Today’s post is a good one for all those defendants/ respondents who are convinced that they have a slam-dunk case and want to recover their attorneys’ fees.  Because while these particular respondents were not successful, they paved a path that may lead others to collect attorneys’ fees after defeating claims in arbitration.

The case involved an owner’s negligence claims against an architect arising out of a condominium project.  WPH Architecture, Inc. v. Vegas VP, __ P.3d __, 2015 WL 6750051 (Nev. Nov. 5, 2015).  “Prior to arbitration”, the architect made offers of judgment under Nevada’s Rule 68 (and a related statute).  That rule allows a defendant to offer to accept judgment against it in a certain amount, and provides that if the plaintiff does not “obtain a more favorable judgment,” the plaintiff “shall pay” the defendant’s costs, interest, “and reasonable attorney’s fees, if any be allowed” from the date of the offer.   (An appropriate betting mechanism for litigation over this Las Vegas condo project…)  The owner rejected the offers and then lost at arbitration.  However, when the architect filed a motion to recover its costs, fees, and interest under Rule 68, the arbitrators denied the motion, noting that there was no express authority finding offers of judgment are available in arbitration.

The architect then asked the courts to modify the arbitration award to include its attorneys’ fees, costs and interest, arguing that the arbitrators had “manifestly disregarded the law” in refusing to follow Rule 68 and Nev. Statute 17.115.  The court went through the following analysis:

  • The parties’ contract called for the AAA’s Construction Arbitration Rules to govern the arbitration, but Nevada law to govern the contract.  Applying Mastrobuono, the court held “that the arbitration was substantively governed by Nevada law and procedurally governed by the AAA rules.”
  • The court held that Rule 68 and the similar Nevada statutes “are substantive laws that apply to the arbitration proceedings in the current case.”
  • However, because those rules and statutes do not reference arbitration or arbitrators, they “do not require an arbitrator to award attorney fees or costs.”  (The court noted that California’s offer of judgment statutes explicitly applies to court and arbitration proceedings.)  “Furthermore, no Nevada caselaw exists holding that those statutes apply to arbitration proceedings.”
  • Therefore, because the rules and statutes did not explicitly apply to arbitration, and no case law had reached that issue, the architect “failed to demonstrate that the arbitrator manifestly disregarded Nevada law.”

Going forward, of course, the analysis will be different.  Thanks to this case, there now is binding case law in Nevada that Rule 68 is a substantive law that applies in arbitration.  This gives anyone whose contract is governed by Nevada law new potential leverage in defending against arbitrable claims.  If you make an early offer of judgment on a winning claim, you have the ability to later tax your costs and interest against your opponent (and a statutory basis to seek fees).  Because many states have a similar offer of judgment statute, and the analysis that the rule is substantive is based on federal cases, this same analysis should be available in many jurisdictions.