Attorneys’ Fees For Litigation But Not Arbitration

Contracting parties who wish to provide both for arbitration and for the recovery of attorneys’ fees by the prevailing party should be careful before adopting template contract language. In Nelson v. Ryks, recently decided by the Minnesota Appellate Court, purchasers of real property who prevailed in arbitration against the sellers, were unable to convince the Appellate Court that they should retain the attorneys’ fees awarded by the arbitrator.

Even though the award had been confirmed by the lower court, the Appellate Court reversed on this issue, based upon the language contained in the parties’ agreement: “the prevailing Party of any action at law or in equity brought to enforce or interpret this Agreement will be entitled to reasonable attorney[] fees and costs.”

According to the Appellate Court, “[t]he use of these terms indicates that the parties intended to authorize attorney fees for court proceedings but not for arbitration.” Similarly, the Court noted that the arbitration section of the parties’ agreement “specifically addresses the costs of arbitration—'[b]oth Parties will share the costs of arbitration equally.’ But it is silent about attorney fees.” For the Court, “[t]he omission of any reference to attorney fees in the arbitration section of the purchase agreement further indicates that attorney fees are not authorized for arbitration.” Thus, “[t]he arbitrator exceeded his authority by awarding buyers attorney fees for the arbitration and the district court erred in upholding this portion of the arbitrator’s award.”

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