11th Circuit Upheld Award of Fees and Costs Despite Bifurcated Arbitration

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White Spring Agric. Chems., Inc. v. Glawson Invs. Corp.  (11th Cir. Fla. Oct. 17, 2011)

White Springs Agricultural Chemicals, Inc. (“White Springs”), a mining company, appealed the confirmation by the United States District Court for the Middle District of Florida of an arbitration award in favor of Glawson Investments Corp. (“Glawson”), a land owner, granting attorneys’ fees, expert fees, and prejudgment interest.  White Springs sought to vacate or modify the arbitration award under sections 10 and 11 of the Federal Arbitration Act (“FAA”).

White Springs and Glawson did business together pursuant to two agreements: an Operating Agreement and Settlement Agreement.  The agreements contained identical arbitration clauses.  When a property dispute arose between the parties Glawson filed a demand for arbitration with the American Arbitration Association (“AAA”).  It was stipulated that the arbitration would be divided into two parts: Phase I consisting of non-monetary claims and injunctive relief, and Phase II consisting of all other disputes and claims, including damages. 

The arbitration panel ruled in favor of Glawson on its Phase I claims.  Thereafter, in preparation for Phase II, the parties filed a joint list of issues to be resolved in Phase II.  Additionally, Glawson filed a separate motion seeking to clarify that it was also seeking attorneys’ fees as part of it damages in Phase II.  Over White Springs’ objection, the arbitration panel decided to allow evidence of attorneys’ fees and costs as damage elements in Phase II.  Ultimately, after hearing the Phase II claims, the panel determined that Glawson was entitled to attorneys’ fees and costs.  The District Court confirmed and White Springs appealed.

The court noted that sections 10 and 11 of the FAA provide the exclusive means by which a federal court may upset an arbitration panel’s award.  Section 10 empowers the court to vacate an arbitration award where the arbitrators exceed their powers, or so imperfectly execute them that a mutual, final, and definite award upon the subject matter submitted is not made.  Section 11 allows for modification of an award where the arbitrators have awarded upon a matter not submitted to them.  According to the court, because these sections are the exclusive means for upsetting an arbitration award, a panel’s incorrect legal conclusion is not grounds for vacating or modifying the award.

White Springs argued that the award must be vacated because it exceeded the powers of the arbitration panel.  The court took the position that because arbitrators derive their powers from the agreement between the parties, the court must look to the terms of the governing arbitration clause to determine the powers of the arbitration panel.  As between White Springs and Glawson, the governing clause allowed for awards of attorneys’ fees and costs.  In the court’s view, White Springs could not overcome the “high hurdle” necessary for vacating an arbitration award when there is a plain basis for the panel’s award in the parties’ agreement.

White Springs also argued that the issue of attorneys’ fees was not properly submitted to the panel.  There was no dispute that Glawson presented the issue to the arbitration panel in its motion prior to Phase II.  The court considered whether this motion effectively submitted that claim to the panel and ultimately concluded that the issue was properly submitted.  It was clear to the court that the panel plainly believed that the issue had been submitted and had reviewed the positions of Glawson and White Springs with respect to the issue before making its decision.

The court noted that the timing of Glawson’s request for attorneys’ fees is not determinative of proper submission.  It did not matter to the court that Glawson did not demand attorneys’ fees in its initial complaint.  Although the panel never explicitly ruled that the claim could proceed, it did grant the relief sought therein, which the court viewed as a strong indication that the panel had indeed consented to that claim.  It did not matter to the court that Phase I attorneys’ fees were sought in Phase II because the parties had stipulated that all other disputes would be resolved during Phase II.  For the court, the arbitration was continuous, and the parties’ agreement to conduct the arbitration in two distinct phases did not restrict the rights of either party to assert monetary claims in Phase II.

For a copy of the decision click here

Jeffrey Kingsley and Troy Bataille