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Recovering Attorney Fees in Arbitration: A Trap for the Unwary

January 26, 2015 | Posted in : Fee Clause, Fee Entitlement / Recoverability, Fee Shifting, Fee Statute

A recent post, “Recovery of Attorneys’ Fees in Arbitration: A Trap For the Unwary,” by Thomas H. Wagner and Paul R. Wood of Polsinelli, in their law firm blog, discuss the recovery of attorney fees in arbitration.  They write:

The so-called “American Rule” generally requires each party to a lawsuit to bear its own costs and attorneys’ fee in the absence of a statute or contract to the contrary.  Likewise, there is no inherent power or implied authority to award attorneys’ fees under the Federal Arbitration Act.  Therefore, in order to recover attorneys’ fees in arbitration, one of the exceptions to the American Rule would have to be pleaded and proved.

In state and federal court pleadings, many attorneys ask for attorneys’ fees in claims for relief as a matter of course even if there is no clearly defined right to recover attorneys’ fees if a basis for recovery is later discovered.  However, the American Arbitration Association’s (AAA) Commercial Arbitration Rule 43(d)(ii) provides: “The award of the arbitrator may include: …(ii) an award of attorneys’ fees if all parties have requested such an award or it is authorized by law or their arbitration agreement.” (Emphasis added.)

Thus, by including boilerplate language requesting an award of attorneys’ fees in an AAA arbitration demand or response conducted under the AAA Commercial or Construction Rules, a lawyer may be creating a right to recover attorneys’ fees, rather than preserving such a right.  Once consent is mutually given, it is within the arbitrator’s discretion whether to allow a party to withdraw consent.

If an arbitrator has entered an award of attorneys’ fees, it is highly unlikely that it will be overturned by a reviewing court.  The grounds for review of an arbitration award under the Federal Arbitration Act, 9 U.S.C. § 1, et seq., are extremely limited.  A court will confirm the award “if grounds for the decision can be inferred from the facts of the case.”  “Arbitrators, unless expressly restricted by the agreement of the parties, enjoy the authority to fashion relief they consider just and fair under the circumstances existing at the time of arbitration, so long as the remedy may be rationally derived from the contract… .”

To avoid inadvertent consent to potential fee shifting in arbitration, an arbitration clause should be carefully analyzed to determine if the agreement provides for fee shifting.  If there is no fee shifting provision, a party seeking to rely on the lack of such a provision must avoid asserting a demand for such fees against the opposing party.  Moreover, if the claimant seeks an award of attorneys’ fees which is not supported by statute or the arbitration agreement, the respondent should affirmatively assert an award of such fees is not authorized to avoid potentially waiving its objection.

This post was re-published with permission.  Thomas H. Wagner is an associate at Polsinelli’s Denver office.  Paul R. Wood is a shareholder at Polsinelli’s Denver office.