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!

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.

On February 4, an arbitration panel ordered Lance Armstrong to pay $10 million to his former promotions company, SCA, as a result of his “unparalleled pageant of international perjury, fraud and conspiracy” that covered up his use of performance-enhancing drugs.  (Read the NYT story about it here.)  What is curious about the award, from an arbitration law standpoint, is that SCA essentially re-opened an arbitration that it had lost with Armstrong in 2005 to obtain this new award.

The general rule of thumb is that arbitrators lose jurisdiction once they issue the final award.  Other than the short period within which parties may request that arbitrators correct a clerical or computational error under the arbitral rules (AAA gives 20 days; JAMS gives only 7), the arbitrators turn into pumpkins for all practical purposes after the final award is issued.  The arbitral rules do not have any equivalent to Rule 60, which in state and federal courts allows a judge to re-do a judgment or order based on newly discovered evidence, fraud, or mistake.  (But even Rule 60 sets a deadline of one year after the judgment is entered to request that the judgment be vacated…)

There is even a fancy Latin name for the reason that arbitrators turn into pumpkins after they issue final awards: functus officio.  The policy is that arbitration awards are suppoed to bring finality, and we wouldn’t want arbitrators revisiting awards based on improper or ex parte information.  However, one of my favorite arbitration resources, Domke on Arbitration, suggests that there are now so many exceptions to the functus officio doctrine that they just about swallow the rule.  Courts have allowed arbitrators to revisit their awards to correct mistakes, to rule on an issue that was submitted but not decided, to clarify an ambiguity, and always, if the parties contractually authorize the same panel to hear a new issue.

That last exception explains how the SCA got a second bite at its arbitration with Armstrong.  SCA’s petition to confirm the new arbitration award gives some important additional facts about what happened at the 2005 arbitration.  Before the arbitration concluded, SCA and Armstrong entered into a settlement agreement requiring SCA to pay Armstrong $7.5 Million.  That settlement agreement specified that the same panel of three arbitrators who heard the 2005 evidence would have “exclusive jurisdiction over” “any dispute or controversy [between the parties] arising under or in connection with” the settlement agreement.

After Armstrong admitted to Oprah Winfrey that he lied in his arbitration with SCA, SCA pursued two new claims with the three original arbitrators: sanctions for perjury and forfeiture of prize money that SCA had paid to Armstrong.  Armstrong objected that the initial panel lacked authority to reconvene, but a majority of the panel disagreed.  After hearing the evidence, a majority of the panel awarded SCA $10 million in sanctions against Armstrong.

Is there any lesson in this highly unusual tale for the run-of-the-mill arbitration?  Of course.  In general, parties and their advocates have one shot at getting the right result in arbitration, so every effort should be made to uncover important evidence and submit it to the panel.  But, in the circumstance where one party is convinced that material evidence remains hidden, why not find a way to make sure the same arbitrator(s) could hear that evidence in the future?  The settlement agreement between Armstrong and SCA is a good vehicle for that.

[Thanks to Karl Bayer and his Disputing Blog for alerting me to this award.]

Post Script: I received great advice from readers that I want to pass along to other advocates.  A few readers noted that the case law authorizing arbitrators to sanction parties is still developing, so attorneys who are involved in drafting arbitration agreements should consider granting the arbitrator specific authority to punish bad behavior.  Additionally, another reader noted that if the parties agree to have the same panel hear any future disputes, they would be wise to consider what happens if one of the panelists is no longer available.  Otherwise, a party who later refused to arbitrate could say that the precise makeup of the panel was integral to the parties’ agreement, such that the inability of any of the arbitrators to serve destroys the agreement to arbitrate.