Opinion
1 CA-CV 22-0354
02-14-2023
SIMMONS & GOTTFRIED, PLLC, et al., Plaintiff/Appellees, v. SCOTT KLARKOWSKI, et al., Defendant/Appellants.
The Marhoffer Law Firm PLLC, Scottsdale By David Marhoffer Counsel for Plaintiff/Appellees Scott Klarkowski, Julie Klarkowski, Sun City Defendants/Appellants
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Maricopa County No. CV2018-002700 The Honorable Katherine Cooper, Judge
The Marhoffer Law Firm PLLC, Scottsdale By David Marhoffer Counsel for Plaintiff/Appellees
Scott Klarkowski, Julie Klarkowski, Sun City Defendants/Appellants
Judge James B. Morse Jr. delivered the decision of the Court, in which Presiding Judge Jennifer M. Perkins and Judge Michael J. Brown joined.
MEMORANDUM DECISION
MORSE, JUDGE
¶1 Scott and Julie Klarkowski ("Klarkowskis") appeal the superior court's grant of summary judgment for damages and attorney fees in the amount of $110,289.36. For the following reasons, we affirm in part, vacate in part, and reverse and remand in part.
FACTS AND PROCEDURAL BACKGROUND
¶2 A prior decision of this court sets forth the facts underlying this dispute. Simmons & Gottfried PLLC v. Klarkowski, 1 CA-CV 20-0029, 2020 WL 7038517, at *1-2, ¶¶ 1-6 (Ariz. App. Dec. 1, 2020) (mem. decision). We limit our review of the facts to those necessary to decide this appeal.
¶3 This dispute arises from Simmons & Gottfried PLLCs ("Simmons") representation of the Klarkowskis in a separate litigation. Before undertaking that representation, the Klarkowskis signed a fee agreement that outlined the terms and scope of representation.
¶4 In our previous memorandum decision, we affirmed the superior court's "grant of summary judgment on liability for breach of contract and the reasonableness of Simmons' attorneys' fees," but reversed the superior court's "grant of summary judgment on the reasonableness of Simmons' interest charges, its award of Simmons' attorneys' fees," and remanded for the superior court "to determine the reasonableness of the interest charges." Id. at *2, ¶ 11. Because both parties had prevailed in part, we also denied the parties' request for fees on appeal. Id.
¶5 On remand, the superior court ordered briefing to address the reasonableness of Simmons' interest charges. The court considered the parties' responses to the court order and held "[t]he interest rate agreed to, in writing, by the parties is reasonable and enforceable." Simmons moved for summary judgment on damages for breach of contract, and the Klarkowskis opposed the motion.
¶6 The superior court granted Simmons summary judgment, holding that under the fee agreement the applicable interest rate was 1.5% per month and awarded damages in the amount of $42,556.55. The court awarded Simmons $66,820.00 in attorney fees and $912.81 in costs, incurred both in the superior court and the prior appeal. The Klarkowskis timely appealed. We have jurisdiction under A.R.S. § 12-2101(A)(1).
DISCUSSION
¶7 On appeal, the Klarkowskis argue that the superior court erred by (1) calculating compound interest on the debt; (2) holding that the 1.5% per month (18% per annum) interest rate was reasonable and not usurious; and (3) awarding attorney fees related to the prior appeal.
I. Monthly 1.5% Interest Rate.
¶8 The Klarkowskis argue that the superior court erred because the fee agreement did not allow for compound interest. We review contractual interpretation de novo and enforce the parties' intent. Dunn v. FastMed Urgent Care PC, 245 Ariz. 35, 38, ¶ 10 (App. 2018). A contract is ambiguous under Arizona law when its terms are reasonably susceptible to more than one interpretation. Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 154, 158-59 (1993). To determine whether a contract is ambiguous, we consider the plain meaning of the words and the contract's context to determine the meaning. Terrell v. Torres, 248 Ariz. 47, 49-50, ¶ 14 (2020). If the contract is ambiguous, we may consider external evidence of the parties' intent. Taylor, 175 Ariz. at 154, 158-59. If, after considering the plain meaning of the words, the contract's context, and the extrinsic evidence, the contract remains ambiguous, then the parties' intent is an issue for the factfinder. See State v. Mabery Ranch, Co., 216 Ariz. 233, 239, ¶ 23 (App. 2007) ("Where a contract's language is reasonably susceptible to more than one meaning, the interpretation of the contract should be submitted to the jury.").
¶9 The fee agreement states, "[a]ll statements are due and payable upon receipt and considered past due thirty (30) days after the statement date. Any bill that is not paid within thirty (30) days will be charged with interest at the rate of 1.5% per month (18% per annum)." The fee agreement contemplates that a bill would be paid within 30 days of receipt and that any remaining balance would be charged interest, and provides that the past due balance would be charged 1.5% interest per month but adds "(18% per annum)."
¶10 The Klarkowskis argue that the inclusion of the "18% per annum" restricts the agreement to simple interest because applying a compounding 1.5% per month rate would result in an interest rate higher than 18% per annum. On the other hand, Simmons argues that while the agreement does not use the words "compound interest" the method of calculation would naturally result in interest compounded monthly at a rate of 1.5%. Simmons states that the agreement with the Klarkowskis "specified in relevant part that" any past due bill "will be charged with interest at the rate of 1.5% per month . . . ." Had the agreement ended there, we agree it would not be ambiguous. But Simmons ignores the "18% per annum" parenthetical language at the end of the provision. We cannot simply ignore this language. See Weatherguard Roofing Co. v. D.R. Ward Constr. Co., 214 Ariz. 344, 350, ¶ 27 (App. 2007) ("In interpreting a contract, we attempt to reconcile and give meaning to all its terms.").
¶11 We also disagree that method of calculation necessarily requires compounding interest. As noted above, the agreement does not explicitly contemplate periodic or compound interest. Nor does the agreement state that the "interest on [an] overdue balance" will be added to the outstanding balance. Instead, the agreement states the billing statements are "for services rendered and costs incurred" and Simmons' billing practice is to account for monthly interest charges separately from fees and costs.
¶ 12 The only other mention of interest in the agreement is in the introductory letter, where Simmons explains that it "reserves the right to charge a late payment penalty of 18% on any statement not paid within 30 days after the statement date." This statement is not determinative, but lends support to the Klarkowskis' interpretation that the parties intended an 18% annual rate.
¶ 13 On appeal, Simmons argues that we should look to the parties' subsequent conduct to determine intent, but Simmons did not raise this argument until its reply before the superior court, and the parties did not present subsequent-conduct evidence and argument to the superior court. State ex rel. Horne v. Campos, 226 Ariz. 424, 428, ¶ 13 n.5 (App. 2011) (noting we generally do not consider matters unless properly raised in the superior court except where "the facts are fully developed, undisputed, and the issue can be resolved as a matter of law"). In the exercise of our discretion, we decline to consider this argument because the agreement's language is clear, and the evidence is disputed. See id. Thus, we vacate the grant of summary judgment and remand for the superior court to calculate pre-judgment interest, using simple interest at a rate of 18% per annum.
¶ 14 But we reject the Klarkowskis' argument that Simmons should forfeit all interest because the agreement did not allow for compounding interest. "A person shall not directly or indirectly take or receive in money, goods or things in action, or in any other way, any greater sum or any greater value for the loan or forbearance of any money, goods or things in action, than the maximum permitted by law." A.R.S. § 44-1202. Because Simmons neither took nor received anything more than the contracted rate, the forfeiture statute is inapplicable. See Wieman v. Roysden, 166 Ariz. 281, 285-86 (App. 1990) (noting that the legislature amended A.R.S. § 44-1202 "to provide for forfeiture of all interest if a person contracted for, reserved or received, directly or indirectly, an amount greater than the 'maximum permitted by law'" as described in A.R.S. § 44-1201(A)).
¶ 15 The Klarkowskis further argue that, regardless of whether the rate is compounded, a 1.5% per month (18% per annum) interest rate on past due balances is unreasonable for an attorney fees agreement and is thus usurious. Arizona's usuary statute reads," [f]or any loan, indebtedness or obligation other than medical debt, interest shall be at the rate of ten per cent per annum, unless a different rate is contracted for in writing, in which event any rate of interest may be agreed to." A.R.S. § 44-1201(A)(2). Accordingly, the statute allows "the parties to contract in writing for any interest rate." Wieman, 166 Ariz. at 285. We recognize that "a fee agreement between [a] lawyer and client is not an ordinary business contract." See In re Swartz, 141 Ariz. 266, 273 (1984). However, the State Bar of Arizona has advised attorneys that they may charge interest on a client's delinquent bill. See, e.g., Ariz. Ethics Op. 00-07; Ariz. Ethics Op. 86-09; Ariz. Ethics Op. 81-14. Under these advisements, the interest rate must be reasonable, disclosed in the fee agreement, and knowingly agreed upon. Id.
¶ 16 Neither party disputes that the Klarkowskis agreed upon the interest rate described in the fee agreement. Thus, the only question is whether the 1.5% per month interest rate was reasonable. Under these circumstances it was reasonable.
¶ 17 We have previously upheld interest rates more than the 1.5 % per month interest rate at issue here. In Morrison v. Shanwick Int'l Corp., the parties agreed upon an interest rate that equated to a 60% annual rate. 167 Ariz. 39, 46 (App. 1990). We refused to lower the agreed upon rate, reasoning that unilaterally lowering the rate "would result in a windfall to appellants" and "is neither consistent with the terms of the parties' agreement nor with A.R.S. § 44-1201." Id.
¶ 18 Looking to interest rates charged on similar debts can help determine whether the 1.5% interest rate is reasonable. This debt only incurs interest on a bill not paid within 30 days. Meaning if the Klarko wskis paid the bill every month, then the debt would not incur any interest. This is analogous to credit card debt. If debtors pay their credit card bills in-full every month, then debtors do not incur any interest on their credit card transactions. While 1.5% per month (18% per annum) is on the high end of average credit card interest rates, it falls within the range of expected interest rates. See Bd. of Governors of the Fed. Rsrv. Sys., Consumer Credit - G.19 (Dec. 7, 2022), https://www.federalreserve.gov/Releases/g1 9/current/. Thus, the 1.5% per month (18% per annum) interest rate is reasonable in this circumstance.
II. Attorney Fees Award and Attorney Fees on Appeal.
¶19 The Klarkowskis argue that pursuant to our previous memorandum decision, Simmons was not eligible for attorney fees related to that appeal. We review a determination regarding the amount of fees awarded for an abuse of discretion. See Fisher v. Nat'l Gen. Ins. Co., 192 Ariz. 366, 370, ¶ 13 (App. 1998). The fee agreement stated that if Simmons had to commence a legal proceeding to collect its fees and costs, "the prevailing party in such litigation shall be entitled to full recovery of all costs and attorneys' fees." We previously held that, "[b]ecause both parties prevailed in part, neither is entitled to attorneys' fees." Simmons, 2020 WL 7038517, at *2, ¶ 11. The superior court erred in awarding attorney fees on appeal as our previous decision was binding. See Kadish v. Ariz. State Land Dep't, 177 Ariz. 322, 327-28 (App. 1993) (reasoning that when an appellate court explicitly denies attorney fees applications that determination binds the superior court). Thus, we reverse the superior court's award of attorney fees and costs for the previous appeal.
¶ 20 Simmons requests attorney fees and costs on this appeal. Because Simmons is not the prevailing party, we deny its request.
CONCLUSION
¶ 21 We affirm the superior court's determination that 1.5% per month (18% per annum) was a reasonable interest rate but vacate the grant of summary judgment, reverse the award of fees in the prior appeal, and remand for further proceedings consistent with this decision.