American Arbitration Association

 

One of the most frequently asked questions when a party is faced with litigation is whether or not they will be able to recover attorney fees. The general rule is that attorney fees cannot be awarded unless there is a contract provision or statute permitting their award. An exception to this rule is if there is a finding of bad faith on the part of one of the parties, which is a difficult standard to meet.

The rules in an arbitration administered by the American Arbitration Association (“AAA”) changed this general rule. Under AAA Rule 48 (d)(ii) “[t]he 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.” (Emphasis added.) This means that if the parties file a demand for arbitration on the AAA Demand for Arbitration form and check the box for attorneys fees and the opposing party files an answer to the demand on the AAA Answering Statement form and also checks the box for attorneys fees or in its answer demands attorney fees, they can be awarded by the arbitrator. At least one state court has determined that this is because both parties have “agreed” to the award of attorney fees.

Under the Mississippi Construction Arbitration Act, Miss. Code Ann. § 11-15-119(4), “An arbitrator may award attorney’s fees and costs to a prevailing party.” This is statutory authority granting the power of the arbitrator to award attorney fees. There is no similar provision in Mississippi’s general arbitration statutes found at Miss. Code Ann. §§ 11-15-1 et seq.

The important point to take away from this information is if both parties demand attorney fees, be prepared to accept the risk of not prevailing on the merits of your case and being compelled to pay attorney fees even where the contract does not require such payment. When you negotiate a contract, know what any arbitration clause in the contract provides and consider whether you need to modify it to write out AAA Rule (d)(ii) and/or Miss. Code Ann. § 11-15-119(4) to limit the award of attorney fees.

 

Parties frequently include arbitration clauses in their construction documents. In such instances, when a dispute arises, the party with a claim may ultimately need to pursue it by filing a demand for arbitration. When the arbitration clause requires compliance with the American Arbitration Association’s ("AAA") Construction Industry Arbitration Rules, or another alternative dispute organization, the claimant can simply file a demand for arbitration with that organization. When the agreement does not specify an alternative dispute organization or a method for the initiation of arbitration, the claimant must rely upon the procedures set forth in the Mississippi Construction Arbitration Act ("the Act"), Miss. Code Ann. §§ 11-15-101, et seq. (Rev. 2004). Under the Act, the claimant shall:

…within the time specified by the contract, if any, file with the other party a notice of an intention to arbitrate which notice shall contain a statement setting forth the nature of the dispute, the amount involved, and the remedy sought….

According to the Mississippi Court of Appeals, such a "demand for arbitration" must be initiated within three (3) years from the time the cause of action accrues. This issue was addressed by the Court of Appeals in Haycraft v. Mid-State Construction Company, Inc. In that case, Haycraft filed suit against Mid-State sometime in 1994. Mid-State filed a motion to have Haycraft’s complaint dismissed because the agreement between the parties included a provision that permitted Mid-State to require arbitration. The court therefore dismissed Haycraft’s lawsuit.

Approximately six years later Haycraft filed an application for arbitration. Mid-State filed an objection to Haycraft’s demand for arbitration with the circuit court. The court found Haycraft’s application for arbitration untimely based upon the general three (3) year statute of limitation found at Miss. Code Ann. §15-1-49 (Rev. 2003). The Court of Appeals agreed and found Haycraft’s right to demand arbitration began when its cause of action accrued. It was therefore Haycraft’s obligation to initiate an application for arbitration within three (3) years from that date or its cause of action would be barred by the statute of limitation. Because Haycraft did not timely pursue its right to arbitrate, Haycraft’s claim was barred.

The key point to remember is that a claimant must act timely to preserve its right to arbitration. A demand or application for arbitration must be timely submitted to the opposing party or the claim’s right to relief may be barred by the three (3) year statute of limitation.

 

Effective October 1, 2009, the American Arbitration Association issued amendments to the Construction Industry Arbitration Rules and Mediation Procedures.  The revised rules and procedures can be viewed by clicking on this link:  Construction Industry Arbitration Rules and Mediation Procedures.  The American Arbitration Association has also provided a Summary of Significant Changes that can be found by clicking on this link: Summary of Significant Changes.