Circuit Rejects Functus Officio Argument, Permits Arbitrator to Add Reasons to Award

The doctrine of functus officio has frustrated many for years, as it may prevent an arbitrator from correcting a mistake in a final award even though the arbitrator recognizes the mistake.

On January 17, 2023, the U.S. Court of Appeals for the Second Circuit concluded a U.S. district court had appropriately remanded an international arbitration award to the original arbitrator in New York City for reasoning notwithstanding the functus officio doctrine. This appellate opinion is useful for its explanations of (1) why the doctrine did not prevent the remand and (2) why remand was appropriate rather than vacatur of the award. The Second Circuit appeals opinion also contains a useful summary of federal case law from several circuits on exceptions to the functus officio doctrine. Smarter Tools Inc. v. Chongqing Senci Import & Export Trade Co., Ltd. (2d Cir. No. 21-724, January 17, 2023).

In Smarter Tools, an arbitrator acting as a tribunal of the international arm of the American Arbitration Association, the International Centre for Dispute Resolution, had issued an award in favor of Chongqing Senci. Upon considering subsequent competing motions for confirmation and vacatur, the district court determined that the arbitrator had failed to issue a reasoned award as requested by both sides and thus had exceeded his authority. Rather than vacating the award as sought by Smarter Tools Inc. (STI), though, the district court instead chose to remand to the arbitrator for “clarification of his findings.”

After the remand, the arbitrator added reasoning to the award and issued a final amended award. The district court then confirmed the amended award over the objections of STI. One of STI’s arguments was that the arbitrator had been rendered functus officio upon issuing the initial final award. Therefore, asserted STI, remanding the award for amendment rather than vacating it was improper and contrary to the Federal Arbitration Act (FAA).

The district court rejected STI’s arguments and confirmed the revised award. STI then appealed. The appellate panel also rejected STI’s functus officio and FAA arguments and upheld the district court’s confirmation of the award.

The court of appeals concluded that common sense and the policy underpinning the functus officio doctrine supported the district court’s decision to remand to the arbitrator rather than vacating the award.

Where, as here, a district court determines that the arbitrator failed to produce an award in the form agreed to by the parties, remand for a properly conformed order is a permissible choice. It simply makes no sense to redo an entire arbitration proceeding over an error in the form of the award issued after the hearing. See Gen. Re Life Corp., 909 F.3d at 549 (finding exception to the functus officio doctrine to promote “the twin objectives of arbitration: settling disputes efficiently and avoiding long and expensive litigation”). Nor does a remand in such circumstances undermine the functus officio doctrine’s purpose, which is to prevent arbitrators from changing their rulings after issuance due to outside influence by an interested party. See, e.g., Colonial Penn, 943 F.2d at 331-32 (“The policy underlying this general rule is an unwillingness to permit one who is not a judicial officer and who acts informally and sporadically, to re-examine a final decision which he has already rendered, because of the potential evil of outside communication and unilateral influence which might affect a new conclusion.” (internal quotation marks omitted)); . . .