In Smarter Tools Inc. v. Chongqing SENCI Import & Export Trade Co., 18-cv-2714 (AJN), 2019 U.S. Dist. LEXIS 50633 (S.D.N.Y. Mar. 26, 2019), the United States District Court for the Southern District of New York held that when the applicable arbitration clause required a “reasoned [arbitral] award,” an award that contained “no rationale” for rejecting the totality of one party’s claims was not a reasoned award, and the arbitrator had exceeded his authority in violation of the Federal Arbitration Act (FAA).
Although many arbitral institutions require or at least encourage “reasoned awards,” they generally do not provide guidance on what a “reasoned” award means.
In Leeward Constr. Co. v. Am. Univ. of Antigua-Coll. of Med., 826 F.3d 634, 640 (2d Cir. 2016), the Second Circuit held that, a reasoned award is one that is “more than a line or two of unexplained conclusions, but something less than full findings of fact and . . . law.” The Sixth Circuit has held that an award can be “reasoned” even if it is “brief and conclusory.” The Fifth and Eleventh Circuits have turned to Webster’s Dictionary to conclude that a reasoned award is one “provided with or marked by the detailed listing or mention of expressions or statements offered as a justification of [an arbitrator’s decision].”
Lower courts have struggled with how to apply these diffuse standards. Among other things, they have looked to factors such as page length, existence of summaries of parties’ arguments, and the specificity of damages.
The Smarter Tools court held that, when the parties agreed that an award must be “reasoned,” conclusory statements with “no rationale” for dismissing the totality of one party’s claims does not meet the standard. The court noted that, although the arbitrator cited a negative credibility determination for a party’s expert witness, that witness’s testimony related only to certain claims brought by the party. The court concluded that the arbitrator’s failure to provide at least “some rationale” justifying his dismissal of the party’s remaining claims meant that the award was not “reasoned.”
Another interesting aspect of Smarter Tools is the remedy ordered by the court. The doctrine of functus officio “limit[s] the power of arbitrators to alter an award once the arbitrators have decided the issue.” In Brown v. Witco Corp., 340 F.3d 209, 219 (5th Cir. 2003), the Fifth Circuit provided a broad overview of exceptions to functus officio, asserting that remand is permissible when
an arbitrator can (1) correct a mistake which is apparent on the face of his award; (2) decide an issue which has been submitted but which has not been completely adjudicated by the original award; or (3) clarify or construe an arbitration award that seems complete but proves to be ambiguous in its scope and implementation.
Second Circuit precedent agrees that remand, rather than vacatur, can be the “appropriate” remedy at times. For example, in General RE Life Corp. v. Lincoln National Life Insurance Co., 909 F.3d 544 (2d Cir. 2018), the Second Circuit joined other Circuits in recognizing that “where an arbitration award is ambiguous, . . . the arbitrators retain their authority to clarify that award.”
In Smarter Tools, the court remanded the case back to the arbitrator for “clarification of his findings.” The court did not consider whether an exception to the doctrine of functus officio applied before remanding.