Matter of Tilbury Fabrics, Inc. v. Stillwater, Inc., 56 N.Y.2d 627 (1982)

An arbitrator’s error of law is an insufficient basis to vacate an arbitration award; furthermore, failure to raise a contractual statute of limitations defense before the arbitrator constitutes a waiver of that defense.

Summary

Tilbury Fabrics, Inc. sought to confirm an arbitration award, which Stillwater, Inc. opposed, arguing the claim was barred by a contractual one-year statute of limitations, the counterclaims were too vague, and the award potentially included consequential damages prohibited by contract. The New York Court of Appeals affirmed the confirmation of the award, holding that Stillwater waived the statute of limitations defense by not raising it before the arbitrator. The court also stated that even if the defense had been raised, the arbitrator’s decision on the matter would not be grounds to vacate the award based on an error of law. Furthermore, Stillwater did not preserve the argument regarding the vagueness of the counterclaims, and the mere possibility of consequential damages being included was insufficient to disturb the award.

Facts

Tilbury Fabrics, Inc. and Stillwater, Inc. were parties to a contract containing an arbitration clause. A dispute arose, and Tilbury initiated arbitration proceedings. Stillwater participated in the arbitration without raising a contractual statute of limitations defense. After the arbitration panel issued an award in favor of Tilbury, Stillwater challenged the award, alleging it was barred by a one-year contractual statute of limitations, that the counterclaims were too vague, and that the award potentially included consequential damages, which were expressly prohibited by the contract.

Procedural History

The lower court confirmed the arbitration award. Stillwater appealed. The Appellate Division affirmed the lower court’s decision. Stillwater then appealed to the New York Court of Appeals.

Issue(s)

1. Whether Stillwater waived its contractual statute of limitations defense by failing to raise it in a motion to stay arbitration or before the arbitrators?
2. Whether an arbitrator’s error of law constitutes a sufficient basis to vacate an arbitration award?
3. Whether Stillwater preserved its argument that the counterclaims were so vaguely described that Stillwater was unable to ascertain the subject matter of the dispute?
4. Whether the mere possibility that an arbitration award included consequential damages, which were expressly prohibited by the contract, is enough to permit the award to be disturbed?

Holding

1. Yes, because Stillwater did not raise the contractual statute of limitations defense in a motion to stay arbitration or before the arbitrators, it was waived.
2. No, because an error of law committed by the arbitrator is an insufficient basis to vacate an award.
3. No, because it simply was that the scope of the arbitration was limited to the three contracts which were the basis for the institution of the arbitration.
4. No, because “the mere possibility” that such damages, award of which was expressly prohibited by the contract, indeed were included, is not enough to permit the award to be disturbed.

Court’s Reasoning

The court reasoned that Stillwater waived its statute of limitations defense by not raising it earlier in the proceedings, citing CPLR 7502(b) and 7503. The court further noted that even if the defense had been properly raised, compliance with the contractual period of limitation would have been a question for the arbitrators to decide. In such a case, the court emphasized the well-established principle that an arbitrator’s error of law is not a sufficient basis to vacate an award, referencing Matter of Granite Worsted Mills [Aaronson Cowen, Ltd.], 25 NY2d 451, 454-455.

Regarding the vagueness of the counterclaims, the court found that Stillwater failed to properly preserve this issue for appeal, arguing “It simply was that the scope of the arbitration was limited to the three contracts which were the basis for the institution of the arbitration.”

Finally, concerning the potential inclusion of consequential damages, the court applied a deferential standard to the arbitration award, stating that “the mere possibility” that such damages were included, despite being prohibited by the contract, was not enough to justify disturbing the award. The court again cited Matter of Granite Worsted Mills [Aaronson Cowen, Ltd.], supra, at pp 455-456, to support this position.