Prevailing Party In Arbitration Loses Right To Seek Attorneys’ Fees By Not Presenting Evidence Prior To The Issuance Of An Award

Parties often include a demand for attorneys’ fees in claims submitted for arbitration. The opportunity to recover attorneys’ fees is dependent upon the success of the underlying substantive claim, so the inclination of a party is often to wait until the arbitrator issues the award on the claim.

However, because the Federal Arbitration Act and comparable state statutes impose limitations on an arbitrator’s ability to act following the issuance of an award, a party must be proactive regarding the attorneys’ fees claim. Once an award issues, the arbitrator becomes functus officio, losing the power to act, except for exceedingly narrow reasons granted by statute, such as correcting an evidence mathematical miscalculation.

Therefore, a party who hopes to recover attorneys’ fees has two options. First, the party can submit the evidence and legal claims for the attorneys’ fees before the arbitrator issues the award, thereby presenting the issue squarely to the arbitrator.

Second, the parties and arbitrator can discuss the efficiencies involved in deferring the attorneys’ fee evidence and arguments until the arbitrator issues the award on the merits, since an award adverse to the claimant will moot the issue. If the parties agree to pursue this route, the arbitrator will issue an “interim award” on the merits, with the case being kept open so that attorneys’ fees issues can be subsequently entertained.

The risks of doing neither recently became apparent in Chen v. Kyoto Sushi, Inc. d/b/a Kyoto Sushi, in which the Eastern District of New York refused to modify an arbitration award to include attorneys’ fees, costs, and expenses. The prevailing claimant argued that the arbitrator “made ‘an evident material mistake’ in failing to include attorney’s fees and costs in the award. The court, however, held that responsibility belonged to the claimant, not the arbitrator: “it was not the arbitrator who made a mistake, but Chen, who failed to submit
arguments and evidence in support of reasonable attorney’s fees and costs prior to or concurrently with his post-arbitration brief.”

This article discussing Chen, authored by Alex Silverman of Carlton Fields, is available at JD Supra.