NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
BERGHOFF DESIGN GROUP, INC., Plaintiff/Appellee,
v.
MARY GERDTS, et al., Defendant/Appellants.
No. 1 CA-CV 20-0623
FILED 7-13-2021
Appeal from the Superior Court in Maricopa County
No. CV2018-012080
The Honorable James D. Smith, Judge
AFFIRMED
COUNSEL
Bluff & Associates, Phoenix
By Guy W. Bluff (argued) and Bruce A. Smidt
Counsel for Plaintiffs/Appellees
Lewis Roca Rothgerber Christie LLP, Phoenix
By Robert H. McKirgan (argued) and Jared L. Sutton
Counsel for Defendants/Appellants
BERGHOFF v. GERDTS, et al.
Decision of the Court
MEMORANDUM DECISION
Judge Paul J. McMurdie delivered the Court’s decision, in which Presiding
Judge Peter B. Swann and Judge David D. Weinzweig joined.
M c M U R D I E, Judge:
¶1 Mary Gerdts and Douglas McKinney appeal the superior
court’s order awarding Berghoff Design Group, Inc. (“Berghoff”) attorney’s
fees, arguing that the court abused its discretion by finding that Berghoff
was the successful party in an arbitrated contract dispute. Because a
reasonable basis supports the court’s determination, we affirm.
FACTS AND PROCEDURAL BACKGROUND
¶2 Beginning in May 2016, Gerdts and McKinney entered a series
of contracts with Berghoff in which Berghoff agreed to design and install
extensive landscaping and hardscaping features at Gerdts and McKinney’s
home. Before the litigation commenced, Berghoff had billed Gerdts and
McKinney for $531,207, and they had paid $481,918. However, Berghoff
requested payment in full, and Gerdts and McKinney refused, disputing
that Berghoff had completed the work.
¶3 In September 2018, Berghoff filed a complaint against Gerdts
and McKinney, alleging several claims, including breach of contract, and
claiming that $49,289 remained due under the contract. Gerdts and
McKinney filed several counterclaims, including breach of contract. In
addition, they alleged that Berghoff owed them $70,833 because Berghoff
did not complete the work and used defective materials.
¶4 After an unsuccessful settlement conference, the parties
exchanged settlement offers. Berghoff offered to accept $30,433 to settle the
litigation. Gerdts and McKinney counteroffered that all parties walk away
and bear their costs and attorney’s fees. Later, Gerdts and McKinney
offered to pay Berghoff $10,000 to settle the litigation. In April 2020, as the
trial date approached, Berghoff made a final settlement offer to accept
$65,000. Gerdts and McKinney counteroffered to pay $15,000 and suggested
arbitration as an alternative to trial.
¶5 The parties ultimately agreed to arbitration. After an
evidentiary hearing and a site visit, the arbitrator concluded that Berghoff
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BERGHOFF v. GERDTS, et al.
Decision of the Court
rendered services for which Gerdts and McKinney agreed to pay $35,367
but that Gerdts and McKinney were entitled to $34,588 of offsets for
improperly installed lights and defective orange trees. Accordingly, the
arbitrator awarded Berghoff $779.
¶6 Both parties applied to the superior court for costs and
attorney’s fees under A.R.S. § 12-341.01. The court used the net judgment
rule and concluded that Berghoff was the prevailing party. The court
awarded Berghoff attorney’s fees of $52,480, half of the fees requested. The
court reduced the fees to account for Berghoff’s losses on several of its
affirmative claims, litigation involving routine issues, and inefficiencies
apparent in Berghoff’s counsel’s time entries.
¶7 Gerdts and McKinney appealed the fee award, and we have
jurisdiction under A.R.S. §§ 12-120.21(A)(1) and -2101(A)(1).
DISCUSSION
¶8 We view the facts in a light most favorable to upholding the
superior court’s judgment and will affirm the superior court’s successful
party determination for attorney’s fees purposes if a reasonable basis
supports it. Berry v. 352 E. Virginia, L.L.C., 228 Ariz. 9, 13, ¶ 21 (App. 2011).
A. Berghoff Was the Successful Party under the Net Judgment Rule.
¶9 When adverse parties assert claims and counterclaims arising
from the same contract, the party awarded a higher net judgment may be
deemed the successful party under A.R.S. § 12-341.01. Ocean W. Contractors,
Inc. v. Halec Const. Co., 123 Ariz. 470, 473–74 (1979).
¶10 Gerdts and McKinney argue that they were the successful
parties under the net judgment rule because they were awarded a setoff of
$48,510 while Berghoff was awarded only $779. But the net judgment rule
turns on Berghoff’s net award, not Gerdts and McKinney’s gross award.
¶11 As the arbitration commenced, Berghoff alleged $49,289
remained due under the contract. However, Gerdts and McKinney claimed
that because of overbilling and defective work, they owed Berghoff nothing
and Berghoff owed them $70,833, making the total value of their
counterclaim $120,122.
¶12 After accounting for a clerical error and billed items not
installed, the arbitrator found that Gerdts and McKinney had not paid for
$35,367 of materials and services provided by Berghoff. Meanwhile, the
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BERGHOFF v. GERDTS, et al.
Decision of the Court
arbitrator found that Gerdts and McKinney were entitled to an offset of
$34,588 because Berghoff had improperly installed several lights and had
planted defective trees.
¶13 Therefore, the dueling contract claims and counterclaims
resulted in a small net judgment of $779 for Berghoff. The court considered
the parties’ respective entitlements and determined Berghoff was the
successful party under the net judgment rule based on the arbitrator’s $779
net judgment in favor of Berghoff. Thus, the court did not abuse its
discretion by finding Berghoff the successful party.
B. The Court Did Not Err by Exercising its Discretion to Award
Attorney’s Fees.
¶14 Gerdts and McKinney also argue that the court erred by
assuming that Berghoff was entitled to attorney’s fees as the prevailing
party without considering the factors articulated in Associated Indemnity
Corporation v. Warner, 143 Ariz. 567, 570 (1985).
¶15 In Warner, our supreme court enumerated several permissive
factors to help the superior court determine whether fees should be granted
under A.R.S. § 12-341.01, 143 Ariz. at 570, but “[w]e will affirm an award
with a reasonable basis even if the trial court gives no reasons for its
decision regarding whether to award fees” under the statute. Fulton Homes
Corp. v. BBP Concrete, 214 Ariz. 566, 569, ¶ 9 (App. 2007).
¶16 Though not required, the superior court made written
findings on the Warner factors. And while the court considered the factors
both in deciding whether to award fees and determining the amount of fees
to award, that is not error. Hall v. Read Dev., Inc., 229 Ariz. 277, 279, ¶ 8 (App.
2012) (as amended) (“Once the court determines the successful party, the
court weighs various factors to decide the amount of fees, if any, to be
awarded the successful party, an exercise that is also highly discretionary.”)
(citing Warner, 143 Ariz. at 571).
¶17 The thrust of Gerdts and McKinney’s argument is that the
superior court reached the wrong conclusions after it applied the Warner
factors to the facts here. But “[w]e will not substitute our discretion for that
of the trial court in awarding attorney’s fees pursuant to [A.R.S. § 12-341.01]
when the record contains a reasonable basis for the award.” Ponderosa Plaza
v. Siplast, 181 Ariz. 128, 132 (App. 1993). The court did not err in applying
the Warner factors to determine whether to award attorney’s fees.
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BERGHOFF v. GERDTS, et al.
Decision of the Court
C. The Court Did Not Err by Concluding that the Judgment Finally
Obtained by Berghoff was More Favorable than Gerdts and
McKinney’s $10,000 Settlement Offer.
¶18 Gerdts and McKinney also argue they were the successful
party because they made a settlement offer of $10,000, which was more
favorable than the $779 judgment finally obtained by Berghoff.
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.
A.R.S. § 12-341.01(A). In determining whether a final judgment is more
favorable than a settlement offer, the court must compare the amount of the
proposal to the sum of the judgment and the attorney’s fees and taxable
costs incurred before the offer. Am. Power Products v. CSK Auto, Inc., 242
Ariz. 364, 370–71, ¶ 25 (2017).
¶19 In its application for fees, Berghoff asserted that its costs and
fees before Gerdts and McKinney’s offer totaled $22,905. The court
recognized that if even half that amount was added to the final judgment
amount of $779, the $10,000 offer was not more favorable by comparison.
This is precisely the analysis outlined in American Power Products. The court
did not err.
D. Berghoff is Entitled to its Costs and Reasonable Attorney’s Fees on
Appeal.
¶20 Berghoff requests costs and attorney’s fees on appeal under
A.R.S. §§ 12-341.01 and -342. Because Berghoff is the successful party on
appeal, we award costs and exercise our discretion to award reasonable
attorney’s fees subject to Berghoff’s compliance with ARCAP 21.
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BERGHOFF v. GERDTS, et al.
Decision of the Court
CONCLUSION
¶21 We affirm the superior court’s award of attorney’s fees.
AMY M. WOOD • Clerk of the Court
FILED: AA
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