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Nuts & Bolts: When is an Arbitration Award a Final Award and Why Does it Matter?

March 30th, 2009 Authority of Arbitrators, Awards, Functus Officio, Nuts & Bolts: Arbitration Comments Off on Nuts & Bolts: When is an Arbitration Award a Final Award and Why Does it Matter? By Philip J. Loree Jr.

In this first “Nuts & Bolts” post we briefly review the general rules concerning the finality of arbitration awards under the Federal Arbitration Act (“FAA”), and note some of the consequences that flow from finality.  Our principal focus is on Second Circuit finality rules.  The rules in other circuits may differ.   

Definition of Final Award

While arbitration agreements come in various forms, a typical agreement contemplates that the parties will submit to arbitration any dispute falling within its scope, appoint a panel to resolve the dispute, hold a hearing, and issue a final and binding award adjudicating the dispute.  To be final, such an award “must resolve all the issues submitted to arbitration, and. . . it must resolve them definitively enough so that the rights and obligations of the two parties, with respect to the issues submitted, do not stand in need of further adjudication.”  Rocket Jewelry Box, Inc. v. Noble Gift Packaging, Inc., 157 F.3d 174, 176 (2d Cir. 1998) (emphasis in original).

If party A demands arbitration against party B on claim X, the expectation is that the arbitrators, perhaps after some discovery, will hold a hearing and issue a single award resolving the controversy.   If the award fully adjudicates claim X, then it is final.  But if it resolves some, but not all, of the submitted issues concerning claim X, and as a result, the parties’ rights and obligations as respects claim X remain unsettled, then it is not final, unless, as discussed further below,  the parties agree or consent to the arbitrators rendering such an award.

Interim Awards and Partial Awards

Not all arbitrations, of course, are as simple and straightforward as the example above.  Sometimes the arbitrators will issue interim or partial awards.  Sometimes these awards are final, and sometimes not.  An interim award is an interim final award  if it fully adjudicates a submitted, independent claim.  Suppose A has two claims — X and Y — against B, and before the hearing, the arbitrators issue an award granting summary judgment to B on claim X, but not adjudicating claim Y.  Even though the parties did not agree that the arbitrators would issue an award fully resolving only one of the claims, a court would consider the award to be an interim final award.

But what happens if the arbitrators issue a partial award that does not resolve any of the parties’ claims, but definitively resolves one or more of the issues pertinent to those claims?  Suppose the arbitrators declare that they will resolve claims X and Y in two phases, the first of which (Phase I) will deal with liability, and the second (Phase II) with damages.  The arbitrators issue a Phase I award definitively resolving the issue of liability for claims X and Y, but no other issues.  Is the Phase I award final?

Like so many other questions under the FAA, the answer lies in what the parties agreed.  Since  the parties did not agree that the arbitrators would issue partial final awards, and since the awards do not qualify as interim final awards, the Phase I award is not a final award, at least until the Panel issues its Phase II award, and the awards, taken together, definitively resolve the controversy.   If, however, parties A and B requested the Panel to issue a partial final award for each Phase (or otherwise consented to that procedure), then the Phase I award would be final.

Now that we have briefly reviewed the general rules of finality, let’s look at why it matters.  There are seven key reasons, although this list is not exhaustive:

  1. An award must be final before a court can confirm it.
  2. An award must also be final before a court can vacate it, unless the arbitrators intended the award to be final, and a party seeks to vacate it on the ground that the arbitrators “so imperfectly executed” their powers that “a mutual, final, and definite award upon the subject matter submitted was not made.”  9 U.S.C. § 10(a)(4).
  3. Once an award is final, the three-month and one-year limitation periods for vacating and confirming the award begin to run.  The limitation period for a motion to vacate on the grounds mentioned in 2., above, presumably begins to run upon the issuance and delivery of an award which the arbitrators intend to be final.  (In a future post we shall discuss FAA limitation periods in more detail.)
  4. Once an award is final, the functus officio doctrine prevents arbitrators from modifying, clarifying or otherwise revisiting the subject matter resolved in the final award.  There are exceptions to the rule where the award is ambiguous, exhibits a clear error on its face (usually a mathematical one), or does not fully adjudicate submitted issues.  (We shall discuss the functus officio in more detail in a future post.)
  5. If the award is a final award as respects all issues and claims submitted to arbitration, then the arbitrators’ authority is exhausted and they have no further authority to resolve any other issues, unless the parties otherwise agree.
  6. If the award is an interim final award, or a partial final award, the arbitrator’s remaining authority is limited to the issues and claims that were submitted to arbitration, but which remain unresolved, unless the parties agree to submit additional issues or claims to the arbitrators.
  7. If the arbitrators issue a partial final award or an interim final award and, subsequent to the award a member of the panel dies, then the award remains final and binding on the parties.  In that case, a substitute arbitrator is appointed and the reconstituted panel resolves the remaining issues and claims.  (In a future post we shall discuss in more detail the consequences that may follow death of an arbitrator.)

Authority and Recommended Reading:

Colonial Penn Ins. Co. v. Omaha Indemnity Co., 943 F.2d 327 (3rd Cir.1991)
Hyle v. Doctor’s Assoc., Inc., 198 F.3d 368 (2d Cir. 1999)
Kerr-McGee Refining Corp. v. M/T Triumph, 924 F.2d 467 (2d Cir. 1991)
Metallgesellschaft A.G. v. M/V Capitan Constante, 790 F.2d 280 (2d Cir. 1986)
Michaels v. Mariforum Shipping, S.A., 624 F.2d 411 (2d Cir. 1980)
Ottley v. Schwartzberg, 819 F.2d 373 (2d Cir. 1987)
Rocket Jewelry Box, Inc. v. Noble Gift Packaging, Inc., 157 F.3d 174 (2d Cir. 1998)
Trade & Transport, Inc. v. Natural Petroleum Charterers, Inc., 931 F.2d 191 (2d Cir. 1991)
U.S. v. American Soc’y of Composers, Authors and Publishers, 32 F.3d 727 (2d Cir. 1994)
Zeiler v. Deitsch, 500 F.3d 157 (2d Cir. 2007)

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