Having Your Cake and Eating It Too: Attorneys Fees Without a Contract Clause

How often have you wanted to take a dispute “to the mattresses” (think, The Godfather), but the cost was prohibitive?  You have a winnable case, but the cost to prove it is not worth it.  Often, this rationale results in settlement – the subject of another post.  One of the largest cost items to prove your case can be attorneys’ fees.

Under the so-called “American Rule,” each party pays his, her, or its own attorneys’ fees, regardless of the outcome.  The terms of an agreement, however, can modify that general rule by including a provision granting, typically, the prevailing party its attorneys’ fees spent to win the case.

But, even if you forgot to or were unable to include such a provision in your contract, consider whether there is an arbitration provision?  Does that arbitration provision incorporate the Rules of the AAA (the American Arbitration Association, not the roadside assistance entity)?

Under the current Rule-48 of the AAA Construction Industry Arbitration Rules, the arbitration award to the winning/prevailing party “may include . . . an award of attorneys’ fees if all parties have requested such an award” AND even if the agreement does not provide for an award of attorneys’ fees to a prevailing party.  City of Chesterfield v. Frederich Construction, Inc., 2015 WL 1814471 (Mo. Ct. App., Apr. 21, 2015).

In City of Chesterfield, the Missouri Court of Appeals held that because both parties requested attorneys’ fees in the early pleading phase (i.e., demand for arbitration and answering statement) and because the arbitrators so chose to invoke Rule-48 (Rule-45 at the time of the decision as the AAA Rules were most recently revised in July 2015), the prevailing party received its attorneys’ fees spent to achieve that victory.

Next time you have the choice of whether to arbitrate or litigate, consider how the AAA Rules may influence your decision.  For example, if there is no attorneys’ fees provision in your contract, but the AAA apply, then if you’re on the fence whether to litigate or arbitrate and you have a good case, and all other things are equal, you could get attorneys’ fees when/if you succeed.  On the other hand, if you’re answering a demand for arbitration, think twice before absent-mindedly demanding attorneys’ fees if you’re case has some large potential pitfalls.

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