Beware of the Attorneys' Fee Trap In Arbitration!
/ December 10, 2010
by Jeffrey Huron
Did you know that the Commercial Arbitration Rules for the American Arbitration Association permit an arbitrator to award attorneys' fees if all parties have requested them? Pursuant to Rule 43 of the AAA Commercial Arbitration Rules, the arbitration award may include "an award of attorneys' fees if all parties have requested such an award." Thus, if the claimant files a demand for arbitration and request fees, and the respondent requests them in the answering statement, then the arbitrator may award the prevailing party fees even if there is no written agreement between the parties providing for the recovery of fees.
HLG Arbitration Practice Tip: If neither side is legally entitled to the recovery of fees because the contract sued upon does not contain a provision for attorneys' fees, you, as the claimant, may nevertheless request an award of attorneys' fees and set a trap for an unwary respondent. If you are the respondent, and the claimant has requested fees, you must determine whether there is a legal basis for the recovery of fees and, if not, assess your chances of prevailing in the arbitration. If you believe the claimant is not likely to prevail, then you should request fees too. However, if you are not alert and unwittingly request fees where the claimant is likely to prevail, then you may end up springing the trap set by the claimant.