Where the rules of arbitration authorize the arbitrator to grant any "just and equitable" relief, the arbitrator may award attorney fees without any other contractual or statutory basis for the award, according to the Texas Court of Appeals. In light of the Court's holding, if parties select arbitration rules that permit any "just and equitable" relief, they are effectively opting out of the American Rule, which provides that parties are responsible for their own attorney fees in the absence of any contractual or statutory basis for shifting such fees.

In Providian Bancorp Services v. Thomas, No. 08-07-00246-CV, 2008 WL 2058524 (Tex. Ct. App. May 15, 2008), Thomas sued Providian, her former employer, for discrimination and assault and battery. Providian moved to compel arbitration pursuant to an arbitration agreement between the parties.

The trial court granted the motion, and the parties subsequently entered into a letter agreement whereby they agreed to arbitrate in accordance with the rules of Texas Arbitration Mediation Services (TAMS). The letter agreement provided that the TAMS Rules would supersede any conflicting provision in the parties' original arbitration agreement.

The arbitrator found no evidence of discrimination, but found that Thomas' boss assaulted her by slapping her on the back of the head. On the assault claim, the arbitrator awarded $1 in damages and $24,500 in attorney fees. Providian filed a motion to modify the attorney fees award, arguing that there was no statutory or contractual basis for awarding attorney fees. The trial court denied the motion and confirmed the arbitration award in its entirety.

On appeal, Providian raised two arguments. First, Providian argued that the original arbitration agreement precluded the attorney fees award because it limited any relief to that available under substantive law, and there is no substantive basis for awarding attorney fees on a common law assault claim. The Court rejected this argument because the parties agreed that the TAMS Rules would supersede the original arbitration agreement and the TAMS Rules authorize an arbitrator to "grant any remedy or relief . . . that [t]he arbitrator . . . deems just and equitable."

Providian also argued that the Texas General Arbitration Act (TGAA) precluded the attorney fees award because under section 171.048(c) of the TGAA, an arbitrator can not award attorney fees without a contractual or statutory basis for the award. The Court rejected this argument because according to the Court's construction of the parties' letter agreement, the TGAA would govern judicial review of any award but not the arbitration proceeding itself. Moreover, the Court found that the TAMS Rules, by authorizing the arbitrator to award any "just and equitable" relief, provided a contractual basis for the attorney fees award.

As this case illustrates, arbitration rules which authorize "just and equitable" relief carry a risk of uncertainty because the outcome may be determined not by law but by the arbitrator's individual sense of equity and fairness. Parties can avoid this uncertainty by selecting arbitration rules that require the arbitrator to follow the law. Compare Rule 20(D) of theNational Arbitration Forum Code of Procedure (providing that "[a]n Arbitrator shall follow the applicable substantive law and may grant any legal, equitable or other remedy or relief provided by law") with Rule 42 of the American Arbitration Association Commercial Arbitration Rules (providing that "[t]he arbitrator may grant any remedy or relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties").