the “functus officio” doctrine: hearing completion and post-hearing issues deidre derrig –...

The “Functus Officio” Doctrine:Hearing Completion and Post-Hearing Issues

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Deidre Derrig – Corporate Counsel, AllstateJohn L. Jacobus – Partner, Steptoe & Johnson LLP

David A. Thirkill - ARIAS•U.S. Certified Arbitrator & Umpire

November 12, 2015

ARIAS•U.S.2015 Fall Conference

New York

2015 ARIAS-US / FALL CONFERENCEHEARING COMPLETION AND POST-HEARING REMEDIES

PART I: FACT PATTERN & KEY QUESTIONS

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• A deluxe cruise liner, The Sea Venture, was involved in an accident. The insurer, Maritime Insurance, paid the claim, but the reinsurer, Historic Re, refused cover based on (alleged) material non-disclosures at cession regarding the age of the hull and the use of old, refurbished diesel engines.

• The parties arbitrated the dispute, and the Panel issued a “Final Award” in favor of the reinsurer, Historic Re, but permitted the submission of affidavits of


FACT PATTERN

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• After the issuance of the “Final Award,” a key witness contacted the Panel with evidence favorable to the cedent. The evidence, which showed that full disclosure of the risks may have occurred, likely may have changed the outcome of the arbitration.

costs from which it would “confirm the monetary amounts due to Historic Re as a result of these proceedings.”

HearingRecord Closed


FACT PATTERN

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“Final Award” with Affidavit of

“Costs” to Follow

New Evidence New Award?


KEY QUESTIONS

• Did the Panel have the legal authority to consider post-arbitration evidence on the substantive issues in the case? Or did the Panel cease to function as a legal entity following the issuance of the “Final Award” pursuant to the functus officio doctrine?

• If the Panel were not to consider the “new” evidence, would that result be compatible with the duty of the Panel to ensure that the proceedings meet the standard of fundamental fairness?

• Did the Panel’s statement in the award acknowledging that the underwriting file was incomplete invite the submission of new evidence?

• Does the fact that the Panel retained jurisdiction over costs have any bearing on the Panel’s ability to consider the new evidence?

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KEY QUESTIONS

• Would the answers to these questions differ if the Panel had issued an “Interim Final Award”?

• Would the answers to these questions differ if the reinsurer had already sought to confirm the award on the substantive issues in a court of competent jurisdiction? Could the Panel act in parallel?

• Was it permissible for the Panel to retain jurisdiction over disputes related to costs?

• Should the reinsurer wait to confirm the award until the cost portion of the case is decided?

• Would it make sense for the parties to have requested “bifurcated” hearings on liability and costs?

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KEY QUESTIONS

• What is the effect of the open questions on the Panel?

• Does the Panel’s retention of jurisdiction impact ex parte communications between a party and its appointed arbitrator?

• Does the Panel’s retention of jurisdiction only for the awarding of costs restrict the Panel members from serving in other arbitrations until the arbitration is finally concluded?

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PART II: LEGAL PRINCIPLES

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LEGAL PRINCIPLES

• Functus Officio• Definition

• Functus Officio Generally

• Exceptions• Mistake apparent on the face of an award

• Award does not adjudicate a submitted issue

• Award is ambiguous and requires clarification

• Other Factors Affecting Functus Officio• Confirmation of an award

• Retaining jurisdiction over sub-issues

• Retaining jurisdiction over implementation of a remedy

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FUNCTUS OFFICIO - GENERALLY

Black’s Law Dictionary (9th ed. 2009) defines “functus officio” as follows:

• Latin for “having performed his or her office.”

• An officer or official body “without further authority or legal competence because the duties and functions of the original commission have been fully accomplished.”

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FUNCTUS OFFICIO – GENERALLY

• “According to the doctrine, once an arbitrator has made and published a final award[,] his authority is exhausted and he is functus officio [‘having performed his office’] and can do nothing more in regard to the subject matter of the arbitration.” Hill v. Wackenhut Serv. Intern., 971 F. Supp. 2d 5, 12 (D.D.C. 2013).

• “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.’” Colonial Penn Ins. Co. v. Omaha Indem. Co., 943 F.2d 327, 331-32 (3d Cir. 1991).

• Parties may, however, empower arbitrators to reconsider an award. See, e.g., T. Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 342-43 (2d Cir. 2010).

• Courts may also remand an award to an arbitrator for clarification if they find the award ambiguous in some way. U.S. Energy Corp. v. Nukem, Inc., 400 F.3d 822, 830-31 (10th Cir. 2005).

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FUNCTUS OFFICIO - EXCEPTIONS

• Courts commonly describe functus officio as having three exceptions:

1. An arbitrator “can correct a mistake which is apparent on the face of his award”

2. “[W]here the award does not adjudicate an issue which has been submitted, then as to such issue the arbitrator has not exhausted his function and it remains open to him for subsequent determination”

3. “[W]here the award, although seemingly complete, leaves doubt whether the submission has been fully executed, an ambiguity arises which the arbitrator is entitled to clarify.”

Colonial Penn. Ins. Co. v. Omaha Indem. Co., 943 F.2d 327, 332 (3d Cir. 1991).

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1) Mistake Apparent on the Face of an Award

• Courts generally limit this exception to “clerical mistakes or obvious errors in arithmetic computation.” Colonial Penn. Ins. Co., 943 F.2d at 332.

• Newly discovered evidence suggesting the arbitrator’s decision was erroneous does not create a mistake on the face of the award. McClatchy Newspapers v. Cent. Valley Typographical Union, 686 F.2d 731, 733–34 & n.1 (9th Cir. 1982).

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2) Award Does Not Adjudicate a Submitted Issue

• Theory behind this exception “is that the arbitration agreement between the parties is still in force and the arbitrator's power over the remainder of the unresolved submission continues.” Local 825, 825A, 825B, 825R, & 825RH of Int’l. Union of Operating Engineers v. Tuckahoe Sand & Gravel, 2007 WL 1797657, *7 (D.N.J. 2007) (quoting Teamsters Local 312 v. Matlack, Inc., 118 F.3d 985, 992 (3d Cir. 1997)).

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3) Clarification of an Ambiguous Award

• “Ambiguity, however, requires something more substantial than a disagreement between the parties. Rather, the award must be ‘so ambiguous that a court is unable to discern how to enforce it,’” Duke Energy Intern. Peru Investments No. 1 Ltd. v. Republic of Peru, 892 F. Supp. 2d 53, 57 (D.D.C. 2012) (quoting Telenor Mobile Comms. AS v. Storm LLC, 351 Fed.Appx. 467, 469 (2d Cir. 2009)).

• An award may become ambiguous because of circumstances discovered after it is issued. Office & Prof'l Emps. Int'l Union, Local No. 471 v. Brownsville Gen. Hosp., 186 F.3d 326, 332 (3d Cir. 1999). For example, new information may reveal that the awarded remedy is no longer feasible. Id.

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• 3) Clarification of an Ambiguous Award (cont’d)

• “Courts usually remand to the original arbitrator for clarification of an ambiguous award when the award fails to address a contingency that later arises or when the award is susceptible to more than one interpretation.” Green v. Ameritech Corp., 200 F.3d 967, 977 (6th Cir. 2000).

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OTHER FACTORS AFFECTING FUNCTUS OFFICIO

• Court confirmation of an award:• Courts are unlikely to find exceptions to functus officio once a court has confirmed

an award. Legion Ins. Co. v. VCW, Inc., 198 F.3d 718, 720 (8th Cir. 1999); see also Brown v. Witco Corp., 340 F.3d 209, 221 (5th Cir. 2003).

• Retaining jurisdiction over sub-issues:• Functus officio may apply to partial awards if it is clear that the arbitrator intends

for those partial awards to be final. Legion Ins. Co., 198 F.3d at 720. This could include, for example, a determination of liability issued before a determination of damages.

• Retaining jurisdiction over implementation of remedy:• An arbitrator’s retention of jurisdiction to oversee the implementation of a remedy

does not affect an award’s finality. Kalyanaram v. Amer. Ass’n of Univ. Professors of NY Inst. of Tech., Inc., 742 F.3d 42, 51 (2d. Cir. 2014) (citing Burns Int'l Sec. Servs., Inc. v. United Plant Guard Workers of Am., 47 F.3d 14, 16 (2d Cir. 1995)).

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Federal Arbitration Act (9 U.S.C. § 10)

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PART III: COSTS

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KEY QUESTIONS

• What categories of expenditures are covered by an award of costs?

• How should costs be apportioned in a multi-issue case where a single party did not prevail on every issue?

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LEGAL PRINCIPLES

• Costs • Costs Generally

• Attorneys’ Fees

• Determining the “prevailing party”

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COSTS – GENERALLY

• Like with other aspects of arbitration, the parties may set by agreement what expenditures are included as “costs” to be borne by the losing party.

• In arbitrations, “costs” most typically include:

• fees to governing bodies (e.g., American Arbitration Association)

• expenses incurred in managing the arbitration (e.g., venue, food, possibly experts or witnesses)

• the arbitrator’s fees.

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COSTS – ATTORNEYS’ FEES

• As a default rule, “costs” typically do not include attorneys’ fees, unless some specific authority provides otherwise.

• Authority to grant attorneys’ fees may come from:

• Contractual agreement between the parties (including incorporation of any arbitral body rules that permit the grant of attorneys’ fees).

• Governing substantive law (e.g., state arbitration statutes).

• Post-contract acquiescence to attorneys’ fees (e.g., seeking attorneys’ fees against the other party). McDaniel v. Bear Stearns & Co., Inc., 196 F. Supp. 2d 343, 364-65 (S.D.N.Y. 2002).

• Inherent power, when imposing sanctions for bad faith. ReliaStar Life Ins. Co. of N.Y. v. EMC Nat. Life Co., 564 F.3d 81, 86 (2d Cir. 2009).

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COSTS – PREVAILING PARTY

• In the absence of controlling statutes, rules, or contractual provisions, arbitrators have discretion in how to divide costs and expenses between parties. Vigorito v. UBS PaineWebber, Inc., 477 F. Supp. 2d 481, 488 (D. Conn. 2007) adhered to on reconsideration, 557 F. Supp. 2d 303 (D. Conn. 2008).

• If the arbitration agreement contains a section allocating costs between the parties in an ambiguous way, the arbitrator will have authority to interpret that section of the agreement. Softkey, Inc. v. Useful Software, Inc., 756 N.E.2d 631, 634 (Mass. App. 2001).

• Outside of arbitrations, courts have reached differing conclusions about who is a “prevailing party” when both sides obtain some sort of relief. Outcomes may depend on the particular statute being considered.

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PART IV: LAW IN ACTION

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LAW IN ACTION

Sample Case

Century Indemnity Co. v. AXA Belgium,

2012 WL 4354816 (S.D.N.Y. 2012)

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the “functus officio” doctrine: hearing completion and post-hearing issues deidre derrig –...

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