Today’s post covers three new developments from this past week. The Fifth Circuit found a defendant waived its right to arbitrate a class action; the Second Circuit found arbitrators retain power to clarify ambiguous awards; and Jay-Z found his list of potential arbitrators sorely lacking in diversity.

In Forby v. One Technologies, 2018 WL 6191349 (5th Cir. Nov. 28, 2018), a class of plaintiffs filed an action for consumer fraud. The defendant waited two years before compelling arbitration. In the meantime, it removed the case to federal court, transferred venue, and filed a Rule 12 motion to dismiss, which was only partially successful.

In response to the motion to compel, the plaintiffs argued the defendant had waived its right to arbitrate. The district court disagreed, finding that “delay alone is insufficient” to establish the prejudice required to prove waiver. On appeal, however, the Fifth Circuit found prejudice because the plaintiff would “have to re-litigate in the arbitration forum an issue already decided by the district court in its favor”, i.e. the Rule 12 issue. Even if defendant did not make another motion to dismiss in arbitration, the court disapproved of the tactic of “check[ing] the district court’s temperature” on the dispositive issue, before moving the case to another forum.

In General Re Life Corp. v. Lincoln Nat’l Life Ins Co., 2018 WL 6186078 (Nov. 28, 2018), the Second Circuit examined whether a panel of arbitrators can clarify their own award. In the underlying reinsurance arbitration, the arbitrators had ordered the parties to unwind their agreement, and work together to figure out how much money had to be repaid. In the award, the arbitrators retained jurisdiction to resolve any dispute over the payments. The parties did not agree on the amount of repayment, or even how to calculate it. So, more than three months after the final award, one party wrote the arbitrators, seeking resolution of the payment dispute. The other side objected, characterizing the request as one to reconsider the final award. The panel clarified its award, after finding the award had ambiguities.

The Second Circuit confirmed the clarified award. Although usually an arbitration panel loses authority after issuing the final award, five circuits have recognized an exception to that “functus officio” doctrine where the final award is “susceptible to more than one interpretation”. The Second Circuit adopted the same exception, but limited it to when three conditions are present: the award is ambiguous; the clarification only clarifies the award, and does not substantively modify the award; and the clarification comports with the parties’ arbitration agreement.

Finally, making headlines across the country, Jay-Z has asked a New York state court to stay his arbitration, due to a lack of available African-American arbitrators. I will let you know when I hear of a decision. But, the underlying premise is one I have wondered about – are large arbitration providers a place of “public accommodation”? In the meantime, maybe Jay-Z will write a rap about arbitration… then it could be my theme song!

The Supreme Court of Mississippi issued a new opinion that sheds light on a topic that doesn’t come up often: when can an arbitration award be modified due to miscalculation?  D.W. Caldwell, Inc. v. W.G. Yates & Sons Construction Co., 2018 WL 2146355 (Miss. May 10, 2018).

The context for the case was a construction dispute between a general contractor and a roofing subcontractor.  The arbitrator awarded damages to the subcontractor, and the general contractor filed a motion to the arbitrator to have the award modified.  The arbitrator denied the motion.

The contractor them made a motion in court to modify the award.  After taking testimony and exhibits in an evidentiary hearing, the court granted the motion to modify the award, reducing the subcontractor’s damages by over $100,000.  The contractor argued that the arbitrator “miscalculated” in two ways: first, by declaring that the amount of retainage was not ripe for decision; and second by double-counting some labor costs.

On appeal, the Mississippi Supreme Court reversed the trial court decision and instructed that the original award be confirmed.  In doing so, it established some guidelines for handling these types of motions in the future.  (It applied Mississippi statutes, finding that while the FAA would otherwise govern, the parties contracted for application of the state arbitration statutes.  But, it looked to federal precedent to inform its analysis.)  Importantly, it held that an evident miscalculation “must be apparent from nothing more than the four corners of the award and the contents of the arbitration record.”  Therefore, the district court erred by taking new evidence during the appeal.  In addition, the court found that the face of the award (and the arbitration record) did not show any mathematical error, and therefore there was “insufficient proof of an evident miscalculation.”

This case confirms that not only are the bases for vacatur under Section 10 of the FAA (and its state counterparts) interpreted very narrowly, but the bases for modification in Section 11 are just as hard to prove, if not more so.

p.s. Yikes!  It has been more than two weeks since my last post.  What have I been up to?  Well, preparing to present here  and  here and then updating the Arbitration chapter of this book.  Such a fun time of year!  Let me know if you’ll be at those events so we can connect.

 

Recent decisions from the 3d and 11th Circuits drive home this point: an arbitration award is final and should not be revisited.

In Robinson v. Littlefield, 2015 WL 5520017 (3d Cir. Sept. 17, 2015), the parties arbitrated their dispute over the quality of a new RV.  The arbitrator ruled for the RV buyers, awarding them about $85,000.  The seller made an untimely motion with the AAA to modify or correct the award, and the arbitrator ignored it.

After the buyers entered their judgment in state court, the seller removed to federal court and moved to strike the judgment as not final (because the motion to modify had not been ruled upon).  The district court asked the arbitrator to indicate whether the case was active, and the arbitrator clarified that he would not amend the previous award and it remained in full effect.   The district court concluded that the arbitration award was not final until the arbitrator responded to the court, and so struck the entry of judgment.  The Third Circuit un-vacated the arbitration award in no time, noting that arbitration awards are final when it is clear the arbitrator intends the award to be a complete determination of all submitted claims (including damages).  In this case, the final award was the award for $85,000, and the motion to modify it “does nothing to change that conclusion.”

In IBEW, Local Union 824 v. Verizon Florida, 2015 WL 5827517 (11th Cir. Oct. 7, 2015), the court found the arbitrator exceeded his power by issuing a substituted award in a labor arbitration.  The arbitrator had issued the original award, interpreting a clause in the parties CBA and applying it to particular employees.  Two days later, the union asked the arbitrator to clarify the award (saying that applying the arbitrator’s rationale, more employees should have benefitted).  In response, the company asked for a reconsideration of the entire award, asserting that a significant topic of the award had not been properly before the arbitrator.  The arbitrator agreed with the company and issued a substituted award, eliminating the topic in question.

The union then sought to confirm the original award and vacated the substituted award.  The district court ruled in favor of the union and the appellate court affirmed.  It analyzed the union’s grievance and found it was broad enough to encompass all the issues addressed in the original award.  “Where — as here–the parties refuse to stipulate to the issues at arbitration, the arbitrator is ’empowered’ to frame and decide all the issues in the grievance as he sees them.”

Furthermore, the 11th Circuit concluded the arbitrator lacked authority to revisit his original award.  Importantly, the court noted that the governing AAA rules preclude an arbitrator from “redetermin[ing] the merits of any claim already decided.”  The hardest issue for the court was the company’s argument that the union had “open[ed] the door” to a full reconsideration by asking for a clarification.  The court agreed that contracting parties can authorize an arbitrator to reconsider his decision by mutual agreement, but said the parties did not mutually consent in this case, because the union sought much narrower relief than that sought by the company.  The arbitrator’s original award stands.

The lesson from these cases?  The parties should not seek reconsideration of the merits of a final award, and arbitrators should not grant a reconsideration of the merits.  Final means final.