In past articles, I have written on topics such as arbitration and the weighing of the costs and benefits of including an attorney’s fees provision in a contract. This article considers the two together. Whenever a business client comes to see me with a dispute involving a written agreement, one of the first things I check for is whether the client agreed to binding contractual arbitration to resolve the dispute. What I mean by this is an agreement executed in writing by the parties which require some or all of the disputes to be arbitrated as opposed to litigated.
If there is indeed an arbitration clause, one of the next issues that must be addressed is whether the clause is broad enough to cover the claimed dispute. For example, some clauses provide that all disputes are subject to arbitration, while others may just relate to contract claims. If an arbitration clause is not clearly drafted, there may very well be litigation over the issue of whether the claimed dispute is subject to arbitration or not. In fact, sometimes the parties fight over whether the arbitrator or the court determines whether the claim is subject to the scope of the arbitration clause.
Every once in a while, I find a case where my client has come to me after a lawsuit has been filed and we discover that the claim should have been arbitrated and clearly fell under the scope of the arbitration clause. The remedy in this situation is to file a petition or motion to compel arbitration. And that is where the attorneys fees clause comes in. In general, unless the parties agree that the prevailing party shall be entitled to attorneys fees, that party is not entitled to them.
So, if you have a situation where you are in a contract dispute and instead of arbitrating, the other side sues you in spite of your arbitration clause, chances are you will have to incur attorneys fees to obtain a court order compelling the dispute to arbitration. With a well drafted attorney’s fees clause, you may be able to recover those costs from the party that decided to litigate in violation of the arbitration agreement.
* Nothing in this message should be interpreted as a digital or electronic signature that can be used to authenticate a contract or other legal document.
For questions regarding arbitration clauses and attorneys fees provisions, feel free to contact the Law Offices of Richard A. Marcus at 661-257-8877.