Mistakes in Drafting Your Arbitration Agreements in Michigan May Lead to an Award of Attorney’s Fees
In drafting a contract with your brokers, you’d better be sure you don’t have inconsistencies, especially when it comes to the arbitration agreement. A recent ruling of the 6th Circuit Court of Appeals in Michigan makes this point clear, as a badly written contract led the Court to grant an award of attorney’s fees in favor of the prevailing party even though one of the provisions in the contract specifically prohibited that.
In Bay Shore Power Co. v. Oxbow Energy Solutions, LLC, 969 F.3d 660 (6th Cir. 2020), Plaintiff Bay Shore formed a long-term supply contract with Defendant Oxbow to provide it with limestone. In the contract was an arbitration agreement requiring any dispute to be resolved via arbitration. Oxbow breached the contract, claiming that it could not supply the limestone at the agreed upon price because its supplier raised the price, and Bay Shore brought claims in arbitration.
Getting law school flashbacks…
The contract contained several conflicting provisions. First, any decision rendered by an arbitration panel would be “final and binding,” with any award to be submitted to a Court for confirmation and the entry of a judgment. Second, attorney’s fees “shall be borne by each party individually.” Third, the arbitrators are without authority to award attorney’s fees.” Fourth, “the prevailing party has the right to attorney’s fees.” Huh? Also, language in the agreement’s miscellaneous section indicated that the prevailing party would be entitled to an award of attorney’s fees.
Okay… Are you with me so far?
Bay Shore prevailed in the arbitration and was awarded $5 million in damages. However, the arbitration panel did not award attorney’s fees citing the provision in the contract appearing to deny the arbitrators that authority.
Bay Shore moved to confirm the award in the U.S. District Court and sought recovery of its attorney’s fees. The Court confirmed the award but refused to award attorney’s fees, finding that: (i) the conflicting contractual provisions were “irreconcilable,” and (ii) there was “no meeting of the minds” regarding whether the losing party should be obligated reimburse the prevailing party for its attorney’s fees.
See again above, where I wrote, “In Bay Shore Power Co. v. Oxbow Energy Solutions, LLC, 969 F.3d 660 (6th Cir. 2020) Plaintiff Bay Shore formed a long-term supply contract with Defendant Oxbow to provide it with limestone.”
When the contract was formed, there was ambiguity and conflicting language in it about attorney’s fees. Dumb!
Bay Shore appealed the District Court’s decision to the 6th Circuit Court of Appeals arguing that the only way to “harmonize” the clauses was to find that the parties had agreed that, while the arbitrators did not have jurisdiction to award attorney’s fees, the parties intended to leave such authority to the court. The 6th Circuit agreed with Bay Shore, finding that the contract contained a separate contractual right that was not delegated to the arbitrators, and that the District Court would not be “impermissibly modifying” the arbitrators’ award by granting Bay Shore its attorney’s fees.
Bottom line: The prevailing party recovered its attorney’s fees even though one provision in the contract specifically denied that authority from the arbitrators.
As you form contracts with your brokers, vendors, or anyone else, consider calling experienced counsel, like me. You can always reach me at (832) 370-3908 or by using the contact form. The Law Offices of Christopher H. Tovar, P.L.L.C. is always ready to do it right for you.
