In In Re Romanzi; Kenneth A. Nathan v. Fieger & Fieger, P.C., Nos. 20-2278/21-1004 (Mich. Ct. App. Apr. 8, 2022), the Michigan Court of Appeals affirmed that, where an arbitrators’ decision is challenged on brevity, the proper procedure is to remand the decision back to the arbitrators rather than vacate the award, and this action falls within the clarification-completion exception to functus officio.
Attorney Craig Romanzi’s employment terms at Fieger & Fieger (“the Firm”) entitled him to one-third of any future attorney’s fees for any case he brought to the firm. In 2014, Romanzi brought a case to the firm but quit his job less than a year later. Seven months after that, the case settled for $11.9 million, and the Firm was awarded $3.55 million in attorney’s fees. The Firm did not pay any of that sum to Romanzi.
In 2016, Romanzi was forced into involuntary Chapter 7 bankruptcy, and the bankruptcy court appointed Kenneth Nathan (“the Trustee”) as Trustee to manage the estate. The Trustee sued the Firm in an adversary proceeding to recover Romanzi’s portion of the settlement, bringing claims for breach of contract, quantum meruit, and conversion. The bankruptcy court granted summary judgment to the Firm on the Trustee’s conversion claim but allowed the claims for breach of contract and quantum meruit to proceed to trial before the district court. The parties agreed to instead submit to arbitration and abide by a panel’s “brief reasoned decision.” Two of the three arbitrators found for the Trustee.
The Court Decision
When the Firm challenged the brevity of the arbitrators’ single-paragraph decision, the district court remanded to the arbitrators for clarification rather than vacating the award. When the Firm did not provide the submission requested by the arbitrators after remand, the arbitrators issued a subsequent supplemental award against the Firm. The Firm then brought this appeal, alleging that (1) remand was inappropriate and the district court should instead have vacated the award; (2) the arbitrators’ decision on remand was barred by the doctrine of functus officio; and (3) the supplemental award should likewise have been vacated. The Trustee cross-appealed, seeking to revive the conversion claim dismissed by the bankruptcy court.
On appeal, the court held that for the original and supplemental awards, none of the grounds for vacatur were appropriate because the text of the original award was within the limit set by the arbitrators’ powers, and the proper remedy for failure to explain a reward was remand. The Firm also failed to present any evidence that the arbitrators disregarded applicable law, and therefore failed to support its manifest disregard argument. In regard to the supplemental award, the court rejected the Firm’s assertions that the arbitrators’ acceptance of the Trustee’s proposed findings was misconduct, exceeded the arbitrators’ powers, were an imperfect execution of those powers, or constituted ex parte contact.
The court also held that the district court’s and arbitration panel’s actions unambiguously fell under the clarification exception to the functus officio doctrine. Because the arbitrators’ first award was plainly capable of clarification, the proper remedy was remand to the original arbitrators under the clarification-completion exception to functus officio. Additionally, the panel requested submissions not to reconsider the merits, but to offer further reasoning for their decision, thereby also falling into this exception.
This article was originally published in the North America Newsletter.