Unlike a typical lawsuit, an action for declaratory relief does not ask the court to take certain action regarding a dispute—e.g., by entering an injunction, ordering the other party to perform a contract, or awarding damages. Rather, the purpose of declaratory relief is for the court to resolve a controversy by determining and adjudicating the parties’ respective rights and responsibilities—typically under a contract, insurance policy, or other legally binding document. The resulting declaratory judgment should, theoretically, resolve the controversy and avoid further litigation of an issue.
For instance, an insurance company might seek a declaratory judgment that it is not responsible for covering an insurance claim under the policy. If a court entered a declaratory judgment in favor of the insurance company, then the insured would have no legal right to coverage because the court has adjudicated that issue against them.
Moreover, because declaratory relief actions typically adjudicate the parties’ rights under a contract, the successful party can expect to recover its fees under an Arizona statute: A.R.S. § 12-341.01 (providing that the successful party in an action arising out of contract is entitled to an award of their reasonable attorney fees).
For example, Arizona federal district court recently ruled that if an action for declaratory relief has no merit and is ultimately unsuccessful, the losing party could be ordered to pay the other party’s attorney’s fees under section 341.01. In 11333, Inc. v. Certain Underwriters at Lloyd’s, London, 2018 U.S. Dist. LEXIS 54130, 2018 WL 1570236 (D. Ariz.), the court found that the insured brought a meritless suit that distorted the insurance policy language and ignored the factual record. Because the declaratory relief action arose out of a contract—the insurance policy–it was appropriate to award $1.1 million in attorney’s fees to the insurance company.
No matter what type of business-related legal dispute you are facing, we are here to help. We will determine the facts and circumstances surrounding your situation, evaluate your case, and determine the best strategy for resolution. At Williams Mestaz, L.L.P., we have the experience and knowledge that you need for your business litigation matter. When results matter, contact Williams Mestaz, L.L.P., at (602) 256-9400 for help.