Frequently, practitioners demand a recovery of legal fees in an arbitration demand with little thought, even though legal fees are seldom awarded absent a specific statute or contract term authorizing such a recovery.
But in American Arbitration Association (AAA) arbitrations, the decision to demand legal fees – or not – can have real world ramifications. Rule 45 of the AAA construction industry arbitration rules allows an arbitration panel to award fees to the prevailing party if “all parties have requested such an award.” So when both sides request fees upfront, the arbitration panel can award fees even if they were never authorized by statute or contract in the first place.
Losing parties have been unsuccessfully challenging arbitration awards that have included sizeable legal fees in many cases. And courts in Illinois, Missouri, New Jersey and Tennessee have been finding against the arbitration losers and supporting the award of fees to the prevailing party in such cases.
So the lesson from such cases is that you should carefully consider whether you request an award of legal fees in an arbitration demand. And you may regret that decision to ask for fees if you try the arbitration and do not win.