Requesting Attorney’s Fees At Arbitration: A Trap For The Unwary

By: George S. Mahaffey | 11.19.14 | Media

While it is generally difficult to recover attorneys’ fees in the absence of a statute, rule, or contract,[i] many attorneys often will ask for them at the outset of litigation, either because that is what they normally do or because their opposing counsel has asked for them.  While ordinarily this might not be a significant issue, it can be if the forum is an American Arbitration Association (“AAA”) arbitration.

Reflexively asking for attorneys’ fees in a AAA arbitration, simply because your opponent did, can be a trap for a number of reasons.  To begin with, Rule 47(d)(ii) of the AAA Rules provides that an arbitrator may award attorneys’ fees if either: (1) both parties request an award of attorneys’ fees; or (2) the award is authorized by law or the arbitration agreement.[ii]  What this means is that the arbitrator may award fees even if the parties agreed otherwise in a document, including an arbitration agreement.  This can happen either where the arbitrator determines that an award is authorized under the law – even if it’s at odds with an arbitration agreement – or because both sides have requested it. In some cases, we have seen respondents/defendants—who asked for attorneys’ fees simply because the other side did—get hit with a fee award after they lost the case.

An award of attorneys’ fees at arbitration is likely to surprise clients and insurance adjusters, particularly in cases where an agreement did not allow for an award of fees but their counsel mistakenly asked for them.  Indeed, we have taken part in panel discussions with adjusters and in-house attorneys who believe it is below the standard of care to seek attorneys’ fees reflexively at AAA arbitrations.  As such, it is possible that legal malpractice claims will arise out of the decision to seek attorneys’ fees in a AAA arbitration.  Accordingly, the best course of action is to scrutinize whether seeking an award of attorneys’ fees makes sense given the facts, and refrain from asking for the fees simply because your opponent has done so.

[i]  Pacific Employers Ins. Co. v. Eig., 864 A.2d 240, 160 Md. App. 416 (2004).

[ii] See AAA Rules, 47(d)(ii).