Arbitration and attorneys' fees issues: an attorney's and arbitrator's viewpoint.

• Author: Nussbaum, Frank
• Position: Florida

Increasingly, our judicial system is being used to untangle the problems of society. For an aggrieved party the idea of uttering a final statement, "I'll see you in court," may seem satisfying at the moment; however, in the long run it can be emotionally draining and financially unsound. There is a consensus among many that the court system is expensive and has too few judges to deal adequately with the ever-growing litigiousness of our society. In response, a trend has developed, especially in commercial and employment matters, to look to alternative dispute resolution programs to settle disputes. Of such programs, arbitration by proper design can offer a faster and cheaper method of resolving disputes since parties are free to tailor such programs to their needs. Moreover, arbitration can provide a significant advantage for parties engaged in international transactions because international arbitration is governed by specific rules under a single treaty known as the New York Convention on the Recognition of Enforcement of Foreign Arbitral Awards (New York Convention), 3 U.S.T. 2517, codified in 9 U.S.C.A. [sections] 201 (West 1997), ratified by a majority of the industrialized nations. Consequently, it may be easier to enforce an arbitration award in other countries than to enforce a court judgment.

Although arbitration is a favored alternative dispute resolution instrument, it has not developed its full potential. It is now at a critical juncture and whether the pendulum will swing in its favor will depend in large part on future decisions of federal and Florida courts in arbitration matters such as: 1) recovery of attorneys' fees incurred in arbitration; 2) the extent of the applicability of the law to arbitration; and 3) which disputes are arbitrable disputes.[1] Recent decisions addressing some of these issues have imposed more of the attributes of litigation on arbitration. The result is increased litigation tactics by lawyers in arbitration and the consequential escalation in the length and cost of the arbitration, all of which tend to limit the benefits of arbitration.

One of the most important and misunderstood issues is the recoverability of attorneys' fees incurred during an arbitration. The purpose of this article is to discuss the current status of this issue and provide some guidelines that will help overcome potential pitfalls attorneys may encounter in this area.

Jurisdiction

Generally, the jurisdiction of arbitrators to make awards is governed by statute. In Florida, arbitration is controlled by the Florida Arbitration Code found in F.S. Ch. 682.01 et seq. Controversies involving interstate commerce are controlled by the Federal Arbitration Act, codified at 9 U.S.C. [subsections] 1 et seq., as well as the code. The code and the act apply to written agreements which provide that controversies arising under the agreement must be submitted to arbitration unless the agreement stipulates that the code does not apply to the arbitration.[2] If both the code and the act apply to an arbitration, the act will control the proceedings.[3]

Entitlement to Fees

Florida courts have stated uniformly that the threshold issue of whether there is a right to attorneys' fees in arbitration is governed by F.S. [sections] 682.11, which provides that:

Unless otherwise provided in the agreement or provision for arbitration, arbitrators' and umpires' expenses and fees, together with other expenses, not including counsel fees, incurred in the conduct of the arbitration, shall be paid as provided in the award.

Although nothing in 682.11 clearly prohibits entitlement to attorneys' fees incurred during arbitration, until 1991 several district courts interpreted the wording of [sections] 682.11 to prohibit an award of attorneys' fees for services rendered during arbitration.[4] Some decisions went so far as to interpret [sections] 682.11 to mean that even an agreement by the arbitration parties to vest jurisdiction in arbitrators to award attorneys' fees was prohibited.[5]

Then, in 1990, in Fewox v. McCarthy, 556 So. 2d 419 (Fla. 2d DCA 1990), the Second District concluded that previous cases which held that [sections] 682.11 prohibited attorneys' fees for time spent in arbitration "were wrongly decided insofar as they hold that the statute prohibits an award of attorneys' fees for services rendered during arbitration proceedings."[6] The Fewox court further stated that although [sections] 682.11 might prohibit arbitrators from having jurisdiction to consider attorneys' fees as expenses in an award, 682.11 does not prohibit a trial court from awarding attorneys' fees for time expended in arbitration. Thereafter, in Insurance Co. of North America v. Acousti Engineering Co. of Florida, et al., 579 So. 2d 77 (Fla. 1991), the Florida Supreme Court resolved the conflict created by Fewox and other district court decisions, by holding that [sections] 682.11 does not prohibit entitlement to attorneys' fees for services rendered during arbitration proceedings, "but rather merely prohibits arbitrators from awarding such fees."[7] The court did not address the issue of whether the parties by agreement could confer jurisdiction upon the arbitrators to determine entitlement to attorneys' fees for time spent in arbitration and to assess such fee.

Thereafter, in Fridman v. Citicorp Real Estate, Ina, 596 So. 2d 1128 (Fla. 2d DCA 1992), the Second District followed Acousti Engineering and held that a party may be awarded fees for arbitration proceedings if authorized by statute or contract, but specifically held that parties could not by agreement confer jurisdiction upon arbitrators to determine attorneys' fees, since only the circuit court has jurisdiction to determine entitlement to fees.

Subsequently, the Fourth District in Pierce v. J.W. Charles-Bush Securities, 603 So. 2d 625 (Fla. 4th DCA 1992), held that parties to an arbitration agreement may confer jurisdiction on the arbitration panel to decide entitlement to attorneys' fees and the amount of such fees.[8] Thereafter, the Second District reconfirmed its Fridman ruling in Higley South, Inc. v. Quality Engineering Installation, Inc., 632 So. 2d 615 (Fla. 2d DCA 1994).

In Service Station Aid, Inc. v. Turnberry Associates, 629 So. 2d 204 (Fla. 3d DCA 1994), however, the Third District, like the Fourth District, disregarded Fridman and Higley South, Ina and decided to follow the Fourth District's holding in Pierce v. J.W. Charles-Busch Securities, Ina, that parties to an arbitration may by stipulation confer jurisdiction upon the arbitration to decide entitlement to attorneys' fees and to assess such fees.

On certiorari conflict, the Florida Supreme Court in Turnberry Associates v. Service Station, 651 So. 2d 1173 (Fla. 1995), sided with the Third and Fourth districts and firmly established the principle that parties may stipulate to waive their right to have the circuit court determine entitlement to attorneys' fees and confer subject matter jurisdiction upon the arbitrators to award fees. The Supreme Court, however, also held that in the event that a dispute arises as to whether such stipulation was entered into, only the trial court had jurisdiction to resolve such factual dispute.

Recent Developments

Since the Turnberry decision, the Supreme...