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The Second Circuit Court of Appeals held that a combination of factors created nearly a “perfect storm” and thus warranted the vacatur of an attorney’s fees award for manifest disregard of the law. Specifically, instead of using the “lodestar” method for determining reasonable attorney’s fees, the arbitrators seemingly treated the claimant’s contingency fee agreement as a cap on the attorney’s fees award.
In Porzig v. Dresdner, Kleinwort, Benson, North America LLC, No. 06-1212-CV, 2007 WL 2241592 (2d Cir. Aug. 7, 2007), Porzig was hired by Dresdner and agreed to arbitration as a condition of his employment. When Porzig was fired, he sued Dresdner for age discrimination, and the matter was referred to arbitration in accordance with the parties’ agreement.
The arbitration panel awarded damages to Porzig but declined his request for costs and attorney’s fees and required him to pay $13,840.75 in arbitration fees. Porzig challenged the award in court for manifest disregard of the law, arguing that he was entitled to recover costs and attorney’s fees. The district court agreed and remanded the matter to the arbitration panel with instructions to assess all costs against Dresdner and to determine Porzig’s reasonable attorney’s fees.
On remand, Porzig requested $249,996.95 in attorney’s fees based on his attorney’s time records. In response, Dresdner argued that Porzig’s contingency fee agreement with his attorney should set a maximum limit – specifically, $73,359.67 – on the attorney’s fees award. The arbitration panel seemingly accepted Dresdner’s argument and awarded only $75,000 in attorney’s fees.
Porzig challenged the award, arguing that the arbitrators acted in manifest disregard of the law by not using the “lodestar” method in determining reasonable attorney’s fees and instead relying on the contingency fee agreement. The trial court denied Porzig’s motion and confirmed the award.
On appeal, Porzig argued that the attorney’s fees award should be vacated for manifest disregard of the law. The Court held that a combination of factors created a “perfect storm” that warranted vacatur for manifest disregard of the law.
Specifically, the Court identified the following factors. First, the arbitrators previously acted in manifest disregard in denying Porzig’s request for attorney’s fees. Second, in ordering Porzig’s attorney to return a specified sum to Porzig, the arbitrators overstepped their bounds because the terms of the attorney-client relationship were not an issue for the arbitrators’ determination.
Third, Porzig’s attorney informed the arbitrator that under the “lodestar” method for calculating reasonable attorney’s fees, a contingency fee agreement may operate as a factor but not as a cap. Nevertheless, the arbitrators seemingly relied, without explanation, solely on the contingency fee agreement.
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