New York Law Review

Tag: Arbitration

  • Matter of Associated General Contractors, N.Y. Chapter, Inc. v. Savin Bros., Inc., 36 N.Y.2d 957 (1975): Enforceability of Arbitrator’s Decisions on Penalties

    Matter of Associated General Contractors, N.Y. Chapter, Inc. v. Savin Bros., Inc., 36 N.Y.2d 957 (1975)

    When parties agree to arbitrate disputes, the arbitrator’s determination, including questions of law like whether a damages clause is an unenforceable penalty, are generally binding and not subject to judicial review unless a strong public policy is violated.

    Summary

    Associated General Contractors sought arbitration against Savin Bros. for breach of their membership agreement, specifically regarding a liquidated damages clause. The arbitrators found Savin Bros. in violation and upheld the damages clause. Savin Bros. argued the clause was an unenforceable penalty. The New York Court of Appeals held that because Savin Bros. agreed to arbitration, the arbitrator’s decision on the penalty issue was binding, absent a significant violation of public policy. The court emphasized the public policy favoring arbitration in collective bargaining disputes.

    Facts

    Savin Bros. was a member of Associated General Contractors, a multi-employer collective bargaining association.

    The membership agreement stipulated that disputes over breaches would be submitted to arbitration.

    If a breach was found, damages would be awarded to the association, calculated as no less than three times the daily liquidated damage amount in Savin Bros.’ construction contracts for each day of violation.

    A dispute arose, and the association demanded arbitration, alleging Savin Bros. breached the agreement.

    Procedural History

    The arbitrators ruled that Savin Bros. violated the agreement for 58 days and awarded $104,400 in damages, finding the liquidated damages clause reasonable and not a penalty.

    The association moved to confirm the arbitration award.

    Savin Bros. cross-moved to vacate the award, arguing the damages clause was an unenforceable penalty.

    Special Term granted the motion to confirm and denied the cross-motion.

    The Appellate Division affirmed, although a majority agreed the damages clause imposed a penalty.

    The New York Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether an arbitrator’s decision regarding the enforceability of a liquidated damages clause as a penalty is subject to judicial review when the parties have agreed to arbitration.

    Holding

    No, because having chosen arbitration, Savin Bros. was bound by the arbitrator’s determination that the damages clause was not a penalty, and judicial intervention is unwarranted absent a strong showing of public policy violation.

    Court’s Reasoning

    The court emphasized that by agreeing to arbitration, the parties submitted questions of law to the arbitrator’s judgment. As stated, “Once the issue is before the arbitrators, questions of law are for determination by them and are not open to resolution by judicial intervention”.

    The court acknowledged a public policy favoring peaceful dispute resolution through arbitration, especially in collective bargaining contexts. It noted the absence of third-party interests that would necessitate judicial intervention.

    The court distinguished the case from those involving a violation of a strong public policy, such as in *Matter of Aimcee Wholesale Corp. [Tomar Prods.]* and *Matter of Allied Van Lines [Hollander Express & Van Co.]*.

    The court effectively deferred to the arbitrator’s expertise and the parties’ agreement to resolve disputes through arbitration, reinforcing the limited scope of judicial review in such cases.

  • Matter of Riccardi (Modern Silver Linen Supply Co., Inc.), 36 N.Y.2d 945 (1975): Enforceability of Arbitration Agreements and Restrictive Covenants

    Matter of Riccardi (Modern Silver Linen Supply Co., Inc.), 36 N.Y.2d 945 (1975)

    A broad arbitration clause in a contract is enforceable unless the restrictive covenants within the contract are facially violative of common-law rules or statutory prohibitions regarding restraints on employment opportunities or economic competition; the question of whether a subsequent contract supersedes earlier agreements is a matter for the arbitrators.

    Summary

    Riccardi, a former employee, sought to stay arbitration initiated by Modern Silver Linen Supply Co., Inc., his former employer, concerning alleged breaches of non-compete covenants in three employment contracts. Riccardi argued the contracts lacked mutuality, the covenants were in restraint of trade, and the third agreement superseded the first two. The Court of Appeals held that the arbitration clause was enforceable because the restrictive covenants were not facially illegal and the question of contract supersession was for the arbitrators to decide. The employer’s unilateral right to seek arbitration or legal action to enforce the restrictive covenant does not invalidate the agreement.

    Facts

    Modern Silver Linen Supply Co. sought arbitration against Riccardi, a former employee, alleging he violated restrictive covenants not to compete, as contained in three employment contracts. Each contract contained a broad arbitration clause covering all controversies or claims arising from the agreement. Riccardi initiated a proceeding to stay the arbitration.

    Procedural History

    Riccardi commenced a proceeding under CPLR 7503 to stay arbitration. The lower courts’ decisions are not explicitly stated in the opinion, but the Court of Appeals affirmed the order of the Appellate Division, implying that the lower courts had denied the stay of arbitration.

    Issue(s)

    1. Whether the arbitration agreements were unenforceable due to a lack of mutuality because the employer retained the right to seek either arbitration or legal action to enforce the restrictive covenant.
    2. Whether the arbitration should be stayed because the restrictive covenants were in restraint of trade and violated state and federal antitrust policy.
    3. Whether the question of whether a third contract superseded the first two agreements was a matter for the court or for the arbitrators to decide.

    Holding

    1. No, because the employer’s unilateral right to seek arbitration or legal action for enforcement of the restrictive covenant does not invalidate an otherwise enforceable agreement where all other obligations and provisions are reciprocal.
    2. No, because the restrictive covenant, on its face, does not violate common-law rules applicable to restraints in employment opportunities or economic competition, nor does it fall within statutory prohibitions.
    3. The question of whether the third contract superseded the first two agreements is a matter for the arbitrators to decide because there is a broad arbitration provision.

    Court’s Reasoning

    The Court reasoned that the employer’s option to pursue arbitration or legal action to enforce the restrictive covenant did not create a lack of mutuality sufficient to invalidate the contract. The court distinguished the cases cited by the petitioner, noting that in those cases, the option to invoke arbitration as to the whole contract was vested in one party, whereas here, all other obligations were reciprocal. The court relied on Matter of Exercycle Corp. [Maratta], 9 NY2d 329, 335, noting that restrictive covenants by their nature, operate to protect the promisee and do not by themselves invalidate an otherwise enforceable agreement.

    Regarding the restraint of trade argument, the Court distinguished Matter of Aimcee Wholesale Corp. (Tomar Prods.), 21 NY2d 621, finding that the present case did not involve an issue of overriding public policy significance that would necessitate judicial intervention. The court emphasized that the restrictive covenant did not facially violate common-law rules or statutory prohibitions relating to restraints on employment or economic competition.

    Finally, the Court stated that the issue of whether the third contract superseded the first two was a matter for the arbitrators, citing Matter of Lipman [Haeuser Shellac Co.], 289 NY 76. The Court emphasized that where a broad arbitration provision exists, the interpretation and application of the contract, including the question of supersession, are within the scope of the arbitrators’ authority.

  • Smithtown Gen. Hosp. v. Simons, 42 N.Y.2d 942 (1977): Fulfillment of Conditions Precedent to Arbitration

    Smithtown General Hospital v. Simons, 42 N.Y.2d 942 (1977)

    Fulfillment of conditions precedent to arbitration is a question for the court, not the arbitrator, to determine at least initially.

    Summary

    This case concerns a dispute over whether certain conditions precedent to arbitration, as outlined in a partnership agreement and a stockholders’ agreement, had been met before initiating arbitration proceedings. The New York Court of Appeals held that the fulfillment of these conditions precedent is a matter for the court to decide, at least in the first instance, not the arbitrator. This decision emphasizes the court’s role in ensuring that parties adhere to the agreed-upon procedures for resolving disputes before resorting to arbitration.

    Facts

    The appellant sought to reverse an order staying two arbitration proceedings she had commenced. One proceeding was against Smithtown General Hospital, a partnership, under a partnership agreement. The other was against Opan Realty Corp., the owner of the hospital property, under a corporate stockholders’ agreement. The stockholders were the same individuals as those who comprised the partnership. The partnership agreement dictated that disputes first be submitted to the partnership for determination, and a decision by 80% or more of the “capital contributions” would be final, barring arbitration. The stockholders’ agreement incorporated these partnership provisions regarding dispute resolution.

    Procedural History

    The appellant initiated arbitration proceedings. The lower court stayed the arbitration. The Appellate Division affirmed the stay. The appellant then appealed to the New York Court of Appeals.

    Issue(s)

    Whether fulfillment of conditions precedent to arbitration, as defined in the partnership and stockholders’ agreements, is a question for the court or the arbitrator to decide.

    Holding

    No, because fulfillment of conditions precedent to arbitration is a question, at least initially, for the court, not the arbitrator, to determine.

    Court’s Reasoning

    The Court of Appeals stated that while a liberal approach is taken when determining what matters are arbitrable, the parties’ established procedure for resolving disputes within the partnership and corporation must be followed before arbitration can be sought. The court cited several cases, including Matter of Raisler Corp. [N. Y. City Housing Auth.], 32 NY2d 274, 282; Matter of Wilaka Constr. Co. [N. Y. City Housing Auth.] 17 NY2d 195, 198-199; and Matter of Exercycle Corp. [Maratta], 9 NY2d 329, 334-335, to support its holding. These cases establish the principle that courts have the initial responsibility to determine whether parties have complied with conditions precedent to arbitration as outlined in their agreements. The court emphasized the importance of upholding the parties’ agreed-upon dispute resolution mechanisms. The court implied that allowing an arbitrator to decide whether such conditions were met would undermine the parties’ contractual intent and potentially force arbitration upon parties who had not yet exhausted the agreed-upon preliminary steps. The court did not explicitly address any dissenting or concurring opinions, as the decision was rendered per curiam, indicating a unanimous agreement among the judges. The ruling reinforces the principle that parties must adhere to the specific procedures they’ve established for dispute resolution before resorting to arbitration, and that courts have a role in ensuring such adherence.

  • Matter of Bernstein v. On-Location, Inc., 40 N.Y.2d 749 (1976): Enforceability of Arbitration Awards and Limited Judicial Review

    Matter of Bernstein v. On-Location, Inc., 40 N.Y.2d 749 (1976)

    Arbitration awards are subject to very limited judicial review, and errors of law or fact made by arbitrators are generally not grounds for overturning an award.

    Summary

    This case concerns a dispute over an arbitration award between a subcontractor (Bernstein) and an owner (On-Location, Inc.). The central issue was whether the arbitrators exceeded their authority by including a $138,500 item in their accounting, even if it had been previously paid. The Court of Appeals held that the arbitration award was enforceable, emphasizing the extremely limited scope of judicial review of arbitration decisions. The Court reasoned that even if the arbitrators made errors in their accounting, such errors are beyond judicial correction, as the subject of the controversy was always how much the owner still owed, on balance, to the subcontractor.

    Facts

    A dispute arose between Bernstein, a subcontractor, and On-Location, Inc., the owner, regarding an outstanding balance. The parties submitted their dispute to arbitration. The arbitration submission, as well as the Appellate Division’s order preceding the final arbitration award, made indirect reference to the items of claim. The arbitration aimed to determine the amount of money due to the subcontractor from the owner.

    Procedural History

    The case involved multiple stages of arbitration and judicial review. The arbitrators issued a third and final award, clarifying the amount due to the subcontractor as $181,895.63. The Appellate Division affirmed the award. The owner appealed to the Court of Appeals, arguing that the arbitrators exceeded their authority. The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether the arbitrators exceeded the scope of the resubmitted issues by including a $138,500 item in their accounting, even if that item had been previously paid, and whether any errors made by the arbitrators in the accounting are subject to judicial review.

    Holding

    No, because the subject of the controversy was always how much the owner still owed, on balance, to the subcontractor, and the fact-finding and law determination process by the arbitrators is beyond judicial review or correction. Any errors made by the arbitrators in their accounting, whether of fact or law, are beyond review.

    Court’s Reasoning

    The Court of Appeals emphasized the limited scope of judicial review in arbitration matters, citing Matter of Associated Teachers of Huntington v Board of Educ., 33 NY2d 229, 235. The court stated that “the fact-finding and law determination process by the arbitrators is beyond judicial review or correction.” The court reasoned that the core issue was the outstanding balance owed by the owner to the subcontractor. The arbitrators determined that the debit balance due to the subcontractor was $181,895.63. The court clarified that even if the $138,500 item had been previously paid, the arbitrators were tasked with reconstructing the account between the parties, debiting costs and crediting payments. The court concluded that the owner could not challenge the award by arguing that the arbitrators exceeded the scope of the resubmitted issues, as that would indirectly accomplish an impermissible review of the arbitrators’ factual and legal determinations. As the court stated, “If they made any errors in the accounting, whether of fact or law, they are beyond review, and, of course, there is no record before this court to show whether the arbitrators made any error or were correct.”

  • Board of Education v. Poughkeepsie Public School Teachers’ Association, 35 N.Y.2d 599 (1974): Concurrent Pursuit of Contract Grievance and Statutory Remedies

    Board of Education v. Poughkeepsie Public School Teachers’ Association, 35 N.Y.2d 599 (1974)

    Parallel procedures challenging a school district’s refusal to appoint a teacher, one an appeal to the Commissioner of Education and the other a contract grievance including arbitration, may proceed concurrently when the collective bargaining agreement does not explicitly prohibit it and the grounds for relief are discrete.

    Summary

    This case addresses whether a teacher and the teachers’ union can pursue both a statutory appeal to the Commissioner of Education and a contractual grievance procedure, including arbitration, simultaneously. The New York Court of Appeals held that, in the specific circumstances, both procedures could continue concurrently because the collective bargaining agreement did not explicitly preclude it, both remedies were pursued diligently, and the grounds for relief under each were distinct. This case clarifies the circumstances where parallel remedies are permissible in disputes involving collective bargaining agreements and statutory rights in the education context.

    Facts

    Raylene Shayo, a tenured teacher, applied for a first-grade teaching position after her prior role was eliminated. The school board did not act favorably on her application. The teacher, and the Poughkeepsie Public School Teachers Association (the union), believed this was unjust. On April 5, 1972, the teacher filed an appeal with the State Commissioner of Education under Section 310 of the Education Law. Simultaneously, the union initiated a grievance procedure per their collective bargaining agreement, alleging a violation of the agreement’s promotional policy. The grievance procedure included internal stages and final, binding arbitration.

    Procedural History

    The teacher filed a section 310 appeal and the union started grievance procedures on the same day. The superintendent’s designee dismissed the grievance due to the pending appeal. The Board of Education answered the section 310 proceeding. The union requested a Stage 3 grievance hearing, but the board declined, citing the pending appeal. The union then demanded arbitration. The Board of Education sought a stay of arbitration, which Special Term granted. The Appellate Division reversed, dismissing the petition for a stay and remitting to arbitration. The Court of Appeals then reviewed the Appellate Division’s decision.

    Issue(s)

    1. Whether the pursuit of an appeal to the Commissioner of Education under Section 310 of the Education Law waives or abandons the right to pursue grievance procedures, including arbitration, under a collective bargaining agreement for the same underlying dispute.

    2. Whether a contractual time limitation for demanding arbitration is a threshold question for the court or an issue of procedural arbitrability for the arbitrator.

    Holding

    1. No, because both remedies were pursued concurrently and diligently, the collective bargaining agreement did not explicitly exclude the specific type of claim, and the grounds for relief under each procedure were discrete.

    2. The issue is one of procedural arbitrability for the arbitrator, because the time limitation arises from the agreement itself and is necessary for interpreting and applying the agreement to resolve the grievance.

    Court’s Reasoning

    The Court of Appeals reasoned that the collective bargaining agreement did not explicitly exclude the teacher’s claim from the grievance procedure. Section 2.1 of Article XXIV excluded disciplinary proceedings and matters of compensation appealable to the Commissioner, but the teacher’s claim for appointment did not fall within these exclusions. The court emphasized that both the Section 310 appeal and the grievance procedures were initiated and pursued concurrently and diligently. Therefore, neither remedy was waived or abandoned. The court stated, “While the school board indicated a clear preference for the section 310 track, the conduct of the teacher and the union discloses only a calculated intention to pursue both remedies concurrently and vigorously.”

    The Court also distinguished the grounds for relief. The Commissioner of Education addressed the claim under Section 2510 of the Education Law, while the arbitration was based on Sections 1.1 and 1.2 of Article XI of the collective bargaining agreement. These were distinct issues.

    Regarding the time limitation for demanding arbitration, the court cited Long Is. Lbr. Co. [Martin], 15 N.Y.2d 380, holding that because the 10-day limitation arose from the parties’ agreement, its application was a procedural matter for the arbitrator to decide. The court clarified that since the arbitration clause contemplated arbitration as to the interpretation and application of the agreement, the arbitrator should determine whether the union met the contractual deadline. The court noted, “Since the 10-day limitation of time is found in a provision of the agreement, it would seem that a decision as to its application would be procedurally necessary to a determination of the grievance here.”

  • 3 Mitchell Place, Inc. v. D’Angelo, 34 N.Y.2d 310 (1974): Waiver of Arbitration Rights by Litigating Separate Claims

    3 Mitchell Place, Inc. v. D’Angelo, 34 N.Y.2d 310 (1974)

    Resort to the courts on some claims arising from an agreement does not waive the right to arbitrate separate and distinct claims arising under the same agreement if the agreement remains in full force.

    Summary

    This case addresses whether a party waives their right to arbitrate disputes under a shareholder’s agreement by initiating court actions regarding different, though related, disputes under the same agreement. The New York Court of Appeals held that initiating court actions on specific claims does not automatically waive the right to arbitrate other, distinct claims arising from the same agreement, especially when the opposing party acquiesced to the dual-forum approach. However, the court strongly cautioned against the inefficient and abusive practice of splitting disputes between forums, advocating for comprehensive resolution by a single arbitrator.

    Facts

    Shareholders of 3 Mitchell PL, Inc., which operated the Beekman Tower Hotel, entered into a shareholder’s agreement with a broad arbitration clause. A dispute arose over a proposed management agreement. D’Angelo demanded arbitration in May 1970. While arbitration was pending, D’Angelo commenced actions in court relating to a mortgage loan and alleged diversion of corporate funds, all arguably connected to the shareholder agreement. The other shareholders then sought to prevent D’Angelo from pursuing the initial arbitration and subsequent arbitrations.

    Procedural History

    D’Angelo initiated arbitration, followed by several court actions. 3 Mitchell Place, Inc. then commenced a proceeding to stay arbitration. The lower court stayed arbitration, denying a motion to dismiss the petition. The Appellate Division affirmed. The New York Court of Appeals then reviewed the case.

    Issue(s)

    Whether commencing several court actions against other parties to a shareholders’ agreement on causes of action arising from that agreement constitutes a waiver of the party’s right to arbitrate different issues arising under the same agreement.

    Holding

    No, because as to claims separate and distinct, no waiver of arbitration may be implied from the fact that resort has been made to the courts on other claims arising under a common agreement which remains in full force and effect.

    Court’s Reasoning

    The court acknowledged that D’Angelo pursued an “unorthodox course” by proceeding in both judicial and arbitral forums. However, because the claims in the court actions were distinct from those submitted to arbitration, and the other shareholders did not initially object to the court actions, D’Angelo did not waive his right to arbitrate. The court emphasized that 3 Mitchell Place, Inc. had the opportunity to stay the court actions and compel arbitration initially, but they did not. The court stated, “When the actions were brought, the petitioners had the right under the shareholders’ agreement to stay the actions and compel arbitration, but they did not do so. At this late date, the petitioners, having acquiesced in that course, should not be heard to claim that respondent has waived his right to proceed in arbitration on claims not previously presented to the courts.” The court also strongly discouraged the practice of “flitting between forums,” viewing it as an abuse of both the arbitration process and the courts. The court advocated for a comprehensive resolution of all disputes before a single arbitrator.

  • Aetna Casualty & Surety Co. v. Stekardis, 34 N.Y.2d 182 (1974): Enforcing Deadlines for Staying Arbitration

    Aetna Casualty & Surety Co. v. Stekardis, 34 N.Y.2d 182 (1974)

    Failure to move to stay arbitration within the statutory period (then 10 days) constitutes a bar to judicial intrusion into arbitration proceedings.

    Summary

    This case addresses the enforceability of the statutory deadline to move for a stay of arbitration. Respondents, injured in a car accident involving an unidentified truck, sought uninsured motorist benefits from Aetna, their insurer, and demanded arbitration. Aetna moved to stay arbitration, arguing lack of coverage under the policy and procedural defects in the demand. However, Aetna’s motion was filed after the statutory deadline. The Court of Appeals held that failure to timely move for a stay of arbitration precludes judicial intervention, even on substantive issues like coverage. The court emphasized the importance of adhering to the statutory timeframe to maintain the integrity of the arbitration process.

    Facts

    Respondents were involved in a multi-vehicle accident. An unidentified truck carrying furniture collided with a car in front of the Stekardis vehicle, causing a dresser to fall. The Stekardis car then collided with another vehicle. Respondents, asserting that the unidentified truck caused the accident, filed uninsured motorist claims with Aetna, their insurer, and demanded arbitration.

    Procedural History

    Aetna moved to stay arbitration, but the motion was filed after the 10-day statutory deadline. Special Term denied Aetna’s motion on the merits, finding coverage. The Appellate Division affirmed, but solely on the grounds that the motion for a stay was untimely. The dissenting justice would have reversed and granted the stay based on lack of coverage and procedural defects. The New York Court of Appeals then reviewed the case.

    Issue(s)

    Whether a motion to stay arbitration, filed after the statutory deadline, can be entertained by the courts, allowing judicial review of arbitrability despite the late filing.

    Holding

    No, because the failure to bring a motion within the statutory time frame precludes judicial intervention into the arbitration process. CPLR 7503’s strict deadline is designed to ensure the swift resolution of arbitration disputes, and allowing late motions would undermine this purpose.

    Court’s Reasoning

    The Court of Appeals emphasized the mandatory nature of CPLR 7503(c), which sets a strict deadline for moving to stay arbitration. The court reasoned that the statute’s intent is to provide a limited window for judicial intervention to determine whether a valid agreement to arbitrate exists and whether the agreement has been complied with. Once that window closes, the court’s role is significantly curtailed.

    The court noted that Aetna’s arguments regarding lack of coverage could have been raised in a timely motion under CPLR 7503(c). By failing to do so, Aetna waived its right to a judicial determination on those issues.

    The court explicitly disagreed with a Third Department case that reached the opposite conclusion, emphasizing the importance of a uniform interpretation of CPLR 7503. The court stated that “[t]o hold that even if he does not bring a 10-day motion to which he is entitled, a litigant may nonetheless bring the same motion after the expiration of the 10-day period, would obviously be to emasculate the statute.”

    The court also clarified that because Aetna’s application was untimely, the court had no authority to make any judicial determination as to the scope of the arbitrators’ jurisdiction. The court’s role is limited to enforcing the statutory deadline, not reviewing the merits of the arbitrability dispute.

  • J.P. Stevens & Co. v. Rytex Corp., 34 N.Y.2d 123 (1974): Arbitrator Disclosure Requirements

    J.P. Stevens & Co. v. Rytex Corp., 34 N.Y.2d 123 (1974)

    Arbitrators must disclose any facts that might reasonably support an inference of bias before arbitration proceedings begin; failure to do so is grounds to vacate the arbitration award.

    Summary

    Rytex Corp. sought to vacate an arbitration award favoring J.P. Stevens & Co., Inc., alleging bias due to the arbitrators’ failure to disclose significant business relationships with Stevens. The arbitrators, employed by Deering Milliken, Inc. and Kenyon Piece Dyeworks, respectively, did substantial business with Stevens. Rytex argued that these undisclosed relationships created a presumption of bias. The court held that arbitrators must disclose any relationships that could reasonably cause a party to seek disqualification. Because the arbitrators failed to disclose these relationships, the arbitration award was vacated.

    Facts

    Rytex and Stevens entered into a service agreement in 1966, which included an arbitration clause for dispute resolution. A dispute arose, and Rytex initiated arbitration. The American Arbitration Association (AAA) provided a list of potential arbitrators. The parties agreed on James T. Burnish, employed by Deering Milliken, Inc. The AAA administratively appointed Philip J. Kaplan and Gerard Jerry Lincer, employed by Kenyon Piece Dyeworks. The AAA disclosed Lincer’s employer. Rytex did not object to Burnish or Lincer’s selection before the arbitration. An award was issued in favor of Stevens, signed by all three arbitrators. Rytex then claimed arbitrator bias.

    Procedural History

    Rytex sought to vacate the arbitration award in the lower court. The Appellate Division reversed the lower court’s decision and vacated the arbitration award, finding the business relationship between the arbitrators’ employers and Stevens to be substantial enough to create an inference of bias. Stevens appealed to the New York Court of Appeals.

    Issue(s)

    Whether the failure of an arbitrator to fully disclose a business relationship with one of the parties to the arbitration proceeding constitutes grounds to vacate the arbitration award under CPLR 7511.

    Holding

    Yes, because the failure of an arbitrator to disclose facts which reasonably may support an inference of bias is grounds to vacate the award under CPLR 7511.

    Court’s Reasoning

    The court emphasized the importance of arbitrator disclosure to maintain the integrity of the arbitration process. It noted that arbitration is a consensual arrangement, and parties should have the opportunity to assess potential bias before proceedings begin. The court cited the AAA’s rule requiring arbitrators to disclose any circumstances likely to create a presumption of bias, stating that “any doubt should be resolved in favor of disclosure.” The court found that the substantial business relationship between the arbitrators’ employers (Deering and Kenyon) and Stevens ($2.5 million annually) was a fact that should have been disclosed. Failure to disclose this relationship warranted vacating the arbitration award. The court reasoned that while parties have some responsibility to inquire into potential conflicts, the primary burden of disclosure rests on the arbitrator, given their quasi-judicial role. The court clarified that not every business relationship warrants disqualification, but all arbitrators should disclose any relationships, direct or indirect, that they have with any party to the arbitration. As stated by the court, “all arbitrators before entering upon their duties should make known any relationship direct or indirect that they have with any party to the arbitration, and disclose all facts known to them which might indicate any interest or create a presumption of bias.”

  • W.M. Girvan, Inc. v. Robilotto, 33 N.Y.2d 425 (1974): Arbitrator’s Authority and Contract Interpretation

    33 N.Y.2d 425 (1974)

    An arbitrator’s decision should be upheld if it draws its essence from the collective bargaining agreement, even if the court disagrees with the arbitrator’s interpretation of the facts or the contract.

    Summary

    W.M. Girvan, Inc. (the employer) appealed a decision upholding an arbitration award that overturned the dismissal of two employees accused of dishonesty involving theft, instead imposing suspensions. The Court of Appeals affirmed, holding that the arbitrator acted within the scope of the broad arbitration clause in the collective bargaining agreement. The court reasoned that the arbitrator’s determination of whether “just cause” existed for discharge was the central issue, and the court should not disturb that conclusion, even if the arbitrator’s decision about whether the actions constituted “dishonesty involving theft” was questionable.

    Facts

    Two employees of W.M. Girvan, Inc. were observed transferring merchandise from the employer’s delivery truck to a station wagon owned by one of them.

    The employer discharged the employees based on this conduct, claiming “dishonesty involving theft.”

    The union protested the dismissals, leading to arbitration before a single arbitrator after waiving arbitration before a grievance committee.

    Procedural History

    The union challenged the employer’s decision, leading to an arbitration. The arbitrator set aside the dismissals but imposed periods of suspension without pay.

    The employer applied to vacate the arbitration award. The lower court denied the application.

    The Appellate Division affirmed the lower court’s decision. W.M. Girvan, Inc. appealed to the Court of Appeals.

    Issue(s)

    Whether the arbitrator exceeded his authority by overturning the dismissal of the employees, when the employer argued their conduct constituted “dishonesty involving theft” which, under the agreement, allowed for immediate termination without warning.

    Holding

    No, because the arbitrator’s decision that “just cause” for discharge was not established was the central issue, and his decision should not be disturbed since the arbitration clause was very broad and the arbitrator’s decision drew its essence from the collective bargaining agreement.

    Court’s Reasoning

    The court emphasized the broad nature of the arbitration clause, which embraced “[g]rievances [not otherwise defined or limited] which cannot be settled between the parties.”

    The court stated that the arbitrator’s role was to determine whether “just cause” existed for the discharge, a broad standard that the arbitrator resolved.

    The court reasoned that whether the conduct involved “dishonesty for theft” was only relevant to whether the employer needed to give a warning notice, a point not raised by the union and not submitted to the arbitrator.

    The court deferred to the arbitrator’s interpretation of the agreement and the facts, finding no basis to disturb the arbitrator’s conclusion that just cause for discharge was not established.

    The dissenting opinion argued that the arbitrator exceeded his authority by requiring the employer to prove a “proven theft” rather than simply “dishonesty involving theft,” thus rewriting the agreement. The dissent also asserted that the arbitrator’s imposition of suspension instead of dismissal deviated from the agreement.

    The dissent cited Steelworkers v. Enterprise Corp., 363 U.S. 593, 598 arguing the arbitrator substituted his own notion for the agreed words.

    The majority did not address the dissent’s points directly, but instead, re-iterated the limited scope of judicial review of arbitration awards.

  • Raisler Corp. v. New York City Housing Authority, 32 N.Y.2d 274 (1973): Arbitrator’s Authority and Judicial Review

    Raisler Corp. v. New York City Housing Authority, 32 N.Y.2d 274 (1973)

    Unless the arbitration agreement provides otherwise, an arbitrator’s decisions, even if they contain errors of law, are generally not subject to judicial review.

    Summary

    This case concerns the scope of an arbitrator’s authority and the extent to which courts can review arbitration awards. Raisler Corp. sought to confirm an arbitration award against the New York City Housing Authority and S. S. Silberblatt, Inc. The Housing Authority argued that Raisler failed to comply with conditions precedent to arbitration, an issue the Authority felt the arbitrator improperly refused to consider. Silberblatt contested the arbitrator’s award of damages directly against it. The New York Court of Appeals held that the arbitrator’s decisions were not subject to judicial review, even if they contained errors of law, and affirmed the confirmation of the award.

    Facts

    Raisler and Silberblatt had separate contracts with the Housing Authority for construction at the Mott Haven apartment complex. Raisler was the heating contractor, and Silberblatt provided temporary elevator service. Both contracts contained clauses requiring written notice of claims within five days of the event giving rise to the claim, which was a condition precedent to arbitration. Raisler made complaints about delays and lack of elevator service. After completion of the project, Raisler filed a detailed claim, which the Authority disputed as untimely. Raisler then filed a notice of intention to arbitrate. The Housing Authority filed a late petition to stay arbitration, which was denied.

    Procedural History

    Raisler initiated arbitration proceedings. The Housing Authority unsuccessfully sought to bring Silberblatt into the arbitration. Special Term compelled arbitration, and the Appellate Division affirmed. The Housing Authority challenged the arbitration award in Special Term, which confirmed it. The Appellate Division affirmed, and both the Housing Authority and Silberblatt appealed to the Court of Appeals.

    Issue(s)

    1. Whether the arbitrator’s failure to consider Raisler’s compliance with the conditions precedent to arbitration was a reviewable error.

    2. Whether the arbitrator exceeded his authority in awarding damages directly against Silberblatt.

    Holding

    1. No, because once a case is referred to arbitration, all questions of law are within the judicially unreviewable purview of the arbitrator.

    2. No, because the agreement between Silberblatt and the Housing Authority was broad enough to allow the arbitrator to do justice among the parties, and any error of law would be unreviewable.

    Court’s Reasoning

    The Court of Appeals emphasized the limited scope of judicial review in arbitration matters. It acknowledged that compliance with conditions precedent to arbitration is initially a question for the courts. However, the Housing Authority forfeited its right to judicial review by filing its petition for a stay of arbitration late. The court stated, “Once a case is referred to arbitration, ‘all questions of fact and of law are within the judicially unreviewable purview of the arbitrator.’” The court reasoned that even if the arbitrator incorrectly interpreted the law or refused to consider relevant evidence, such errors are not grounds for vacating the award unless the arbitration agreement specifies otherwise.

    Regarding Silberblatt’s appeal, the court interpreted the agreement between Silberblatt and the Housing Authority broadly, stating that the language “is, or may be, liable to the Authority or to such other contractor” permitted the arbitrator to do justice among the parties. It noted that even if the arbitrator made an error of law in holding Silberblatt directly liable to Raisler, such an error would not be subject to judicial review. The court emphasized that arbitrators are often not bound by strict rules of law and can decide issues as equity and justice require.

    The court concluded that the arbitrator’s determination, even if it deviated from what a court of law might have decided, was within the scope of submitted issues and not grounds for judicial intervention. The court stated, “Put another way, an arbitrator’s determination fairly made within the scope of submitted or submittable issues may not be considered an error because the determination would not or could not have been made in a court of law under applicable rules of law.”