Fifth Circuit Affirms Significant Arbitration Award of Attorney's Fees, Clarifying the Limited Scope of Review and Ruling That the Panel Did Not Exceed Its Authority

Carlton Fields

Carlton Fields

Beyond International, Inc. and an individual (“Beyond”) appealed the district court’s order granting plaintiffs’ motion to confirm an arbitration award in favor of Diverse Enterprises, Ltd., Co., LLC and other parties (“plaintiffs”). The dispute arose out of an alleged failure to meet minimum sales requirements under a distribution agreement (“Agreement”), which contained an arbitration clause. The arbitration panel entered an award in favor of the plaintiffs, which included $432,135.60 in attorneys’ fees. Beyond moved to modify the fee award, contending, in pertinent part, that one of the plaintiffs’ law firms charged only $225 an hour instead of the $400 hourly rate to which the parties had stipulated. The panel denied Beyond’s motion.

In the district court, Beyond sought vacatur or modification of the award of attorney’s fees, contending that the panel exceeded its authority. The district court rejected Beyond’s argument and confirmed the arbitration award, concluding that there was no limiting language concerning the arbitrator’s authority in the Agreement, and that there was no “evident material miscalculation” or “mistake” in the award. The court also found that the panel “reasonably relied on the parties’ stipulation that attorneys’ fees ranging from $200 to $400 would be reasonable.”

On appeal, Beyond argued that the panel was limited to awarding “reasonable fees” and not “multiples” of fees, and that the panel violated Texas law by “awarding fees not actually incurred.” The Fifth Circuit rejected these arguments, explaining that the scope of its review would address only the question of whether the award was “rationally inferable” from the Agreement. Here, the court held, the Agreement broadly authorized the panel to settle “any claim or controversy arising out of or relating to” the Agreement, and granted the prevailing party “reasonable attorneys’ fees … and related costs and expenses.” The court held that this language did “not necessarily limit the parties to fees actually incurred.” The court then affirmed the district court’s denial of vacatur of the panel’s fee award, noting that it would not reach “the merits of Beyond’s excessive fee claim because that argument goes beyond our power to review the arbitration decision.”

Diverse Enterprises, Limited Company, L.L.C. v. Beyond International, Inc., Case No. 19-51121 (5th Cir. Sept. 17, 2020).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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