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Category: Fee Clause

Article: Consider Attorney Fee Litigation When Drafting Business Contracts

September 2, 2019

A recent Daily Business Review article by Noah B. Tennyson, “Consider Potential Litigation Fees, Costs When Drafting Business Contracts,” reports on attorney fee dispute litigation in business contracts in Florida.  This article was posted with permission.  The article reads:

Before you sue someone, it may be prudent to consider potential litigation fees and costs.  This is because, unless your claim arises from a Florida statute or contract that entitles you to recoup attorney fees, each side will bear their own regardless of who prevails.  Thus, you may find that prevailing in court results in the type of victory lamented by Plutarch during the Pyrrhic war: “if we are victorious in one more battle with the Romans, we shall be utterly ruined.”

Ask yourself this question: If I wound up in a lawsuit, would I want there to be a basis for legal fees to be awarded to the prevailing party?  Of course, if you expect to prevail in future lawsuits, then the answer is easy.  But, few truly know what tomorrow brings and simply hoping that your side will prevail in future lawsuits is likely just wishful thinking.  So, to help mitigate the risk of an uncertain future, it may be helpful to consider various legal fee language to insert into some of your business’ most important documents—its contracts.

As a starting place, look at the agreements that you executed with your landlord, vendors, bank, and other parties in order to run your business.  What does the legal fee language say?  Does it provide that any party that prevails in any dispute arising from the contract can recoup its legal fees?  If not, to what extent did your counterpart create an attorney fees clause which favors its side?  Finally, which state laws are to be applied to the contract if there is a lawsuit?

You may have chafed at these terms but signed anyway, perhaps because you saw signing as but one more requirement to get your business up and running.  Whether you signed or not, in your future contract negotiations, consider using legal fee language which may favor your business as opposed to your counterpart’s.  Aside from your own scruples, the limit to how unfair you can be is the reasonable likelihood that a judge will enforce your contract as you intended.

To determine whether a judge will enforce your legal fee language, it can be helpful to look at what Florida courts have decided in the past.  For instance, let’s say your new business is a franchise.  As noted in prior Florida cases, Subway Restaurants (Subway) has written into in its contracts that its franchisee “agrees to pay the cost of collection and reasonable attorney fees on any part of its rental that may be collected by suit or by attorney, after the same is past due.”  In other words, Subway, and only Subway, can recoup its legal fees if they arise from the franchisee failing to pay rent.

This provision appears to be an illicit one-way fee clause which Florida courts have ruled permits either side to seek a fee award, so long as that side prevails in the lawsuit.  Thus, in a dispute between Subway and one of its franchisee Florida stores, the franchisee sought attorney fees from Subway after prevailing in its claim for wrongful eviction.  However, the Florida court ruled that the franchisee’s lawsuit never triggered an entitlement to attorney fees because the legal fee language limited awards to matters involving the collection of rental payments.  Put another way, even if this fee clause were a two-way street, the lanes would still be confined to matters involving the collection of the franchisee’s rent.  Therefore, the franchisee was not entitled to recoup its legal fees even though it won its case.

As seen above, a careful examination of contract language can uncover provisions that might go unnoticed by most, but are duly noted by those seasoned in business disputes.  As another example, contracts made in Florida can be written to have the laws of other states, such as New York or Virginia, be used to resolve disputes.  This might seem innocuous, but the impact can be severe because the treatment of one-way attorney fees clauses varies from state-to-state.

In one Florida case, stockbrokers put into their brokerage agreement that New York law would govern the agreement’s terms.  The agreement also stated that stock purchasers who signed it in order to purchase stock would reimburse the brokers for any debts owed, which included related attorney fees.

When a stock trading error cost a group of purchasers more than $70,000, the purchasers sued the brokers and won damages totaling $81,500.  Yet, the Florida court refused to award the purchasers their attorney fees even though the agreement’s legal fee clause applied to their lawsuit, and even though Florida law requires a two-way street for such fee clauses.

The Florida court’s reasoning was simple: New York law does not require that one-way fee clauses be made into two-way clauses.  Because New York—and not Florida—law applied, the Florida court had no authority to grant a fee award to the stock purchasers.

You should examine proposed contracts with care because established corporations have legal teams crafting contracts which benefit them.  Bear that in mind if you consider signing.  Conversely, when drafting your own contracts, heed your lawyer’s advice.  Otherwise, you, too, may fall victim to unintended consequences.

Noah B. Tennyson is an associate at Nason Yeager in Palm Beach Gardens.  His practice focuses on commercial and business litigation matters, including commercial foreclosures, business disputes, contract litigation, condominium and homeowners’ association issues, construction defect litigation and employment issues.

Attorney Fees May Be Awarded Even When Fee-Shifting Provision was in Indemnity Clause

July 30, 2019

A recent Metropolitan News story, “Attorney Fees May Be Awarded Based on Indemnity Clause Where Party Itself Sues,” reports that Kerri Walsh Jennings, a beach volleyball player who has captured three Olympic gold medals and a bronze medal, was properly awarded attorney fees in an action against a company to which she leased her name and likeness, the Court of Appeal for this district has held, declaring that it doesn’t matter that a contractual fee-shifting provision was contained in an indemnification clause.  Justice Brian S. Currey of Div. Four wrote the unpublished opinion, filed Monday. It affirms a judgment by Los Angeles Superior Court Judge William F. Fahey who awarded the plaintiff attorney fees in the amount of $92,726.

In reaching that figure, Fahey held that the expertise of Century City attorney Alan Jay Weil of Kendall Brill & Kelly LLP rendered reasonable the hourly rate of $850 he charged Jennings last year (discounted from his normal $950 per hour rate) and $790 an hour he assessed for services in 2017.

The litigation was based on the Association of Volleyball Professionals (“AVP”) having failed to pay Jennings the $150,000 it was contractually bound to provide in exchange for permission to use her name and likeness.  She sued it, but AOS Group, LP was substituted for a Doe defendant based on its purchase of all of AOS’s assets.

After the action was filed, AOS handed over the sum claimed, plus $27,792 in interests and costs—but there remained a dispute as to whether attorney fees were owed.  AOS maintained that a fee-shifting provision would have come into play only if it had been obliged to defend Jennings, based on its breach, in an action against her by a third party.

An indemnification clause in her contract with AVP says that the licensee “agrees to defend, indemnify and hold harmless” Walsh Jennings, “her agent, representatives and employees from and against any and all damages, claims, suits, actions, judgments, costs and expenses including reasonable attorney’s fees, arising out of: (a) any material breach by AVP of this Agreement or any representation or warranty made hereunder.”

On Oct. 24, 2017, Fahey denied AOS’s motion to strike a demand for attorney fees, saying that the 2000 opinion of this district’s Court of Appeal in Wilshire-Doheny Associates, Ltd. v. Shapiro “was correctly-decided and controls here.”  In that case, a corporation bound itself, in three agreements, to indemify two corpotate officers—including payment of their attorney fees—in the event they were sued in connection with the discharge of their duties. As it happened, it was the corporation, itself, that sued them.

Resisting payment of attorney fees, the corporation argued that indemnification, necessarily, entails an action by a third party. Disagreeing, Div. One’s presiding justice, Vaino Spencer (now deceased), said:  “There is nothing in the language of any of the three indemnity provisions specifically limiting their application to third party lawsuits. Respondents point to no extrinsic evidence introduced to demonstrate that the parties intended these provisions to apply to third party lawsuits only….  Thus, it has not been shown the indemnity provisions are inapplicable merely because appellants seek indemnification for attorney’s fees and costs incurred in an action brought by the indemnitor….”

In awarding fees after AOS paid what was owed, Fahey stuck to his view that Wilshire-Doheny dictates the result.  In his opinion affirming Fahey’s decision. Currey quoted the language in the agreement between Jennings and AVP and declared:  “[T]his language does not limit indemnification to third party claims and extends indemnification to ‘any and all’ damages incurred by Walsh Jennings arising out of AOS’s breach of the Agreement…. Had the parties intended to narrow the clause to cover only third-party claims, they could have done so expressly.”

He added:  “The indemnity provision here expressly permits recovery of attorneys’ fees arising out of ‘any material breach by AOS of this Agreement.’  Accordingly, we conclude the trial court properly interpreted the indemnity provision to provide for attorneys’ fees in this case.”

AOS asserted that Fahey abused his discretion as to the amount awarded in attorney fees. Currey responded that the “very experienced trial judge found ‘the hourly rates and hours are reasonable,’ ” quoting Fahey as explaining:  “I am very familiar with the market rates of lawyers in this town.  And there are few of them that have been members of the Bar longer than I have.  Mr. Weil is one of them.”

Article: Cautionary Tales on Recovering Attorney Fees in the Third Circuit

April 17, 2019

A recent Legal Intelligencer article by Colin Wrabley and Devin Misour of Reed Smith LLP, “Cautionary Tales on Recovering Attorney Fees in the Third Circuit,” reports on a trio of appellate decisions and trial court rulings on the recovery of attorney fees in the Third Circuit.  This article was posted with permission.  The article reads:

In the past year, the U.S. Court of Appeals for the Third Circuit has issued three precedential rulings laying down clear and strict limits on the recovery of attorney fees.  While these kinds of rulings rarely draw attention, this trio of appellate decisions and the trial court rulings they affirm should because they are emphatic reminders that courts take their duty in reviewing fee petitions and awards just as seriously as they do in any other case.  Practitioners and their clients should take heed.

The Cases

The first case we’ll discuss, Young v. Smith, 905 F.3d 229 (3d Cir. 2018), is perhaps the most glaring example of how a fee petition can go wrong.  The appellant attorney in that case represented a group of students who brought a 42 U.S.C. Section 1988 civil rights suit against a school district and a teacher.  After two trials, the lone remaining defendant (the teacher) made an offer of judgment for $25,000, which the plaintiffs accepted, and the parties’ entered a settlement agreement allowing for “reasonable attorney fees and costs as to the claims against the teacher only.”  Plaintiffs counsel proceeded to submit a petition seeking over $700,000 in fees and costs against the school district, which had won a complete defense verdict.  Perhaps unsurprisingly, the district court thought the fee request excessive and issued a show cause order.  Plaintiffs counsel responded with a 44-page, single-spaced, six- or eight-point font fee petition purporting to justify the request.  That prompted, in the Third Circuit’s words, a “scathing 136-page opinion” from the district court denying all requested fees, levying a $25,000 sanction on the plaintiffs counsel, and referring counsel to the Pennsylvania Disciplinary Board.

The Third Circuit affirmed.  The court of appeals focused on the problems with the plaintiffs counsel’s billing practices, noting that the “district court’s meticulous opinion paints a picture of an attorney whose attitude toward billing and the court is cavalier in the extreme and whose conduct and demeanor bear no relationship whatsoever to an attorney’s obligations to the court.”  Concluding that Section 1988 gives a district court the discretion to reject a fee petition in its entirety, the Third Circuit found that the fee petition was “not only grossly excessive and absurd, but also fraudulent.”

The second case, Clemens v. New York Central Mutual Fire Insurance, 903 F.3d 396 (3d Cir. 2018), involved a fee award under Pennsylvania’s bad faith statute.  There, after settling an uninsured motorist claim for $25,000 and obtaining a jury verdict of $100,000 in punitive damages on the bad faith claim, plaintiffs counsel submitted a fee petition seeking in excess of $900,000 in fees and costs.  Here again, the district court scrutinized counsel’s request, which resulted in a 100-page opinion rejecting the petition in its entirety.  The district court reviewed every one of counsel’s time entries and found that 87 percent of the hours billed had to be disallowed as “vague, duplicative, unnecessary or inadequately supported by documentary evidence.”

On appeal, the Third Circuit found that the denial of this petition was not an abuse of discretion either.  Of note, the attorney kept no contemporaneous records of his time, so everything had to be recreated after the fact for purposes of the petition.  And when the attorney did recreate those records, he did so largely with one-word explanations, such as “other,” “communicate,” “analysis/strategy, or “review/analyze,” with no other explanation.  The court of appeals also highlighted the “staggering 562 hours” billed for trial preparation, which amounted to 70 straight eight-hour days of preparation for a four-day trial with only five witnesses.  On this record, the Third Circuit held that the district court was well within its discretion to reject the fee petition in its entirety because it was “outrageously excessive.”

The third case involved an award of attorney fees to defendants after the plaintiffs voluntarily dismissed a case pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure.  In Carroll v. E One, 893 F.3d 139 (3d Cir. 2018), the plaintiffs alleged that they had suffered hearing loss caused by fire sirens manufactured by the defendant.  But the defendant’s investigation and discovery revealed that the plaintiffs—some of whom did not even know that they were parties to a lawsuit until after the case was filed—had asserted time-barred claims, and at least one of the plaintiffs did not suffer from hearing loss attributable to noise exposure.  Armed with this information, the defendant’s counsel sought voluntary dismissal with prejudice.  The district court concluded that the plaintiffs could not voluntarily dismiss the action without prejudice—as they had tried to do—and instead dismissed the case with prejudice and awarded fees and costs to the defendants.

The Third Circuit affirmed, finding that dismissal with prejudice and the award of fees and costs was appropriate given the plaintiffs’ “failure to perform a meaningful pre-suit investigation,” coupled with counsel’s “repeated practice of bringing claims and dismissing them with prejudice after inflicting substantial costs on the opposing party and the judicial system.”  Addressing plaintiffs’ pre-filing investigation, the court of appeals noted that even a cursory review of the evidence or an interview with the potential plaintiffs would have revealed the problems with their case.  Having failed to do so, the court concluded that the “exceptional circumstances” warranted an award of fees and costs.

The Takeaways

If you’re a practitioner, you may be thinking, “I’ve never filed a fee petition like the ones in these cases” or “I’ve never conducted such a slipshod pre-filing investigation” of claims I’ve filed.  So, why do these cases—and understanding how they were decided and why—matter to me?  There are plenty of reasons.

First, the legal principles outlined in each of these cases hinged on a district court’s broad discretion in the context of attorney fees.  Whether it is a denial of fees sought—as in Young and Clemens—or an award of fees in the Rule 41 context—as in Carroll—it is important to remember that the courts have a wide berth in deciding how much, if any, fees should be awarded.  This is equally true before the trial court in the first instance and on appellate review.  Litigants therefore must keep this in mind when preparing and filing a fee petition to avoid any unwanted surprises once the court explores into the substance of the request.

Second, when the court (either trial or appellate) does dig into that substance, no one wants their fee petition to become the next teachable moment.  It should go without saying that parties seeking fees and costs must be scrupulous about how they keep time, record it and present it to the court.  On a practical level, this means that counsel and their clients should file user-friendly fee petitions that allow the court to quickly determine what was done (consistent with the attorney-client privilege), how long it took and at what cost.  From that, a “lodestar” fee calculation—based on a reasonable rate and a reasonable amount of time worked, which is how federal courts determine fee awards—easily follows.  As the Third Circuit reminded in Clemens, while courts “have never strictly required that fee petitions be supported by contemporaneous records … they have long been ‘the preferred practice.’” Needless to say, avoiding six- or eight-point fonts in petitions is also prudent.

Third and above all else, these cases serve as an important reminder that—perhaps contrary to conventional wisdom—courts can, and often do, spend significant time and resources on reviewing fee petitions.  The trial court opinions in Young and Clemens tipped the scales at 100-plus pages and reflected a substantial investment of judicial energy.  And the Third Circuit decisions discussed above—each published, one argued orally—were relatively extensive and reflected the same commitment of resources.  In other words, don’t hope or expect courts to gloss over questionable or deficient fee requests.

Accordingly, while these cases may be outliers, they offer important lessons about what counsel can do to make life easier for the courts tasked with reviewing even innocuous filings (like fee petitions).  By taking steps to carefully consider how courts will receive petitions, counsel can help to save judicial resources and ultimately better serve their clients.

Colin Wrabley is a Reed Smith partner and a member of the firm’s appellate group. He has experience counseling and representing clients in litigations and substantive legal issues before state and federal courts across the country.  Devin Misour is an associate at the firm and a member of the appellate group.  He focuses his practice on a wide array of substantive legal matters including False Claims Act, regulatory matters and issues involving state and federal laws.

Article: Fee Award Highlights Patent Litigation in Claims Court

April 15, 2019

A recent Law 360 article by Matthew Rizzolo and Steve Meil of Ropes & Gray LLP, “Fee Award Highlights Patent Litigation in Claims Court,” reports on patent attorney fee awards in the U.S. Court of Federal Claims.  This article was posted with permission.  This article was originally published in Law 360.  The article reads:

Subject to certain exceptions, patent litigation in the United States typically adheres to the “American rule”: Each party pays its own attorney fees, win or lose.  But many may not be aware that assertions of patent infringement against the United States government itself are not governed by this same rule, making it easier for some successful plaintiffs to recover attorney fees at the conclusion of litigation.

A recent ruling from the U.S. Court of Federal Claims awarding a plaintiff more than $4 million in attorney fees explains the different standard in detail, and may lead to increased interest in bringing patent claims against the government.

Section 1498 Actions and Attorney Fees

Under 28 U.S.C. § 1498, the Court of Federal Claims has exclusive jurisdiction over patent infringement suits brought against the federal government.  Because “infringement” by the government is generally treated as a Fifth Amendment taking of a license to use a patented invention, plaintiffs in such suits cannot receive injunctive relief, but are limited only to “reasonable and entire compensation” for the use or manufacture of the patented invention by or for the government.

Originally, the statute did not clarify whether “reasonable and entire compensation” included costs and attorney fees; the Court of Federal Claims has also found that Section 1498 claims are not directly analogous to other takings claims.  It therefore determined that the Equal Access to Justice Act (the statute that typically provides for attorney fee awards in claims against the government) did not apply to Section 1498 claims, leaving patent owners with no avenue to obtain attorney fees even in the most egregious Section 1498 cases.

Recognizing this disparity between the taking of real property and intellectual property, in 1996 Congress amended Section 1498(a) to expressly provide awards of “reasonable costs, including reasonable fees for expert witnesses and attorneys.”  The sponsors of the amendment noted that without the ability to recover fees, small businesses in particular may be unable to afford the expense of defending patents against government expropriation.

Accordingly, Congress limited the awards to certain types of plaintiffs: independent inventors, nonprofit organizations, and small businesses with less than 500 employees.  Congress further limited the awards to exclude cases where “the position of the United States was substantially justified” (mirroring the language of the Equal Access to Justice Act), or where “special circumstances make an award unjust.”

The ability to recover attorney fees as a “default” stands in sharp contrast to typical patent infringement suits, where plaintiffs — even small businesses or nonprofits — recover fees only “in exceptional cases.”   As Congress observed, however, suits against the government “authorize the government to take a license in any patent,” making such suits more analogous to takings of real property than to private infringement suits.

The Fee Award in Hitkansut v. United States

Yet in the near quarter-century since Section 1498 was amended, the Court of Federal Claims has handed down only three decisions on awards of attorney fees.  The previous cases, decided well over a decade ago, both resulted in the Court of Federal Claims denying fees.  But on March 15, 2019, the court for the first time awarded a successful plaintiff attorney fees under Section 1498.

In Hitkansut LLC et al. v. United States, the court had previously found that the government used Hitkansut’s patented invention, and awarded $200,000 in compensatory damages.  While Hitkansut had sought nearly $6 million in compensatory damages, the court found that much of these requested damages were not appropriate under the law.  The court’s prior infringement and damages findings were affirmed on appeal, and Hitkansut subsequently sought to recover its attorney fees and litigation expenses: $4.51 million.  In a thorough and detailed opinion, the court granted Hitkansut the vast majority of its fee request.

The court first addressed the fact that Hitkansut had engaged in a contingency fee arrangement with its attorneys.  The government argued that this meant that Hitkansut had not “actually incurred” any fees, disqualifying it from any award.  But the court observed that the fee arrangement was irrelevant, noting that “[a]ccepting the government’s argument would ... dissuade litigation by the very class of people the fee-shifting provision of 28 U.S.C. § 1498(a) exists to help.”  Because “[t]he patent owners most likely to use contingent arrangements are those ... specifically identified by the statute,” the court found that the fact of a contingent arrangement should not impact an award of costs.

The court then considered whether the government’s position in the suit was “substantially justified.”  Adopting the standard from the Equal Access to Justice Act, the court explained that a position is “substantially justified” when it is “justified to a degree that could satisfy a reasonable person, which is no different from the ‘reasonable basis both in law and fact’ formulation.”  In the court’s view, an award depends on whether the government can demonstrate that the positions it took “were such that a reasonable person could conclude that its position was supportable,” taking into account both pre- and post-litigation conduct.

Applying this standard, the court found that the government’s positions on both non-infringement and invalidity lacked substantial justification.  Regarding potential infringement, the court observed that the government had (1) altered its research activity in line with disclosures Hitkansut had made to the government under a confidentiality agreement; (2) represented the opposite of claims their employees had made in invention disclosures and in depositions; and (3) advanced arguments inconsistent with the court’s claim construction.

As for validity, the court found the government’s arguments to be “unsupported by the facts”: the government failed to demonstrate either part of the Alice test, and its own witnesses’ testimony undermined its obviousness and enablement arguments.  Finally, the court found that the government’s success in arguing matters secondary to the “primary issue” of infringement did not alter whether its overall position was supportable.  It concluded that, “the government’s position may not be substantially justified even though it may have taken certain reasonable stances during the dispute.”

Having decided that fees should be awarded, the court then turned to what constitutes “reasonable” fees under Section 1498(a).  The court first denied the portion of fees expended in pursuing other similar suits as “not reasonably related” to the case, and reduced fees where they exceeded prevailing local rates.  The court then considered whether to increase or decrease the total fee, where “the most critical factor is the degree of success obtained.”

The government argued that (1) because damages were reduced to 5% of those sought, fees should be reduced proportionately; and (2) the requested fees should be capped at the amount of damages.  But the court rejected both of these arguments, finding the reduction in damages was unrelated to the primary issue of infringement, and that the remaining award — even where Hitkansut proved infringement of only some of the claims — indicated a sufficient degree of success.

Notably, the court found that the purpose of the fee-shifting portion of the statute is “to accommodate suits where the cost to bring the suit could not be recovered from the damages awarded.”  As a result, there was no reason that fees could not greatly exceed actual damages — even where, as here, the fees exceeded compensatory damages by a factor of 20.

Possible Implications

While the court’s decision in Hitkansut is likely to be appealed, it may lead to increased consideration from patent owners in bringing Section 1498 patent actions against the government (currently, only a handful of such suits are filed each year).  A common refrain among patent owners in recent years has been that it is too expensive to enforce patents.  Indeed, the high cost of litigation leads many patentees, especially those with a relative lack of resources, to outsource enforcement to patent assertion entities, or rely on contingency arrangements and/or litigation funders to assist with litigation.

For those patent owners who believe that their patents may be used by the U.S. government and/or government contractors, the court may be an avenue to seek compensation for infringement, with the knowledge that they may have a substantial chance at recovering their attorney fees and other expenses — in sharp contrast to suits against private entities.

Additionally, the prospect of a substantial fee award may lead to the government entering into settlements in these cases at higher levels than it may have previously.  And the increased attention for Section 1498 actions may come from more than just independent inventors or nonprofit organizations — given that many nonpracticing entities, even publicly traded ones, likely fall below the 500-employee threshold, they may also increase their activity at the Court of Federal Claims.

Finally, the Hitkansut court’s decision to award fees in the face of the plaintiff’s contingency arrangement may also attract firms who work on alternative fee and contingency arrangements, as well as litigation funding entities, to explore becoming involved in Section 1498(a) actions.

Matthew J. Rizzolo is a partner and Steve Meil is an associate at Ropes & Gray LLP.  For the full text of this article, including footnotes, visit https://www.law360.com/articles/1149324/fee-award-highlights-patent-litigation-in-claims-court.

Federal Circuit Wants Reasons for Mediator’s Fee Denial in EEOC Case

April 1, 2019

A recent Law 360 story by Braden Campbell, “Fed. Circ. Wants Reasons for EEOC Mediator’s Fee Denial,” reports that the Federal Circuit told an arbitrator to reconsider denying fees to a U.S. Equal Employment Opportunity Commission mediator whose firing for a violent outburst the arbitrator reversed, directing him to explain his ultimate decision.  The panel said arbitrator John Dorsey should have explained why he denied mediator David Hamilton's request for fees while granting his request for reinstatement, saying it couldn't do its duty of deciding whether Hamilton abused his discretion with the fee denial because he didn't share his reasoning.

"In some instances, the matter may be so clear that the failure of the adjudicator to provide an explanation for its action will be harmless error, so that this court can enter judgment in accordance with the ruling below despite the absence of an explanation for that ruling," the panel said.  "But this is not such a case."

The EEOC fired Hamilton in 2017 following a mediation in which he "suddenly began to act erratically," hurling racial epithets and "engaging in physical violence" toward the parties in the dispute, according to the ruling.  Hamilton filed a grievance through his union, the American Federation of Government Employees Local 3599, and argued for reinstatement in arbitration.  Dorsey attributed the outburst to a one-time "major physical and/or mental breakdown" and ordered Hamilton be reinstated with back pay.  But Dorsey denied the union's request for arbitration costs and fees without explanation, and, after he reaffirmed his ruling following the EEOC's request for reconsideration, the union appealed to the Federal Circuit.

The panel frames the union as making three arguments on appeal: that Dorsey had to award fees "under the applicable standards," that he deviated from his merits decision by denying fees, and that his failure to explain the denial means it must be reversed.  The panel dispensed with the union's first two arguments briefly, saying the first amounted to a request that it find Dorsey abused his discretion "regardless of any findings," and that arbitrators can consider other factors than those behind their merits ruling in denying fees.  The panel said the third argument "has more force," discussing it in detail.

The panel said appeals ordinarily require that the adjudicator explain their reasoning "even on a matter as to which the adjudicator is given broad deference" because the reviewing body otherwise can't say whether the ruling was well reasoned.  This case illustrates why such reasoning "is typically critical to judicial review," the panel said.

The panel noted the EEOC argued in its bid for reconsideration that Dorsey rightly denied fees for two reasons: awarding fees would have been unjust, and its collective bargaining agreement with Local 3599 holds that parties in arbitration bear "fees and expenses" equally.  The EEOC later backed off the second argument, which omitted that this portion of the CBA spoke to arbitrators' fees only.  But because Dorsey did not explain his reasoning, it's unclear whether that argument factored into his fee decision, the panel said.

"Because the EEOC invited the arbitrator to deny fees on that ground, the agency is not well situated to argue that the arbitrator must have denied fees based on a valid ground, rather than on the invalid ground that the agency itself proposed," the panel said.

Barbara Hutchinson, who represents the union, said the panel's ruling "is consistent with the law, which requires an arbitrator state the findings and conclusions when ruling on a request for attorney fees and costs in arbitration cases appealable to MSPB."