Source: http://loreelawfirm.com/blog/no-good-deed-should-go-unpunished-functus-officio-and-merion-constr-mgt-llc-v-kemron-environmental-serv-inc-part-i/
Timestamp: 2019-04-18 22:45:55+00:00

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May 3rd, 2014 American Arbitration Association, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Arbitration Provider Rules, Authority of Arbitrators, Awards, Construction Industry Arbitration, Final Awards, Functus Officio, Grounds for Vacatur, Judicial Review of Arbitration Awards, New Jersey State Courts, Practice and Procedure, State Arbitration Statutes, State Courts, Uncategorized Comments Off on No Good Deed Should Go Unpunished: Functus Officio and Merion Constr. Mgt., LLC v. Kemron Environmental Serv., Inc.—Part I By Philip J. Loree Jr.
The Arbitrator’s principal good deed in this case was his inclusion in the Original Award of a clear expression of his intent that the award was to resolve all claims and issues the parties submitted to him: “Any other claims in this matter not specifically mentioned above are denied.” Having dealt with and read enough cases where such a catch-all finality clause might have obviated problems that occurred later, it is the sort of thing we generally like to see in awards.
But the Court misapplied applicable law by interpreting the catch-all finality clause as prohibiting the arbitrator from correcting the Original Award to reflect fully and accurately the award he intended to make on the merits based on the parties’ submissions, thereby fully executing—in the way he intended to execute it— the authority the parties delegated to him. The AAA Rules, the doctrine of functus officio and New Jersey’s arbitration statute not only provided no support for the Court’s interpretation of the catch-all finality provision, they foreclosed it.
Before we discuss and critique Merion Construction some brief background is in order on the functus officio doctrine, Rule 48 of the AAA Construction Industry Arbitration Rules (the “AAA Construction Industry Rules”) and a provision of the New Jersey’s Revised Uniform Arbitration Act concerning arbitral modification and correction of awards. After that, we’ll discuss what transpired in Merion Construction, and, in the next segment of this post, we’ll analyze and critique the case.
Functus officio is Latin for “office performed” and in arbitration-law parlance “means that once an arbitrator has issued his final award he may not revise it.” Glass, Molders, Pottery, Plastics and Allied Workers Int’l Union v. Excelsior Foundry Co., 56 F.3d 844, 845 (7th Cir. 1995). It is a vestige of the “bad old days when judges were hostile to arbitration and ingenious in hamstringing it.” 56 F.3d at 846 (citations omitted). The common-law policy justifications for functus officio included: (a) “an unwillingness to permit one who is not a judicial officer and who acts informally and sporadically, to re-examine a final decision which he has already rendered, because of the potential evil of outside communication and unilateral influence which might affect a new conclusion[;]” and (b) the “policy of finality, founded on practical considerations, [which was] nourished by the primitive view of the solemnity of all judgments.” See La Vale Plaza, Inc. v. R.S. Noonan, Inc., 378 F.2d 569, 572 (3rd Cir. 1967).
While the doctrine’s underpinnings may be questionable, it continues to serve at least a few useful purposes, and it remains valid today—albeit subject to a number of exceptions. As respects the exceptions, arbitrators are generally deemed to have the authority to: (a) correct mistakes that are apparent on the face of the award; (b) to complete an award by ruling on an issue that was submitted to the arbitrator but not adjudicated by the award; and (c) to clarify an ambiguity “where the award, although seemingly complete, leaves doubt whether the submission has been fully executed. . . .” Colonial Penn Ins. Co. v. Omaha Indem. Co., 943 F.2d 327, 332 (3rd Cir. 1991)(quotation and citations omitted); La Vale, 378 F.2d at 573; see, e.g., Green v. Ameritech Corp., 200 F.3d 967, 977 (6th Cir. 2000); Hartford Steam Boiler Inspection and Ins. Co. v. Underwriters, 271 Conn. 474, 484-85 (2004).
Functus officio is a default rule. Parties are entitled to opt out of it by agreement. See T. Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F. 3d 329, 342-43 (2d Cir. 2010) (“[Appellant] and the district court ignore an important caveat to the functus officio doctrine: that it only applies absent an agreement by the parties to the contrary.”) (quotation and citations omitted); Excelsior, 56 F.3d at 848 (“Functus officio is merely a default rule, operative if the parties fail to provide otherwise.”).
N.J.S.A. §§ 2A:23B-20(a)(1)-(3), 2A:23B-24(a)(1) & (3).
Rule 48 of the AAA Construction Industry Rules provides a procedure by which the parties can request the arbitrator to correct errors that appear on the face of the award, but withholds from the arbitrator the authority to revisit the merits of already-decided claims. Rule 48 provides that “[w]ithin 20 calendar days after the transmittal of an award, the arbitrator on his or her initiative, or any party, upon notice to the other parties, may request that the arbitrator correct any clerical, typographical, technical or computational errors in the award.” AAA Construction Industry Rule 48(a). While Rule 48 provides that “[t]he arbitrator is not empowered to re-determine the merits of any claim already decided[,]” it is silent on clarification, modification or correction of the award for purposes of adjudicating issues that were submitted but, for whatever reason, not determined by the Award. Accord AAA Commercial Arbitration Rule 50.
Merion Construction involved a subcontract between a contractor and an environmental-remediation service-provider subcontractor, which provided for AAA-administered arbitration. The subcontractor substantially performed its end of the bargain but the contractor didn’t pay, so the subcontractor demanded arbitration, alleging the contractor was liable for $4,442,804.65 in damages, which included $950,953.65 in approved claims and direct billings. The contractor asserted counterclaims for various items of damages.
The Arbitrator made two computational errors and the Award must be modified. First, undisputed invoices 1 through 8 were not paid in full—[thus] a 5% retainage in the amount of $198,006.43 should have been included in the computation of the Award. Second, invoice 8 was only partially paid and the corrected amount for item 10 of the Award should be increased by $46,497.00 for a total of $508,977.
The net sum of the Award to Kemron from Merion is corrected for those computational errors and modified from $873,758.56 to $1,118,261.99.
In all other respects my Award dated July 2, 2012 is reaffirmed and remains in full force and effect.
what [the arbitrator] did here with respect to the five percent issue of retainage in Invoice Number 8 was in my mind a computational change, and he was authorized to do that. It wasn’t in any way a substantive change or a reexamination, or to look at the [AAA] rule, a redetermination of the merits of what he decided, so respectfully, I’m going to deny the application by [the contractor] and grant it for [the subcontractor].
Pursuant to N.J.S.A. 2A:23B-25, the trial court awarded the subcontractor $18,315.00 in attorneys fees and $1,667.75 in costs.
The contractor appealed to New Jersey Superior Court, Appellate Division, New Jersey’s intermediate appeals court. The Appellate Division reversed, holding that the trial court should have vacated the Modified Award on the ground that the arbitrator exceeded his powers. See N.J.S.A. 2A:23B-23(a)(4) (authorizing vacatur “if. . . the arbitrator exceeded the arbitrator’s powers. . . .”).
Citing Wein v. Morris, 194 N.J. 364, 38 (2008), the Court explained that, although Rule 48 of the AAA Construction Industry Rules permits arbitrators to amend awards to correct clerical, computational, technical and mathematical errors, arbitrators are not “permitted to amend the Award to add claims not previously included in the award and recast those claims as computational errors.” Slip op. at 10.
“Notably absent from the award,” said the Court, “is any reference to ‘retainage amount’ or ‘Invoice Number Eight.’” Slip op. at 10. And since Paragraph 15 expressly provided that “[a]ny other claims in this matter not specifically mentioned above are denied,” the Court concluded that the “trial court erred” when it found that “the change in the Award represented a computation change.” Slip op. at 10. Accordingly, the Court reversed the judgment confirming the award, and vacated the fee and cost award, which was premised on the subcontractor having prevailed. See Slip op. at 10.
We’ll explain in Part II why we think the Court got it wrong.
This entry was posted on Saturday, May 3rd, 2014 at 6:06 pm	and is filed under American Arbitration Association, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Arbitration Provider Rules, Authority of Arbitrators, Awards, Construction Industry Arbitration, Final Awards, Functus Officio, Grounds for Vacatur, Judicial Review of Arbitration Awards, New Jersey State Courts, Practice and Procedure, State Arbitration Statutes, State Courts, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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