167 A.D.3d 142
N.Y. App. Div.2018Background
- Allied paid $10.1 million to settle a separate qui tam action (the Brickman action) and sought defense and indemnity from its insurer AISLIC under two policies; AISLIC denied coverage and Allied demanded arbitration.
- The parties selected a three‑member ad hoc arbitration panel (they expressly declined application of the JAMS Comprehensive Rules).
- The parties agreed the panel would issue an immediate determination on AISLIC's liability, reserving a separate evidentiary hearing to determine the amount of defense costs if coverage was found.
- On March 8, 2016 the panel issued a 2–1 Partial Final Award (PFA): it found coverage and entitlement to defense but held the $10.1 million settlement was not a covered "Loss," and ordered an evidentiary hearing on defense fees.
- Allied sought reconsideration; the panel on August 18, 2016 issued a Corrected PFA reversing on the $10.1 million question and said it could reconsider because the PFA was not final; the panel later issued a final award quantifying damages.
- AISLIC petitioned in court to confirm the March 8, 2016 PFA and to vacate the corrected PFA and final award; Supreme Court denied the petition and confirmed the later awards. The Appellate Division reversed.
Issues
| Issue | Plaintiff's Argument (AISLIC) | Defendant's Argument (Allied) | Held |
|---|---|---|---|
| Whether the arbitrators exceeded authority by reconsidering the March 8, 2016 Partial Final Award under the functus officio doctrine | The PFA was a final determination of liability (including whether Allied suffered a "Loss"); once the panel made that final partial award it lacked power to revisit the issue | The PFA was not final because damages (defense costs) remained to be determined; absent an agreement to bifurcate, arbitrators retained authority to revisit interlocutory rulings until final award | Reversed: panel was functus officio as to the PFA; reconsideration exceeded authority and corrected PFA and final award vacated; March 8, 2016 PFA confirmed |
| Whether the JAMS Comprehensive Rules governed and barred reconsideration | JAMS rules applied and would have precluded reconsideration | Panel, and Allied, maintained the arbitration was ad hoc and the JAMS Rules did not govern | Held: JAMS Rules did not apply; panel did not exceed authority on that basis |
| Whether the parties implicitly agreed to bifurcate liability from damages making the liability PFA final | The parties requested an immediate, final decision on liability and left damages for later; that amounted to bifurcation and a final partial award | No express agreement to bifurcate; statements about reserving quantum for evidentiary hearing did not create an implicit bifurcation that stripped arbitrators of authority before a final award | Held: the parties effectively sought a final determination of liability; the PFA was final as to liability, so functus officio applied |
| Proper judicial remedy for arbitrators exceeding authority by reconsidering a final partial award | Vacatur of the subsequent corrected PFA and final award and confirmation of the original PFA | Opposed vacatur; argued final awards should be enforced | Held: vacatur of the August 18, 2016 corrected PFA and April 6, 2017 final award; March 8, 2016 PFA confirmed |
Key Cases Cited
- Trade & Transport, Inc. v. Natural Petroleum Charterers Inc., 931 F.2d 191 (2d Cir. 1991) (parties can agree that a partial award on a particular issue is final and functus officio will bar revisiting that issue)
- Michaels v. Mariforum Shipping, S.A., 624 F.2d 411 (2d Cir. 1980) (an award is final if intended as the arbitrators' complete determination of submitted claims; generally requires resolution of liability and damages)
- Matter of Curley (State Farm Ins. Co.), 269 A.D.2d 240 (1st Dept. 2000) (statutory bases for vacatur are narrow; arbitrator exceeded power is a recognized ground)
- Matter of Wolff & Munier (Diesel Constr. Co.), 41 A.D.2d 618 (1st Dept. 1973) (functus officio permits correction only for form, miscalculation, or matters not submitted)