Opinion
02 Civ. 7364
April 24, 2003
Kara F. Headley, Ank A. Santens, John S. Willems, WHITE CASE New York, NY, ATTORNEYS FOR PETITIONER.
Jose T. Pareres, SILVERSTEIN, PARERES LOMBARDI, New York, NY, ATTORNEYS FOR RESPONDENT.
OPINION and ORDER
Play Star, S.A. de C.V. ("Play Star"), a Mexican corporation, moves pursuant to Section 207 of the Federal Arbitration Act to confirm an arbitration award, for attorney's fees and costs, and post-judgment interest. Haschel Export Corporation ("Haschel"), a New York corporation, cross-moves to vacate the award on the grounds of misconduct and excess use of power by the arbitrator.
Background and Procedural History
The parties entered into an agreement on March 17, 1997 whereby Haschel sold toys to Play Star for distribution in Mexico. On April 9, 2001, Play Star initiated an arbitration under the arbitration clause in the distributorship agreement, which provided that "any controversy arising out of or relating to this agreement. . . . shall be resolved by arbitration in the City of New York in accordance with the rules than [sic] obtaining of the American Arbitration Association" ("AAA"). Because it was an international dispute, the AAA's International Arbitration Rules governed.
The issues in the arbitration are immaterial for present purposes.
On June 20, 2001 Robert Y. Stebbings, Esq. was appointed as the sole arbitrator by the AAA. Both parties submitted memoranda (called "memorials"), witness statements and exhibits. In November 2001, there was a two-day hearing before the arbitrator.
First Award
On February 11, 2002 the arbitrator issued the following award, without setting forth his reasons:
1. Within thirty (30) days from the date of transmittal of this Award to the Parties, hereinafter referred to as "Play Star" and "Haschel," Haschel shall pay to Play Star the sum of $31,762.00. After the date such payment is due, Haschel shall pay interest on any unpaid balance at a compounded annual rate of 6%.
* * *
4. This Award is in full settlement of all claims and counterclaims submitted to this arbitration.
The Award was sent to the parties on April 1, 2002. That same day, Play Star wrote the AAA pointing out that Article 27.2 of the International Arbitration Rules requires the tribunal to "state the reasons upon which the award is based" and requesting a reasoned award. In response, the arbitrator sent the parties a letter on April 11, 2002 stating:
Article 27.2 states, "[T]he tribunal shall state the reasons upon which the award is based, unless the parties have agreed that no reasons need be given." AMERICAN ARBITRATION ASSOCIATION, INTERNATIONAL ARBITRATION RULES, Art. 27.2.
I was under the mistaken impression that the above-referenced case was being conducted pursuant to the commercial rules and therefore prepared the award pursuant to those rules. If the parties wish a reasoned award pursuant to the international rules, they should agree to reinstate me as arbitrator and authorize me to prepare the award pursuant to the international rules. The parties should be advised that this may change the outcome.
On April 12, 2002 Haschel sent a letter to Play Star's lawyers, stating:
Please be advised that our client, Haschel Export Corporation accepts the award rendered by Mr. Stebbings on February 11, 2002, which was transmitted on April 1, 2002.
However, should you wish to follow the procedures outlined in Mr. Stebbings letter of April 11, 2002, in response to your letter of April 1, 2002, we consent to the reinstating of Mr. Stebbings as Arbitrator and grant the authorization required to prepare the award pursuant to the international rules.
On April 17, 2002 Play Star wrote to the AAA to confirm that "Play Star agrees to reinstate Mr. Stebbings as Arbitrator pursuant to Mr. Stebbings' letter of April 11, 2002."
Second Award
After his reinstatement, the arbitrator received no additional evidence from either side. On June 28, 2002 he issued a second Award, setting forth the history of the transactions between the parties, making specific findings of fact, and giving the rationale for his Award, which concluded:
Haschel shall pay to Play Star damages of $303,087.58 plus interest calculated to the date of payment at the respective statutory annual rates provided by the law of the State of New York applicable to contracts entered into and to be performed in the State of New York, calculated as follows:
* * *
This Award is in full settlement of all claims and counterclaims submitted to this Arbitration.
The arbitrator gave no explanation for the vast difference between the amounts of the two awards. On July 15 Haschel wrote the AAA pursuant to Article 30.1 of its International Arbitration Rules, which allow a request for interpretation, correction of clerical errors, or an additional award on omitted claims. Play Star opposed, arguing that "Any obscurity or ambiguity in the grounds for the decision does not warrant a request for interpretation of the award." (Santens' 7/19/02 ltr., p. 3, emphasis in original).
Article 30.1 states, "Within 30 days after the receipt of an award, any party, with notice to the other parties, may request the tribunal to interpret the award or correct any clerical, typographical or computation errors or make an additional award as to claims presented but omitted from the award." AMERICAN ARBITRATION ASSOCIATION, INTERNATIONAL ARBITRATION RULES, Art. 30.1.
By letter dated August 19, 2002 Mr. Stebbings stated "I hereby decline to issue a follow-up to my award of June 28, 2002."
Discussion
"Arbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation."Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993). The party seeking to vacate the award bears the burden of proof.Id. If "a barely colorable justification" for the arbitration award exists, the award should be confirmed. Landy Michaels Realty Corp. v. Local 32B-32J, Service Employees Int'l Union, Aflcio, 954 F.2d 794, 797 (2d. Cir. 1992).
Although courts accord great deference to arbitral decisions, a district court may vacate an arbitration decision where at least one ground specified in 9 U.S.C. § 10 of the Federal Arbitration Act ("FAA") is found to exist or for "manifest disregard of the law."See e.g., Carte Blanche (Singapore) Pte., Ltd., v. Carte Blanche Int'l., Ltd., 888 F.2d 260, 265 (2d Cir. 1989). Among other grounds, the FAA permits vacatur of an arbitral award where "the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made." 9 U.S.C. § 10 (a)(4).
9 U.S.C. § 10 provides, in relevant part:
(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration:
(1) Where the award was procured by corruption, fraud, or undue means. (2) Where there was evident partiality or corruption in the arbitrators, or either of them. (3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced. (4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. (5) Where an award is vacated and the time within which the agreement required the award to be made has not expired the court may, in its discretion, direct a rehearing by the arbitrators.
To ensure meaningful judicial review, an arbitrator's award is not immune from scrutiny. Courts have frequently remanded arbitration awards for clarification or completion. As the Second Circuit has stated:
Indefinite, incomplete, or ambiguous awards are remanded `so that the court will know exactly what it is being asked to enforce.'. . . We have observed that `courts on occasion may remand awards to arbitrators to clarify the meaning or effect of an award, or to determine whether the arbitrator has in some way exceeded his powers.Ottley v. Schwartzberg, 819 F.2d 373, 376 (2d. Cir. 1987) quoting American Ins. Co. v. Seagull Compania Naviera, S.A., 774 F.2d 64, 67 (2d. Cir. 1985); Siegel v. Titan Indus. Corp., 779 F.2d 891, 894 (2d. Cir. 1985).
It is common ground that Mr. Stebbings' Second Award contains a fair description of the facts and the reasons for his present award, sufficient to sustain it in all respects, if considered only by itself. The major part of Play Star's submission is devoted to that proposition. But that poses the issue: it does not resolve it.
There is a serious omission in the Second Award. The First Award is as much a part of a history of the proceedings as the demand for arbitration, the evidence submitted at the hearing, or the Second Award itself. When the First Award was rendered, it stood as the complete adjudication and disposition of all claims in the arbitration. Its transmittal to the parties rendered the arbitrator functus officio, having discharged his responsibility to render a fair and equitable decision. He could take no further action without the consent of both parties. But for the intervention of Play Star's request for a statement of reasons, the arbitration proceedings would have been terminated at that point, and the First Award would stand as the final disposition of the parties' rights.
Usually, with limited exceptions, absent an agreement by the parties to the contrary, once an arbitrator has issued a final award, he is, "in common-law parlance, functus officio,' meaning that [his] authority over those questions is ended." Hyle v. Doctor's Associates, Inc., 198 F.3d 368, 370 (2d. Cir. 1999); see also, colonial Penn Ins. Co. v. Omaha Indemnity Co., 943 F.2d 327, 333 (3rd Cir. 1991) ("It is generally improper for an arbitration panel to impeach its final award absent consent of the parties.").
The functus officio doctrine contains its own limitations. They are:
(1) [A]n arbitrator "can correct a mistake which is apparent on the face of his award," (2) "where 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," and (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, 943 F.2d at 332 (internal citations omitted).
Thus, any statement of reasons for the Second Award is incomplete if it fails to recognize the existence of the prior determination of the same issues, on the same evidence, between the same parties, and by the same arbitrator. An award with such an omission, which grants a recovery 9.5 times larger without any explanation of the difference, can only partially and imperfectly "state the reasons upon which the award is based" as required by the International Rules.
Some reason must be given for departing so markedly from a determination that under normal circumstances would have an effect equivalent to res judicata as between the parties. The Second Award is so imperfectly executed, as to require some further explanation. See Brookdale Hosp. Med. Center v. Local 1199, Nat'l Health Human Service Employees Union, 107 F. Supp.2d 283, 292-93 (S.D.N.Y. 2000) (remanding case for written clarification from arbitrator on factual ambiguities).
Play Star urges that Haschel consented to Mr. Stebbings' resumption of his status as arbitrator, with full knowledge that it might lead to a changed result. Indeed, at one point Play Star goes so far as to say that "Haschel expressly agreed to the result obtained" (its Jan. 30, 2003 Memo, p. 10).
Two factors render this argument unavailing. First, Mr. Stebbings' statement that giving him authorization "to prepare the award pursuant to the international rules . . . may change the outcome," hardly gives fair notice that the amount of the award might be increased almost ten times. Had Haschel been given fair warning of that possibility, it is unlikely it would have consented.
Second, there is at least a technical argument that Haschel did not consent. While its letter of April 12 consented "to the reinstating of Mr. Stebbings as arbitrator" and granted him authorization "to prepare the award pursuant to the international rules," it granted no express consent to his speculation that such application of the International Rules might change the award, much less increase it by a factor of almost ten. Thus, the text of Haschel's April 12 letter is insufficiently conclusive to bind it to the Second Award as that Award presently stands.
CONCLUSION
The Second Award is remanded to arbitrator Robert Y. Stebbings, Esq. for clarification. The motions to confirm and to vacate the Award are denied, with leave to renew after the clarification.