CAREFUL WHAT YOU WISH FOR: Court Affirms Award of Attorney’s Fees Based Upon Arbitration Rules

January 29, 2015 | by Kevin C. Baltz

CAREFUL WHAT YOU WISH FOR: Court Affirms Award of Attorney’s Fees Based Upon Arbitration Rules

Most lawyers are fully aware of the “American Rule” – a generally universal rule of law (in the United States anyway) which provides that, absent specific authority granted by statute or a contractual agreement, a litigant is responsible for paying his or her own attorneys’ fees. However, notwithstanding the American Rule, an arbitrator may be permitted to award attorneys’ fees, even in the absence of any statute or agreement permitting such fees. But only if both parties ask for them.

In Lasco Inc. v. Inman Constr. Corp., 2015 Tenn. App. LEXIS 12, 4 (Tenn. Ct. App. Jan. 9, 2015), the plaintiff, Lasco, sued the defendant, Inman, alleging a breach of a construction contract. The construction contract contained an arbitration provision which provided that it would be governed by the Construction Industry Arbitration Rules of the American Arbitration Association. In light of the arbitration provision in the construction contract, Inman moved the trial court to compel arbitration. Subsequently, the parties entered into an agreed order referring the matter to arbitration.

Following the arbitration, the arbitrator issued a written award denying Lasco’s claim in its entirety and awarding Inman $162,333.44 in attorney’s fees. Thereafter, Lasco filed a motion to vacate the arbitration award of attorney’s fees contending that the arbitrator exceeded his authority in awarding the fees because an award of attorney’s fees was not authorized by the parties’ contract. The trial court agreed and vacated the arbitrator’s award with respect to attorneys’ fees. Inman appealed.

On appeal, the Tennessee Court of Appeals noted that both Lasco and Inman had requested an award of attorneys’ fees in the arbitration. Specifically, Lasco had demand attorneys’ fees in its initial demand for arbitration and in its post-hearing brief.   Rule 45 of the Construction Industry Arbitration Rules expressly provides that “[t]he 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.” Am. Arb. Ass’n, Constr. Indus. Arb. R-45(d)(ii) (emphasis added). Thus, , considering that both parties had requested an award of attorneys’ fees, the Tennessee Court of Appeals concluded that “the Construction Industry Arbitration Rules allow the arbitrator to make such an award.” The Tennessee Court of Appeals reversed the judgment of the trial court and remanded the case to the trial court for entry of an order confirming the arbitration award.

Of note, the American Arbitration Association’s Commercial Arbitration Rules also contain the same attorneys’ fees provision. See Am. Arb. Ass’n, Comm. Arb. R-47(d)(ii). Accordingly, a party involved in arbitration should carefully consider whether to demand attorneys’ fees because the demand, in and of itself, may open the door for such an award – even when a contract does not expressly provide for it.

— Kevin C. Baltz

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