Division One Expands Class of Cases Where Applicant Bears Burden of Proving Reasonableness.

Division One’s recent decision in Geller v. Lesk, --- P.3d --- 2012, 2012 WL 4364241 (App. Sept. 25, 2012), will be of interest not only to litigators but also to corporate counsel. It imposes limits on the enforcement of broadly drafted contractual fee-shifting provisions — and, for the first time in the context of provisions that contain no express reasonableness limitation, shifts the burden to the applicant to prove the  “reasonableness” of the fees. The plaintiffs in Geller retained counsel pursuant to a 25% contingency fee agreement to sue Lesk for breaching a promissory note. After prevailing on summary judgment, the  plaintiffs received an award of attorneys’ fees pursuant to a fee-shifting provision that provided that Lesk would pay all costs of collection, including the plaintiffs’ attorneys’ fees, if he defaulted. 
Reading prior Arizona precedent to stand for the propositions that (i) a prevailing party may recover not more than a reasonable amount of attorneys’fees under a contractual fee-shifting provision irrespective
of the provision’s terms and (ii) it is the prevailing party’s burden to demonstrate in its fee application that the fees sought are reasonable, Division One vacated the trial court’s award of all of the fees and remanded for a reasonableness determination. However, as we read Elson Development Co. v. Arizona Savings
and Loan Association
, the Arizona Supreme Court decision upon which Division
One relies most heavily in Geller, the evidentiary burden is supposed to rest on the non-prevailing
party to show that the amount of attorneys’ fees sought under a contractual fee-shifting provision are not just “unreasonable” but “obviously excessive.” The Geller decision seems to switch the burden — placing the onus on the prevailing party to demonstrate (at least on a prima facie basis) the reasonableness
of the fees sought under a contractual fee-shifting provision that does not contain an express reasonableness limitation. 

Thus, Geller brings cases involving broadly drafted contractual fee-shifting provisions in line with
Division One precedent addressing more narrowly drafted provisions, e.g., provisions explicitly limiting the attorneys’ fee recovery to what is “reasonable.”  If and until the Arizona Supreme Court takes up the question, litigators and corporate counsel should not expect that broader fee-shifting provisions will be enforced as a matter of course according to their terms. Fee applicants must be prepared to
prove the reasonableness and non-excessiveness of their bargained for fees even if the non-prevailing party explicitly agreed to pay all fees incurred — or, for that matter, a fixed amount of fees or a percentage of the amount recovered.

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