Arbitrator awarded attorneys fees to one party in an action. This decision was appealed and the appellate court affirmed, holding that the arbitrator at least arguably construed the parties’ agreement in awarding attorneys fees and expert costs to one of the parties. “Whether the arbitrator’s interpretation is correct is not a question before this court. Convincing a court of an arbitrator’s error – even his grave – error is not enough…. The potential for those mistakes is the price of agreeing to arbitration.” Industrial Steel Construction, Inc. v. Lunda Construction Company, 33 F.4th 1038 (2022).
In the contract between Lunda, the general contractor (GC) and its subcontract supplier (ISC), the contract expressly stated that the Subcontractor would be entitled to recover its reasonable attorneys fees if it prevailed in arbitration. But the parties negotiated to strike out similar wording for the GC. Despite the contract wording, the arbitrator awarded the GC its attorneys fees as part of the arbitration award. There was no detailed explanation in the arbitration decision for why that was done.
In analyzing whether the arbitrator abused its authority when it awarded those fees to the GC, the court explained:
“The AAA Construction Industry Rules also speak to the issue of fees and costs. Rule 48(d)(ii) provides that the “award of the arbitrator may include … an award of attorneys’ fees if all parties have requested such an award or it is authorized by law or their arbitration agreement.” Rule 48(c) instructs that “the arbitrator shall assess fees, expenses, and compensation as provided in” Rules 55, 56 and 57. As relevant here, Rule 56 provides that “[t]he expenses of witnesses for either side shall be paid by the party producing such witnesses,” but Rule 48(c) permits the arbitrator to “apportion such fees, expenses, and compensation among the parties in such amounts as the arbitrator determines is appropriate.”
In seeking vacatur of the attorney’s fee and expert costs, ISC relies on Section 10(a)(4), which permits vacatur “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” “A party seeking relief under that provision bears a heavy burden.” Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569, 133 S.Ct. 2064, 186 L.Ed.2d 113 (2013). “Because the parties bargained for the arbitrator’s construction of their agreement, an arbitral decision even arguably construing or applying the contract must stand, regardless of a court’s view of its (de)merits.” Id. (quotation omitted). Therefore, the “sole question” for the court is “whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” Id. “An arbitrator does not ‘exceed his powers’ by making an error of law or fact, even a serious one.”
In this case, the court held that the arbitrator at least arguably construed the parties’ agreement when it awarded the attorneys fees. “’[T]he Arbitrator has reviewed R-48 of the Construction Industry Rules of the AAA and finds that an award of attorneys’ fees and costs is appropriate in this matter.’” The parties’ agreement provided that those rules would govern any procedural matters not otherwise specified in the contract. And the mention of ISC’s liability for Lunda’s attorney’s fees was stricken from the parties’ agreement. Thus, we can conclude that the arbitrator at least arguably construed the agreement not to address Lunda’s fees, determined liability for fees to be a “procedural matter not specified” in the agreement, and applied the Construction Industry Rules to fill in the gap, as provided by the contract.”
Here the court stated: “ISC may wish that the arbitrator had explained his reasoning in greater detail, but it does not offer any basis to conclude that “the arbitrator based his decision on some body of thought, or feeling, or policy, or law that is outside the contract.” “Where the reasoning of the final award provides “an interpretive route” from the contract to the arbitrator’s conclusion, the district court may not vacate or modify the award, even if the district court disagrees with the arbitrator’s ultimate conclusion.”
Comment: Parties should exercise caution when entering into contracts requiring them to arbitrate instead of litigate. At least in this particular case, the parties added wording to the contract requiring the arbitrator to issue findings of fact and conclusions of law – the arbitrator did so as to the merits of the underlying claims but failed to do so with regard to its reasoning for awarding attorneys fees. One thing that this decision shows is the great deference granted by courts to arbitration decisions. Unlike an adverse decision in a trial court than can be appealed to an appellate court, sometimes obtaining more favorable results, it is exceedingly difficult to reverse an arbitration decision with legal appeal.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 24, No. 6 (July 2022).
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