By Armand M. Paré, Jr.
| PROPOSED CONSIDERATIONS FOR
AWARDING ATTORNEYS' FEES
IN MARITIME ARBITRATIONS
By Armand M. Paré, Jr. |
|
Contents
PROPOSED CONSIDERATIONS FOR
AWARDING ATTORNEYS' FEES
IN MARITIME ARBITRATIONS
Even when there is no authorizing statute or contract, fees may be awarded
"to a successful party when his opponent has acted in bad faith,
vexatiously, wantonly, or for oppressive reasons." F.D. Rich Co. v.
United States ex rel. Industrial Lumber Co., 417 U.S. 116, 129
(1974)(footnote omitted). The bad faith exception was one of the basis
relied on in Marshall & Co. v. Duke,supra. However, the Courts have
emphasized that this is a narrow exception to the "American Rule" that can
only be utilized where there is "clear evidence" that claims or defenses
are "entirely without color and made for reasons of harassment or delay or
for other improper purposes." Nemeroff v. Abelson, 620 F.2d 339,
348 (2d Cir. 1980). Accordingly, arbitrators would be best advised to
tread carefully before awarding fees under this narrow exception to the
general rule.
Arbitrators may wish to take note of a decision of the Second Circuit Court
of Appeals, Paine Webber, Inc. v. Bybyk, 81 F.3d 1193 (2d Cir.
1996), in which customers of a securities firm demanded arbitration of
various disputes, including a claim for attorneys' fees. The securities
firm commenced a lawsuit inter alia to enjoin the Bybyks from even seeking
attorneys' fees or punitive damages in the arbitration, on the basis of a
New York choice of law clause in the governing contract. The District
Court dismissed the lawsuit, allowing the Bybyks to submit all of their
claims to the arbitrators. The Court of Appeals affirmed, stating that the
"any and all controversies" language in the arbitration clause contained
"no express limitations with respect to attorneys' fees." Id. at
1202. Bybyk did not involve a petition to confirm or vacate an
award but simply considered, prior to the arbitration, what claims could be
submitted to the Panel. Some members of the bar argue that Bybyk means
arbitrators have the power to award attorneys' fees even in the absence of
language specifically authorizing an award of attorneys' fees, while other
members of the bar argue the decision is not that broad. Arbitrators
should be aware of the possibility of further developments in this area of
the law.
If there is doubt in a particular case and arbitrators wish to have further
specifics as to when they can award attorneys' fees, then arbitrators
should ask the parties to brief the issue.
THE GENERAL APPROACH IN
DETERMINING FEES
Today, attorneys' fees are generally based on the time spent by attorneys
(and other fee earners, such as legal assistants) multiplied by prevailing
hourly rates. Courts which have been called on to award attorneys' fees
refer to this as the "lodestar" amount. The canons of ethics governing
attorneys add a variety of other factors which could possibly provide a
basis for adjusting a fee upwards or downwards, although hourly and ad
interim billing have reduced the influence of these factors. In general,
however, the lodestar approach, with some possibility of adjustment in the
proper circumstances, is the prevailing basis for charging and awarding
attorneys' fees today.
These considerations suggest that the "lodestar" approach be adopted by
arbitrators in awarding attorneys' fees to a "prevailing party" in an
arbitration, with the caveat that, absent special considerations, not all
an attorney's "time" need be awarded. Instead, it is submitted that only
time spent in the actual prosecution or defense of the arbitration should
typically be awarded, absent the Panel finding some broader approach
justified by the facts of an individual case. It should be emphasized,
however, that arbitrators should exercise their judgment, based on the
particulars of the case, in determining what portion of fees claimed they
will award.
An attorney or law firm may agree to handle a case on a contingent fee
basis. In such a case, the prevailing claimant would normally compensate
its attorney by paying an agreed percentage of the recovery. Although the
party has agreed to compensate its attorney on something other than an
hourly basis, arbitrators need not make an exception for such cases and can
nevertheless require the attorney or firm to submit information concerning
time spent on the case and applicable hourly rates so that the lodestar
approach may be employed.
The first issue to consider is: who is the prevailing party? Frequently,
there will be a single issue with one clear winner and one clear loser.
That is the obvious case. In other situations, however, there may be
multiple issues with one party winning some and another party winning
others. In such a case, the arbitrators might consider who is the "net"
prevailing party and award only a fraction of fees sought, according to the
considerations set forth herein. That fraction might consist of the net
amount awarded to the prevailing party (the numerator) over the amount of
all claims in dispute (the denominator). The arbitrators should, of
course, not feel bound by this approach but should adopt their own
approach, according to the idiosyncrasies of the particular case involving
multiple issues. Use of a sealed offer of settlement may also affect a
panel's determination as to who is the prevailing party.
OTHER POSSIBLE CONSIDERATIONS
IN AWARDING ATTORNEYS' FEES
There are several circumstances in which arbitrators might consider
awarding attorneys' fees even if the arbitrators should choose not to do so
merely on the basis of which party "prevailed" in an arbitration. For
example, fees might be awarded, irrespective of the "prevailing party"
analysis, against a party which has provided a frivolous defense or
prosecuted a frivolous claim. Similarly, a party's attempt to obtain or
oppose discovery might have been unreasonable and might have led to
unnecessary legal fees which the Panel might consider appropriate to award
against the party at fault in this regard. Also, the Panel might find that
testimony offered or cross-examination thereof was excessive in a given
case and that legal fees should be awarded on account of this.
Furthermore, it may be particularly appropriate to award attorneys' fees
(assuming the Panel has the power to do so) when a party submits a sealed
offer of settlement to its adversary prior to or during an arbitration and,
when an award is issued, the adversary fares worse than in the sealed
offer. In such a case, it may be appropriate for arbitrators to award
legal fees to the party submitting the sealed offer from the date of its
rejection or expiration for the further time spent dealing with the claims
or issues covered by the sealed offer, see DIVINE STAR/ASIA MARINE,
S.M.A. No. 2883 (July 16, 1992; Nisi, Nichols, Carpenter). Care must be
exercised because the sealed offer may relate to only one claim or issue in
a case and the fees awarded on the basis of the offer should only relate to
the claim or issue involved. Also, the circumstances may not provide any
particularly compelling reason (beyond the "prevailing party" analysis) for
awarding fees when the issues determined are extremely close. Other
factors may also be relevant in a given case. (The use of a sealed offer
of settlement is very similar to the use of an Offer of Judgment available
under Rule 68 of the Federal Rules of Civil Procedure).
THE "TIME" WHICH ARBITRATORS MIGHT
CONSIDER IN AN AWARD OF LEGAL FEES
UNDER THE "PREVAILING PARTY" ANALYSIS
In the event of a dispute concerning the amount of fees under the
"prevailing party" analysis, arbitrators would need to consider what
portion of attorneys' time should be included in a fee award. Attorneys
become involved in a case at various levels, some of which may not have a
direct bearing on the prosecution or defense of an arbitration proceeding.
For example, attorneys may be sent to a port of loading or discharge to
investigate a particular incident. They may also be asked to conduct
pre-arbitration research and analysis of the merits of a case in order to
provide their client with some comfort concerning proceeding with a claim
or defense. The arbitrators may consider that such "preliminary" matters
should not be included in an award of fees on the theory they are part of
the general overhead of prudently operating a business. In a given case
involving a deliberate or malicious breach, arbitrators may nonetheless
consider such preliminary fees to be recoverable.
Absent special considerations for including all lawyers' time in an award
of fees, however, arbitrators might restrict the award of fees to time
spent by the prevailing attorneys in the actual prosecution or defense of
the arbitration proceedings to include the following specific items:
Again, these specific points are not suggested to limit the discretion of
arbitrators but rather to provide some overall guidance.
If arbitrators have a concern that a party may be seeking its attorneys'
fees for activity occurring prior to the actual prosecution or defense of
the arbitration itself, the arbitrators can always request more information
on the legal work for which compensation is sought. Another way to deal
with the same issue is to have counsel provide information on the starting
and ending dates of their work on a case, along with monthly totals of
hours and fees. Unless there is some special reason to award them to the
prevailing party, fees related to work undertaken before the commencement
of the arbitration could be excluded from the amount awarded.
Situations may arise where there are disparities among (a) the time
actually recorded by attorneys while engaged on a matter, (b) the dollar
amount of fees billed to the client and (c) the amount paid by the client
to the attorney or law firm. For example, an attorney or firm may conclude
that a bill based solely on the value of time spent on a matter does not
provide proper compensation, given the complexity of a case or the results
achieved to date (e.g., a favorable Partial Final Award or some other
interim triumph). Thus, the attorney or firm may render the bill in a
higher amount, invoking some of the factors set forth in the next section
of this memorandum. As a separate example, a client may decide to pay less
than the full amount of a bill, even if it is based solely on time spent on
a matter. Arbitrators may consider all three of these factors when
determining the amount of fees to award to a prevailing party.
THE "HOURLY RATE" CONSIDERATION
Among the members of the maritime arbitration bar, there is probably
considerable common ground on what is an appropriate hourly rate in any
particular case. If one party submits a fee application and the opposing
party does not challenge the appropriateness of the attorneys' hourly
rates, then there would appear to be little need for the arbitrators to
address the appropriateness of the rates on their own. If there is such a
challenge, and the opposing party offers specific details of the basis for
the challenge, then arbitrators, in this connection, might consider the
following factors taken from the American Bar Association's Code of
Professional Responsibility, Disciplinary Rule 2-106 and cases decided
thereunder.
After considering these and any other factors deemed relevant, arbitrators
could determine an hourly rate and multiply this rate by the hours they
consider appropriate given the idiosyncrasies of the particular case. As
suggested in the preceding section, the arbitrators might consider whether
time should be restricted to that actually involved in the prosecution or
defense of the arbitration although, again, a different approach might be
warranted by the facts of a particular case.
METHODOLOGY THE PANEL MIGHT CONSIDER
The process of awarding attorneys' fees should not become a second
arbitration. To avoid this, the Panel might request that each party submit
a request for attorneys' fees with its main post-hearing brief, reply brief
or separately ten days after submission of reply briefs. Submission of the
request with a party's main brief allows the opposing party to respond to
the request in its reply brief but of course requires the applicant to
supplement the request to cover time spent on the reply brief. It is for
the arbitrators to determine which method is appropriate in a given case,
and to instruct counsel accordingly.
If any party has an objection to the other side's fee request, the
specifics of such an objection should be given to the arbitrators in
writing within, say, 10 days of receipt of the fee request to which there
is an objection. Absent an objection from a party, the panel may not
consider it necessary to request additional information on a party's fees.
If the panel considers it necessary, the arbitrators might consider having
the parties submit a form, such as the one attached to these considerations, to
streamline the exercise. Although simplicity and avoiding collateral
disputes are desirable, in an individual case, the arbitrators might deem
it appropriate to ask for further information, such as time records, copies
of actual accounts sent or affidavits on particular points. (It may be
necessary for time records and accounts to be redacted to avoid disclosure
of information protected by the work product doctrine or the
attorney-client privilege.)
Dated: April 6, 1998
This memorandum suggests certain considerations to be taken into account by
arbitrators for awarding attorneys' fees in maritime arbitrations.
BASIS FOR AN AWARD OF FEES
There are various situations in which attorneys' fees can be awarded by
arbitrators in an arbitration. For example, fees can be awarded where this
is authorized by an applicable statute or by contract between the parties.
Certain charter forms, such as ASBATANKVOY, specifically provide that
arbitral awards may include a reasonable allowance for attorneys' fees. A
basis for awarding fees may also be found in contractual language
incorporating the Rules of the Society of Maritime Arbitrators ("SMA
Rules") since Section 30 provides that "the Panel is empowered to award
reasonable attorneys' fees and expenses for costs incurred by a party or
parties in the prosecution or defense of the case." Several printed
charter forms -- including AMWELSH 93, NYPE 93 and NORGRAIN 89 -- provide
that arbitration thereunder is to be conducted in accordance with the SMA
Rules. Other forms may of course be amended or supplemented by the parties
to achieve the same result. Additionally, the parties may agree at the
beginning or during the course of an arbitration that fees can be awarded,
for example in a Submission Agreement or in an agreement that the SMA Rules
shall govern the proceedings. If all parties to the proceeding request
recovery of their attorneys' fees, then the arbitrators have the power to
award fees. Marshall & Co. v. Duke, 114 F.3d 188 (11th Cir. 1997);
In re U.S. Offshore Inc. v. Seabulk Offshore, Ltd., 753 F. Supp. 86
(S.D.N.Y. 1990).
Dated:
By: ____________________________
Attorney for
Office & P.O. Address
