On October 15, 2009 The New York Court of Appeals decided Re Joan Hansen & Co v. Everlast World’s Boxing Headquarters Corp., ___ N.Y.3d ___, slip op. (Oct. 15, 2009) (here), a case which demonstrates how important the parties’ submission is in determining arbitral authority. The Court held that, after an award, a party cannot reopen an arbitration proceeding to request that the arbitrators decide an issue that had not previously been submitted to the arbitrators.
The power of arbitrators appointed to resolve a particular dispute or disputes is defined by the submission, not the arbitration agreement. The scope of the agreement to arbitrate tells us only what must be submitted to arbitration. It is the submission itself that “serves not only to define, but to circumscribe the authority of the arbitrators.” Ottley v. Schwartzberg, 819 F.2d 373, 376 (2d Cir. 1987) (here).
As the United States Court of Appeals for the Fifth Circuit explained, a predispute arbitration agreement generally is “not self-executing” — “[b]efore arbitration can … proceed, it is necessary for the parties to supplement the agreement to arbitrate by defining the issue to be submitted to the arbitrator and by explicitly giving him the authority to act.” Piggly Wiggly Operators’ Warehouse Inc v. Piggly Wiggly Operators’ Warehouse Independent Truck Drivers Union, 611 F2d 580 (5th Cir. 1980) (here). The disputes presented to the panel for resolution without objection constitute the submission, which may be embodied in a formal submission agreement or determined from the arbitration demand in conjunction with the arguments and contentions made by the parties during the proceeding.
The submission is effectively a delegation of authority to one or more particular arbitrators to resolve one or more particular issues. And once arbitrators have ruled on those issues, their authority is exhausted; they have no authority to hear any further disputes between the parties unless the parties delegate to them that further authority. See, generally, U.S. v. American Soc’y of Composers, Authors and Publishers, 32 F.3d 727, 732-33 (2d Cir. 1994) (here); Ottley, 819 F.2d at 376.
The scope of the delegated authority may be broader or narrower than the scope of the arbitration agreement, or it may be coextensive with it. The parties may, for example, agree to arbitrate all disputes between them, but if they empanel arbitrators to resolve only a subset of those disputes, then the arbitrators’ authority is limited to that subset of disputes. And parties that have agreed to arbitrate only a subset of potential disputes can nevertheless submit other disputes to the arbitrators, which will have the authority to resolve them. See, generally, Ottley, 819 F.2d at 376; see also Rocket Jewelry Box, Inc. v. Noble Gift Packaging, Inc., 157 F.3d 174, 177 (2d Cir. 1998) (here); Trade & Transport, Inc. v. Natural Petroleum Charterers Inc., 931 F.2d 191, 195 (2d Cir. 1991) (here).
For example, in the reinsurance context, a dispute may arise over a claim or series of claims, a party may demand arbitration of those claims, and a panel may be appointed to resolve the dispute. Midstream in the proceeding disputes may arise over different claims. The empanelled arbitrators have the authority to resolve those disputes only if the parties agree to submit them to the panel (they may be impliedly submitted if one party asserts them in the arbitration and the other party contests them without a reservation of rights).
Those additional claims – not the subject of the original demand for arbitration – must, of course be arbitrated if they fall within the scope of the arbitration clause. But the empanelled arbitrators cannot force the parties to submit them in the ongoing proceeding. A new arbitration must be commenced, perhaps with new panel members.
Issues concerning what was submitted to the arbitrators can also arise in other contexts. One example is what happened in KX Reinsurance Co. v. General Reinsurance Corp., 08 Civ. 7807 (SAS), 2008 WL 4904882 (S.D.N.Y. Nov. 18, 2008) (Scheindlin, J.), where the Court held that the panel exceeded its authority when, after resolving all the issues the parties submitted, the panel nevertheless retained jurisdiction to hear future disputes between the parties. You can read more about that case here.
As is true with most rules, there is an exception. Some arbitration agreements are self-executing in that they provide that the parties are to submit all disputes to a particular arbitrator or permanent arbitration panel. Under such a self-executing arbitration agreement, the permanent arbitrator or panel generally has the authority to resolve additional disputes arising in the course of the proceedings, or to retain jurisdiction to hear future disputes, as long as the arbitration clause requires the parties to submit those disputes.
In view of how the submission limits the authority of the empanelled arbitrators, parties need to give careful thought to the scope of the demand for arbitration, and the relief requested. Sometimes a proverbial ounce of prevention is worth a pound of cure.
Tags: Federal Arbitration Act, Joan Hansen & Co v. Everlast World’s Boxing Headquarters Corp., KX Reinsurance Co. v. General Reinsurance Corp., New York Arbitration Law, New York Court of Appeals, Reopening Proceedings, Retaining Jurisdiction, Scope of Authority, Self-Executing Arbitration Agreement, submission
[…] Readers may recall our recent post on the New York Court of Appeals’ decision in Re Joan Hansen & Co v. Everlast World’s Boxing Headquarters Corp., ___ N.Y.3d ___, slip op. (Oct. 15, 2009), a case which demonstrates how important the parties’ submission is in determining arbitral authority. The Court held that, after an award, a party cannot reopen an arbitration proceeding to request that the arbitrators decide an issue that had not previously been submitted to the arbitrators. A copy of our post is here. […]
[…] The answer depends in large part on the scope of the parties’ submission to arbitration: What did the parties empower the arbitrators to decide when they entered into their agreement requesting the arbitrators to determine whether the arbitration agreements permitted or precluded class arbitration? As we explained in a recent Nuts & Bolts feature, “[t]he scope of the agreement to arbitrate tells us only what must be submitted to arbitration. It is the submission itself that ‘serves not only to define, but to circumscribe the authority of the arbitrators.’ Ottley v. Schwartzberg, 819 F.2d 373, 376 (2d Cir. 1987) (here).” (A copy of our Nuts & Bolts post is here.) […]