Second District, Division 5 Applies AAA Rules Invoked By Each Side’s Arbitration Demands.
When you are reviewing a contract for fee exposure, make sure you focus carefully on the remedies and arbitration sections. If the arbitration section incorporates American Arbitration Association rules, litigants may have fee exposure from the express rules incorporation made by the governing agreement—especially if both sides pray for fees in their respective arbitration demands.
That is exactly what the appellate court ruled in Amalfi Capital, LLC v. Earl, Case No. B220896 (2d Dist., Div. 5 Sept. 30, 2010) (unpublished).
Earl demanded arbitration after his final invoice for residential architectural design services was not paid. The matter proceeded to arbitration based on demands by both sides, and Earl eventually won and was awarded attorney’s fees as the prevailing party.
The fee award was sustained on appeal. The agreement between the parties indicated that any dispute should be subject to the AAA Construction Industry Arbitration Rules, with Rule R-44(d) providing that the arbitrator may award fees if all parties have requested such an award or it is authorized by law or their arbitration agreement. Here, each side requested attorney’s fees, which meant the arbitration fee award was justified.
BLOG OBSERVATION—This case highlights the differences between court litigation and arbitration. Under Civil Code section 1717 case law, the estoppel doctrine is not the majority rule, meaning that 1717 exposure will not follow simply because someone prays for fee recovery even though there is no substantive basis for a fee award. However, the result is obviously different in arbitration, where the arbitral agreement between the parties may well allow the estoppel doctrine to be triggered and result in fee exposure, depending on what particular arbitration provider rules are in force as incorporated into effect by the arbitration agreement.
“Be careful what you wish for. You might just get it.” — From Heartbreak Ridge, with Clint Eastwood.