We believe that under A.R.S. § 12-341.01 “successful party” on appeal is not limited to those who have a favorable final judgment at the conclusion of the appeal process. It may include those who achieve reversal of an unfavorable interim order if that order is central to the case and if the appeal process finally determines an issue of law sufficiently significant that the appeal may be considered as a separate *394 unit. Because Wagenseller’s appeal was on an interim order which settled issues of law central to the case, and because it was sufficiently significant to be treated as a separate unit, we find her eligible under the statute for an award of attorney’s fees with respect to the favorable outcome of her petition for review before this court.

Our ruling is consistent with Wenk, supra, in which we said “who is the ‘successful party’ is never certain until the appeal process is concluded.” Our definition of successful party on appeal also promotes the legislatively articulated objectives of the statute as described above (supra at 1046). These include, also, the desire to “mitigate the burden of the expense of litigation to establish a just claim or a just defense.” A.R.S. § 12-341.01(B); see also Committee on the Judiciary, Minutes of Meeting, supra, (proposed section 12-341.-01 is a “client-relief” bill). To establish that she had a tenable legal claim, Wagenseller was constrained to appeal the entry of summary judgment. In successfully doing so, she established important points of law and public policy. The legitimate ends of the statute are served by holding as we do that she is a “successful party” eligible for fees.

2. Are All Successful Parties Entitled to Fee Awards Under § 12-341.01?

Under A.R.S. § 12-341.01 the inquiry as to whether a party should receive a fee award does not stop with a determination of the party’s eligibility as a “successful party.” The language of the statute makes the permissive nature of the award quite clear:

In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney’s fees.

A.R.S. § 12-341.01(A) (emphasis added); see also Autenreith v. Norville, 127 Ariz. 442, 444 , 622 P.2d 1, 3 (1980). Mere eligibility does not establish entitlement to fees. Associated Indemnity Corp. v. Warner, 143 Ariz. 567, 569 , 694 P.2d 1181, 1183 (1985). In Warner we enumerated six standards to assist the trial judge in determining whether attorney’s fees should be granted under the statute, once eligibility has been established. The court should consider:

(1) whether the unsuccessful party’s claim or defense was meritorious;

(2) whether the litigation could have been avoided or settled and the successful party’s efforts were completely superfluous in achieving the result;

(3) whether assessing fees against the unsuccessful party would cause an extreme hardship;

(4) whether the successful party prevailed with respect to all of the relief sought;

(5) whether the legal question presented was novel and whether such claim or defense have previously been adjudicated in this jurisdiction; and

(6) whether the award 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. 143 Ariz. at 570 , 694 P.2d at 1184 .

We believe appellate courts should weigh the same factors in deciding to award fees. Wagenseller’s claim presented this court with a novel legal issue. Resolution could not have been achieved without Wagenseller’s pursuing the matter through the appeal process. Her legal position was meritorious and her efforts resulted in a change of the law that enables her to pursue her rights either by adjudication or settlement. An award of attorney’s fees under the circumstances will encourage parties to seek to have their rights interpreted under the proper law. To deny fees to the successful appellant under these circumstances could well undermine the statute by discouraging meritorious litigants from establishing their “just claim.”

We grant plaintiff’s request for an allowance of attorney’s fees for review proceedings before this court. The amount is to be determined pursuant to Rule 21(c) and *395 Schweiger v. China Doll Restaurant, Inc., 138 Ariz. 183, 186-88 , 673 P.2d 927, 930-32 (App.1983). We grant defendants five days to file objections to plaintiff’s itemized statement for services in this court. No fees will be allowed for the proceedings in the court of appeals.

GORDON, V.C.J., and HAYS and CAMERON, JJ., concur.

. The Rules of Civil Appellate Procedure, 17A A.R.S., will be referred to as "Rule-.”

. Rule 23(f) contemplates that this court may hear oral argument after review has been grant *391 ed. No rule permits oral argument prior to a grant of review, but in a few cases this court has sua sponte exercised its discretion to suspend the rules and to set oral argument on the question of whether review should be granted. Such cases have invariably been those which involve important issues and in which the question of whether to grant review has been close. We do not encourage applications to invoke this procedure.

. Because plaintiff's request for attorney’s fees in the court of appeals was clearly untimely— the rule is unambiguous as to appeals—we do not consider the merits of that request.

. When there are cross-motions for summary judgment at the trial level a different situation is presented. Reversal by the appeals court may mean judgment for the plaintiff. Thus, the succcssful party on appeal is simultaneously the successful party on the merits. See Winter v. Coor, 144 Ariz. 56, 65 , 695 P.2d 1094, 1103 (1985).