Fee Shifting Provision in Partnership Agreement Cost Plaintiff Over $750,000

In a Decision and Order, dated February 17, 2023, in Gibbs v. Holland & Knight, LLP, Index No. 159345/2014, Justice Andrew Borrok of the New York County Commercial Division denied a former partner’s motion to vacate the arbitrator’s award of attorneys’ fees and costs to defendant law firm and granted defendant’s cross-motion to confirm the final award even though plaintiff prevailed on one discrete issue in the arbitration. The Court explained:

A motion to vacate an arbitration award must be granted where the rights of a party participating in the arbitration were prejudiced by (i) corruption, fraud or misconduct in producing the award, (ii) partiality of an arbitrator appointed as a neutral, or (iii) an arbitrator exceeded their power or so imperfectly executed it than [sic] a final award upon the subject matter submitted was not made (CPLR 7511[b]). An excess of the arbitrator's power "occurs only where the arbitrator's award violates a strong public policy, is irrational or clearly exceeds a specifically enumerated limitation on the arbitrator's power" (New York City Transit Authority, 6 NY3d at 336). Court's [sic] are obligated to give deference to the decision of the arbitrator, even if the arbitrator misapplied the substantive law in the area of the contract (id.). Mere errors of fact or law are insufficient to vacate an arbitral award (NRT New York LLC v Spell, 166 AD3d 438, 439, 88 N.Y.S.3d 34 [1st Dept 2018]). An arbitration award must be confirmed if there is a barely colorable justification for the outcome reached (Matter of Steyn v CRTV, LLC, 175 AD3d 1, 7, 103 N.Y.S.3d 415 [1st Dept 2019]).

The Arbitrator did not exceed his power in denying the Plaintiff's claims for attorneys' fees and costs and granting the Defendant's claims for attorneys' fees and costs, and the Final Award is not irrational. It is not irrational for the Arbitrator to find that, although the Plaintiff was entitled to certain unpaid compensation, he was not the prevailing party on the central issue of the arbitration and therefore was not entitled to attorneys' fees or costs. As the Arbitrator found, the award of compensation to the Plaintiff was not factually or legally related to the issue of the arbitration. The amount awarded to the Plaintiff was offered to him by the Defendant in 2014, and the only finding made by the Arbitrator was that the Plaintiff did not waive his right to that money (NYSCEF Doc. No. 308, ¶ 3). That was not the issue that was sent to arbitration and is not related to the claims asserted by the Plaintiff in the Complaint or in the arbitration. There is clearly more than a colorable justification for the decision reached by the Arbitrator. The Plaintiff's motion must be denied and the Defendant's cross-motion must be granted.

As this case shows, the decision to include arbitration and fee shifting provisions in a legal agreement can have significant ramifications and should be duly considered. The attorneys at Schlam Stone & Dolan frequently advise clients on such provisions and represent clients in arbitrations. Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding such issues.