Arbitration: AAA Arbitrator Can Award Fees to Prevailing Party, Even Without Contractual Basis, If Both Parties Request Fees in Their AAA Pleadings

Fourth District, Division 1 Affirms Fee Award Granted By Arbitrator Under AAA Rule R-44(d).

     In our category “Cases: Estoppel,” we have reviewed cases holding that Civil Code section 1717 fee recovery is not authorized in regular court actions unless the litigant has actual entitlement to fees, with no award being justified when an opponent simply prays for fees without a corresponding entitlement anchor. However, in our category “Cases: Arbitration,” we have noted a different theme in contractual arbitration cases when it comes to awarding fees—arbitrators can award fees based on equitable concepts, even when there is no clear contractual basis for a fee award. The next case, which does involve court review of a contractual arbitration award, again demonstrates the breadth of power possessed by an arbitrator, who can rely on arbitration provider rules as a basis for a fee award rather than any authorizing agreement between the parties.

     Sun Country Builders, Inc. v. Coker Equip. Co., Inc., Case No. D052434 (4^th Dist., Div. 1 Jan. 7, 2009) (unpublished) involves a contractual arbitration award in favor of a claimant totaling $129,046, which broke down to $44,373 in compensatory damages, $80,670 in attorney’s fees, and $4,003 in costs. The arbitrator had sent an interim award finding no contractual basis for a fee recovery but requesting further briefing by the parties. After obtaining more input for each side, the arbitrator issued a final award that did award the fees and costs as detailed above. Respondent was apparently infuriated and appealed, claiming that the arbitrator had no power to modify the interim award.

     Respondent lost.

     Because the award was only interim, nothing prevented the modifications made by the arbitrator.

     However, here is the part that we believe should be of interest to our readers.

     The arbitrator did not base his fee award upon a fees clause found in a contract between the parties. Rather, he hinged his award upon American Arbitration Association (AAA) Rule R-44(d), which provides “[t]he award of the arbitrator may include … an award of attorneys’ fees if all parties have requested such an award ….” Because both parties requested an award of fees in their respective claims and counterclaims, the arbitrator found this a sufficient basis under the AAA rule to support a fee award in claimant’s favor. Obviously, this type of estoppel argument would not work under a court action governed by Civil Code section 1717, but different rules apply in the contractual arbitration arena—which some practitioners do not like because the playing field is less rigid in nature.