Walter A. Stanley & Son, Inc. v. Trustees of Hackley School, 42 N.Y.2d 436 (1977)
The scope of an arbitration agreement is determined by the intent of the parties as expressed in the language of their contract; courts must ascertain whether the parties agreed to submit the specific issue in dispute to arbitration.
Summary
Walter A. Stanley & Son, Inc. (“Stanley”) contracted with the Trustees of Hackley School (“Hackley”) to construct a gymnasium. A dispute arose, and Stanley demanded arbitration. Hackley counterclaimed, alleging damages from Stanley’s failure to complete the work on time. Stanley sought to stay arbitration of Hackley’s counterclaims, arguing they were not arbitrable under the contract. The Court of Appeals held that the arbitration clause, referring “any dispute or disagreement in connection with the performance of the work,” embraced Hackley’s counterclaims, including the determination of liability and the computation of damages. The court emphasized that the parties’ intent, as expressed in the contract language, determines the scope of arbitrable issues.
Facts
Stanley and Hackley entered into a contract for the construction of a gymnasium, with a completion deadline of December 1, 1973.
Paragraph 14 of the agreement stipulated that “If any dispute or disagreement in connection with the performance of the work to be performed by the Builder [Stanley] shall arise, such dispute or disagreement shall be referred to arbitration by the American Arbitration Association.”
Stanley initiated arbitration proceedings, claiming damages resulting from Hackley’s delays and breaches of contract.
Hackley counterclaimed, alleging damages due to Stanley’s failure to complete the project on time and its improper performance, including loss of use of the gymnasium, loss of enrollment, increased architect’s fees, and property damage.
Procedural History
Stanley initially demanded arbitration, and Hackley’s attempt to stay that arbitration was denied by Special Term and affirmed by the Appellate Division.
Hackley then demanded arbitration of its counterclaims, leading Stanley to apply for a stay of arbitration of the counterclaims.
Special Term granted Stanley’s stay, but the Appellate Division reversed, directing the parties to proceed to arbitration on the counterclaims.
Stanley appealed to the Court of Appeals as of right.
Issue(s)
Whether the arbitration clause in the contract between Stanley and Hackley, which covered “any dispute or disagreement in connection with the performance of the work,” encompassed Hackley’s counterclaims for damages resulting from Stanley’s alleged breach of contract.
Holding
Yes, because the parties’ agreement to arbitrate “any dispute or disagreement in connection with the performance of the work” embraced Hackley’s counterclaims regarding both the determination of Stanley’s liability and the computation of damages.
Court’s Reasoning
The Court of Appeals emphasized that the scope of arbitration is grounded in the agreement of the parties. The court stated, “the fundamental principle that the resolution of disputes by arbitration is grounded in agreement of the parties.”
The court distinguished between broad arbitration clauses (effectively a choice of forum) and agreements to arbitrate only discrete issues.
The court found that paragraphs 12 (delays and extensions) and 13 (changes in work) of the contract supported the conclusion that the parties intended the arbitration provision to encompass Hackley’s counterclaims.
Addressing the precedent set by Matter of Marchant v Mead-Morrison Mfg. Co., 252 NY 284, the court clarified that the key is determining the extent of the parties’ agreement.
The court quoted Marchant: “Parties to a contract may agree, if they will, that any and all controversies growing out of it in any way shall be submitted to arbitration…The question is one of intention, to be ascertained by the same tests that are applied to contracts generally.”
The court reiterated that judicial review focuses on determining what the contracting parties agreed to submit to arbitration. The court stated