Commercial Litigation and Arbitration

Arbitration Sanctions — Arbitration Panel Is Empowered to Award Attorneys’ Fees for Bad Faith Litigation Abuse

From First Auto. Serv. Corp. v. First Colonial Ins. Co., 2010 U.S. Dist. LEXIS 66974 (M.D. Fla. June 16, 2010):

In the Final Award As To Attorneys' Fees And Costs dated September 26, 2009..., the panel awarded Northbrook $ 458,430.42 in attorneys' fees, plus $ 63,380.80 in costs (reflecting plaintiffs'/claimants' share of the unpaid statements of the panel), for a total of $ 521,811.22.... In doing so, the arbitration panel stated:

1. The Panel finds that it has the authority to award attorneys' fees pursuant to the bad faith exception to the "American Rule." The Panel also finds that it has the authority to award attorneys' fees due to the parties' express waiver of the provisions of Section 682.11 of the Florida statutes in that, by their actions, filings, and submissions, the parties expressly waived their right to have only a court decide the issue of attorney's fees.

2. The Panel finds that the acts of First Automotive Service Corporation ("FASC") and First Automotive Insurance Risk Retention Group (FAIRR) (collectively the "Claimants") preceding and during litigation were such that an award of attorneys' fees to Northbrook is warranted. ***

The arbitration panel cited to "the bad faith exception to the 'American Rule'" as the basis for its award of fees in favor of Northbrook. Litigants in the United States must follow the so-called "American Rule" for attorneys' fees; a litigant cannot collect attorneys' fees from a losing party unless a statute or contract provides for the award, or the losing party willfully disobeyed a court order or brought suit in bad faith. Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 247, 257-60 (1975). "The bad faith exception to the American Rule is not limited to suits that are filed in bad faith. The exception also encompasses bad faith acts preceding and during litigation." Kreager v. Solomon & Flanagan, P.A., 775 F.2d 1541, 1543 (11th Cir. 1985). "Bad faith can serve as a basis for an attorney fee award in absence of contract or statute." Robert W. Baird & Co., 399 F. Supp.2d at 1319 n.5 (citing Bitterman v. Bitterman, 714 So.2d 356, 365 (Fla. 1998)). This exception is recognized by Florida courts. Diaz v. Diaz, 826 So.2d 229, 231 (Fla. 2002).

An arbitration panel has the power to award attorney's fees pursuant to this bad faith exception; "every judicial and quasi-judicial body has the right to award attorneys' fees under the common law bad faith exception to the 'American Rule.'" Marshall & Co. [v Duke, 114 F.3d 188, 189-90 (11th Cir. 1997)] ("the arbitrators have the power to award attorney's fees pursuant to the 'bad faith' exception to the American Rule that each party bears its own attorney's fees").

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