## Facts

- T.Co Metals, LLC sold steel pipe to Dempsey Pipe & Supply, Inc. under two contracts that (1) required AAA-ICDR arbitration and (2) excluded consequential damages.
- T.Co fabricated the pipe in Chile and shipped it to Philadelphia; Dempsey asserted much of the pipe arrived bent.
- Dempsey accepted the pipe, straightened it, and resold it at a reduced price, then sought diminution-in-value damages under U.C.C. § 2-714(2).
- T.Co initiated arbitration seeking unpaid contract amounts; Dempsey counterclaimed for damages.
- The arbitrator issued a final award granting Dempsey, including approximately $420,357 in diminution-in-value damages.
- Both parties requested corrections under ICDR Rule 30(1); the arbitrator issued an amendment order and then an amended final award.
- In the FAA confirmation/vacatur proceedings, the district court rejected T.Co’s “manifest disregard” challenge to the damages award but vacated the amended award as beyond the arbitrator’s post-award authority and confirmed the original award instead.
- T.Co appealed and Dempsey cross-appealed.

## Issues

1. Whether the arbitrator manifestly disregarded the law by awarding U.C.C. § 2-714(2) diminution-in-value damages notwithstanding a contractual waiver of consequential damages.
2. Whether the arbitrator exceeded his powers, or violated functus officio, by issuing an amended final award after the original final award pursuant to ICDR Rule 30(1).
3. Whether “manifest disregard of the law” remains a valid basis for vacatur after *Hall Street* and, if so, how it fits within FAA § 10.

## Decision

- The court held the arbitrator did not act in manifest disregard by awarding diminution-in-value damages; the award was a permissible application of U.C.C. § 2-714(2) and consistent with a consequential-damages exclusion.
- The court held the arbitrator did not exceed his powers by issuing the amended final award; incorporation of ICDR rules authorized limited post-award corrections and the changes did not constitute impermissible reconsideration of the merits.
- The court treated “manifest disregard” as surviving after *Hall Street* as a judicial gloss on FAA § 10(a)(4) (exceeding powers), applied in rare cases of willful refusal to apply clearly controlling law.
- Disposition: affirmed the district court’s rejection of the manifest-disregard challenge; reversed the vacatur of the amended award; remanded for entry of judgment consistent with the amended award.

## Legal Principles

- “Manifest disregard of the law” is a severely limited doctrine requiring proof that the arbitrator knew the controlling legal rule, recognized it governed, and willfully refused to apply it; mere legal error is insufficient.
- After *Hall Street*, manifest disregard may be treated as a judicial interpretation of FAA § 10(a)(4), not an extra-statutory ground for vacatur.
- U.C.C. § 2-714(2) diminution-in-value damages for accepted nonconforming goods are properly characterized as direct (general) damages, and are not barred by a contractual waiver of consequential damages absent clearer limiting language.
- Functus officio generally limits post-award arbitral action, but parties may authorize post-award corrections by incorporating institutional rules permitting correction of clerical/typographical/computational errors or inadvertent omissions.
- When an arbitration agreement incorporates ICDR Rule 30(1), an arbitrator may make qualifying corrections after a final award without thereby exceeding arbitral authority under FAA § 10(a)(4).

## Conclusion

The Second Circuit upheld an arbitral award granting a buyer U.C.C. diminution-in-value damages despite a consequential-damages exclusion and held that, where the parties incorporated ICDR rules permitting limited corrections, the arbitrator could issue an amended final award without violating functus officio or exceeding authority under the FAA.


T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329 (2d Cir. 2010)