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Post-Award Reconsideration: More Evolved Thoughts on the Second Circuit’s T. Co. v. Dempsey Decision

Dear Readers:
In my continuing quest for objective reactions to my non-objective analysis of T. Co. v. Dempsey, with regard to the reconsideration of the award by the arbitrator, I present the following further provisional thoughts. Your comments are most welcome.

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Parties adopting the ICDR Rules do not agree to arbitrate the issue of correctible errors in the award to the same degree that they agreed to arbitrate the merits. By adopting the ICDR Rules, they agree that either party may present the correction issue to the arbitrator without prejudice to the right of that party to submit the same correction issues to a judge under FAA Section 11, either without first asking the arbitrator to make corrections, or notwithstanding the decision of the arbitrator refusing to make corrections. By actually submitting a corrections issue to the arbitrator, they do not, under the Rules or existing law, foreclose consideration of the same corrections by a federal judge.

Moreover the process for obtaining a decision on corrections from the arbitrator is not the same process as that for obtaining an award. The arbitrator is not required to hear the parties. The arbitrator may deny the application without any statement of reasons, indeed without issuing an order or decision.

Further, whereas the ICDR Rules do not mention an amended final award or a corrected final award as types of awards the arbitrator may issue, the parties, by adopting the Rules and submitting the 30(1) dispute to the arbitrator, do not manifest an expectation that the arbitrator will decide the corrections issue in the form of an award. Rule 30(1) states that if the arbitrator finds the application to have merit, the arbitrator shall make the corrections. The reasonable expectation of the parties is that, if the arbitrator finds the application to have merit, this would normally result in a few handwritten (or word-processed) corrections of typos or miscalculations, which could readily be done on the face of the award without issuance of an amended award. And if the requested corrections are without merit, the parties’ expectation is not to receive an award deciding as such, but to hear nothing from the arbitrator or perhaps to hear from the ICDR that the arbitrator refused to make the requested corrections.

The Second Circuit proceeded to analyze the District Court’s order vacating the amended award from the assumed premise that the arbitrator was empowered by the parties to decide the corrections issue in the form of an award. The fact that the arbitrator did in fact issue an amended award, and also issued before that an intervening Amendment Order that stated the reasons for the Amended Award, seems to have led the Second Circuit to assume that the issuance of such an Amended Award was part of the agreement of the parties to arbitrate the issue of corrections. That is incorrect. Corrections made or not made to an award have a different status under the ICDR Rules — they are simply accepted or rejected corrections to an award. As such, those decisions are not final and binding decisions of the arbitrator under the ICDR Rules or the parties’ agreement to arbitrate. Certainly the parties could have made the agreement the Second Circuit attributed to them, i.e. to arbitrate the issue of corrections, to have the arbitrator issue an award upon the corrections applications, and even to have the arbitrator withdraw or suspend the effectiveness of the original award. But the parties in the Dempsey case made no such agreement.

Thus, the Amended Award exceeded the powers of the arbitrator not because the arbitrator misconstrued ICDR Rule 30(1), but because there was no basis in the ICDR Rules for issuance of any Amended Award. The arbitrator decides the corrections application after having issued the final award, after having become functus officio under applicable law. Rule 30(1) notably does not state that the arbitrator’s jurisdiction is reinstated by the Rule 30(1) application. The better view of the arbitrator’s powers under 30(1) is that they are ministerial powers, not adjudicative powers, and that they are assigned to the arbitrator rather than the administrator simply because the arbitrator is in the best position to know whether the words used in the award were those he or she intended to use, and if indeed a typist in the arbitrator’s office mis-transcribed.

The proper framework for confirmation of an award that would embrace the arbitrator’s Rule 30(1) corrections is for a party or the parties jointly to move the District Court under FAA Section 11 to modify and correct the Original Award in accordance with those corrections, and to confirm the Original Award as so modified and corrected by the District Court. Within that framework, the arbitrator’s scope of discretion is limited as a practical matter by the text of Section 11 and jurisprudence surrounding it. And if that framework is followed, there would be one functus officio doctrine — the one applied by the District Court in the T. Co. v. Dempsey case, based on the jurisprudence of FAA Section 11. As things now stand in the Second Circuit, there are two functus officio doctrines, one applicable if the corrections are sought from the District Court, and another (whose content may vary from case to case) if the corrections are sought from the arbitrator.

Even without accepting the “ministerial not adjudicative” view of the arbitrator’s correction powers under ICDR 30(1) and comparable clerical error rules, one can reach the conclusion that arbitral discretion to make corrections to a final award is constrained by FAA Section 11.

The ICDR Rules do not provide for the arbitrator to vacate or withdraw a final award as part of the powers conferred by Rule 30(1). Nor do the Rules state that if the arbitrator accepts to make corrections, the corrected award shall be deemed the final award and the uncorrected final award shall be a nullity. The parties of course could make such impact on an original final award part of their agreement to arbitrate, but in the Dempsey case they did not do so.

As such, the original award remains a confirmable award after the arbitrator issues corrections. Assuming it is a domestic award, Section 9 of the FAA governs and provides that the upon a timely application the court “must grant” an order confirming the award “unless the award is vacated, modified, or corrected as prescribed in section 10 and 11 of this title.” The arbitrator’s purported amendment of the award is not a ground for vacatur under Section 10. The party seeking confirmation of the award subject to the arbitrator’s Rule 30(1) corrections must cross-move to modify and correct the original award in accordance with Section 11. The Court lacks power to implement an arbitral award correction that does not fall within the Section 11 categories, and so arbitral corrections exceeding the boundaries of Section 11 are ineffectual as a matter of law. The Court is subject to the affirmative command of the FAA to confirm awards unless modified or corrected according to Section 11. The First Options rule of deferential review of arbitral decisions on matters the parties clearly and unmistakably agreed to arbitrate is derived from the pro-arbitration policy of the FAA generally. But it should not trump a clear affirmative command of the FAA concerning judicial review of awards.

I do not think the Second Circuit panel in the Dempsey case would disagree with this framework of analysis. The Court’s error, in my view, is to have viewed the parties’ submission of the corrections issues to the arbitrator under 30(1) as an agreement to arbitrate the corrections issue and to have the arbitrator supersede the original award if he found the corrections to have merit. But this reads too much into the agreement to arbitrate under ICDR Rules, and into the submission of corrections issues to the arbitrator under Rule 30(1) without further agreement of the parties on the consequences of a disposition under Rule 30(1).

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