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Arbitrator may award attorney and arbitrator notwithstanding a provision that each party is to bear its own expenses

Arbitrator may award attorney and arbitrator fees notwithstanding an arbitration provision that each party is to bear its own expenses
ReliaStar Life Insurance Co. v EMC National Life Company,* USCA, 2nd Circuit, Docket No. 07-0828-cv

A typical provision in an agreement to arbitrate a dispute provides that in the event a dispute is submitted to arbitration, ?each will bear the expenses of its own arbitrator and its own attorneys? ? the so-called American Rule.**

The arbitration panel in the ReliaStar arbitration, however, awarded attorney fees and arbitration fees to ReliaStar as a sanction after determining that EMC National failed to arbitrate in good faith.

Applying the terms of the agreement to arbitrate, federal district court vacated that portion of the arbitration award that required EMC National to pay such fees and costs to ReliaStar.

The Circuit Court of Appeals reversed the lower court?s ruling obviating the payment of such fees and costs, holding that the arbitration agreement did not bar the arbitration panel from making such an award based on its finding of EMC National?s failure to arbitrate in good faith as a sanction. The court noted that ?bad faith is a well-recognized exception to the American Rule for attorney?s fees.?

The court explained that:

(1) the parties? agreement to arbitrate in this case was sufficiently broad to confer equitable authority on the arbitrators to sanction a party?s bad faith participation in the arbitration;

(2) an arbitrator?s identification of bad faith gives rise to an exception to the generally applicable American Rule that each party bears its own attorney?s fees; and

(3) the statement of the American Rule in the parties? agreement is properly construed to limit the arbitrators? authority to award attorney?s and arbitrator?s fees only where the parties participate in the arbitration in good faith; a more explicit statement would be necessary to manifest any intent to override the bad-faith exception to the American Rule and to preclude the arbitrators from awarding attorney?s and arbitrator?s fees as a sanction for bad faith conduct.

The matter was then remanded ?so that the district court may enter a new judgment confirming the arbitration award in all respects.?

* The Second Circuit?s opinion notes that EMC National Life Company is the successor in interest to National Travelers Life Company.

** The ?English Rule,? in contrast to the ?American Rule,? provides that ?the prevailing party?s fees are routinely paid by an unsuccessful opponent.?

The decision is posted on the Internet at:
http://www.ca2.uscourts.gov/decisions/isysquery/086c96a2-b550-48b0-9cf4-90fa7e2bbdf3/1/doc/07-0828-cv_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/086c96a2-b550-48b0-9cf4-90fa7e2bbdf3/1/hilite/

Full post as published by New York Public Personnel Law on May 08, 2009 (boomark / email).