The American Rule precludes the award of attorney fees unless allowed by contract, statute, or some exception such as insurance bad faith. Rule 47 of AAA Commercial Rules and Rule 45 of the AAA Construction Rules recognize these same grounds but also provide for "an award of attorneys’ fees if all parties have requested such an award . . .” Many litigators are not aware of this rule and make a pro forma request for attorney fees by checking the box on the AAA form or otherwise including it in their demand or answer without understanding or discussing with their client the implications of that request.
So what happens when a litigator makes a knee jerk request for attorney fees and then finds that he is losing the case? Can he withdraw his request for attorney fees at that time and divest the arbitrator of the authority to award attorney fees?
That scenario occurred in Viatech Corp. v. DCS Corp., CIV 14-4603, 2014 WL 5089740 (D. N.J. October 9, 2014). Viatech made what it referred to as a "pro forma"request for attorney fees when it filed its answer and counterclaim. After discovery, but prior to trial, Viatech withdrew that request and argued that the withdrawal removed the arbitrator's authority to award attorney fees under the AAA rules, because there no longer was a request for fees by both parties. The arbitrator rejected Viatech’s argument. He ruled that once both parties requested attorney fees, the authority to award those fees vested with the arbitrator and could not be divested through a subsequent withdrawal of the request by one party; otherwise a party could make an initial request, wait to see how the case progressed, and withdraw the request at the last minute. The District Court for the District of New Jersey affirmed the award, concluding that Rule 8 of the AAA rules grants the arbitrator the right to interpret the rules, and that, since his interpretation of the rules was not precipitous, ill-considered, or unreasonable, the court would not vacate or modify it.
This should be a warning to litigators to think before making a request for attorney fees in an arbitration administered under the AAA rules. Though other arbitrators might not interpret the rules in the same way, the risk that they will is clearly present. An open question is whether the ruling would have been different if Viatech had withdrawn its request for attorney fees at or before the prehearing conference and argued that the request had been made in error and that there was no prejudice?
Keywords: litigation, alternative dispute resolution, attorney fees, AAA Commercial Rules, AAA Construction Rules