By Leslie King O’Neal
Tips on Attorney’s Fee Awards in Arbitration
Getting an attorney’s fee award in arbitration is the icing on the cake for many construction attorneys.
Although the “American Rule” on fee allocation generally applies, contract language, arbitration rules, and applicable statutes can affect attorney’s fee awards in arbitration.U
Understanding how attorney’s fees claims in arbitration differ from those in civil litigation is important to avoid potential pitfalls. This post discusses rules and cases to help counsel navigate making and defending attorney’s fees claims in arbitration.
1. Generally, the “American Rule” Applies
In U.S. arbitration practice, as in U.S. litigation practice, the “American Rule” (each party bears its own fees) generally applies.[i] In most cases arbitrators can award attorney’s fees only if there is a statute, a contractual provision or a rule allowing a fee award. The AAA and JAMS construction industry arbitration rules provide arbitrators may award attorney’s fees when authorized[ii] as do the CPR Administered Arbitration Rules.[iii] If parties to an ad hoc arbitration (not administered by an organization) want the arbitrator to award fees, the arbitration agreement should specifically provide that. In states that adopted the RUAA [iv] and where the state arbitration code applies, arbitrators may grant attorney’s fees when such relief is allowed by law in a civil action or by the arbitration agreement. See post: FAA or State Arbitration Law? Which Applies & When? https://theconstructionadrtoolbox.com/2025/05/which-applies-faa-or-state-arbitration-law/
2. Be Careful What You Ask For–AAA Rule R-49(d)i
This AAA Rule is unique, allowing arbitrators to award attorney’s fees “if all parties have requested such an award” even if there is no contractual or statutory basis for a fee award. Some attorneys routinely include attorney’s fee claims in all pleadings or arbitration demands. If opposing counsel makes a reciprocal fee claim, this rule permits the arbitrator to award fees, even if the parties’ agreement is silent on fees and there is no statutory basis for a fee award.
For example, in City of Chesterfield v. Frederich Const., Inc.[v] the City and Frederich signed two construction contracts, both requiring disputes be arbitrated under AAA Construction Industry Arbitration Rules. Both contracts had disputes, which were arbitrated separately. The first award, in Frederich’s favor, included $50,000 in attorney’s fees. The City did not appeal that award. The second award, also in Frederich’s favor, included an attorney’s fee award of $279,037. The City moved to vacate that award, asserting the arbitrators exceeded their authority in awarding attorney’s fees because the parties’ contract didn’t authorize such fees. The trial court denied the motion to vacate and the City appealed.
Affirming the award, the appellate court stated: “The arbitrators ultimately concluded they were authorized to resolve the issue of attorneys’ fees because the contract incorporated AAA rules, which allow arbitrators to award attorneys’ fees where all parties request them. We agree.” The court noted that both Frederich and the City requested attorney’s fees in their submissions to AAA.
3. The Arbitration Agreement Governs—Most of the Time
Arbitration is a creature of contract and arbitrators’ powers can be limited (or expanded) by contract language. For example, when the contract provides attorney’s fees shall be awarded to the prevailing party, arbitrators exceed their powers if they refuse to make such an award.[vi] Similarly, contract provisions prohibiting arbitrators to award attorney’s fees should be followed, unless, for example, a statutory fee non-waiver provision applies.
4. Contract Subject to Statutory Attorney’s Fee Non-Waiver Provision
In E. Allen Reeves, Inc. v. Old York, LLC,[vii] the arbitrator awarded Reeves, the general contractor, $159,941 in attorney’s fees and penalties against the owner under Pennsylvania’s CASPA law[viii] despite the contract’s prohibition of attorney’s fee awards.[ix] Upholding the attorney’s fee award, the appellate court noted that CASPA’s attorney’s fee provisions cannot be waived by contract. It further stated that the non-waiver provision can’t be evaded by couching the waiver language as a limitation on the arbitrator’s authority. Many states have prompt payment laws providing for attorney’s fees, so counsel should review these as possible bases for attorney’s fee claims.
5. Arbitrators May Sanction Parties Behaving Badly
JAMS construction arbitration rules allow arbitrators to consider whether a party’s failure to cooperate reasonably in the discovery process or comply with the arbitrator’s discovery orders delayed the proceedings or caused additional costs to other parties when making attorney’s fee awards.[x] Rule 49(b) of the AAA Construction Rules allows arbitrators to make interim awards, assessing and apportioning fees, expenses and compensation as the arbitrator deems appropriate. Both arbitrators and courts have entered attorney’s fee awards as sanctions against parties in arbitration (or appeals related to arbitration) for raising frivolous defenses or taking frivolous appeals.
For example, a party raising frivolous defenses in an arbitration under AAA rules was subject to a $175,000 attorney fee sanction because “the arbitrators deemed [defendant’s] whac-a-mole approach to be a waste of everyone’s time.”[xi] Defendant appealed, asserting the arbitrators exceeded their powers by awarding attorney’s fees. Judge Easterbrook, writing for the 7th Circuit Court of Appeals, upheld the arbitrators’ findings that the contract language was a restatement of the American Rule, which allows awards of legal fees as sanctions. The appellate court noted AAA Rule 49(d)(ii) allows attorney’s fee awards as sanctions and upheld the award.
The 7th Circuit later awarded $40,000 in attorney’s fees as sanctions against defendant/appellant for bringing a frivolous appeal.[xii] This Circuit takes a hard line on frivolous appeals from arbitration-related orders. See post: Court Sanctions Frivolous Appeal from Order to Arbitrate https://theconstructionadrtoolbox.com/2025/01/frivilous-appeal-from-order-compelling-arbitration-results-in-sanctions/
Takeaways:
- Arbitrators may have authority to enter attorney’s fees awards under contract, statute or arbitration rules.
- Counsel should be thoughtful about requesting attorney’s fees in arbitrations under AAA rules to avoid creating attorney’s fees obligations inadvertently.
- Statutory language may prevail over a contractual prohibition on attorney’s fee awards.
- Arbitrators may award attorney’s fees as sanctions in some instances.
[i] The College of Commercial Arbitrators Guide to Best Practices in Commercial Arbitration (4th Ed. 2017), Chapter 12 §V.C, p. 315.
[ii] AAA Construction Industry Arbitration Rule R-49(d)ii; JAMS Construction Arbitration Rule 24(g).
[iii] CPR 2019 Administered Arbitration Rule 19.1.d.
[iv] Nineteen states and the District of Columbia have adopted The Revised Uniform Arbitration Act. They are: Alaska, Arizona, Arkansas, Colorado, District of Columbia, Florida, Hawaii, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Oklahoma, Oregon, Tennessee, Utah and Washington.
[v] 475 S.W.3d 708 (Mo.Ct.App. 2015) https://www.casemine.com/judgement/us/5914f632add7b0493498e5f0f ;see also Wells Fargo Bank, N.A. v. WMR e-PIN, LLC, 653 F.3d 702 (8th Cir. 2011).
[vi] DiMarco v. Chaney, 37 Cal. Rptr 2d 558 (Ct. App. 1995).https://case-law.vlex.com/vid/dimarco-v-chaney-no-890923658
[vii] 293 A.3d 284 (Pa. Sup. Ct. 2023).https://scholar.google.com/scholar?scidkt=15075288540969079392&as_sdt=2&hl=en
[viii] Contractors and Subcontractors Payment Act, 73 P.S.§512(b).https://codes.findlaw.com/pa/title-73-ps-trade-and-commerce/pa-st-sect-73-512/
[ix] §21.9 of the contract stated: “However, no arbitrator shall have the authority to enter an award of punitive damages or attorney fees to either of the parties.”
[x] JAMS Const. Arb. Rule 24(g)
[xi] American Zurich Ins. Co. v. Sun Holdings, Inc. 103 F.4th 475 (7th Cir. 2024). https://law.justia.com/cases/federal/appellate-courts/ca7/23-3134/23-3134-2024-06-03.html.
[xii] The 7th Circuit entered an attorney’s fee award of $40,000 against Sun as sanctions under Fed. R. App. Proc. 38 for its frivolous appeal. Order, No 23-3134, Dkt. 42 at 1 of 2 (7th Cir. July 3, 2024) (available on PACER).