May 23, 2019 Articles

Ambiguity in Final Award Is Exception to Functus Officio Doctrine

The Second Circuit joined the Third, Fifth, Sixth, Seventh, and Ninth Circuits in adopting an exception to the doctrine where the arbitral panel is clarifying an ambiguous award.

By Sunu M. Pillai

The arbitrators’ authority ends once they have fully exercised their authority to adjudicate the issues submitted to them. This doctrine is known as “functus officio.” The traditional rationale underlying the functus officio doctrine is to prevent reexamination of an issue by a nonjudicial officer potentially subject to outside communication and unilateral influence. The Second Circuit, in General Re Life Corp. v. Lincoln National Life Insurance Co., 909 F.3d 544 (2d Cir. 2018), joined the Third, Fifth, Sixth, Seventh, and Ninth Circuits in recognizing an exception to the functus officio doctrine, where an arbitral award is susceptible to more than one interpretation or when it fails to address a contingency that later arises.

Factual Background

The case involved a final award that directed the parties to work together in calculating the amount of moneys owed. The award stipulated that any disagreement over the calculations would promptly be submitted to the arbitral panel for resolution and that the panel retained jurisdiction to resolve disputes over the calculation and payment of the amounts awarded. Following the award, the parties took differing positions on calculating the amount owed, due to differing interpretations regarding the language of a portion of the final award. The differing positions resulted in a difference of about $17 million in the amount owed. One of the parties wrote to the arbitral panel requesting it to settle the issue. The other party objected, arguing that it was beyond the authority of the arbitrators because it sought reconsideration of what it considered to be unambiguous language in the final award. The arbitral panel stated that the final award contained ambiguities, and the panel held that both parties were reading the final award in a manner inconsistent with the language of the agreement. It issued a clarification, which was confirmed by the district court.

The Second Circuit’s Decision

The Second Circuit noted that arbitrators’ finding of ambiguity is due deference, and the court found no ground to disturb the arbitrators’ conclusion that the final award was ambiguous. The court found that because each party offered a different interpretation of the language in the final award, and the arbitral panel said it meant something else altogether, the language is susceptible to multiple meanings and is ambiguous. It also noted that when asked to confirm an ambiguous award, the court will instead remand to the arbitrators for clarification. Hence, it held that an arbitrator does not become functus officio when it issues a clarification of an ambiguous final award, as long as (1) the final award is ambiguous, (2) the clarification merely clarifies the award rather than substantively modifies it, and (3) the clarification comports with the parties’ intent as set forth in the agreement that gave rise to arbitration. The court noted that having an arbitral body that issued the ambiguous award issue a clarification will comport with the twin objectives of arbitration—settling disputes efficiently and avoiding long and expensive litigation.

Decisions by Other Circuit Courts

Other circuits have reached similar results. The Third Circuit has noted that “when the remedy awarded by the arbitrators is ambiguous, a remand for clarification of the intended meaning of an arbitration award is appropriate.” Colonial Penn Ins. Co. v. Omaha Indem. Co., 943 F.2d 327, 334 (3d Cir. 1991). It further stated that “an ambiguity in the award for which the court may remand to the arbitrators may be shown not only from the face of the award but from an extraneous but objectively ascertainable fact.” The Fifth Circuit has stated that one of the exceptions to the functus officio doctrine is to “clarify or construe an arbitration award that seems complete but proves to be ambiguous in its scope and implementation.” Brown v. Witco Corp., 340 F.3d 209, 219 (5th Cir. 2003). The Sixth Circuit has also “recognized the need for an arbitrator’s clarification of an ambiguous award when the award fails to address a contingency that later arises or when the award is susceptible to more than one interpretation.” Sterling China Co. v. Glass, Molders, Pottery, Plastics & Allied Workers Local No. 24, 357 F.3d 546, 554 (6th Cir. 2004). The Seventh Circuit has held that an “award that fails to address a contingency that has arisen after the award was made is incomplete; alternatively, it is unclear; either way, it is within an exception to the doctrine.” Glass, Molders, Pottery, Plastics & Allied Workers Int’l Union, AFL-CIO, CLC, Local 182B v. Excelsior Foundry Co., 56 F.3d 844, 847 (7th Cir. 1995). It also stated that “the power of arbitrators to clarify an award already made must be exercised within a reasonable period of time.” The Ninth Circuit has also stated that “an arbitrator can correct a mistake which is apparent on the face of his award, complete an arbitration if the award is not complete, and clarify an ambiguity in the award.” McClatchy Newspapers v. Cent. Valley Typographical Union No. 46, Int’l Typographical Union, 686 F.2d 731, 734 (9th Cir. 1982), amended sub nom. McClatchy Newspaper v. Local 46 (9th Cir. Sept. 22, 1982).

As discussed in the Fifth and Ninth Circuit decisions described above, two other exceptions to the functus officio doctrine are when a mistake appears on the face of the award, such as an obvious mathematical error, or when the award fails to award relief on an issue presented for resolution. In both of these situations, courts will likely direct the arbitration panel to reconvene and render a revised final award. However, all of the issues that give rise to these exceptions—mistake on the face of the award, incomplete award, and ambiguity in the award—go against the objectives of arbitration, which are to settle disputes efficiently and avoid long and expensive litigation. Hence, while an arbitration panel should understand these exceptions, it should take care to avoid them.

Conclusion

This case establishes that ambiguity in a final award as an exception to the functus officio doctrine in the Second Circuit. This exception is subject to the constraints that the clarification merely clarifies the award, rather than substantively modifies it, and also that the clarification comports with the parties’ intent as set forth in the arbitration agreement. 

Sunu M. Pillai is with Saul Ewing Arnstein & Lehr LLP in Pittsburgh, Pennsylvania. 


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