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.
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.
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.
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