Filed: Jan. 14, 2010
Latest Update: Mar. 02, 2020
Summary: 08-3894-cv T.Co M etals, LLC v. Dempsey Pipe & Supply, Inc. 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 4 August Term 2008 5 6 7 Argued: June 24, 2009 Decided: January 14, 2010 8 9 Docket No. 08-3894-cv(L), 08-3897-cv(CON), 08-4379-cv(XAP)* 10 11 _ 12 13 T.CO METALS, LLC, 14 15 Petitioner-Appellant, 16 17 -v.- 18 19 Dempsey Pipe & Supply, Inc., 20 21 Respondent-Appellee. 22 _ 23 24 Before: MINER, LIVINGSTON, Circuit Judges, 25 and TRAGER, District Judge.** 26 27 Parties to a cont
Summary: 08-3894-cv T.Co M etals, LLC v. Dempsey Pipe & Supply, Inc. 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 4 August Term 2008 5 6 7 Argued: June 24, 2009 Decided: January 14, 2010 8 9 Docket No. 08-3894-cv(L), 08-3897-cv(CON), 08-4379-cv(XAP)* 10 11 _ 12 13 T.CO METALS, LLC, 14 15 Petitioner-Appellant, 16 17 -v.- 18 19 Dempsey Pipe & Supply, Inc., 20 21 Respondent-Appellee. 22 _ 23 24 Before: MINER, LIVINGSTON, Circuit Judges, 25 and TRAGER, District Judge.** 26 27 Parties to a contr..
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08-3894-cv
T.Co M etals, LLC v. Dempsey Pipe & Supply, Inc.
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3
4 August Term 2008
5
6
7 Argued: June 24, 2009 Decided: January 14, 2010
8
9 Docket No. 08-3894-cv(L), 08-3897-cv(CON), 08-4379-cv(XAP)*
10
11 _____________________________________
12
13 T.CO METALS, LLC,
14
15 Petitioner-Appellant,
16
17 -v.-
18
19 Dempsey Pipe & Supply, Inc.,
20
21 Respondent-Appellee.
22 _____________________________________
23
24 Before: MINER, LIVINGSTON, Circuit Judges,
25 and TRAGER, District Judge.**
26
27 Parties to a contract for the sale of steel pipe brought cross-motions to vacate, modify, and
28 correct an arbitration award pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 10-11.
29 The seller appeals from the district court’s rulings that (a) the arbitrator did not act in manifest
30 disregard of the law by awarding the buyer diminution-in-value damages, despite the parties’
31 contractual bar on consequential damages; and (b) the arbitrator exceeded his powers by granting
32 in part the seller’s petition to revise the award to correct certain errors. After vacating the revised
*
08-4379-cv(XAP) was dismissed with prejudice pursuant to a so-ordered stipulation
filed on November 25, 2008.
**
The Honorable David G. Trager, United States District Judge for the Eastern District of
New York, sitting by designation.
1 award, the district court confirmed the original award. On appeal, the buyer filed a motion for
2 reasonable attorneys’ fees based on its contention that the seller’s manifest disregard claim is
3 frivolous.
4 Affirmed in part, reversed in part, and remanded.
5 Alfred J. Kuffler (Stephen W. Armstrong and Lathrop B.
6 Nelson, III, on the brief), Montgomery, McCracken, Walker
7 & Rhoads, LLP, Philadelphia, Pennsylvania, for Petitioner-
8 Appellant.
9
10 Marc J. Goldstein, Marc J. Goldstein Litigation & Arbitration
11 Chambers, New York, New York, for Respondent-Appellee.
12
13 LIVINGSTON, Circuit Judge:
14 Petitioner-Appellant T.Co Metals, LLC (“T.Co”) appeals from judgments of the United
15 States District Court for the Southern District of New York (Crotty, J.) resolving two consolidated
16 actions commenced by T.Co and Respondent-Appellee Dempsey Pipe & Supply, Inc. (“Dempsey”),
17 in which the parties sought, inter alia, to vacate, modify, and correct an arbitration award pursuant
18 to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 10-11. Conducted according to the International
19 Dispute Resolution Procedures of the American Arbitration Association’s International Centre of
20 Dispute Resolution (“ICDR”), the arbitration concerned a dispute over allegedly defective steel pipe
21 that T.Co delivered to Dempsey pursuant to two sales contracts between the parties. Arbitrator Paul
22 D. Friedland issued a final award on April 20, 2007 (“Original Award”). Both parties then petitioned
23 the arbitrator to amend the Original Award pursuant to ICDR Article 30(1). On May 30, 2007, the
24 arbitrator issued an order (“Amendment Order”) accepting a small portion of the requested changes
25 and ordering that the Original Award be amended accordingly. The arbitrator then issued an
26 amended award on June 4, 2007 (“Amended Award”). Both T.Co and Dempsey filed petitions in
2
1 the district court to modify or to vacate the Amended Award in part. The district court denied T.Co’s
2 petition and granted in part and denied in part Dempsey’s petition.
3 T.Co raises two issues on appeal. First, T.Co argues that the arbitrator acted in “manifest
4 disregard of the law” by awarding diminution-in-value damages to Dempsey despite the parties’
5 contractual provision barring consequential damages. The district court’s ruling to the contrary,
6 T.Co contends, resulted from an erroneous interpretation of the Supreme Court’s recent decision in
7 Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S. Ct. 1396 (2008). Second, T.Co takes issue with
8 the district court’s order vacating the Amended Award and confirming the Original Award on the
9 ground that the arbitrator exceeded his powers by ordering that certain errors be corrected in the
10 Original Award. The district court concluded that the arbitrator’s revisions, which benefitted T.Co,
11 violated the functus officio doctrine, which limits the power of arbitrators to act once they have
12 completed the duties assigned to them. Dempsey did not appeal, but has moved before this Court
13 for reasonable attorneys’ fees based on the contention that T.Co’s manifest disregard claim is
14 frivolous for purposes of Federal Rule of Appellate Procedure 38 and 28 U.S.C. § 1912.
15 On the first issue, we agree with the district court’s refusal to vacate the arbitrator’s damage
16 award to Dempsey on the ground of manifest disregard. We decline, however, to award attorneys’
17 fees to Dempsey. We find the second issue more difficult to resolve. Ultimately, however, we
18 conclude that the district court erred in applying the functus officio doctrine to the arbitrator, as the
19 arbitrator was acting on the parties’ petitions for reconsideration, and he revised the award pursuant
20 to his interpretation of the arbitral rules pursuant to which the parties had agreed the arbitration
21 would be conducted. We conclude that the arbitrator’s interpretation of these rules was entitled to
22 deference and that, applying that deference, the arbitrator did not exceed his powers by granting in
3
1 part T.Co’s request that certain errors be corrected in the award.
2 Accordingly, we affirm in part and reverse in part the judgment of the district court. We
3 vacate the order confirming the Original Award and remand with instructions that, upon application,
4 the Amended Award should be confirmed.
5
6 Background
7 I. The Commercial Dispute
8 Pursuant to two sales contracts dated February 25 and April 25, 2005, T.Co agreed to sell
9 Dempsey approximately 2440 metric tons (or 2690 short tons) of twenty-foot, plain-end steel pipe,
10 to be produced in Chile and sent to Philadelphia in four shipments arriving over the spring and
11 summer of 2005. Among other things, each contract provided that “Seller is not responsible for
12 consequential loss or damage.” J.A. 27, 30. The contracts also contained an arbitration clause,
13 reading in part as follows:
14 Any . . . dispute, claim or controversy between [T.Co and Dempsey] which cannot
15 be resolved through negotiations within a period of 30 days . . . shall be referred to
16 and finally resolved by arbitration under the [i]nternational arbitration rules of the
17 American Arbitration Association [(hereinafter “ICDR Articles”)]. Arbitration will
18 take place in New York, NY USA and proceedings will be conducted in English.
19 The award of the Arbitration tribunal will be final and subject to no appeal. The
20 costs and expenses of the prevailing party (including, without limitation, reasonable
21 attorney’s fees) will be paid by the other party.
22
23 Id. The contracts designated the “Laws of the State of New York” as their governing law.
Id.
24 Upon delivery, Dempsey discovered that a substantial amount of the pipe it received was
25 bowed or bent to the point of being out of tolerance for straightness.1 Nevertheless, out of the four
1
Before the arbitrator, Dempsey claimed that 1,999 short tons of pipe were defective; the
arbitrator ultimately determined that 1,599 short tons of pipe were out of tolerance for
straightness.
4
1 shipments of pipe it received Dempsey ultimately rejected only a small portion of the second
2 shipment, choosing to keep the rest of the delivered pipe and to straighten the defective pipe itself.2
3 The contract price for the pipe was $780 per short ton. After straightening the defective pipe,
4 Dempsey was able to sell it at $922 per short ton.
5 T.Co sent Dempsey an invoice for $1,993,145.53, of which Dempsey paid $1,655,105.81.
6 In June 2006, T.Co commenced arbitration and claimed damages against Dempsey for $338,039.72,
7 the amount of payment that Dempsey had withheld. Dempsey filed a counterclaim that included a
8 demand for $1,895,052 in damages due to the diminished value of the defective steel pipe that
9 Dempsey accepted. In response, T.Co argued that Dempsey’s counterclaim was an attempt to recover
10 lost profits, which it asserted are defined as consequential damages under New York law and thus are
11 not recoverable pursuant to the parties’ contract. In its written submissions to this Court, Dempsey
12 acknowledges that it did ask the arbitrator to award Dempsey consequential damages in the form of
13 lost profits, contending that the contractual exclusion of consequential damages had been superseded
14 by an oral agreement between the parties. But Dempsey asserts it also argued in the alternative that,
15 if the arbitrator decided that the consequential damages provision remained in force, Dempsey was
16 still entitled to recover damages for the diminished value of the pipe, since those damages constituted
17 “benefit-of-the-bargain” damages under section 2-714(2) of the New York Uniform Commercial
18 Code (“N.Y. U.C.C.”), which provides that “[t]he measure of damages for breach of warranty is the
19 difference at the time and place of acceptance between the value of the goods accepted and the value
20 they would have had if they had been as warranted, unless special circumstances show proximate
21 damages of a different amount.”
2
Specifically, Dempsey rejected 139 short tons of pipe out of the 2,690 short tons
delivered.
5
1 II. The Original Arbitration Award
2 On April 20, 2007, the arbitrator issued the Original Award, which included an award of
3 $338,039.72 to T.Co for the outstanding unpaid invoices, and an award of $420,357 to Dempsey for
4 the diminished value of the defective pipe.
5 When analyzing Dempsey’s claim for damages, the arbitrator agreed with T.Co that the
6 consequential damages exclusions in the contracts remained in effect. Nevertheless, the arbitrator
7 also concluded that N.Y. U.C.C. § 2-714(2) provided the appropriate measure of damages for
8 nonconforming goods where, as here, the fair market value of the goods as accepted was
9 ascertainable.3
10 The arbitrator proceeded to apply § 2-714(2)’s formula—i.e., that damages equal the value
11 of the goods as warranted minus the value of the goods as accepted, measured at the time and place
12 of acceptance. The arbitrator calculated the value of the pipe as warranted by looking both to invoices
13 of steel pipe sellers that supplied entities like Dempsey and to evidence regarding the price at which
14 pipe was being sold by firms similarly situated to Dempsey. On this basis, the arbitrator determined
15 that the value of the pipe as warranted was $1000 per short ton. After additional calculations and
16 evaluation of the evidence, the arbitrator determined the value of the nonconforming pipe at the time
17 and place of acceptance to be $737 per short ton. Under § 2-714(2)’s formula, then, Dempsey was
18 entitled to $263 ($1000 - $737) per short ton, or $420,537 total for the 1599 short tons of pipe that
19 the arbitrator determined were nonconforming.
3
T.Co pointed out separately that its General Terms and Conditions included clauses
limiting Dempsey’s breach-of-contract remedies to repair or return for credit. The arbitrator
determined, however, that these clauses failed in their essential purpose because T.Co “could not,
or did not, offer either of these two remedies to Dempsey.” J.A. 116. Accordingly, the arbitrator
concluded pursuant to N.Y. U.C.C. § 2-719(2) that Dempsey had recourse to the general remedy
provisions of Article 2 of the N.Y. U.C.C., including § 2-714.
6
1 III. The Amended Arbitration Award
2 Both parties promptly submitted applications to the arbitrator to amend the Original Award
3 pursuant to ICDR Article 30(1), which permits the arbitrator to “correct any clerical, typographical
4 or computation errors or make an additional award as to claims presented but omitted from the
5 award.” In response, the arbitrator issued an order (“Amendment Order”) on May 30, 2007, rejecting
6 most of the challenges to the Original Award but agreeing with a handful of T.Co’s correction
7 requests and ordering that the Original Award be amended accordingly.
8 In the Amendment Order, the arbitrator noted T.Co’s contention that he “committed manifest
9 errors of law by (i) compensating Dempsey for lost profits through the ‘back door’ in the Arbitrator's
10 calculation of the value of the pipe as accepted (out-of-tolerance), and (ii) awarding Dempsey
11 damages for diminution of value in addition to actual processing costs.” J.A. 150. In rejecting these
12 arguments, the arbitrator stated, “T.Co’s allegation of manifest errors of law is not an application for
13 interpretation or correction of the Award, and it is beyond the powers of the Arbitrator under Article
14 30 of the ICDR International Rules to amend the Award on the basis of an ‘error of law’ even if there
15 was such an error, which allegation the Arbitrator rejects.”
16 T.Co also alleged that a number of errors were made in the arbitrator’s damages calculations.
17 While the arbitrator rejected most of these arguments for modification, he agreed that several errors
18 had prejudiced T.Co. Specifically, the arbitrator recognized the following four errors, relating to four
19 of the twenty-three invoices and price notices he considered to determine the price of the pipe as
20 warranted:
21 (1) the Morris Industries Invoice dated December 20, 2005: The arbitrator noted that, when
22 referencing this invoice, he had misread the correct price of $769 per short ton to be $769 per
7
1 100 feet, which the arbitrator had converted to $904 per short ton. J.A. 146. The arbitrator
2 attributed the mistake to handwriting obscuring the unit of measurement on the invoice. To
3 remedy this “clerical” error, the arbitrator ordered that the range of Morris invoice prices
4 articulated in the Original Award (“between $700 and $904 per short ton”) be amended to
5 read “between $700 and $769 per short ton.”
6 (2) the HOW Invoice dated July 16, 2005: The arbitrator determined that this invoice should
7 not have been included at all, as it was for ten-foot pipe while the contracts between T.Co and
8 Dempsey concerned (less expensive) twenty-foot pipe. The arbitrator ordered that the award
9 be amended to exclude mention of the July 2005 HOW Invoice.
10 (3) the HOW Invoice dated August 1, 2005: While the pipe Dempsey purchased was “plain
11 end pipe,” the pipe covered by the August 2005 HOW Invoice was processed pipe (which
12 meant that it had gone through threading and coupling). The arbitrator agreed with T.Co that
13 he erred by including this invoice without making a downward adjustment to reflect the
14 additional cost of threading and coupling expended on the processed pipe. However, the
15 arbitrator also noted that the precise cost of threading and coupling the invoiced pipe had not
16 been argued before him prior to his issuing the Original Award, and the constraints of ICDR
17 Article 30 prevented him from considering post-Award submissions to determine the cost.
18 Instead, the arbitrator simply concluded that the invoice, which was at the high end of the
19 invoices considered, “required a small downward adjustment which the Arbitrator is not in
20 a position to quantify.” Id. at 151.
21 (4) the Dempsey Pipe and Steel Co. Invoice dated November 5, 2005: This invoice, which
22 concerned threaded and coupled pipe, presented the same error as did the August 2005 HOW
8
1 Invoice. Accordingly, the arbitrator concluded that it “required an unquantifiable downward
2 adjustment similar to that required for the 1 August 2005 invoice.” Id.
3 In the Original Award, the arbitrator recited all the evidence it considered relevant to
4 determining the value of the pipe as warranted—including the four invoices that the arbitrator now
5 agreed were flawed. But while the arbitrator, when determining the value of the pipe as warranted,
6 reached his ultimate valuation “[o]n the basis of” and “[i]n light of” this evidence, the way each
7 particular bit of evidence entered the arbitrator’s calculation was not expressly articulated.
Id. at 123-
8 24. When considering the effect that correcting the four flawed pieces of this evidence would have
9 on the ultimate amount of diminution damages awarded to Dempsey, the arbitrator first explained his
10 authority to make such an adjustment:
11 While the consequences of these four corrections is not a mere computational issue,
12 and necessarily involves the same appreciation of the evidence before the Arbitrator
13 on the issue of value as was conducted pre-Award, the Arbitrator believes that he has
14 the power under Article 30 of the ICDR International Rules to reach conclusions
15 derived from correction of clerical errors. Article 30 of the ICDR International Rules
16 does not say that errors subject to correction must be set out in an award’s
17 conclusions. It is therefore to be understood that an Arbitrator is empowered to
18 change conclusions based upon clerical errors in the body of an award, even where
19 such correction process entails an exercise of judgment beyond rote computation.
20
21
Id. at 151. The arbitrator then announced that, “but for the above-identified errors, the Arbitrator
22 would have found that the value of the pipe as warranted was $950 per short ton rather than $1000
23 per short ton.”
Id. Accordingly, the arbitrator reduced Dempsey's award from $420,537 to $340,587
24 ($950 per short ton - $737 per short ton x 1599 short tons).
25 The Amended Award incorporating the arbitrator’s revisions was issued on June 4, 2007.
26
27 IV. District Court Decision
9
1 T.Co and Dempsey separately filed applications in the Southern District of New York to
2 modify or vacate the Amended Award. In its application, T.Co alleged that the arbitrator’s decision
3 to award diminution damages to Dempsey constituted manifest disregard of the law, requiring that
4 portion of the award to be vacated. Dempsey’s application argued that the corrections entered by the
5 arbitrator were not clerical errors within the meaning of ICDR Article 30(1), and therefore the
6 arbitrator exceeded his authority in amending the award to account for those errors.4 On July 8, 2008,
7 the district court issued a decision rejecting T.Co’s manifest disregard argument and accepting
8 Dempsey’s contention that the arbitrator lacked the authority to correct the award as he did.
9 With respect to T.Co’s manifest disregard argument, the district court observed that the
10 Supreme Court’s recent decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S. Ct. 1396
11 (2008), had affected the status of manifest disregard as a basis for vacating or modifying an arbitration
12 award. Specifically, the district court considered Hall Street to have eliminated manifest disregard
13 as an “independent basis on which to upset an arbitration award,” noting that, even if manifest
14 disregard might be characterized as a catch-all phrase used to refer to the modification and vacatur
15 grounds articulated in FAA §§ 10 and 11, Hall Street left “no doubt that the statutory bases are
16 exclusive.” T. Co. Metals LLC v. Dempsey Pipe & Supply, Inc., No. 07-civ-7747, slip op. at 7 & n.4
17 (S.D.N.Y. July 8, 2008). Because T.Co failed to argue persuasively for the application of one of the
18 statutory grounds under §§ 10 and 11, the district court denied T.Co’s motion to vacate or modify the
19 diminution damages award to Dempsey. In a footnote, the district court also explicitly rejected the
4
Dempsey also contended that, when determining Dempsey’s processing costs for
straightening the defective pipe, the arbitrator made an “evident material miscalculation of
figures” that the district court had the power to correct under Section § 11(a) of the FAA, 9
U.S.C. § 11(a). The district court rejected this contention, however, and Dempsey did not cross-
appeal on this issue.
10
1 applicability of FAA § 10(a)(4)—which permits vacatur where an arbitrator “exceeded [his]
2 powers”—-to the award of diminution-in-value damages. See 9 U.S.C. § 10(a)(4). Finally, the
3 district court explained in the alternative that, even if manifest disregard were still a viable basis on
4 which to modify or vacate an arbitration award, the diminution-in-value award was a “reasoned
5 judgment” that did not constitute a manifest disregard of the law.
6 As for the arbitrator’s correction of what it perceived to be clerical errors, the district court
7 agreed with Dempsey that these errors were not evident on the face of the award and were not obvious
8 errors in mathematical computation. Such errors could not be corrected by the arbitrator, the district
9 court concluded, because “to do so would violate the functus officio doctrine,” T. Co. Metals LLC,
10 No. 07-civ-7747, slip op. at 8, which limits the power of arbitrators to act once they have decided all
11 of the issues submitted to them for arbitration. See id. at 7-8. The district court therefore concluded
12 that the arbitrator had exceeded his powers and that, pursuant to FAA § 10(a)(4), vacatur of the
13 Amended Award was warranted on this basis.5 The district court then confirmed the Original Award.6
14
15 Discussion
16 I. Standard of Review
5
The district court actually stated that it was granting Dempsey’s “motion to modify the
award,” T. Co. Metals LLC, No. 07-civ-7747, slip op. at 9, but the court’s reasoning is based on
FAA § 10(a)(4), 9 U.S.C. § 10(a)(4), which concerns a district court’s power to vacate an award.
The district court’s modification powers are found instead in FAA § 11, id. § 11. Due to the
ambiguity of the district court’s actions on this issue, as well as the court’s later decision to
confirm the Original Award, we therefore construe the district court’s judgment as vacating the
Amended Award.
6
It is not clear from the record whether either party specifically requested that the district
court take the action of confirming the Original Award. See generally 9 U.S.C. § 9 (articulating
the district court’s power to confirm arbitration awards). However, the parties subsequently
agreed to have the Original Award reduced to a judgment.
11
1 “When a party challenges the district court’s review of an arbitral award under the manifest
2 disregard standard, we review the district court’s application of the standard de novo.” Porzig v.
3 Dresdner, Kleinwort, Benson, N. Am. LLC, 497 F.3d 133, 138 (2d Cir. 2007) (quoting Wallace v.
4 Buttar,
378 F.3d 182, 189 (2d Cir. 2004)) (internal quotation marks omitted). With respect to the
5 district court’s decision to vacate the Amended Award as exceeding the arbitrator’s powers, we
6 review the district court’s legal rulings de novo and its findings of fact for clear error. ReliaStar Life
7 Ins. Co. of N.Y. v. EMC Nat’l Life Co.,
564 F.3d 81, 85 (2d Cir. 2009).
8
9 II. Whether the Award of Diminution-in-Value Damages Was Made in Manifest Disregard
10 of the Law
11 A litigant seeking to vacate an arbitration award based on alleged manifest disregard of the
12 law bears a “heavy burden,” Stolt-Nielsen SA v. AnimalFeeds Int’l Corp.,
548 F.3d 85, 91 (2d Cir.
13 2008) (quoting GMS Group, LLC v. Benderson,
326 F.3d 75, 81 (2d Cir. 2003)) (internal quotation
14 marks omitted), cert. granted,
129 S. Ct. 2793 (2009), as awards are vacated on grounds of manifest
15 disregard only in “those exceedingly rare instances where some egregious impropriety on the part of
16 the arbitrator[] is apparent,”
id. at 91-92 (quoting Duferco Int’l Steel Trading v. T. Klaveness Shipping
17 A/S,
333 F.3d 383, 389 (2d Cir. 2003)) (internal quotation marks omitted). That impropriety “has
18 been interpreted ‘clearly [to] mean[] more than error or misunderstanding with respect to the law,’”
19
id. at 92 (alterations in original) (quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808
20 F.2d 930, 933 (2d Cir. 1986)), or an “arguable difference regarding the meaning or applicability of
21 laws urged upon” an arbitrator,
id. (quoting Bobker, 808 F.2d at 934) (internal quotation marks
22 omitted). Rather, “the award should be enforced, despite a court’s disagreement with it on the merits,
12
1 if there is a barely colorable justification for the outcome reached.” Id. (quoting Wallace, 378 F.3d
2 at 190) (internal quotation marks omitted). With respect to contract interpretation, this standard
3 essentially bars review of whether an arbitrator misconstrued a contract. See
id.
4 We have recognized three components to this Circuit’s application of the manifest disregard
5 standard:
6 First, we must consider whether the law that was allegedly ignored was clear, and in
7 fact explicitly applicable to the matter before the arbitrators. An arbitrator obviously
8 cannot be said to disregard a law that is unclear or not clearly applicable. Thus,
9 misapplication of an ambiguous law does not constitute manifest disregard.
10
11 Second, . . . we must find that the law was in fact improperly applied, leading to an
12 erroneous outcome. . . . Even where explanation for an award is deficient or
13 non-existent, we will confirm it if a justifiable ground for the decision can be inferred
14 from the facts of the case.
15
16 Third, . . . we look to a subjective element, that is, the knowledge actually possessed
17 by the arbitrators. In order to intentionally disregard the law, the arbitrator must have
18 known of its existence, and its applicability to the problem before him.
19
20
Id. at 93 (quoting
Duferco, 333 F.3d at 389-90).
21 Recently, the Supreme Court placed the proper scope of the manifest disregard doctrine into
22 some doubt with its decision in Hall Street Associates, L.L.C. v. Mattel, Inc.,
128 S. Ct. 1396, 1404
23 (2008). On appeal, T.Co argues extensively that, contrary to the determination of the district court,
24 Hall Street maintains manifest disregard as a viable ground for vacating an arbitration award. This
25 Court recently made clear in Stolt-Nielsen SA v. AnimalFeeds International Corp. that it reads Hall
26 Street as “reconceptualiz[ing]” manifest disregard “as a judicial gloss on the specific grounds for
27 vacatur” of arbitration awards under 9 U.S.C. § 10. See
Stolt-Nielsen, 548 F.3d at 94-95. So
28 interpreted, we concluded that manifest disregard “remains a valid ground for vacating arbitration
29 awards.”
Id. at 94.
13
1 The Supreme Court has granted certiorari to review Stolt-Nielsen, explicitly on another issue.
2 Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 129 S. Ct. 2793 (2009). Even if the Court were to
3 address and confirm our interpretation of the manifest disregard doctrine, however, such a decision
4 would provide no solace to T.Co. We agree with the district court that “[e]ven if ‘manifest disregard
5 of the law’ [is] still a viable theory, it would be inapplicable here,” see T. Co. Metals LLC, No. 07-
6 civ-7747, slip op. at 6, because the arbitrator reasonably interpreted New York law to permit Dempsey
7 to recover the diminution in value of the pipe under N.Y. U.C.C. § 2-714(2) notwithstanding the
8 parties’ contractual bar on consequential damages.
9 In arguing to the contrary, T.Co errs by making the unwarranted assumption that the
10 breach-of-warranty damages that the arbitrator calculated pursuant to N.Y. U.C.C. § 2-714(2)
11 inescapably amount to an award of “lost profits,” which in turn constitute consequential damages.
12 There is a difference between the loss of the inherent economic value of the contractual performance
13 as warranted, which N.Y. U.C.C. § 2-714(2) addresses, and the loss of profits that the buyer
14 anticipated garnering from transactions that were to follow the contractual performance. The fact that
15 the N.Y. U.C.C. addresses consequential damages in a separate section from diminution-in-value
16 damages supports the inference that these two measures of damages are not necessarily equivalent.
17 See N.Y. U.C.C. §§ 2-714(2), 2-715(2); see also
id. § 2-714(3) (noting that, in addition to breach-of-
18 warranty damages under § 2-714(2), “[i]n a proper case any incidental and consequential damages
19 under the next section may also be recovered” (emphasis added)). New York case law similarly
20 demonstrates that a buyer may recover the diminution in the value of the contractual goods as
21 warranted even where there is a contractual exclusion of consequential damages. See, e.g., Carbo
22 Indus. Inc. v. Becker Chevrolet Inc.,
491 N.Y.S.2d 786, 790 (N.Y. App. Div. 1985). Our case law
14
1 has also recognized in an analogous context that a contractual exclusion of consequential damages
2 “does not foreclose liability for lost profits to the extent those profits merely reflect the value of the
3 goods at destination.” Jessica Howard Ltd. v. Norfolk S. Ry. Co., 316 F.3d 165, 169 (2d Cir. 2003).
4 T.Co’s attempts to undermine the weight of this authority are unpersuasive. Moreover, the
5 sources T.Co cites in favor of equating Dempsey’s damages under § 2-714(2) to consequential
6 damages fall short of demonstrating that this result is conclusively established by New York law. For
7 example, T.Co cites a Uniform Commercial Code treatise by James J. White and Robert S. Summers
8 for the proposition that § 2-714(2) damages are not appropriate where the contract excludes
9 consequential damages. See Appellant’s Br. 37. But the White and Summers treatise is more
10 equivocal than T.Co acknowledges. It notes that “reasonable persons often differ whether an item
11 of damage is ‘consequential’ or not,” 1 James J. White & Robert S. Summers, UNIFORM
12 COMMERCIAL CODE § 10-2 (5th ed. 2006), available at 1 WS-UCC § 10-2 (Westlaw), and it
13 specifically recognizes that “[i]n many cases, the consequential damages that appear to be recoverable
14 under 2-715(2) may overlap with the direct ‘difference-in-value’ damages recoverable under
15 2-714(2),”
id. § 10-4, available at 1 WS-UCC § 10-4 (Westlaw). The legal distinction between
16 diminution-in-value damages and consequential damages, therefore, resembles the kind of
17 “ambiguous law” that eludes analysis under the manifest disregard doctrine. See Stolt-Nielsen,
548
18 F.3d at 93 (quoting
Duferco, 333 F.3d at 390).
19 When assessing damages in the present case, the arbitrator properly looked not only to
20 Dempsey’s plans for the pipe, but also assessed a cross section of invoices from other companies that
21 dealt in the pipe in order to determine the pipe’s fair market value at the time and place of acceptance.
22 In doing so, the arbitrator was engaged in determining “the value differential component of the
15
1 buyer’s total loss,” not the subjective lost profits and lost business opportunities of Dempsey. See
2 White & Summers, supra, § 10-4, available at 1 WS-UCC § 10-4 (Westlaw). This process of
3 calculating damages constituted a reasonable interpretation of the legal distinction between the
4 diminution-in-value damages that were available to Dempsey under the N.Y. U.C.C. and the
5 consequential damages that were excluded by the parties’ contracts. Accordingly, we perceive no
6 manifest disregard of the law under any understanding of the current status of that doctrine. Whatever
7 the scope of the manifest disregard doctrine may be in the wake of Hall Street, therefore, the
8 arbitrator’s decision to award diminution-in-value damages does not qualify. We therefore affirm the
9 district court’s denial of T.Co’s motion to vacate the award of diminution-in-value damages to
10 Dempsey.
11 * * *
12 Anticipating that this Court would reject T.Co’s allegations of manifest disregard with respect
13 to the award of diminution-in-value damages, Dempsey filed a motion (“Fees Motion”) on June 3,
14 2009, arguing that T.Co’s appeal of its manifest disregard claim was frivolous and requesting,
15 pursuant to Federal Rule of Appellate Procedure 38 and 28 U.S.C. § 1912, that Dempsey be awarded
16 reasonable attorneys’ fees as damages for having had to defend against T.Co’s appeal of the manifest
17 disregard issue.7 As this Court explained in In re Drexel Burnham Lambert Group Inc., “[s]anctions
18 may be imposed [under Rule 38] when one party proceeds with an argument ‘totally lacking in merit,
7
In its principal brief, Dempsey also apprised this Court of an ICDR arbitration Dempsey
had brought against T.Co to obtain a declaration that, pursuant to the parties’ arbitration
agreements, Dempsey was entitled to legal fees it incurred in post-award judicial proceedings.
Dempsey suggested that this Court should tax T.Co for Dempsey’s legal fees should Dempsey
successfully obtain a declaratory award in its favor. In its motion for relief pursuant to Federal
Rule of Appellate Procedure 38 and 28 U.S.C. § 1912, however, Dempsey informed this Court
that the arbitrator had ruled in T.Co’s favor on the legal fee issue. Therefore, we consider moot
Dempsey’s argument for legal fees based on the ICDR fee arbitration.
16
1 framed with no relevant supporting law, conclusory in nature, and utterly unsupported by the
2 evidence.’” 995 F.2d 1138, 1147 (2d Cir. 1993) (quoting United States v. Potamkin Cadillac Corp.,
3
689 F.2d 379, 381 (2d Cir. 1982) (per curiam)).8
4 Though this Court has concluded that T.Co’s manifest disregard claim ultimately fails on the
5 merits, we nevertheless recognize that the issue was not so clear cut as to prevent T.Co from making
6 a colorable argument to the contrary. This is particularly so in light of the ambiguity surrounding the
7 interpretation of the manifest disregard standard in the wake of Hall Street, along with the significant
8 overlap between expectation and consequential damages under N.Y. U.C.C. §§ 2-714 and 2-715. As
9 a result, we cannot conclude that T.Co’s allegation of manifest disregard was so totally lacking in
10 merit as to warrant the award of legal fees under Federal Rule of Appellate Procedure 38 and 28
11 U.S.C. § 1912. We therefore deny Dempsey’s motion for attorneys’ fees as a sanction against T.Co
12 for bringing an alleged frivolous appeal.
13
14 III. Whether the Arbitrator Exceeded his Powers in Reconsidering the Original Award
15 The FAA allows parties to petition the district court for an order vacating an arbitration award
16 “where the arbitrators exceeded their powers.” 9 U.S.C. § 10(a)(4). This Court has “‘consistently
17 accorded the narrowest of readings’ to the FAA’s authorization to vacate awards pursuant to
18 § 10(a)(4).” Banco de Seguros del Estado v. Mut. Marine Office, Inc.,
344 F.3d 255, 262 (2d Cir.
19 2003) (quoting Westerbeke Corp. v. Daihatsu Motor Co.,
304 F.3d 200, 220 (2d Cir. 2002)). Our
8
Federal Rule of Appellate Procedure 38 provides that “[i]f a court of appeals determines
that an appeal is frivolous, it may, after a separately filed motion or notice from the court and
reasonable opportunity to respond, award just damages and single or double costs to the
appellee.” In turn, 28 U.S.C. § 1912 states that “[w]here a judgment is affirmed by the Supreme
Court or a court of appeals, the court in its discretion may adjudge to the prevailing party just
damages for his delay, and single or double costs.”
17
1 power under § 10(a)(4) is strictly limited “in order to facilitate the purpose underlying arbitration:
2 to provide parties with efficient dispute resolution, thereby obviating the need for protracted
3 litigation.” ReliaStar, 564 F.3d at 85; accord Synergy Gas Co. v. Sasso,
853 F.2d 59, 63 (2d Cir.
4 1988); Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales Corp.,
274 F.2d 805, 808 (2d
5 Cir. 1960).
6 To demonstrate that the arbitrator exceeded his powers by revising the arbitral award in
7 T.Co’s favor, Dempsey relies primarily on the doctrine of functus officio and on this Court’s
8 application of that doctrine in Hyle v. Doctor’s Associates, Inc.,
198 F.3d 368 (2d Cir. 1999). The
9 functus officio doctrine dictates that, once arbitators have fully exercised their authority to adjudicate
10 the issues submitted to them, “their authority over those questions is ended,” and “the arbitrators have
11 no further authority, absent agreement by the parties, to redetermine th[ose] issue[s].” Trade &
12 Transp., Inc. v. Natural Petroleum Charterers Inc.,
931 F.2d 191, 195 (2d Cir. 1991). An arbitrator
13 is not rendered powerless by the completion of his duties, however. In Hyle, this Court explained
14 that, even after becoming functus officio, “an arbitrator retains limited authority to ‘correct a mistake
15 which is apparent on the face of [the] award.’”
Hyle, 198 F.3d at 370 (alteration in original) (quoting
16 Colonial Penn Ins. Co. v. Omaha Indem. Co.,
943 F.2d 327, 332 (3d Cir. 1991)). This inherent
17 authority applies narrowly “to clerical mistakes or obvious errors in arithmetic computation.”
Id.
18 (quoting Colonial
Penn, 943 F.2d at 332) (internal quotation mark omitted). Dempsey argues, and
19 the district court agreed, that these limitations on an arbitrator’s inherent power to correct facially
20 apparent mistakes preclude revisions such as those contained in the Amended Award.
21 In reaching this conclusion, Dempsey and the district court ignore an important caveat to the
22 functus officio doctrine: that it only applies “absent an agreement by the parties to the contrary.” Id.;
18
1 accord Trade & Transp., Inc., 931 F.2d at 195. Arbitration is “a matter of contract,” ReliaStar,
564
2 F.3d at 85 (quoting PaineWebber Inc. v. Bybyk,
81 F.3d 1193, 1198 (2d Cir. 1996)) (internal
3 quotation mark omitted), and parties are certainly free to empower their arbitrators to reconsider an
4 award. See Glass, Molders, Pottery, Plastics & Allied Workers Int’l Union, Local 182B v. Excelsior
5 Foundry Co.,
56 F.3d 844, 848 (7th Cir. 1995) (Posner, C.J.) (“Functus officio is merely a default
6 rule, operative if the parties fail to provide otherwise. There is no legal bar to authorizing arbitrators
7 to reconsider their decisions, and some rules for arbitrators . . . do authorize reconsideration.”); see
8 also Veliz v. Cintas Corp., 273 F. App’x 608, 609 (9th Cir. 2008) (concluding that the district court
9 erred in applying the functus officio doctrine to bar an arbitrator from revisiting issues previously
10 decided, because a number of arbitration agreements at issue “include[d] clauses permitting the
11 arbitrator to reconsider a prior decision”). By definition, the functus officio doctrine is applicable only
12 once the arbitrator’s assigned duties have come to an end. See, e.g.,
Hyle, 198 F.3d at 370. The
13 arbitrator in this case was empowered by both parties to consider requests for revisions to be made
14 in the arbitration award by virtue of the fact that the parties had agreed the arbitration would be
15 conducted pursuant to the ICDR Articles. Here, the arbitrator interpreted ICDR Article 30(1) to
16 permit him to make some corrections to the Original Award and to bar him from making others.9 The
9
Dempsey argues that the ICDR Articles themselves rendered the functus officio doctrine
applicable after the arbitrator issued the Original Award because ICDR Article 27(1) provides
that “[a]wards . . . shall be final and binding on the parties.” But the ICDR Articles also
expressly permit that, “[w]ithin 30 days after the receipt of an award, any party . . . may request
the tribunal to . . . correct any clerical, typographical or computation errors”; “[i]f the tribunal
considers such a request justified, after considering the contentions of the parties, it shall comply
with such a request.” ICDR Article 30(1)-30(2). Even assuming, arguendo, that the issuance of
the final award renders the arbitrator functus officio pursuant to Article 27(1), once the parties
submit to the arbitrator questions concerning whether particular alleged errors in the award
warrant correction, it cannot be said that the arbitator’s “authority over those questions is ended.”
See Hyle, 198 F.3d at 370; see also Longo de Puerto Rico, Inc. v. United Steel Workers of Am.,
AFL-CIO-CLC, 463 F. Supp. 2d 159, 162 (D.P.R. 2006) (“[Functus officio] does not prevent an
19
1 arbitrator thus relied not upon his inherent power to correct facial errors, but upon his interpretation
2 of the corrective authority bestowed upon him by the ICDR Articles, which the parties expressly
3 designated as the rules governing their arbitration. To decide whether the arbitrator exceeded his
4 authority by correcting the Original Award, then, we must ascertain whether the arbitrator acted
5 within his authority in determining that his revisions fell within his power under ICDR Article 30(1)
6 to correct “clerical, typographical or computation errors.”
7 While the district court recognized that the arbitrator derived his corrective powers “in part”
8 from the ICDR Articles, see T. Co. Metals LLC, No. 07-civ-7747, slip op. at 8 n.6, it erred by failing
9 to distinguish ICDR Article 30(1) as a source of authority separate from the arbitrator’s inherent
10 power to correct facial errors. Dempsey avoids this mistake by directly addressing the scope of ICDR
11 Article 30(1) in its brief, positing that Article 30(1) is best interpreted as having the same limited
12 scope as the corrective power recognized as an exception to the functus officio doctrine. But this
13 Court cannot analyze the meaning of ICDR Article 30(1) in a vacuum. Before considering this
14 interpretive issue, we must first determine the level of deference, if any, that should be accorded to
15 the arbitrator’s construction of ICDR Article 30(1). The answer to this question, in turn, depends on
16 whether the scope of ICDR Article 30(1) is an issue to be decided primarily by a court or by the
17 arbitrator. See First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942-43 (1995). If we determine
18 that the parties intended to submit this question to the arbitrator, this Court “should give considerable
19 leeway to the arbitrator, setting aside his or her decision only in certain narrow circumstances.”
Id.
arbitrator from interpreting, amplifying, or correcting her award when . . . the parties request that
an issue be resubmitted to the arbitrator.”). Therefore, the arbitrator’s interpretation of ICDR
Article 30(1) was not constrained by the functus officio doctrine, notwithstanding Article 27(1).
20
1 at 943. If, on the other hand, we decide that the parties anticipated having a court decide the scope
2 of ICDR Article 30(1), we would review the arbitrator’s analysis of this issue “independently.” See
3 id.
4 To determine whether the parties intended to submit a given matter to arbitration, the general
5 rule is that courts “should apply ordinary state-law principles that govern the formation of contracts.”
6
Id. at 944. Under certain circumstances, however, the court is to apply a presumption either in favor
7 of or against arbitration of a given issue. First, “[t]he question whether the parties have submitted a
8 particular dispute to arbitration, i.e., the ‘question of arbitrability,’ is ‘an issue for judicial
9 determination [u]nless the parties clearly and unmistakably provide otherwise.’” Howsam v. Dean
10 Witter Reynolds, Inc.,
537 U.S. 79, 83 (2002) (second alteration in original) (quoting AT & T Techs.,
11 Inc. v. Commc’ns Workers,
475 U.S. 643, 649 (1986)); accord First
Options, 514 U.S. at 944.
12 Questions of arbitrability arise in “limited instances” involving “certain gateway matters,” which are
13 “typically . . . of a kind that ‘contracting parties would likely have expected a court’ to decide.”
14 Green Tree Fin. Corp. v. Bazzle,
539 U.S. 444, 452 (2003) (plurality opinion) (quoting Howsam,
537
15 U.S. at 83). On the other hand, procedural questions that “‘grow out of the dispute and bear on its
16 final disposition’ are presumptively not for the judge, but for an arbitrator, to decide.” Howsam,
537
17 U.S. at 84 (quoting John Wiley & Sons, Inc. v. Livingston,
376 U.S. 543, 557 (1964)).
18 In the present case, we need not decide whether the scope of the arbitrator’s corrective powers
19 under ICDR Article 30(1) is a question presumptively for the arbitrator or for the courts because we
20 conclude that the parties displayed clear and unmistakable intent to submit the question to the
21 arbitrator. Both T.Co and Dempsey made this intention clear by directly petitioning the arbitrator to
21
1 amend the Original Award; there is no indication that either party anticipated the ICDR Article 30(1)
2 interpretive question being preserved for consideration by a judicial body. Moreover, the ICDR
3 Articles themselves contemplate the arbitrator making such interpretive decisions in the first instance.
4 ICDR Article 36 provides that “[t]he tribunal shall interpret and apply these Rules insofar as they
5 relate to its powers and duties.” Thus, even if the scope of ICDR Article 30(1) were considered a
6 “question of arbitrability,” the parties’ adoption of the ICDR Articles, including Article 36, in their
7 arbitration agreements provides a “clear and unmistakable” expression of their intent to allocate to
8 the arbitrator the task of interpreting the scope of his powers and duties under Article 30(1). See
9 Contec Corp. v. Remote Solution Co., 398 F.3d 205, 208 (2d Cir. 2005) (“We have held that when,
10 as here, parties explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability,
11 the incorporation serves as clear and unmistakable evidence of the parties’ intent to delegate such
12 issues to an arbitrator.”); PaineWebber
Inc., 81 F.3d at 1202. In fact, ICDR Article 15(1) more
13 specifically empowers the arbitrator to decide questions of arbitrability, extending to the arbitrator
14 “the power to rule on [his] own jurisdiction, including any objections with respect to the existence,
15 scope or validity of the arbitration agreement.” In Contec Corp. v. Remote Solution Co., we
16 concluded that an arbitration agreement’s incorporation of a rule containing substantially equivalent
17 language constituted clear and unmistakable evidence of the parties’ intent to arbitrate questions of
18 arbitrability.
See 398 F.3d at 208, 210-11. Based on this extensive evidence of the parties’ intent that
19 the scope of ICDR Article 30(1) be submitted to the arbitrator for consideration, this Court must
20 afford significant deference to the arbitrator’s interpretation of that rule. See First Options,
514 U.S.
21 at 943.
22
1 The structural and policy arguments Dempsey offers against deferring to the arbitrator’s
2 interpretation of ICDR Article 30(1) are unpersuasive. In its brief, Dempsey cautions that “[i]f
3 Arbitrators’ interpretations of [Article] 30(1) (and similar rules) were entitled to deference, then on
4 a case-by-case basis they could expand their powers to permit re-consideration of their initial
5 decisions.” Appellee’s Br. 32 n.13. This may be so, but it is hardly controversial to acknowledge that
6 the FAA allows arbitrators to operate with considerable autonomy. The kid-gloved approach we take
7 to reviewing arbitration awards enables the parties to obtain the efficient dispute resolution they
8 bargained for, while affording them the freedom to design the kind of adjudicative proceedings that
9 will best suit their needs. Given that the FAA permits parties to authorize an arbitrator to determine
10 the scope of his own jurisdiction, we see no justification for this Court interfering with the power
11 granted to an arbitrator to interpret his powers of reconsideration under the applicable arbitral rules
12 of procedure. The remedy for unduly broad arbitral powers is not judicial intervention: it is for the
13 parties to draft their agreement to reflect the scope of power they would like their arbitrator to
14 exercise.
15 In supplemental briefing before this Court, Dempsey contends that permitting an arbitrator
16 to exercise broad reconsideration powers could result in “two inconsistent awards, both entitled to
17 confirmation.” Letter of Appellee 2 (June 30, 2009). Observing that nothing in the FAA or the ICDR
18 Articles provides that an amended award ipso facto supercedes or invalidates an original award,
19 Dempsey opines that both the original award and amended award are subject to confirmation unless
20 modified or vacated under 9 U.S.C. §§ 10-11. If one party were to petition a court to confirm the
21 original award, the court’s ability to modify that award to reflect the changes in the amended award
23
1 would be strictly limited. See, e.g., id. § 11(a) (permitting modification to correct “an evident
2 material miscalculation of figures or an evident material mistake in the description of any person,
3 thing, or property referred to in the award”). Therefore, if deference were due to an arbitrator’s use
4 of broader modification powers when issuing an amended award, a court might be unable to
5 correspondingly modify the original award, while simultaneously lacking the ability to vacate the
6 amended award as exceeding the arbitrator’s powers. Permitting a scenario in which inconsistent
7 awards might conceivably result, Dempsey contends, would undermine the FAA’s policy of achieving
8 a final and definite resolution of disputes.
9 While undoubtedly clever, this structural argument is ultimately unpersuasive. First, if the
10 substance of an award is subsequently changed by a valid amended award, it stands to reason that the
11 finality and import of the original award would be rendered sufficiently ambiguous that a court might
12 justifiably resist confirming the original award, at least absent remand for clarification by the
13 arbitrator. See Bell Aerospace Co. Div. of Textron, Inc. v. Local 516, Int’l Union, UAW,
500 F.2d
14 921, 923 (2d Cir. 1974) (“Courts will not enforce an award that is incomplete, ambiguous, or
15 contradictory.”); see also Trade & Transp.,
Inc., 931 F.2d at 195 (noting “the general rule that an
16 arbitral determination is not final unless it conclusively decides every point required by and included
17 in the submission of the parties”); cf. 9 U.S.C. § 10(a)(4) (permitting award to be vacated where
18 arbitrators “so imperfectly executed the[ir powers] that a mutual, final, and definite award upon the
19 subject matter submitted was not made”). In addition, Dempsey’s argument carries the logical
20 consequence of categorically precluding parties from assigning their arbitrators powers of
21 reconsideration beyond those available to a court when vacating or modifying an arbitration award.
24
1 Such a result finds no support in the text of the FAA, and we see no reason for interpreting the statute
2 as silently placing such significant constraints on the freedom of parties to bargain for the arbitral
3 procedures of their choice. Cf. Clark v. Martinez, 543 U.S. 371, 380 (2005) (“[W]hen deciding which
4 of two plausible statutory constructions to adopt, a court must consider the necessary consequences
5 of its choice.”).
6 Thus, Dempsey provides this Court no ground on which we could justify shirking our
7 obligation to grant deference to the arbitrator’s interpretation of the scope of ICDR Article 30(1).
8 Given our conclusion that the parties intended to submit this question to the arbitrator, First Options
9 dictates that we “should give considerable leeway to the arbitrator, setting aside his or her decision
10 only in certain narrow circumstances,” such as those outlined under 9 U.S.C. § 10(a)(4). First
11
Options, 514 U.S. at 943. Ordinarily, our limited inquiry under § 10(a)(4) “focuses on whether the
12 arbitrators had the power, based on the parties’ submissions or the arbitration agreement, to reach a
13 certain issue, not whether the arbitrators correctly decided that issue.” Westerbeke Corp.,
304 F.3d
14 at 220 (quoting DiRussa v. Dean Witter Reynolds Inc.,
121 F.3d 818, 824 (2d Cir. 1997)) (internal
15 quotation mark omitted); accord Banco de Seguros del
Estado, 344 F.3d at 262. In other words, once
16 we determine that the parties intended for the arbitration panel to decide a given issue, it follows that
17 “the arbitration panel did not exceed its authority in deciding that issue—irrespective of whether it
18 decided the issue correctly.” Stolt-Nielsen
SA, 548 F.3d at 101; see also
DiRussa, 121 F.3d at 824
19 (“DiRussa’s real objection appears to be that the arbitrators committed an obvious legal error in
20 denying him attorney’s fees. Section 10(a)(4) was not intended to apply to such a situation.”). As
21 our previous analysis demonstrates, the parties’ arbitration agreement empowered the arbitrator to
25
1 determine for himself the scope of his reconsideration authority under ICDR Article 30(1). Therefore,
2 even assuming that we viewed the arbitrator’s construction of Article 30(1) to be erroneous—and we
3 reach no such conclusion here—the Amended Award cannot be vacated under § 10(a)(4) merely on
4 that ground.10
5 Because we conclude that the arbitrator did not exceed his powers by revising the Original
6 Award in a way consistent with his interpretation of his reconsideration authority under ICDR Article
7 30(1), we reverse the district court’s decision to vacate the Amended Award on § 10(a)(4) grounds.
8 Moreover, given our holding that the arbitrator’s revision of the Original Award must be upheld, we
9 also vacate the district court’s ruling confirming the Original Award. We remand with instructions
10 that, upon application, the Amended Award should be confirmed.
10
While in the wake of Hall Street we have construed manifest disregard to be an
interpretive gloss on § 10(a)(4) and the other vacatur grounds listed in 9 U.S.C. § 10, see Stolt-
Nielsen SA, 548 F.3d at 94-95, Dempsey did not invoke the manifest disregard doctrine before
the district court, nor did it raise the argument on appeal. Stolt-Nielsen notes that arbitrators who
conducts arbitrations that are “carried out in manifest disregard of the law” also “exceed[] their
powers, or so imperfectly execute[] them that a mutual, final, and definite award upon the subject
matter submitted [i]s not made.” See id. at 95 (quoting 9 U.S.C. § 10(a)(4)) (internal quotation
marks omitted). To the extent these two bases for challenging an arbitration award may differ,
the manifest disregard issue has been forfeited here. See Universal Church v. Geltzer, 463 F.3d
218, 228-29 (2d Cir. 2006) (concluding that appellee was properly subjected to the
“well-established general rule that an appellate court will not consider an issue raised for the first
time on appeal” (quoting Allianz Ins. Co. v. Lerner, 416 F.3d 109, 114 (2d Cir. 2005)) (internal
quotation mark omitted)); United States v. Handakas, 286 F.3d 92, 112 n.11 (2d Cir. 2002)
(concluding that appellee had waived argument it failed to address in its initial appellate
briefing), overruled on other grounds by United States v. Rybicki, 354 F.3d 124, 144 (2d Cir.
2003) (en banc); United States v. Quiroz, 22 F.3d 489, 490-91 (2d Cir. 1994) (per curiam)
(same).
26
1 Conclusion
2 For the foregoing reasons, we hereby affirm in part, reverse in part, and vacate in part the
3 judgment of the district court, and we remand for further proceedings consistent with this opinion.
4
27
