Arbitration is meant to be an alternate to litigation. Yet arbitration is itself the subject of much litigation over who must arbitrate, what must be arbitrated, whether and how the arbitration should proceed, and the deference courts must show to arbitration awards. This blog is intended to be a resource for litigators, in-house counsel, arbitrators and anyone else who wants to stay on top of the many thorny issues that arise under the Federal Arbitration Act. Our Bloggers →

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Lessons From Lance Armstrong About the Finality of Arbitration Awards

On February 4, an arbitration panel ordered Lance Armstrong to pay $10 million to his former promotions company, SCA, as a result of his “unparalleled pageant of international perjury, fraud and conspiracy” that covered up his use of performance-enhancing drugs.  (Read the NYT story about it here.)  What is curious about the award, from an arbitration law standpoint, is that SCA essentially re-opened an arbitration that it had lost with Armstrong in 2005 to obtain this new award.

The general rule of thumb is that arbitrators lose jurisdiction once they issue the final award.  Other than the short period within which parties may request that arbitrators correct a clerical or computational error under the arbitral rules (AAA gives 20 days; JAMS gives only 7), the arbitrators turn into pumpkins for all practical purposes after the final award is issued.  The arbitral rules do not have any equivalent to Rule 60, which in state and federal courts allows a judge to re-do a judgment or order based on newly discovered evidence, fraud, or mistake.  (But even Rule 60 sets a deadline of one year after the judgment is entered to request that the judgment be vacated…)

There is even a fancy Latin name for the reason that arbitrators turn into pumpkins after they issue final awards: functus officio.  The policy is that arbitration awards are suppoed to bring finality, and we wouldn’t want arbitrators revisiting awards based on improper or ex parte information.  However, one of my favorite arbitration resources, Domke on Arbitration, suggests that there are now so many exceptions to the functus officio doctrine that they just about swallow the rule.  Courts have allowed arbitrators to revisit their awards to correct mistakes, to rule on an issue that was submitted but not decided, to clarify an ambiguity, and always, if the parties contractually authorize the same panel to hear a new issue.

That last exception explains how the SCA got a second bite at its arbitration with Armstrong.  SCA’s petition to confirm the new arbitration award gives some important additional facts about what happened at the 2005 arbitration.  Before the arbitration concluded, SCA and Armstrong entered into a settlement agreement requiring SCA to pay Armstrong $7.5 Million.  That settlement agreement specified that the same panel of three arbitrators who heard the 2005 evidence would have “exclusive jurisdiction over” “any dispute or controversy [between the parties] arising under or in connection with” the settlement agreement.

After Armstrong admitted to Oprah Winfrey that he lied in his arbitration with SCA, SCA pursued two new claims with the three original arbitrators: sanctions for perjury and forfeiture of prize money that SCA had paid to Armstrong.  Armstrong objected that the initial panel lacked authority to reconvene, but a majority of the panel disagreed.  After hearing the evidence, a majority of the panel awarded SCA $10 million in sanctions against Armstrong.

Is there any lesson in this highly unusual tale for the run-of-the-mill arbitration?  Of course.  In general, parties and their advocates have one shot at getting the right result in arbitration, so every effort should be made to uncover important evidence and submit it to the panel.  But, in the circumstance where one party is convinced that material evidence remains hidden, why not find a way to make sure the same arbitrator(s) could hear that evidence in the future?  The settlement agreement between Armstrong and SCA is a good vehicle for that.

[Thanks to Karl Bayer and his Disputing Blog for alerting me to this award.]

Post Script: I received great advice from readers that I want to pass along to other advocates.  A few readers noted that the case law authorizing arbitrators to sanction parties is still developing, so attorneys who are involved in drafting arbitration agreements should consider granting the arbitrator specific authority to punish bad behavior.  Additionally, another reader noted that if the parties agree to have the same panel hear any future disputes, they would be wise to consider what happens if one of the panelists is no longer available.  Otherwise, a party who later refused to arbitrate could say that the precise makeup of the panel was integral to the parties’ agreement, such that the inability of any of the arbitrators to serve destroys the agreement to arbitrate.

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