The general rule in litigation is that each side pays its own legal fees, regardless of who wins. There is no fee shifting. Exceptions to that general rule primarily exist in the form of contractual arrangements or statutes calling for the "prevailing party" to recover fees and costs. However, there is a lesser known exception to the general rule of no fee shifting that exists in the context of arbitrations. While this exception has existed for nearly 15 years, it has yet to garner the wide-spread attention that its significance demands, even as arbitration continues to increase in popularity as an alternative to costly litigation.

Analysis on the Exception

Where parties to an arbitration agreement decide in advance to arbitrate future disputes under the American Arbitration Association (AAA) rules, if both sides ask for an award of attorneys' fees, the arbitrator has authority to award the winner its fees, even absent a provision in the contract or an applicable fee-shifting statute. Specifically, the rules state that "the award of the arbitrator(s) may include . . . an award of attorneys' fees if all parties have requested such an award . . . ." This provision appears not only in the rules governing commercial disputes, but also in those that apply to construction disputes, insurance-coverage claims, and accounting disagreements.

Two realities of litigation today heighten the rule's immediate importance and utility. This first is the frequency with which attorneys, oftentimes without giving it any thought, request an award of attorneys' fees and cost in their initial arbitration demand. While such a request in a complaint filed in Court has no effect in the absence of a contractual or statutory basis for an award of fees, this type of form request can have a more significant impact in an arbitration demand. That is because if both sides include this type of form request and the AAA arbitration rules apply, the losing party has just opened the door to an adverse fee award. It matters not that the request was made in boilerplate language buried in the arbitration demand or answer.

The second reality that increases the rule's importance today is the deference that reviewing courts give to arbitration awards generally, which makes an arbitrator's award of attorneys' fees and costs essentially immune from scrutiny. These factors make it critical to carefully consider whether to seek fees in a pleading.

In Summary

In view of this important exception to the general rule regarding attorneys' fees, it is important to keep the following in mind when pursuing arbitration:

• Attorneys' fees and costs can be awarded by an arbitrator under the AAA's Commercial Rules, Construction Rules, Insurance Rules, or Accounting Rules where all parties to the arbitration request such an award.
• Statements made in a demand for arbitration or an answer, even those that are often viewed as boilerplate, can trigger an award of attorneys' fees and costs if the arbitration is governed by the AAA's Commercial Rules, Construction Rules, Insurance Rules or Accounting Rules.
• Before demanding arbitration or answering a demand, be sure to evaluate the strength of your case, the expense of arbitration, and the impact fee shifting may have on resolution of the matter. Use this evaluation to make a strategic decision about whether to request an award of attorneys' fees and costs.

As in life, so it is in arbitration: be careful what you ask for.