ADR

Editor's note: This article describes a hypothetical situation.

Charles Forer

Bob's adversary Roger was puzzled by the arbitrator's award. “I think we got what we wanted,” Roger told his client. But Roger was not sure. Why? The award said Roger's client won. That surely was good news. The award said Bob's client had to pay $750,000 to Roger's client. Also pretty good news because Roger's client sought $1.3 million in the arbitration and Bob's client (following Bob's direction) had never offered a penny to settle the dispute.

But then the arbitration award said: “I hereby direct [Bob's client] forthwith to convey and transfer to [Roger's client] good and marketable title to the real property that was the subject of this arbitration proceeding (the property) and that I value at $750,000. Within one business day after the conveyance and transfer, [Roger's client] shall withdraw with prejudice the lis pendens it had filed with respect to the property.”

Talk about perplexing. Bob's client no longer owned the property. And Roger's client had withdrawn the lis pendens months ago. How could either party obey this directive?

A few days later, Bob received Roger's “request for clarification” to the arbitrator. According to Bob, who took some liberties in recounting the request to his client, this is what Roger's missive said: “Your Final Award talks about a piece of property that neither party owns. How can my adversary convey the property to my client; and how can my client withdraw a lis pendens it withdrew months ago?

But we all get it. You intended that my client recover its entire claimed damages amount of $1.3 million—a lot by cash and the rest by conveyance of a property worth $550,000. Get it right by issuing a corrected award that gives my client exactly what you intended to give: $1.3 million in cash.

Never one to waste words, Bob objected to Roger's attempt “to straighten things out by redetermining already decided issues.” Bob told the arbitrator that “Roger improperly was seeking to have a final arbitration award reexamined and changed. And that flies directly in the face of the functus officio rule, which prevents an arbitrator from redetermining any issue once the arbitrator issues a final award.”

Within days, the arbitrator did exactly what Roger had requested. The arbitrator's “clarified final award” stated that the Final Award contained an “essential ambiguity requiring clarification.” Admitting he had messed up, the arbitrator's clarified final award said: “Bob's client no longer owns the property. Which means the parties could not have obeyed my original award. It would have been impossible to do so. I now enter a clarified final award that says what I intended all along: Bob's client shall pay $1.3 million to Roger's client.”

Roger then sought to confirm the clarified final award in court. Bob opposed Roger's “shenanigans” (Bob's word) and asserted that the clarified final award should be replaced by the original award.

The introduction of Bob's brief set the scene: “After an arbitrator issues a final award regarding the issues submitted, the arbitrator has fulfilled his or her function, the arbitrator becomes functus officio, and the arbitrator lacks any authority or power to reexamine that award. Here, the arbitrator reexamined a final award and improperly turned a blind eye to functus officio by fundamentally changing the remedy specified in the original award.”

The court's brief order congratulated Bob on his excellent presentation of functus officio. However, the order remanded the case to the arbitrator to clarify what he meant in the original award. Not surprisingly, the arbitrator clarified his original award by reiterating everything he said in the clarified final award. Huh? Doesn't functus officio apply here?

Let's go back to basic principles. As soon as an arbitrator decides the dispute, the arbitrator becomes a pumpkin or, more specifically, “functus officio.” Having finally determined the dispute, the arbitrator lacks the authority to reexamine his or her award, unless the parties agree otherwise.

On cursory glance, functus officio seems like an error-perpetuation mechanism that insulates erroneous arbitration awards from correction. As the U.S. Court of Appeals for the Third Circuit said decades ago, however, the policy underlying functus officio “is an unwillingness to permit one who is not a judicial officer and who acts informally and sporadically, to reexamine a final decision which he or she has already rendered, because of the potential evil of outside communication and unilateral influence which might affect a new conclusion,” see Colonial Penn Insurance. v. Omaha Indemnity, 943 F.2d 327, 331-32 (3d Cir. 1991) (citation omitted).

The functus officio doctrine does not prevent all corrections to faulty or erroneous awards. An arbitrator can clarify an award if it can be interpreted in more than one way. This narrow exception applies if the final award is ambiguous; the clarification merely clarifies the award, rather than substantively modifying it; and the clarification comports with the parties' intent as set forth in the agreement that gave rise to arbitration, see General RE Life v. Lincoln National Life Insurance, 2018 U.S. App. LEXIS 33340, at *11 (2d Cir. Nov. 28, 2018).

Thankfully for Bob, this exception to functus officio probably does not apply here. Reason: it was not possible to tell, from the face of the award, that Bob's client no longer owned the property or that Roger's client no longer had a lis pendens on the property. As the Third Circuit noted in Colonial Penn Insurance v. Omaha Indemnity.

“In extending the limited exception for mistakes apparent on the face of the award to a situation where extraneous facts must be considered, the district court opened a Pandora's box which could subvert the policies on which the application of functus officio to arbitral decisions are predicated. Parties could, under the guise of a mistake in fact, seek recourse directly from the arbitrators in an attempt to overturn an adverse award. The need to regard arbitral awards as final and protect the arbitrators from outside influence is too strong to permit diminution of the functus officio doctrine.”

So Bob's position, in the trial court, was correct—at least partially; the arbitrator could not revisit the award based on the mistake-on-the-face-of-the-award exception. (“The exception for mistakes apparent on the face of the award is applied to clerical mistakes or obvious errors in arithmetic computation.”)

But that does not end the matter. In remanding the matter to the arbitrator, the court applied the “remand for mistake” exception to the functus officio doctrine. This exception allows remand so the arbitrator can clarify an ambiguous award:

Courts have uniformly stated that a remand to the arbitration panel is appropriate in cases where the award is ambiguous. Because of the limited purpose of such a remand, which serves the practical need for the district court to ascertain the intention of the arbitrators so that the award can be enforced, there is not even a theoretical inconsistency with the functus officio doctrine. … When the remedy awarded by the arbitrators is ambiguous, a remand for clarification of the intended meaning of an arbitration award is appropriate.

But didn't I already say that the clarified final award was not ambiguous—at least on the face of the record? If it was not “ambiguous,” how can a court remand the matter to the arbitrator based on “ambiguity”? The answer is elementary:

Unlike the exception to the functus officio doctrine which confines the arbitrators to correcting mistakes apparent on the face of the award, an ambiguity in the award for which the court may remand to the arbitrators may be shown not only from the face of the award but from an extraneous but objectively ascertainable fact. Thus, for example, if an arbitration award directed the transfer of real property, and the district court could ascertain that such property was no longer in the possession of the party directed to transfer it, the remedy would be unenforceable and hence ambiguous.

Bob was halfway correct in objecting to the clarified final award. An arbitrator cannot reconsider his or her award unless the ambiguity is apparent on the face of the award itself, which was not the case here. Under the “remand for mistake” exception to the functus officio doctrine, however, a court can do what the court did here: the court can look to extraneous evidence, conclude that the award is ambiguous, and remand the matter to the arbitrator for clarification of the meaning of the award.

In remanding the matter, the court is doing indirectly what the arbitrator cannot do directly. At least that's what Bob is telling his friends. You think?

Charles F. Forer independently provides arbitration, mediation and all other neutral services.  He is a co-chair of the Philadelphia Bar Association's alternative dispute resolution committee and is a former chair of the fee disputes committee. He is a frequent lecturer and writer on the use of ADR in a variety of settings. Contact him at (610) 999-5764 and c[email protected].