Arbitrators Can Clarify Ambiguities in Final Awards

• Author: Josephine M. Bahn
• Pages: 22-22

Published in Litigation News Volume 45, Number 4, Summer 20 20. © 2020 by the Ameri can Bar Association. Re produced with per mission. All rights re served. This info rmation or any porti on thereof may not be c opied or disseminated in any

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Arbitrators Can

Clarify Ambiguities in

Final Awards

By Josephine M . Bahn, Litigation

News Associa te Editor

When an arbitrati on award is ambigu-

ous or fails to add ress a contingenc y

that later arises , arbitrators retain the

legal power to clarif y or alter that

award. This rule re flects a forma l ex-

ception to the doctr ine of functus of-

ficio, which would ot herwise prohi bit

an arbitrator from exerc ising any au-

thority after h e or she has adjudicat-

ed the issues pres ented. ABA Section

of Litigation lead ers say this excep-

tion is in line with curr ent trends and

will further a rbitration’s goals of set-

tling disputes e ciently and avoiding

expensive and protra cted litigation.

In General Re L ife Corporation

v. Lincoln National Life I nsurance

Company, the U.S. Court of App eals

for the Second Ci rcuit considered

an appeal of a tria l court’s confirma-

tion of an arbitratio n award that had

been modifie d by the arbitrators after

it was originally is sued. The underly-

ing arbitration involve d a dispute over

the calculation a nd payment of insur-

ance premiums . The arbitration panel

ordered that Ge neral Re was enti-

tled to increased p remiums, but that

Lincoln Nation al was entitled to “re-

capture” life ins urance policies issued

by General Re rath er than pay those

additional premiums. Lincoln National

exercised this right, b ut General Re re-

fused to repay cer tain categories of

premiums to Lincoln National.

Notwithstanding th at the arbitra-

tion panel had a lready issued its final

award, Lincoln Na tional advised the

panel that the pa rties had a remain-

ing dispute regard ing which premiums

General Re was re quired to repay, and

asked the panel to res olve that issue.

General Re op posed this request, ar-

guing that Linco ln National was seek-

ing a reconsideration and fundamen-

tal change to an un ambiguous and final

arbitration award. T he arbitration panel

sided with Lincoln N ational and issued

a “clarification ” specifying the circum-

stances unde r which General Re would

have to repay the disputed pre miums.

The trial court c onfirmed that clarified

award, and General Re appealed.

The court of app eals used a three-

part test to determ ine when an ar-

bitrator is permit ted to alter a final

award: (1) The award i s ambiguous. (2)

The change me rely clarifies the award,

rather than substantively modifying or

rewriting it. (3) The c larification com-

ports with the pa rties’ intent as re-

flected in the ag reement giving rise to

the arbitration.

Section of Litiga tion leaders rec-

ognize that arbitrator s need the free-

dom to correct an ambiguous award.

“A truly ambiguous fin al award should

not be the end resul t of all of the time

and expenses the p arties have invest-

ed, especia lly when the ambiguity may

not have been evident u ntil a later

date when the par ties’ diering inter-

pretations are put to th e test,” opines

Henry R. C halmers, Atlanta, GA, co -

chair of the Sec tion’s Alternative

Dispute Resolution Committee.

The General Re decisio n aligns with

numerous othe r federal courts that

have held that an arbit rator may clar-

ify or alter an oth erwise final arbitra-

tion award when the award i s ambig-

uous. “Overal l, the Second Circuit’s

decision not on ly adopts a well-set-

tled rule and provid es a helpful three-

part framewor k for analyzing the ap-

plicability of t he rule/exception, it also

furthers th e Federal Arbitration Act’s

purpose of respecting the parties’

agreement to arb itrate by leaving po-

tential clarific ations to the arbitration,

as opposed to lett ing a court weigh in

on a disputed issue about an ambigu-

ous arbitration awa rd,” observes Mary-

Christine “M.C.” Sungaila, Costa Mesa,

CA, cochai r of the Section’s Appellate

Practice Committee.

While judicial e ciency may in-

crease, concer ns remain about how to

define an ambi guity in an arbitration

award and what consti tutes a “clari-

fication,” as op posed to something

more substantive. “Notwithstanding

the court’s e ort to delineate a clear

test for when the exceptio n applies,

there is an oppor tunity for mischief.

An unhappy par ty may resist the con-

firmation of a modi fied award on the

basis that the arbi tral tribunal made

a change to it instea d of a clarifica-

tion. This will el ongate proceedings,

instead of shor ten them,” warns Betsy

A. Hellma nn, New York, NY, cochair

of the Section’s Alte rnative Dispute

Resolution Committee.

Attorney-Client

Privilege May Extend

to Investors

By Stephen Carr, Litigation News

Associa te Editor

A recent decision could significantly

expand the attorney-client privilege

in commercial liti gation to include

communicatio ns with outside inves-

tors with some stake in t he litiga-

tion. The deci sion in Sec urityPoin t

Holdings, In c., v. Transportation

Security Admin istration (TSA), involv-

ing a contentious pate nt dispute,

finds that a nonp arty “equit y inves-

tor” still share d “a common legal

interest in the valid ity of the patent-

in-suit” so th at communications be-

tween the investor an d the plainti

did not waive privile ge.

"The court c ame to the conclusion

that there was a comm on legal inter-

est in the validit y of the intellectu-

al property a t issue,” explains Angela

Foster, North Brun swick, NJ, cochair

of the ABA Sectio n of Litigation’s Trial

Evidence Commit tee. “Because both

companies ha d a vested legal right

in the patents, th ey would need to

be able to speak confidentially about

legal issues re garding the patents,”

adds Foster.

The dispute bega n with a claim by

SecurityPoi nt Holdings, Inc., that th e

Transportation Safety Administration

(TSA) violated the co mpany’s 2002

patent on using ca rts to move trays

at airport security checkpoints. The

TSA admitted that it v iolated the

patent—it does, in fa ct, use carts to

move trays—but claime d the invention

was obvious.

The Court of Fed eral Claims dis-

agreed with the TSA , finding the inven-

tion was not obvious . The parties then

focused on Secu rityPoint’s damages.

In an eort to lea rn about the

company’s interna l finances and val-

uation to help establish damag-

es, the governme nt sought many

documents from SecurityPoint,

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