The Colorado Court of Appeals has held that an arbitrator has no discretion to completely refuse to award attorneys' fees to a prevailing party when the agreement expressly states that such fees "shall" be awarded.

In Magenis v. Reh, No. 07CA1313, 2008 WL 2205100 (Colo. Ct. App. May 29, 2008), Magenis and Reh were members of a limited liability company. A dispute arose regarding membership, and arbitration followed pursuant to a pre-dispute agreement. The agreement included a clause that the arbitrator "shall award fees and expenses (including reasonable attorneys' fees) to the prevailing party."

The arbitrator issued an award in favor of Magenis. However, after considering the issue of attorneys' fees, the arbitrator "declined" to award them. Magenis filed a motion to modify or vacate the award, arguing that the arbitrator had no discretion to decline to award reasonable attorneys' fees to the prevailing party. The trial court denied the motion, holding that it had no authority to "second-guess" the arbitrator's interpretation of the agreement as to fees.

On appeal, the Court found that the trial court improperly deferred to the arbitrator's denial of fees as part of the arbitrator's interpretation of the agreement. To the Court, the use of the term "shall" indicated that only the determination of "reasonable" fees was within the arbitrator's discretion, not whether to completely deny all fees. The Court refused Reh's invitation to conclude that the arbitrator had determined that Magenis's reasonable attorneys' fees were in fact zero, noting that the arbitrator had specifically "declined" to award any fees.