Thursday, January 15, 2015

Be Careful What You Ask For: Tennessee Court of Appeals Upholds Arbitrator’s Attorneys’ Fee Award Based on AAA Construction Industry Rule 45 When Both Parties Requested an Award of Fees

In Lasco Inc. v. Inman Construction Corp., et al., 2015 WL 129024 (Tenn. App. 2015), the trial court had vacated an arbitrator’s award of attorneys’ fees in favor of the defendant general contractor and its surety, concluding that the award exceeded the arbitrator’s power.  On January 9, 2015, the Tennessee Court of Appeals reversed the trial court and upheld the arbitrator’s attorneys’ fee award.

The dispute involved non-payment claims by a subcontractor, Lasco Inc., against the general contractor,  Inman Construction Corp., and Inman’s surety, Travelers Casualty and Surety Company of America.  After a four-day arbitration hearing, the arbitrator denied Lasco’s payment claim and awarded Inman $162,333.44 in attorneys’ fees, plus costs of $12,112.20, which represented the portion of the arbitration fees and expenses incurred by Inman that exceeded the American Arbitration Association’s previous apportionment.

Inman moved to confirm the award, and Lasco moved to vacate the attorneys’ fee award.  Lasco claimed that the arbitrator exceeded his authority because the parties’ contract did not authorize an award of attorneys’ fees.  The trial court agreed with Lasco and vacated the award.  Inman appealed.

The Court of Appeals did not dispute that the contract at issue did not expressly provide for an award of attorneys’ fees.  But, as Inman argued, the parties’ contract incorporated the AAA’s Construction Industry Rules as the rules governing an arbitration under the contract.   Rule 45(d)(ii) provides that an arbitration 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.”  Therefore, the Court of Appeals found that, by virtue of the parties’ incorporation of the AAA’s Construction Industry Rules into their agreement, the parties’ contract did provide for an award of attorneys’ fees if both parties’ requested such an award.

Inman requested an attorneys’ fee award, and so did Lasco.  In fact, Lasco’s attorneys’ fee request was based in part on Rule 45.  Accordingly, the Court of Appeals ruled that the arbitrator had not exceeded his authority by awarding attorneys’ fees to Inman.

For your reference, a copy of the decision is linked here:

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