Fee Awards in Arbitration

The usual rule in litigation in the United States is that a losing party is not obligated to pay the prevailing party’s attorneys’ fees. But this article looks at several mechanisms by which parties to arbitration may recover, or face liability for, attorneys’ fees under the Federal Arbitration Act.

Traditional state law hostility to awarding attorneys’ fees is generally superceded by the FAA’s direction that state laws hostile to arbitration are preempted. Various arbitral bodies have rules that allow for fee awards.

Recent Supreme Court jurisprudence has broadened the scope of arbitration, limited the grounds for striking arbitration agreements and narrowed the grounds for challenging arbitral awards.

The standard for granting sanctions such as fees against a party opposing enforcement of an arbitration is high, but it is not uniform across the circuits. Within the Second Circuit, for example, the rule has been that, under the court’s inherent power, “when a challenger refuses to abide by an arbitrator’s decision without justification, attorneys’ fees and costs may properly be awarded.”

In arbitration, a request for attorneys’ fees in a statement of claim can act as an additional submission in the arbitration, opening the issue of attorneys’ fees against the party making the request. Losing parties, and their counsel, who are considering challenging an arbitration award, must carefully evaluate their arguments against the high bar of the FAA. The risk is not simply losing the fight against confirmation, but also paying the winners’ attorneys’ fees.