Do the AAA Commercial Rules Authorize an Award of Attorney Fees?

Gemalto, a leading international digital security company based in Amsterdam, reportedly won a $45 million arbitration award against Merchant Customer Exchange (MCE), a consortium of United States retailers that includes Wal-Mart, Target, and Kohl’s. Gemalto claimed that MCE, for its own convenience, terminated a contract to develop a mobile payment platform. The panel of three arbitrators awarded Gemalto contract damages plus more than $3 million in attorney’s fees.  

MCE is seeking to have the award vacated on the ground that the arbitrators exceeded their authority by awarding Gemalto attorney’s fees. MCE argues that Texas law provides no basis for the arbitrators to award legal fees and that the parties did not include an attorney’s fee provision in their contract.  

Gemalto acknowledges that neither Texas law nor the parties’ contract authorizes an award of legal fees, but nonetheless argues that the arbitrators acted properly. Gemalto notes that both parties asked the arbitration panel for an award of attorney’s fees in their submissions and that the parties agreed that the Commercial Rules of the American Arbitration Association apply to their arbitration. Gemalto further notes that AAA Commercial Rule 47(d) provides that when both sides request attorney’s fees, the arbitrators are empowered to award them. Thus, the parties’ countervailing requests to confirm or vacate the award presents the question of whether and under what circumstances AAA Rule 47(d) authorizes arbitrators to include attorney’s fees in their award. 

The dispute highlights a lesson for all litigators: review the arbitration rules that apply to your case, and do not routinely include a prayer for attorney’s fees without considering that your request may provide the arbitrators with authority they otherwise might not have. To read more about this story visit the Texas Lawyer website.