A statement of the American rule of fee allocation in an arbitration agreement does not necessarily constitute an impermissible denial of a statutory right to attorney's fees in arbitration, according to a federal district court in New York.

In Herrera v. Katz Communications, Inc., No. 07 Civ. 8426(JSR), 2008 WL 257250 (S.D.N.Y. Jan. 31, 2008), Herrera and Katz executed an employment contract containing an arbitration agreement when Herrera began employment. Later, Herrara brought claims of breach of contract and violation of the Family and Medical Leave Act (FMLA) against Katz.

Katz moved to compel arbitration of Herrera's claims as within the scope of the arbitration agreement. Herrera maintained that the arbitration agreement was unenforceable because it precluded the full vindication of his statutory rights under the FMLA through a prohibition on any award of attorney's fees.

The Court found nothing in the plain language of the arbitration agreement that precluded Herrera from recovering attorney's fees for his FMLA claim. The Court read the disputed provision as a simple explanation of the American rule that "[e]ach party would pay its own attorney's fees and other costs incurred by their respective attorneys." Read in conjunction with a later term requiring that the arbitration be performed in accordance with applicable law, the Court found that this plain language did not prohibit an award of attorney's fees in accordance with the FMLA.

While the Court acknowledged that FMLA claims might be non-arbitrable if the agreement clearly prohibited the statutory right to recover attorney's fees, the Court stated it would have severed such a term from the agreement, rather than "thwart the very essence of the arbitral agreement" through a total invalidation.