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Posts Tagged ‘American Rule’

New York Arbitration Law Focus: Appellate Division, Second Department Vacates Attorney’s Fee Award Because it was Irrational and Violated New York Public Policy

December 7th, 2023 Application to Confirm, Application to Vacate, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Attorney Fee Shifting, Attorney Fees and Sanctions, Authority of Arbitrators, Award Fails to Draw Essence from the Agreement, Award Irrational, Award Vacated, Awards, Challenging Arbitration Awards, CPLR Article 75, Enforcing Arbitration Agreements, Exceeding Powers, Grounds for Vacatur, Judicial Review of Arbitration Awards, Making Decisions about Arbitration, New York Arbitration Law (CPLR Article 75), New York State Courts, Outcome Risk, Petition or Application to Confirm Award, Petition to Vacate Award, Policy, Practice and Procedure, Public Policy, Second Department, State Arbitration Law, State Arbitration Statutes, State Courts, Vacate, Vacate Award | Attorney Fees, Vacate Award | Attorney's Fees, Vacate Award | Public Policy, Vacatur Comments Off on New York Arbitration Law Focus: Appellate Division, Second Department Vacates Attorney’s Fee Award Because it was Irrational and Violated New York Public Policy

Attorney's FeesThe question before the Appellate Division, Second Department in In re D & W Cent. Station Fire Alarm Co. v. Flatiron Hotel, ___ A.D. 3d ___, 2023 N.Y. Slip Op. 6136 (2d Dep’t Nov. 29, 2023), was whether an arbitration award had to be vacated because the amount of fees the arbitrator awarded was irrational and excessive and therefore exceeded the arbitrator’s powers under N.Y. Civ. Prac. L. & R. (“CPLR”) 7511(b)(1)(iii). The arbitrator awarded fees that were 13.5 times the amount the prevailing party’s attorney said it charged its client on an hourly basis. The fee award was 44% of the amount the arbitrators awarded for the prevailing party’s claim. See 2023 N.Y. Slip Op. 6136 at *1.

The Court concluded that the fee award was irrational and violative of New York’s strong public policy against the enforcement of contracts or claims for excessive legal fees. It therefore reversed the trial court’s judgment granting the motion to confirm and denying the motion to vacate, and remanded the matter back to the trial court. See 2023 N.Y. Slip Op. 6136 at *2.

Flatiron Hotel is of particular interest because it shows that there is authority under New York arbitration law for challenging successfully awards of legal fees that are authorized by the parties’ contract but are off the rails in their amount. While not a high-stakes arbitration involving hundreds of thousands of dollars in legal fees, it was one where the losing party was socked with a fee that was so far out of proportion of what it consented to pay that there was nothing whatosever in the record to support it.

Fortunately for the appellant in Flatiron Hotel, the Appellate Division set aside the fee award even though the standard of review for granting such relief is highly deferential. While decisions vacating awards are understandably quite rare, this was one where vacatur was quite appropriate, as we shall see. Continue Reading »

What Happens when Arbitrators Exceed Clear Limitations on their Authority?

October 24th, 2014 Arbitrability, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Drafting Arbitration Agreements, Grounds for Vacatur, Judicial Review of Arbitration Awards, New York State Courts, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Small Business B-2-B Arbitration, State Arbitration Law, State Arbitration Statutes, State Courts, United States Court of Appeals for the Second Circuit Comments Off on What Happens when Arbitrators Exceed Clear Limitations on their Authority?

One advantage of arbitration is that parties can define and delineate the scope of disputes they agree to submit to arbitration, the basis on which disputes  can or must be resolved and the scope of the arbitrator’s remedial powers. If parties impose clear limits on an arbitrator’s authority (usually by expressly excluding certain matters from arbitration or expressly providing that an arbitrator cannot or must grant certain remedies), then courts and arbitrators are supposed to enforce those limitations. See, e.g., Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 559 U.S. 662, 680-81 (2010).

Far too frequently, parties simply agree to a broad arbitration agreement that places no limitations on arbitral power, and when they end up on the wrong-end of an award they didn’t expect, they discover to their dismay that they have no judicial remedy. Whether or not they understood that at the time they agreed to arbitrate is, of course, irrelevant. The only relevant consideration is whether their agreement could be reasonably construed to grant the arbitrator that authority, even if it could also be reasonably construed to withhold it. See, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995) (“when a court interprets such provisions in an agreement covered by the FAA, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration”) (quotation and citation omitted).

But suppose the parties take the time to consider whether they desire to limit arbitral authority, and their arbitration agreement unambiguously expresses an intention to limit arbitral authority to resolve certain disputes or impose certain remedies, or to expressly require that the arbitrators grant certain types of relief, such as fee shifting to a prevailing party. Should a court vacate the award if the arbitrator does not abide by the parties’ unambiguously expressed intentions?  Continue Reading »

ReliaStar Life Insurance Co. v. EMC National Life Co.: Critical Analysis of an Important Reinsurance Arbitration Decision

April 28th, 2009 Arbitrability, Authority of Arbitrators, Awards, Life Reinsurance, New York Court of Appeals, United States Court of Appeals for the Second Circuit 3 Comments »

Introduction

We recently reported on ReliaStar Life Ins. Co. v. EMC National Life Co., ___ F.3d ___, ___ (2009) (Raggi, J.) (blogged here), in which the United States Court of Appeals for the Second Circuit held that an arbitration panel was authorized to award under the bad faith exception to the American Rule attorney and arbitrator fees to a ceding company in a case where the parties had agreed that “[e]ach party shall bear the expense of its own arbitrator.  .  .  and related outside attorneys’ fees, and shall jointly and equally bear with the other party the expenses of the third arbitrator.”  This post takes a critical look at ReliaStar.  

The Second Circuit is one of the most influential and respected  Circuit Courts of Appeal in the United States, yet on occasion even this prestigious court renders a decision that is open to question.  ReliaStar is one of those decisions.  The majority opinion lost sight of what the parties agreed about the arbitrators’ power to award attorney fees.  Rather than adhere to the plain meaning of the parties’ agreement as required by New York  law, the Court construed an unambiguous limitation on arbitral authority to mean something other than what it said. 

No doubt that the Court believed that its decision would encourage resort to arbitration by construing arbitral authority broadly.  But the Court would have done a far better job encouraging resort to arbitration had it simply enforced the parties’ agreement as written.  One of the most attractive features of arbitration is that parties get to dictate how they want their dispute decided, including, among other things, how best to allocate the costs, fees and expenses of deciding it.   But that feature falls by the wayside if courts cannot be relied upon to enforce arbitration agreements as written.  Continue Reading »