Relying on principles of statutory construction, the Supreme Judicial Court held that even in light of a finding that all of the claims or defenses are ‘wholly insubstantial, frivolous, and not advanced in good faith’, an arbitral panel lacks the authority to award attorney’s fees unless the parties provided for the award of fees in their agreement to arbitrate. Beacon Towers Condominium Trust v. George Alex, SJC-11880. January 7, 2016.
Appellant Alex commenced an arbitration alleging that the trustees of his condominium complex breached its bylaws by assessing fees on him without obtaining approval of seventy-five percent of the condominium owners as required in the bylaws. After a hearing, an arbitral panel (with one dissent) determined that the special assessment was void, and awarded restitution of amounts paid and attorney’s fees. While the majority of the panel recognized that the arbitration agreement did not provide for the award of fees, they reasoned that the applicable AAA rules allowed for fees where “authorized by law” and that G.L c. 231, § 6F authorized fees where “substantially all of the defenses were wholly insubstantial, frivolous, and not advanced in good faith.” The Superior Court vacated the award of fees on the basis that § 6F did not authorize an arbitrator to award attorney’s fees; the Supreme Judicial Court transferred the case from the Appeals Court on its own motion.
After noting the narrow grounds for review of an arbitral award, the Supreme Judicial Court reiterated its general interpretation of the Massachusetts Uniform Arbitration Act for Commercial Disputes, G. L. c. 251, § 10 as prohibiting “the award of attorney’s fees in arbitration proceedings unless the parties have entered into an agreement authorizing the award of such fees.” The Court recognized two circumstances where an arbitrator could award fees despite this broad prohibition: where a party prevails on a statutory claim mandating the recovery of fees and where monetary sanctions are deemed necessary for discovery violations under the AAA rules.
The Court rejected appellee’s argument that AAA rule 47(a) allows the arbitrator to grant relief it deems “just and equitable” as flawed because it overlooked the second requirement of rule 47(a) which also requires that the relief is “within the scope of the agreement of the parties.” The arbitration panel, itself, determined that the trust’s bylaws contained no such provision providing for the award of attorney’s fees. Moreover, if the Court interpreted AAA rule 47(a) to authorize the arbitrator to award fees without regard to the parties’ agreement, AAA rule 47(d)(ii) would be rendered superfluous. AAA rule 47(d)(ii) provides that an arbitrator’s award may include “attorneys’ fees if all parties have requested such an award or it is authorized by law or their arbitration agreement.”
The Court then addressed Appellee’s argument that the award of attorney’s fees was “authorized by law” because G. L. c. 231, § 6F allows a “court” to award attorney’s fees where “substantially all of the defenses…were wholly insubstantial, frivolous and not advanced in good faith.” After reviewing the definition of “court” in the statute which enumerated specific Massachusetts courts, but did not include the District Court or the Boston Municipal Court, the Supreme Judicial Court held that an arbitrator is not a “court” that may award attorney’s fees under § 6F.
The Court found that the Legislators exclusion of arbitrators from the definition of “courts” in § 6F made sense because “an arbitrator’s finding that substantially all of a party’s claim or defenses ‘were wholly insubstantial, frivolous and not advanced in good faith’ is a composite finding of fact and law that, absent fraud, is not subject to review by a court.”