Obtaining attorneys' fees in Florida arbitrations: the slowly changing law.

• Author: Starr, Kenneth
• Position: Labor and Employment Law

With the enactment of state and federal arbitration legislation, as well as appellate court opinions interpreting that legislation, there is little doubt that past judicial resistance to enforcing arbitration agreements is either waning or firmly in the past. However, with regard to awarding attorneys' fees, there remains a tension between the interpretation of state and federal statutes that apply to arbitration proceedings that take place in Florida.

The relevant section of the Florida Arbitration Code (FAC) in effect with regard to arbitration agreements entered into through June 30, 2013, (1) provided: "Fees and expenses of arbitration.--Unless otherwise provided in the agreement or provision for arbitration, the 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." (2) The seminal Florida case on the interpretation of the above provision is Turnberry Associates v. Service Station Aids, Inc., 651 So. 2d 1173 (Fla. 1995). (3) The Florida Supreme Court found the FAC did permit the recovery of attorneys' fees incurred in arbitration. However, the court expressly prohibited arbitrators from awarding such fees absent the parties' mutual agreement to the contrary. (4) In reaching this holding, the court cited with approval an earlier Florida appellate opinion: Pierce v. J.W. Charles-Bush Securities, Inc., 603 So. 2d 625 (Fla. 4th DCA 1992).

The Pierce court examined a decade of federal court opinions interpreting the application of the U.S. Arbitration Act, 9 U.S.C. [section][section]1-14, which clearly enunciated the strong policy in favor of arbitration and prohibited the states from undercutting the enforceability of agreements covered by the act. (5) After reviewing the federal history and acknowledging that the Supremacy Clause of the U.S. Constitution supersedes conflicting state laws, the Pierce court said:

In this case the arbitration agreement is included in a stockbroker's account agreement. Although neither party has raised the subject, there is a question in our minds as to whether the margin account has been captured by USAA section 2, which applies the [a]ct's provisions to any "contract evidencing a transaction involving commerce," as defined in USAA section 1. Under the previously cited Supreme Court decisions, we have little doubt that Congress has barred the states from refusing to enforce arbitration awards under USAA which determine entitlement to attorney's fees. The record being silent, however, on the application of USAA, we proceed to consider whether the comparable Florida law on arbitration, properly understood, precludes agreed arbitral determination of fee claims. (6)

It appears clear that neither the holding of the Florida Fourth DCA in Pierce nor the Florida Supreme Court in Turnberry controls a case in which the Federal Arbitration Act (FAA) is implicated. Nevertheless, in Orkin Exterminating Co. v. Petsch, 872 So. 2d 259, 263 (Fla. 2d DCA 2004), the Second DCA expressly stated "that even when the Federal Arbitration Act governs an arbitration agreement, Florida law controls the award of attorney's fees."

Acknowledging that arbitration "is a voluntary alternative method for the resolution of disputes," the Turnberry court also stated that "the parties by agreement may waive their entitlement to have the circuit court decide the issue of attorneys' fees and by so doing may confer subject matter jurisdiction upon an arbitrator to award attorneys' fees." (7) (Emphasis added.) While the court injected the term "subject matter jurisdiction" into its decision, it is axiomatic that subject matter jurisdiction cannot be created by waiver. (8)

Another important point the Florida Supreme Court made absolutely clear is that only a trial court has jurisdiction to decide the waiver issue. "[T]rial courts...enjoy exclusive jurisdiction to resolve the factual issue of whether the parties have waived their statutory right to have the court decide the fee issue." (9) This becomes a very important point when dealing with a case involving interstate commerce or a maritime transaction, which triggers the application of the FAA. (10)

Congress enacted the FAA pursuant to its broad powers under the Commerce Clause. By its express terms, the FAA applies in those situations involving maritime transactions and commerce:

A written provision in any maritime transaction or a contract involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save any such grounds as exist at law or equity for the revocation of the contract. (11)

The U.S. Supreme Court interpreted the above provision as extending Congress' powers to the full extent of the Commerce Clause. (12) It has been suggested that the FAA "governs virtually every arbitration clause arising out of a commercial transaction." (13)

At least one federal district court, in Ceco Concrete Construction v. J.T. Schrimsher Const. Co., Inc., 792 F. Supp. 109 (N.D. Ga. 1992), had the opportunity to address the above provision of the FAA and its effect on a Georgia statute. Similar to the FAC, the statute prohibits the award of attorneys' fees in an arbitration forum. The Georgia statute reads: "Unless otherwise provided in the agreement to arbitrate, the arbitrators' 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." (14)

The district court opinion held:

Once it is found ... that the underlying contract involves interstate or foreign commerce or a maritime transaction, the Federal Arbitration Act preempts the field. (Citing Coenen v. R.W.Pressprich & Co., 453 F.2d 1209 (2d Cir. 1972)). Whatever court or tribunal, state or federal, is applying the law must then resort to the Federal Arbitration Act and the body of Federal common law construing it. (15)

There is no question that, in those cases in which the FAA conflicts with state law, federal law controls. As acknowledged by the Florida Fourth DCA in Merrill Lynch, Pierce, Fenner & Smith v. Melamed, 405 So. 2d 790 (Fla. 4th DCA 1981):

The supremacy clause requires us to resolve any inconsistency between the two laws in favor of the federally created right, and to subordinate Florida law to the supreme law of the land. We therefore hold that Florida courts must recognize and apply the Federal Arbitration Act and that arbitration agreements which are valid and enforceable under the federal law are also valid and enforceable in Florida courts. (16)

Florida appellate courts that have addressed the supremacy question in connection with arbitration proceedings have concluded there is no problem because there is no conflict or inconsistency between Florida and federal law. (17)

The Florida Legislature has expressly provided that attorney's fees for time spent in arbitration are recoverable but only in the trial court upon a motion for confirmation or enforcement of the award. [section]682.11, Fla. Stat. (1989). In conformity with the statute, our court's long-established policy has been to exclude the resolution of attorney's fee demands from the arbitrator's authority; Florida defers instead to the expertise of trial judges.... In contrast, there is nothing in the federal code denominating arbitration as the favored means of establishing a reasonable attorney's fee, nor does the code contain an express preempting provision. As the Supreme Court emphasized in Volt Information Sciences, Inc. v. Board of Trustees of Leland...