As a general rule, each party involved in a civil lawsuit in the United States bears its own legal costs. This practice is called the American Rule because it contrasts with the practice in Europe and other countries, where the losing parties typically pay the prevailing parties’ legal fees.
As with any rule, there are exceptions. An applicable statute may mandate the payment of attorneys’ fees to a prevailing party. For example, several states have enacted prompt payment acts that provide for an award of attorneys’ fees to the successful party in a legal proceeding over a payment dispute on a construction project. In addition, the court also will award attorneys’ fees pursuant to a valid contractual agreement containing a fee shifting arrangement.
The Construction Industry Arbitration Rules of the American Arbitration Association (AAA) provides a more obscure exception to the American Rule. Rule R-48(d) of the Construction Industry Arbitration Rules provides that an arbitrator’s award may include an award of attorneys’ fees if all the parties to a dispute have requested such an award.
This occurred in City of Chesterfield v. Frederick Constr. Inc., where a Missouri appellate court confirmed an arbitration award that included attorneys’ fees against the City of Chesterfield. During the routine AAA arbitration proceeding, both the city and the contractor requested recovery of attorneys’ fees in their legal filings. When the arbitrators resolved the dispute in favor of the contractor, the award included a total of $329,037 in attorneys’ fees. The city protested that its requests for fees were mere boilerplate pleadings and that its attorney did not have authority to bind it to an agreement to pay attorneys’ fees. Nevertheless, the Missouri Court of Appeals affirmed the award because the city had agreed to submit the issue of attorneys’ fees to arbitration by incorporating the AAA rules into the contract.
It is important to be aware of the applicable AAA rules in construction arbitrations, as well as the other exceptions to the American Rule, so as not to be caught off guard by large and unexpected fee awards.