Hackett v. Milbank, Tweed, Hadley & McCloy, 86 N.Y.2d 146 (1995)
An arbitration award interpreting a law firm partnership agreement regarding supplemental payments to withdrawing partners will be upheld unless it is totally irrational or violates a strong public policy, even if the arbitrator’s factual conclusions are incorrect.
Summary
Hackett, a former partner at Milbank, Tweed, sought supplemental payments upon his withdrawal to join another firm, as provided in the partnership agreement. Milbank, Tweed denied the payments based on a clause reducing payments in proportion to a withdrawing partner’s new income. An arbitrator upheld the agreement, finding it enforceable and that Hackett’s income precluded payments. The New York Court of Appeals reversed the lower courts’ decision to vacate the arbitrator’s award, holding that the arbitrator’s decision did not violate the public policy against restrictions on the practice of law, and the strong public policy favoring arbitration should be upheld.
Facts
Hackett was a partner at Milbank, Tweed, Hadley & McCloy. Upon withdrawing to join Fried, Frank, Harris, Shriver & Jacobson, he sought supplemental payments as authorized by the Milbank, Tweed partnership agreement. Milbank, Tweed’s partnership agreement (30th Amendment) provided for supplemental payments to withdrawing partners, but these payments were reduced dollar-for-dollar to the extent the withdrawing partner’s annual earned income exceeded $100,000. Hackett’s income at Fried, Frank exceeded this threshold, leading Milbank, Tweed to deny the payments.
Procedural History
Hackett initiated arbitration proceedings as required by the partnership agreement. The arbitrator upheld the agreement and denied Hackett’s claim. Hackett then challenged the arbitrator’s award in court. Supreme Court initially stayed the arbitration, but the Court of Appeals reversed, ordering arbitration. After the arbitrator’s decision, Supreme Court vacated the award, finding it violated public policy. The Appellate Division affirmed. The Court of Appeals then reversed the Appellate Division’s decision.
Issue(s)
Whether an arbitrator’s decision, upholding a law firm partnership agreement that reduces supplemental payments to withdrawing partners based on their new income, violates the public policy against restricting the practice of law.
Holding
No, because the arbitrator’s award, even if its factual conclusions are incorrect, does not on its face violate the public policy against restrictions on the practice of law and the strong public policy favoring arbitration.
Court’s Reasoning
The Court emphasized the strong public policy favoring arbitration. It noted that under CPLR 7511, an arbitration award can only be vacated under limited circumstances, such as corruption, fraud, misconduct, or if the arbitrator exceeded their power or the award violates a strong public policy. The Court found that the arbitrator’s determination that the supplemental payments were not intended to represent a withdrawing partner’s share of undistributed earned income was a factual finding that shouldn’t be second-guessed by the courts unless it violates public policy. The Court distinguished this case from Cohen v. Lord, Day & Lord and Denburg v. Parker Chapin Flattau & Klimpl, noting that the Milbank, Tweed agreement did not inherently discriminate against partners leaving for private practice, as the reduction in supplemental payments applied regardless of the source of the withdrawing partner’s income. The Court quoted the arbitrator’s finding that the provision was “competition neutral.” The Court also cited the policy favoring the routine enforcement of voluntary settlements, and found a similar public policy supported upholding arbitration awards. The court stated, “[W]here the parties have agreed to submit their dispute to binding arbitration, an award that is not clearly in violation of public policy should be given effect”.