Rindlisbacher v. Steinway

Kevin H Rindlisbacher, et al., Plaintiffs, v. Steinway & Sons Incorporated, et al., Defendants.

No. CV-18-01131-PHX-MTL

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

May 26, 2021

ORDER

(Under Seal)

Steinway, Inc. ("Steinway") prevailed on Plaintiffs Kevin and Jami Rindlisbacher (the "Rindlisbachers") and their company Piano Showroom of Arizona, Inc.'s remaining claims at summary judgment. (Doc. 252.) The Clerk of the Court entered judgment and terminated the case. (Doc. 253.) Steinway now moves for attorneys' fees pursuant to A.R.S. § 12-341.01, which authorizes an attorneys' fees award to a successful party in "any contested action arising out of a contract." (Doc. 255.) Steinway's motion will be granted in part.

I. BACKGROUND

On October 30, 2020, this Court issued an order granting summary judgment in favor of Steinway on the Rindlisbachers then-remaining tort claims. (Doc. 252.) The facts underlying the present action are discussed at length in that order. (See id.) Assuming familiarity with the factual and procedural history of this case, the Court will recount only those aspects that are pertinent to the pending motion.

The Rindlisbachers are experienced piano retailers. (Doc. 163 ¶ 32.) Steinway manufactures high-end acoustic pianos. (Id. ¶¶ 19, 26.) In 2006, the Rindlisbachers and Steinway executed a dealer agreement (the "Spokane Agreement"), which allowed the Rindlisbachers to sell Steinway pianos in Spokane County, Washington. (Id. ¶ 40.) Four years later, Steinway and the Rindlisbachers entered a second dealer agreement (the "Phoenix Agreement"), which authorized the Rindlisbachers to sell Steinway pianos in Maricopa County, Arizona. (Id. ¶ 71.) The Phoenix Agreement contains a choice-of-law provision, which provides that the "[a]greement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of law principles." (Doc. 206, Ex. 35.) The Phoenix Agreement also set annual sales goals for the Phoenix market. (Id.) The Rindlisbachers' sales consistently fell below those established goals, and Steinway terminated the Phoenix Agreement in 2017. (Doc. 163 ¶¶ 84, 94.)

In April 2018, the Rindlisbachers initiated this action. They alleged that Steinway's failure to disclose the historical sales of Steinway pianos in the Phoenix market and at a company-owned store in Hollywood, California rendered statements made by a Steinway representative and the Phoenix Agreement's sales goals misleading. (Id. ¶¶ 1-9, 98-101.) The Rindlisbachers' asserted various tort and contract claims against Steinway. (Id.) Steinway moved to dismiss each claim. (Docs. 26, 52.) At the pleadings stage, the Court applied Arizona law to the Rindlisbachers' tort claims, while New York law governed the contract claim. (See Docs. 74, 113.) Only the Rindlisbachers' constructive fraud and fraudulent omissions (nondisclosure) claims survived Steinway's motions to dismiss. (Id.) The parties then filed cross-motions for summary judgment. (Docs. 192, 199, 205, 207.) The parties agreed that Arizona law governed the Rindlisbachers' remaining claims. The Court granted summary judgment in Steinway's favor and entered judgment accordingly. (Docs. 252-53.) Steinway now requests $1,028,439.50 in attorneys' fees pursuant to A.R.S. § 12-341.01. (Doc. 255 at 2.) At oral argument, Steinway clarified that it is only seeking the fees it incurred defending the Rindlisbachers' tort claims. (Doc. 287 at 5-6.) The Rindlisbachers oppose the motion. (Doc. 268.)

II. LEGAL STANDARD

"[I]n federal cases where the controlling substantive law is state law, such as in diversity cases . . . , attorneys' fees can be awarded under state law." Poehler v. Fenwick, No. 2:15-CV-01161, 2016 WL 1428095, at * 2 (D. Ariz. Apr. 12, 2016). A party requesting an award of attorneys' fees must show that it is (1) eligible for a fee award, (2) entitled to an award, and (3) requesting a reasonable amount of fees. See LRCiv 54.2(c). The moving party must attach supporting documentation to any request for attorneys' fees, including (1) a statement of consultation, (2) a complete copy of any written fee agreement, (3) a task-based itemized statement of time expended and expenses incurred, and (4) an affidavit of moving counsel. LRCiv 54.2(d).

III. DISCUSSION

The issue is whether Steinway may recover attorneys' fees from the Rindlisbachers for successfully defending their constructive fraud and nondisclosure claims. As outlined in detail below, the answer to that question is in the affirmative. The Court's analysis begins with a choice-of-law question.

A. Choice of Law

The parties disagree whether Arizona or New York law governs the pending motion. Both Arizona and New York follow the American Rule for fee shifting. Kaufmann v. Cruikshank, 222 Ariz. 488, 490 (App. 2009); Baker v. Health Mgmt. Sys., Inc., 98 N.Y.2d 80, 88 (2002). Under the American Rule, "attorneys' fees are not recoverable unless they are expressly provided for either by statute or contract." Cortaro Water Users' Ass'n v. Steiner, 148 Ariz. 314, 316 (1986). In Arizona, courts are authorized by statute to award a successful party reasonable attorneys' fees in any contested action "arising out of a contract." A.R.S. § 12-341.01(A). Steinway has not cited, and this Court is not aware of, a comparable New York statute. Steinway's ability to recover attorneys' fees therefore depends on whether the Arizona statute or New York law governs the pending motion.

When a conflict of law exists "[i]n a diversity case, the district court must apply the choice-of-law rules of the state in which it sits." Abogados v. AT&T, Inc., 223 F.3d 932,934 (9th Cir. 2000) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). Because this Court is in Arizona, Arizona's choice-of-law rules apply. To determine whether Arizona or New York law governs the pending motion, the Court must first determine whether the recovery of attorneys' fees is a procedural matter or a substantive matter. Cardon v. Cotton Lane Holdings, Inc., 173 Ariz. 203, 206 (1992). If procedural, the law of the forum will apply, and the choice-of-law inquiry will end. Id. If substantive, "the law of the jurisdiction to which the court is referred by [Arizona's] choice-of-law rules" will govern. Id. (internal quotations omitted).

In Arizona, the recovery of attorneys' fees is a matter of substantive law. See Aries v. Palmer Johnson, Inc., 153 Ariz. 250, 258 (App. 1987). As a substantive matter, the pending motion will be governed by the law to which the Court is referred by Arizona's choice-of-law rules. Id. Arizona has expressly adopted the Restatement (Second) of Conflicts (1971) (the "Restatement") to resolve choice-of-law questions. Cardon, 173 Ariz. at 206. The parties agree that the Restatement applies but disagree as to whether § 145—which provides the "principle applicable to all torts and to all issues in tort"—or § 187—which "set[s] forth general rules" applicable to "all contracts and to all issues in contract"—controls. See Restatement § 145, cmt. a; § 186, cmt. a.

Steinway argues that the Court should apply § 145 because Steinway's fee request arises directly from the Rindlisbachers' tort claims. (Doc. 279 at 2-3.) Rather than referring to § 145, the Rindlisbachers urge the Court to apply § 187 because the Phoenix Agreement, which governs the parties' contractual relationship, contains a choice-of-law provision. (Doc. 268 at 3.) Steinway does not dispute that provision's validity. (Doc. 255 at 3.) Instead, Steinway takes issue with the provision's scope, i.e., its applicability to the Rindlisbachers' tort claims. (Id. at 4.) Thus, the Court must determine whether the choice-of-law provision is broad enough to encompass the issue presently before the Court: whether Steinway may recover the attorneys' fees it incurred defending the Rindlisbachers' tort claims. See Magellan Real Est. Inv. Tr. v. Losch, 109 F. Supp. 2d 1144, 1157 (D. Ariz. July 28, 2000) ("Arizona courts [] would effectuate the intent of [the] parties who drafteda choice of law provision by applying the chosen law to all claims within the scope of the provision.").

The Phoenix Agreement's choice-of-law provision is narrow: it applies only to the contractual relationship between Steinway and the Rindlisbachers. The provision reads: "This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of law principles."¹ (Doc. 206, Ex. 35.) The provision contains no terms expanding its scope to disputes "related to" or "arising from" the Agreement. Instead, the provision requires that New York law only apply to claims about the Agreement, itself, like the Rindlisbachers' breach of contract claim. See Magellan Real Est. Inv. Tr., 109 F. Supp. 2d at 1158 (narrowly construing a choice-of-law clause, which provided an "agreement shall be governed by and construed in accordance with the laws of the province of Ontario," because no terms expanded its scope).

The Rindlisbachers' tort claims are outside the narrow scope of the provision. See Winsor v. Glasswerks PHX, LLC, 204 Ariz. 303, 306 (App. 2003) ("[Tort claims] are not ordinarily controlled by a contractual choice of law provision." (quoting Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 407 (9th Cir. 1992))). This conclusion comports with the parties' intent. The parties agreed that Arizona law governed the Rindlisbachers' tort claims at each stage of this case² (Docs. 26, 34, 192, 199, 205, 207), and the Court applied Arizona law to those claims at both the pleadings stage and at summary judgment. (Docs. 74, 113, 252.) The Court therefore concludes that the choice-of-law provision does not apply to the Rindlisbachers' tort claims or the issue of whether Steinway may recover attorneys' fees for successfully defending them.³

Because the choice-of-law provision is inapplicable, § 145 controls...