• Paul Peter Nicolai

Arbitration is a Contract

A New York appellate court recently ruled upholding a one million-dollar award of attorney fees while at the same time overturning a damages award in the same case. In the arbitration, both sides initially said they wanted attorney fees although later one of them argued otherwise. The damage claim was brought as a counterclaim in the case by a party which had not originally agreed to arbitrate but which participated anyway.

WHY THIS IS IMPORTANT… The appeals court noted arbitration is a creature of contract. Because the party bringing the counterclaim had not originally agreed to arbitrate, the fact that it participated was not governing. Without actually having agreed to arbitrate, the arbitrator had no authority to grant an award. Likewise, because the parties agreed to arbitrate the main claim using the American Arbitration Association rules, the award for attorney fees was correct. Those rules say that if the parties request attorney fees, the arbitrator has the authority to award them. The fact that one party changed its mind during the litigation was also not governing.

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