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May 04, 2022 Practice Points

Sixth Circuit Recognizes Clarification-Completion Exception to Doctrine of Functus Officio

Follow the arbitration agreement assiduously. If it requires a reasoned award, a reasoned award must be supplied.

By Robert L. Arrington

The Court of Appeals for the Sixth Circuit, in the case of Nathan v. Fieger & Fieger (In re Romanzi), Nos. 20-2278/21-1004 (6th Cir., April 8, 2022), provides instruction on two important subjects that sometimes vex both lawyers and arbitrators: one is the interpretation of section 10(a) of the Federal Arbitration Act; the second is the extent of the doctrine of functus officio.

The procedural history of the case is fairly straightforward. Craig Romanzi was a lawyer employed by the firm Fieger & Fieger, P.C. The firm’s compensation system provided that an attorney who originated a contingent fee case would be entitled to one-third of the fee earned and paid. Romanzi originated a wrongful-death claim that the firm accepted. But Romanzi was in serious personal financial difficulty and resigned from the firm before the wrongful death action was concluded.

Ultimately, Romanzi’s creditors filed an involuntary bankruptcy petition against him. The trustee in bankruptcy sued the firm seeking one third of the fee the firm had collected in the wrongful death action, which amounted to $3,547,514.24. Both parties asked the district court to withdraw the reference to the bankruptcy court, and the case was placed on the district court’s docket for a trial by jury.  Later, however, both parties agreed that, rather than waiting for a jury trial, they would arbitrate all issues before a panel of three arbitrators, whose “brief reasoned decision” would be binding. 

After a hearing, the arbitration panel awarded the trustee the one-third of the fee collected by the firm together with prejudgment interest. The panel did not, however, enter a reasoned award, but rather a single sentence “standard” award. The trustee moved the district court to confirm the award; the firm to vacate it. The district judge did neither, but rather remanded the case to the arbitration panel with specific instructions to provide an explanation for the award.

The panel asked the parties for submissions on the matter remanded.  The trustee submitted a proposed award. The firm submitted nothing. Predictably, the panel issued a supplemental award that was substantially what the trustee requested. Again, competing motions to confirm and vacate were filed. The district court confirmed the supplemental award, and the firm appealed.

The firm contended that when the arbitrators did not provide the reasoned award specified in the contract, they exceeded their powers. Thus, it argued, the court had no choice but to vacate the original award. Remand, it argued, was not an option, because once the original award was entered, the Panel was functus officio and had no power to act further. The firm also argued that on remand the arbitration panel exceeded its powers by accepting additional submissions.

The Sixth Circuit rejected all of the firm’s arguments. An arbitration panel or arbitrator exceeds their power, the court held, only when it goes beyond the authority conferred by the arbitration agreement. In this case, the arbitration panel did not go beyond its authority but merely lodged an incomplete award. Thus, the district court was not required to vacate the original award. 

What about the remand? That, the court held, citing cases from both the Sixth and Seventh Circuits, was the appropriate order for the district court to have made when presented with an unclear or incomplete arbitration award. E.g., Green v. Ameritech Corp., 200 F.3rd 967, 978 (6th Cir. 2000). But wasn’t the arbitration panel functus officio? No, the court held, because the arbitrators hadn’t finished their job, so that the “clarification-completion exception” to the functus officio doctrine applies. Glass Molders, Pottery, Plastics, & Allied Workers Int’l Union v. Excelsior Foundry Co., 56 F.3d 844, 848 (7th Cir. 1995).

What about the arbitration panel’s having asked for and received additional submissions after remand? Nothing wrong with that, said the court; the panel wasn’t receiving additional evidence, but merely additional argument. There was no bias, no corruption, no fraud or misconduct, and above all no going beyond the parties’ agreement or manifestly disregarding applicable law, required to evoke section 10(a)(1)-(4). Thus, the district court’s decision was affirmed.

Practice Points

The takeaways? For arbitrators, it is to follow the arbitration agreement assiduously. If it requires a reasoned award, a reasoned award must be supplied. For attorneys, it is to realize that, while an arbitration award that goes beyond the arbitration agreement must be vacated, if the award is only unclear or incomplete, it can be saved by remand to the arbitrator.

Robert L. Arrington is of counsel at Wilson Worley in Kingsport, Tennessee.

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