Minnesota Supreme Court Decides "Best Value" Bid Protest
In a recent decision from the Missouri Court of Appeals, City of Chesterfield v. Frederick Constr. Inc., 2015 Mo. App. LEXIS 439(Mo. Ct. App. Apr. 21, 2015), the court found that in the arbitration of a contract dispute governed by the American Arbitration Association's Construction Industry Arbitration Rules, where the City's amended answer and counterclaim contained "boilerplate" requests for attorneys' fees – and the plaintiff too had requested its fees – Rule 45(d)(ii) of the American Arbitration Association's Construction Rules authorized the arbitrator to award fees, notwithstanding the fact that the parties' contract contained no provision for such fee shifting.
The City attempted to argue that its requests were mere boilerplate, and that it did not intend such a result, as the parties had not expressed this in their contract. The court however considered the plain text of Rule 45(d)(ii), providing that the arbitrator "may include . . . an award of attorneys’ fees if all parties have requested such an award or it is authorized by law or their arbitration agreement." By agreeing to arbitrate by the AAA Rules, the parties had incorporated AAA Rule 45(d)(ii) by reference into their contract, bringing with it the potential award of fees, should both parties request them.
A Tennessee court reached the same conclusion in a January 2015 decision, reasoning that the arbitration filings clearly showed both parties requested fees, and thus the arbitrator acted well within its authority under Rule 45 to award them despite the silence of the underlying contract.
See Lasco Inc. v. Inman Constr. Corp., 2015 Tenn. App. LEXIS 12 (Tenn. Ct. App. Jan. 9, 2015). In both cases, the courts noted that the only objections to consideration of fees – and the arbitrator's power to award them – came after the losing party was required to pay them, suggesting that had a party raised the issue earlier and objected, the result would not have been the same.
Thus while a mandatory arbitration provision and incorporation of AAA Rules in a contract will not in and of itself provide for fee shifting, it does set the stage for an easy opportunity for parties to inadvertently agree to such an arrangement. Given the national scope of arbitration, the import of these decisions is not state-specific, and attorneys should be cautious in their requests for relief in arbitration, lest contractors unintentionally take on more than they bargained for and end up stuck with the bill for the other side's fees.
Note: Rule 45(d)(ii) is now Rule 48(d)(ii) in the AAA Construction Industry Arbitration Rules updated July 2015.
To discuss this decision and its potential effect on your operations, please contact Susan McGreevy, Christy Milliken or your usual Stinson Leonard Street LLP attorney.