New York Law Review

Christa Construction, Inc. v. Board of Education, 82 N.Y.2d 1031 (1993): Enforceability of Arbitration Agreements in Public Contracts

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The New York Law Review

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Christa Construction, Inc. v. Board of Education, 82 N.Y.2d 1031 (1993)

Arbitration is a favored method of dispute resolution in New York, and public policy exceptions to enforcing arbitration agreements are narrowly construed.

Summary

Christa Construction sought arbitration with the Board of Education over disputes arising from a school improvement contract, including issues related to change orders and payment. The Board of Education resisted, arguing that the arbitration agreement was unenforceable on public policy grounds under Education Law § 1718 (1), because enforcing change orders through arbitration would result in expenditures exceeding lawfully appropriated amounts. The Supreme Court ordered arbitration, the Appellate Division reversed, but the New York Court of Appeals reversed the Appellate Division, holding that the matter was subject to arbitration and did not violate public policy. The Court emphasized New York’s strong policy favoring arbitration and the narrow scope of public policy exceptions.

Facts

Christa Construction, Inc. contracted with the Board of Education to perform school improvements. The contract was amended by several change orders. Disputes arose concerning the contract balance, change orders, and extra work performed. Christa Construction sought to resolve these disputes through arbitration, as provided in the contract.

Procedural History

The Supreme Court denied the Board of Education’s motion to stay arbitration and ordered the parties to proceed with arbitration. The Appellate Division reversed the Supreme Court’s order, staying arbitration. The Court of Appeals granted leave to appeal and reversed the Appellate Division’s order, reinstating the Supreme Court’s decision to compel arbitration.

Issue(s)

Whether an arbitration agreement between a construction company and a Board of Education is unenforceable on public policy grounds when the Board claims that enforcing the agreement would result in expenditures exceeding lawfully appropriated amounts.

Holding

No, because arbitration is a favored method of dispute resolution in New York, and the public policy exception raised by the Board of Education does not apply in this case.

Court’s Reasoning

The Court of Appeals emphasized the strong public policy in New York favoring arbitration as a means of dispute resolution, citing Matter of Weinrott [Carp], 32 NY2d 190, 199 and Sablosky v Gordon Co., 73 NY2d 133, 138. The Court noted that New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to arbitration, citing Matter of 166 Mamaroneck Ave. Corp. v 151 E. Post Rd. Corp., 78 NY2d 88, 93. While acknowledging that arbitration can be challenged on public policy grounds as in Hirsch v Hirsch, 37 NY2d 312, 315, the Court stated that this is a limited exception. The Court found that the Board of Education’s argument that enforcing the change orders through arbitration would violate Education Law § 1718 (1) did not qualify for the public policy exception, citing Matter of Port Wash. Union Free School Dist. v Port Wash. Teachers Assn., 45 NY2d 411, 418 and Matter of Board of Educ. v New York State Pub. Empl. Relations Bd., 75 NY2d 660. Therefore, the Court held that the arbitration agreement should be enforced.

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