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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: May 6, 2020

Arbitral Panel Can Reconsider Partial Award

On April 30, 2020, the Court of Appeals issued a decision in American Intl. Specialty Lines Ins. Co. v. Corporation, 2020 NY Slip Op. 02529, holding that an arbitral panel could reconsider a partial award, explaining:

In this case, AISLIC argues, and the Appellate Division held, that the arbitration panel exceeded its authority because it violated the common law doctrine of functus officio. Functus officio, Latin for “having performed one’s office”, functus officio), has operated historically as a restriction on the authority of arbitrators, precluding them from taking additional actions after issuing a final award. As this Court stated well over one hundred years ago,

as soon as the arbitrators have made and delivered their award, they become functus officio, and their power is at an end. After having once fully exercised their judgment upon the facts submitted to them and reached a conclusion which they have incorporated into their award, they are not at liberty at another and subsequent time to exercise a fresh judgment on the case and alter their award

In other words, under the common law rule, arbitrators relinquish all powers over the parties to the arbitration upon issuance of a final award and, therefore, are precluded from modifying or reconsidering that award.

On this appeal, the insureds argue that the functus officio rule is no longer valid under New York law inasmuch as that doctrine was grounded upon anti-arbitrational sentiments rejected long ago by our state courts and by Congress in the Federal Arbitration Act. We need not address this argument, however, inasmuch as functus officio would apply only to final awards and, despite its name, the Partial Final Award was not, in fact, final.

This Court has long recognized that final awards are those that are coextensive with the issues submitted to the arbitrators by the parties. In Mobil Oil Indonesia v Asamera Oil (Indonesia), we explained that judicial review of arbitration awards is typically limited to final determinations upon the matters submitted to the arbitrators, with specifically enumerated exceptions in CPLR article 75 that are not relevant here. Consequently, in Mobil Oil, we determined that a party may not commence a proceeding to vacate the arbitrators’ interlocutory order that decided only a very limited procedural question. Reiterating this State’s general policy favoring arbitration, we observed that, for the courts to entertain review of intermediary arbitration decisions involving procedure or any other interlocutory matter, would disjoint and unduly delay the proceedings, thereby thwarting the very purpose of conservation. We further underscored that both Article 75, itself, and policy considerations dictate that the courts refrain from entertaining such interlocutory determinations made by arbitrators. Thus, under our case law, a final arbitration award is generally one that resolves the entire arbitration.

Relying on federal case law that has recognized certain circumstances in which partial arbitration determinations may be considered final awards, AISLIC argues that the parties here agreed to bifurcate the arbitration, as well as to the issuance of a partial and final award. Federal courts have consistently recognized that partial determinations may be treated as final awards where the parties expressly agree both that certain issues submitted to the arbitrators should be decided in separate partial awards and that such awards will be considered to be final. Most notably, in Trade & Transport Inc. v Natural Petroleum Charterers Inc., the Second Circuit held that—where both parties expressly asked the arbitration panel to issue a partial award regarding liability for one aspect of the dispute in order to obtain a decision that was expressly intended to have immediate collateral effects in a judicial proceeding, and neither party objected when the arbitrators informed them that they would render a partial final award as a result of the bifurcation—the arbitrators were without authority to reconsider the resulting partial final award. The Second Circuit concluded that, under those circumstances, it was unnecessary that every issue submitted to the arbitrators be conclusively decided in a single final award because the submission by the parties determines the scope of the arbitrators’ authority and, if the parties agree that the panel is to make a final decision as to part of the dispute, the arbitrators have the authority and responsibility to do so.

This Court has not had occasion to determine whether or under what circumstances parties may agree to the issuance of a final award that disposes of some, but not all, of the issues submitted to the arbitrators; nor must we resolve that question in this case. Even assuming that parties to an arbitration may agree to the issuance of a partial determination that constitutes a final award, the parties here, as the arbitration panel below concluded, did not reach any such agreement. Although the insureds’ counsel suggested a separate proceeding to determine the amount of Allied Capital’s defense costs in the event the panel determined such costs were recoverable, AISLIC never consented to bifurcate the proceeding—remarking at one point that, in its view, there was nothing left on the defense costs issue to talk about—or agreed that any resulting partial decision would be treated as a final award. Notably, neither the parties nor the arbitrators ever discussed or otherwise demonstrated any mutual understanding regarding whether the proposed severance of the calculation of defense costs would result in a final partial award. This case is therefore distinguishable from Trade & Transport, in which the parties specifically agreed to bifurcate the arbitration for the very purpose of obtaining a decision that was expressly intended to have immediate collateral effects in a judicial proceeding. Absent an express, mutual agreement between the parties to the issuance of a partial and final award, the functus officio doctrine would have no application in this case. Under these circumstances, we reject AISLIC’s argument that the arbitration panel exceeded its authority by reconsidering the Partial Final Award.

(Internal quotations and citations omitted).

Commercial litigation involves more than courts. Disputes often are–by agreement–decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.

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