Recovering Attorney Fees in Arbitration

• Publication year: 2021
• Author: By Charles H. Dick, Jr.

Recovering Attorney Fees in Arbitration

By Charles H. Dick, Jr.

Charles H. Dick, Jr. is a neutral with JAMS, and he serves as a mediator and an individual arbitrator or member of multi-arbitrator panels in complex commercial matters, securities and investment disputes, professional liability cases, products liability issues, and other business-related controversies.

An accurate assessment of damages is critical for case evaluation, and the cost of dispute resolution plays an important role in deciding to pursue claims. Even strong liability cases can fail to make economic sense. That is why a thorough case appraisal should thoughtfully consider the attorney fees to be incurred. And equally important, an objective case valuation should assess the likelihood of recovering attorney fees.

The "American Rule," which specifies that each party must bear its own attorney fees, is a lesson for law school's first year, and though the rule has been slightly modified to encourage certain litigation in the public interest, fee-shifting remains the exception rather than the rule. Against this background, professional responsibility obliges counsel to keep clients informed about litigation economics (Cal. Rules Prof. Conduct, rule 1.4)—something critically important as a case approaches the inevitable mediation. Unfortunately, experience teaches that an exacting analysis of litigation cost and exposure to fee-shifting often is an afterthought, and that the development of case strategies, discovery plans, and tactical maneuvers occurs without thoughtfully weighing the implications of the American Rule and its exceptions. This is a recurring issue in arbitration.

Perhaps litigators approach attorney fee recovery casually, thinking there will be ample time to deal with the question before a final judgment is entered. Arbitration, however, is different. The binding nature of arbitration makes appellate relief unlikely. An arbitrator's award of attorney fees is unlikely to be second-guessed by a court, even if there is no statutory or contractual basis for the award. (See Moncharsh v. Heily & Blasé (1992) 3 Cal.4th 1, 33; id. at p. 11 ["it is the general rule that, with narrow exceptions, an arbitrator's decision cannot be reviewed for errors of fact or law. In reaffirming this general rule, we recognize there is a risk that the arbitrator will make a mistake."].) When it comes to recovering attorney fees in arbitration, counsel needs to get the issue correct from the beginning.

California has codified the American Rule in Code of Civil Procedure section 1021. Contractual arrangements can modify the rule and provide for fee-shifting, but a careful study of the parties' language is critical. (See Valley Hardware, LLC v. Souza (Nov. 20, 2015, D067076) 2015 Cal.App.Unpub. Lexis 8347 [affirming arbitrator fee award in face of inconsistent contract provisions].) Contractual language inevitably varies: Some agreements provide for recovery of fees "when permitted by law"; some

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say fees "actually incurred" are recoverable; some limit attorney fees to a percentage of the damages awarded; some say the prevailing party "shall" recover fees, while others use the uncertain "may." Civil Code...