An arbitration panel applying the AAA commercial arbitration rules awarded one party its attorneys’ fees, on the grounds that “substantially all of the defenses [of the other party] were wholly insubstantial, frivolous and not advanced in good faith.” Had a Massachusetts court made such findings it would have been authorized by statute to award attorneys' fees to the prevailing party. But the Massachusetts Supreme Judicial Court has held that the state arbitration statute, coupled with the statute governing frivolous claims, does not allow arbitrators to award attorneys’ fees in the absence of an explicit right within the agreement to arbitrate.
The prevailing party in the arbitration argued that the AAA rules allow the arbitrators to “grant any remedy or relief that the arbitrator deems just and equitable.” Alternatively, he argued that AAA Rule 47 (page 28 of 46) allows the arbitrator to award such fees “if it is authorized by law,” and the statute governing frivolous claims provides the requisite authorization.
But the Massachusetts high court held otherwise: “We conclude that an arbitrator lacks the authority to award attorney’s fees [arising from a frivolous claim or defense] unless the parties have agreed that an arbitrator may award attorney’s fees in these circumstances.” It noted long-standing case law in Massachusetts for Section 10 of the arbitration statute (“Unless otherwise provided in the agreement to arbitrate, the arbitrators' expenses and fees, together with other expenses, not including counsel fees, incurred in the conduct of the arbitration, shall be paid as provided in the award.”) as follows: “As a general rule, we have interpreted [section 10] to prohibit 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 also noted that the statute for frivolous claims refers to a “court,” and an arbitrator is not a court.
The Massachusetts court reaffirmed two circumstances in which an arbitrator can award attorneys’ fees: (1) on a statutory claim where the statute mandates recovery of attorneys’ fees by the prevailing party; and (2) when an arbitration agreement or rule allows the arbitrator to issue sanctions for discovery violations or non-compliance with orders. So the prevailing party in the current case won the battle on the merits, but not the battle for attorneys’ fees. The case is Beacon Towers Condominium Trust v. Alex, SJC-11880 (Jan. 7, 2016).