Thanks everyone for the responses this week. Unfortunately we had no responders come up with the exact correct solution, but there is a strong reason for that.
Daniel Woolson pointed out the phrase in (the now outdated) Deck/Decklist problem “If a deck is discovered to be missing cards after players have begun drawing opening hands, and the missing cards can be located, issue a Warning and shuffle those cards back into the deck.”
In this case, however, we know why Nance's deck was short a card - Arf dropped the card. We don't issue Deck Problem game losses if the opponent drops a card during shuffling and hands it back short, even though the deck technically had 59 cards for some time. So in this case, there is no infraction for Deck/Decklist Problem or Deck Problem.
Our Answer
Arf receives a warning for Looking at Extra Cards. While Arf probably didn't see the face of the card or gain any additional information, he may have, so it fits the definition for Looking at Extra Cards. Any time a player might have seen the face of a card they weren't entitled to see by their own action, Looking at Extra Cards applies.
Shuffle the extra card into Nance's library and then have the players finish drawing opening hands.
I'm going to leave this thread locked with this answer, but if anyone wants to discuss this, please feel free to start a new thread in the Competitive REL forum and we can discuss.
Edited Joe Klopchic (April 24, 2017 11:55:58 AM)