An Arbitrator's Authority to Award Attorney Fees for Bad-Faith Arbitration - Chapter 26 - AAA Handbook on Arbitration Practice

John W. Hinchey is a senior partner at King & Spalding LLP and focuses his practice on domestic and international construction dispute resolution. He is the Past President of the American College of Construction Lawyers, former Chair of the ABA Forum on the Construction Industry, and recently co-authored a treatise, the International Construction Arbitration Handbook, published by ThomsonWest. He currently serves on several arbitration panels, including the American Arbitration Association, JAMS, CPR, and the London Court of International Arbitration/ He is also a member of the Chartered Institute of Arbitrators.

Thomas V. Burch is a Visiting Assistant in Law at Florida State University’s College of Law.

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Originally from: AAA Handbook on Arbitration Practice

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During the classical period of Roman law, attorneys did not charge fees for legal advice or services. Consequently, high legal fees were no deterrent to filing a lawsuit. To ensure that parties did not abuse these free services and initiate litigation in bad faith, Roman jurists adopted the principle of lis crescens in duplum, which allowed them to double the judgment against anyone who initiated litigation without good cause. So began the long-standing tradition of penalizing parties for bad-faith litigation.

Approximately 2000 years later, the U.S. Supreme Court adopted bad faith as an exception to the “American Rule” on shifting attorney fees. While the Court did not explain whether this exception applied in arbitration, it has since pushed a "national policy favoring arbitration,"5 which has caused arbitration to become significantly more prevalent in the American adjudicatory process. As a result, courts have struggled to determine the extent, if any, that the principle of penalizing parties for bad faith applies in modern arbitration.

The answer depends on several factors. First, does the parties' contract grant the arbitrator authority to award attorney fees? If so, then the answer is clear. The arbitrator can make an award of attorney fees for bad-faith arbitration. If not, then one must look to the law that governs the arbitration agreement. That is the subject of this chapter.

We discuss the arbitrator's authority to award attorney fees for bad-faith arbitration under the Federal Arbitration Act (FAA), the Uniform Arbitration Act (UAA), the 2000 Revised Uniform Arbitration Act (RUAA), and the American Arbitration Association's (AAA) Commercial Arbitration Rules. We also examine the definition of bad faith, briefly address preemption under the FAA, and provide a short justification for allowing arbitrators to make bad-faith awards.