Tuesday, August 7, 2007

Citing near "perfect storm," Circuit vacates arbitration attorneys' fee award

Federal courts are loathe to overturn arbitration awards, but when the arbitrators blow it, the Court of Appeals will correct the errors if they result from corruption on the part of arbitrators or the arbitration award exhibits a "manifest disregard of the law." It was the manifest disregard which led the Second Circuit on August 7 to vacate an arbitration award. The case is Porzig v. Dresdner, Kleinwort.

When Porzig, an age discrimination plaintiff, won his arbitration, the arbitrators decided that the attorneys' fees should go to the plaintiff, and not the lawyer. When the Federal trial court sent the case back to the arbitrators, they made further modifications to the award without authority and ignored Porzig's accurate recitation of the law governing attorneys' fees. This was enough for the Court of Appeals to vacate the arbitration award and remand it to the arbitrators yet again for a new attorneys' fees award.

As noted, Federal courts don't like to interfere with arbitration awards. In citing the arbitrators' errors, the panel in Porzig (Hall, Calabresi and Parker) said, "Taken individually, in all likelihood, such circumstances would not have overcome the deference owed to the [arbitration] Panel's award. Taken together, however, these circumstances create, if not the perfect storm, then a disturbance ample enough to give us pause."

One of the errors committed by the arbitration panel was its interference with the plaintiff-attorney relationship. The arbitrators interpreted the retainer agreement to mean that the client receives the lawyer's attorneys' fees. But, according to the Court of Appeals, "The [arbitration] Panel here was plainly without jurisdiction to order Porzig's lawyer to pay back to his client the specified contingency fee." Further offending the Second Circuit was the arbitrators' failure to adequately explain its low attorneys' fee award which placed a cap on that entitlement. These caps are frowned upon, the Second Circuit noted, and that (among other reasons) was enough to send the case back to the trial court for further review. Accordingly, while the Federal courts don't like to interfere with arbitration awards, under the circumstances here, intervention was appropriate.

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