Thursday, August 9, 2007

2nd Circuit Vacates Arbitration Award for Capping Attorneys Fees

Under the Federal Age Discrimination in Employment Act, a successful plaintiff is entitled to an award of attorneys fees. When an NASD arbitration panel denied a successful claimant's request for attorneys fees, a federal judge ordered the panel to do so.

The second time around, the employer's firm argued to the arbitrators that since the plaintiff's attorney was being paid on a contingency, that the fee award should be capped at that contingency.

I attempted to make the same argument to an arbitration panel many years ago, and my research found that such an argument was not supported by the case law. The underlying concept is that the agreement between the attorney and his client has no bearing on the statutory award of reasonable fees to a prevailing party.

The federal courts in New Yorka agree, because when, on the second time around, the arbitrators capped the legal fee at the amount of the contingency, the claimant moved to vacate again. The Second Circuit hedl that although deference is given to the decisions of arbitrators, decisions which are in manifest disregard of the law cannot be sustained. According to the Second Circuit, attorneys fees are mandatory in such a manner. Further, the US Supreme Court has previously held that a contingent fee agreement between a successful plaintiff and his attorney cannot be used as a cap on a statutory award of attorneys fees. BLANCHARD v. BERGERON, 489 U.S. 87 (1989) .

The Second Circuit vacated the award.

Another interesting aspect of the case. Accordig to the Law.com article, in awarding a sum which was the rough equivalent of the contingent fee, the arbitration panel also ordered the claimant's law firm to return the fees the claimant had previously paid. There have been prior court decisions holding that an arbitration panel has no jurisdiction over the attorneys who represent parties before them (as there is no agreement to arbitrate by the attorneys, only their clients have agreed to do so), but the Second Circuit when further.

Porzig's attorney was not before the arbitration panel in any manner other than as Porzig's counsel; Porzig was not before the Panel with respect to his relationship with his attorney; and neither Porzig nor Attorney O'Donnell had agreed to arbitrate a dispute, if in fact there was one, over their fee dispute," Hall wrote for the court in Porzig v. Dresdner Kleinwort, 06 Civ. 1212.

"The Panel here was plainly without jurisdiction to order Porzig's lawyer to pay back to his client the specified contingency fee."


Interesting case, although the decision is not on line, and curiously enough, the NASD ...err, FINRA, does not have either arbitration award online.
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