2nd Circuit Court Confirms Amended Arbitration Award

Feb. 8, 2010 -- The 2nd U.S. Circuit Court of Appeals recently confirmed an amended arbitration award, concluding that the arbitrator did not exceed his powers by revising the original award.

The court issued its ruling in T.Co Metals LLC v. Dempsey Pipe & Supply Inc. on Jan. 14. It reversed the Southern District Court of New York's decision to vacate the amended award.

The case stemmed from an arbitration concerning a dispute over allegedly defective steel pipe that T.Co delivered to Dempsey. The arbitration was conducted according to the International Dispute Resolution Procedures of the International Centre for Dispute Resolution (ICDR), the international division of the American Arbitration Association.

The arbitrator issued a final ruling in April 2007, which awarded $338,039.72 to T.Co for outstanding unpaid invoices and $420,357 to Dempsey for the diminished value of the defective pipe. Both parties asked the arbitrator to amend the original award pursuant to ICDR procedures' article 30(1), which allows the arbitrator to "correct any clerical, typographical or computation errors or make an additional award as to claims presented but omitted from the award."

In June 2007, the arbitrator issued an amended award, where he accepted some of the requested changes, including computation errors pointed out by T.Co. The amended award reduced Dempsey's award from $420,537 to $340,587.

The parties separately asked the district court to modify or vacate the award. T.Co argued that the arbitrator acted in "manifest disregard" of the law by awarding diminution-in-value damages to Dempsey despite the parties' contractual provision barring consequential damages, and asked the court to vacate that part of the award.

Dempsey argued that the corrections were not clerical errors within the meaning of article 30(1) of the ICDR procedures and that the arbitrator exceeded his authority in amending the award.

In July 2008, the district court issued a decision rejecting T.Co's manifest disregard argument and accepting Dempsey's contention that the arbitrator lacked the authority to correct the award. The district court concluded that the amendment, which benefited T.Co, violated the functus officio doctrine, which limits the power of arbitrators to act once they have completed their duties.

The circuit court agreed with the district court's refusal to vacate the arbitrator's damage award to Dempsey on the ground of manifest disregard. But it said the district court erred in applying the functus officio doctrine. "We conclude that the arbitrator's interpretation of these rules was entitled to deference, and that, applying that deference, the arbitrator did not exceed his powers by granting in part T.Co's request that certain errors be corrected in the award."

The circuit court said the arbitrator's process of calculating damages constituted a reasonable interpretation of the legal distinction between the diminution-in-value damages that were available to Dempsey under the New York Uniform Commercial Code and the consequential damages that were excluded by the parties' contract. "Accordingly we perceive no manifest disregard of the law," the court said.

The circuit court affirmed the part of the district court's ruling that rejected the manifest disregard argument by T.Co, but it reversed the court's determination that the amended award violated the functus officio doctrine. The circuit court remanded the case so the amended arbitration award can be confirmed.