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.

In these difficult economic times, an Owner and/or Contractor may be tempted not to make full and final payment after the work is complete and there is beneficial use and occupancy of the facility. The Owner and/or Contractor may justify this conduct even though there is not currently a problem with the work because there "may" be unanticipated future problems with that will need to be addressed. However, withholding payment for potential defects or warranty issues could turn out not to be a wise decision.

An Owner and/or Contractor’s "belief" that it may have warranty claims sometime in the future may be insufficient to justify withholding of final payment as explained by the Mississippi Supreme Court in Crawford Commercial Constructors, Inc. v. Marine Industrial Residential Insulation, Inc., 437 So.2d 15 (Miss. 1983). In that case, a subcontractor sued the general contractor for payment under a roofing contract. The general contractor had refused to pay the subcontractor on the basis that it "believed the roof was improperly installed, so that [the general contractor] will ultimately be required to repair it to satisfy the building’s owner." Id. The Court ruled that the general contractor’s "beliefs" were conjectural. Id. at 16. In affirming the trial court’s decision in favor of the subcontractor, the Mississippi Supreme Court stated:

Under our authorities there must be a present, existent actionable title or interest which must be completed at the time the cause of action is filed. (citations omitted). A mere inchoate right is not sufficient and neither is a prospective danger of injury. (citations omitted)…"It is certainly an undisputable and invariable rule of law that a right of action must be complete when an action therefore is commenced…."…"we consider it to be the well-settled, general rule, that the facts which constitute the ground of a suit must exist at the time the suit is instituted…"

 

Id. at 16.

In addition to this jurisprudence, Mississippi has enacted what are generally known as "Prompt Payment Statutes" for both public and private construction contracts. Both of these statutes require timely final payment once the contract has been determined to be substantially complete or there has been beneficial use and occupancy. There are also "Late Payment Interest Statutes" which apply when a contractor fails to make payment "without reasonable cause" to its lower tier subcontractors or suppliers within fifteen (15) days after receipt of payment.

There is no provision for recovery of attorneys’ fees in either the "Prompt Payment Statutes" or the "Late Payment Interest Statutes." Contractors therefore need to ensure the issue of attorneys’ fees associated with collection efforts are adequately addressed in their contract documents.

You can expect this case law and these statutes to be cited frequently in payment disputes during these difficult economic times.