Alternative Dispute Resolution
Arbitrators Can Award Legal Fees Despite Dutch-Treat ADR Pact, 2nd Circuit Says
Posted Apr 14, 2009, 04:30 pm CST
By Martha Neil
The arbitration agreement between two insurance companies called for each to bear its own costs to resolve a dispute. But that didn't prevent the arbitration panel from awarding sanctions, the New York City-based 2nd U.S. Circuit Court of Appeals has decided.
Overruling a federal trial judge on the sanctions issue, a divided 2nd Circuit panel reinstated an award of $3.2 million in attorney and arbitration fees, plus $692,000 interest. The arbitrators had awarded the sanctions to one party due to another's bad-faith conduct during the arbitration, reports the New York Law Journal.
The sanctions were in addition to $21 million that EMC National Life Co. was ordered by the arbitrators to pay ReliaStar Life Insurance Co. of New York in the underlying dispute. The $21 million award has been upheld at all levels.
The two-judge 2nd Circuit majority found that the arbitrators had an inherent equitable power to sanction parties under the "broad agreement to arbitrate" in the case. A dissenting judge said the sanctions violated the parties' express contractual agreement to bear their own costs.