When you enter into a construction
contract or professional services contract with mandatory arbitration
under the rules of the American Arbitration Association (AAA), a
recent Missouri Court of Appeals opinion should cause those reviewing
and refining the agreement to look at the details more carefully
to make sure everyone knows what they are really agreeing to.
In City of Chesterfield v. Frederich Constr., 2015 Mo. App.
LEXIS 439 (Mo. Ct. App. Apr. 21, 2015), the Missouri Court of
Appeals confirmed an arbitration award that included the award
of attorney fees absent a contract with an attorney fee
provision, statutory authority, or "special circumstances." The
arbitrators found the authority to award fees under the rule was
incorporated into the parties' contract.
Background
The contract between the owner and general contractor on this
project contained a provision that all disputes between the
parties would be subject to arbitration under the Construction
Industry Arbitration Rules of the American Arbitration
Association. Those AAA Rules incorporated into the contract
provide that arbitrators may award attorney fees "if all parties
have requested such an award or it is authorized by law or their
arbitration agreement." Rule R-45(d)(ii).
When disputes arose on the project, the parties submitted the
disputes to the AAA for arbitration in accord with the contract.
In the final award, the arbitrators found in favor of the
contractor and awarded the contractor attorney fees of just
under $280,000. The arbitrators noted that there was no
contractual provision authorizing the award of attorney fees,
there was no statutory authority to award attorney fees, and
there were no "special circumstances" that would justify the
award of attorney fees.
The arbitrators decided that they were authorized to award
attorney fees because the parties' contract incorporated the AAA
rules, and the AAA rules stated that the arbitrators could award
attorney fees. On review, the Missouri Court of Appeals agreed.
The Court's Reasoning
The contractor's demand for arbitration requested that the
arbitrators award it attorney fees. The owner also requested
attorney fees twice in its filings. It requested attorney fees
in its prayers for relief in its amended answer and in its
counterclaim. However, the owner argued that the prayers for
attorney fees were merely boilerplate and that they did not
constitute prayers for fees that would trigger R-45(d)(ii). The
prayers by the parties led to the conclusion that "all parties
have requested such an award," which is one of the options
within the rule.
The Missouri Court of Appeals held that, in light of its
standard of review, the only question it could resolve was: Did
the arbitrators decide an issue that was within the scope of the
parties' agreement? In this instance, the Missouri Court of
Appeals decided that it did.
The court held that, by incorporating the AAA rules into their
agreement, the parties made the rules as much a part of the
contract as any other provision. Once both parties requested
attorney fees, that was sufficient to trigger the application of
R-45(d)(ii). The decision was up to the arbitrators to decide if
the conditions of the rule were met. Because the arbitrators
determined the issue, the courts would not vacate the
decision—even if the court would have decided differently.
The Missouri Court of Appeals noted that, if it were permitted
to review the arbitrators' decision on the application of
R-45(d)(ii), it would agree that the award of attorney fees was
proper.
Practice Tip
This holding reminds us that caution needs to be exercised when
incorporating documents into our agreements and when filing
documents with the AAA. As this case demonstrates, a party can
unintentionally trigger the award of attorney fees, though such
relief is absent from the contract and is not provided by
statute.
The incorporation of the AAA arbitration rules into contracts
and, in particular, in construction contracts, suggests this
opinion has some unwieldy implications. The award of attorney
fees may become common even where the drafters of the contracts
implicitly deleted fee-shifting provisions, but include rules
like the one at issue here.