And the Winner is . . .

David Allen

Partner

Jaburg | Wilk Attorneys at Law

Anyone who watches sports competitions of any type expects an outcome whereby one person or team is deemed to be the “winner,” while the opposing person or team is deemed to be the “loser.” And while it would seem to follow that those same two opposing possible outcomes will result from a legal battle, that is not necessarily true. Take, for example a simple breach of lease lawsuit between a landlord and a tenant involving the failure of the tenant to pay rent in the amount of $5,000. The tenant defends the case based upon its claim that the landlord failed to perform its obligations under the terms of the lease, thereby excusing the obligation of the tenant to pay rent. The court will adjudicate whether such defense is valid and based thereon will either enter a judgment in favor of the landlord for the $5,000 of unpaid rent, or a judgment in favor of the tenant based upon its obligation to pay rent having been excused by the landlord’s breach. In the first instance clearly, the landlord is the “winner,” while in the second instance clearly the tenant is the “winner.”

Let us say, however, that in addition to suing the tenant for breaching the lease by failing to pay the $5,000 of rent, the landlord in the same lawsuit also sues the tenant for having committed $6,000 of damage to the rental property. If the court finds that the tenant is obligated to pay the rent, but finds that the tenant did not damage the property and thus rules against the landlord on that claim, who has won the case? Has the landlord won because it prevailed on one of its two claims? Or has the tenant won because even though it lost the $5,000 rent claim, it prevailed on the $6,000 property damage claim?

The determination of who has won and who has lost has very significant financial implications, as in Arizona, like most jurisdictions, the “prevailing party” in a contract dispute is entitled to recover its attorney’s fees from the non-prevailing party. And an unfortunate reality is that oftentimes the amount of attorney’s fees incurred by a party in litigating a dispute all the way through trial may end up approaching, or in some cases even dwarfing the amount that was in dispute. In the above example, the landlord will argue that it has “prevailed” because it obtained a judgment for $5,000, which is greater than zero. The tenant, however, will argue that it is the prevailing party because the landlord only recovered the $5,000 rent claim portion of its total $11,000 claim, which is less than fifty percent, whereas the tenant “prevailed” on the larger damages claim. The courts are given broad discretion to determine which party is the “prevailing party” for the purpose of awarding attorney’s fees, and there is no way of knowing how it will rule in this instance.