New York Law Review

Tag: Scope of Arbitration

  • Everlast World’s Boxing Headquarters Corp. v. Joan Hansen & Co., 13 N.Y.3d 712 (2009): Scope of Arbitrator’s Authority Limited to Issues Presented

    Everlast World’s Boxing Headquarters Corp. v. Joan Hansen & Co., 13 N.Y.3d 712 (2009)

    An arbitrator’s authority extends only to those issues actually presented by the parties; an arbitrator cannot reconsider an award, even under the guise of clarification or modification, if the issue was not initially raised in the arbitration proceeding.

    Summary

    Everlast terminated its licensing agreement with Hansen. After arbitration, the panel ruled the termination invalid. Years later, a dispute arose over royalty payments beyond the original contract term. Hansen sought to reopen the arbitration to clarify whether it was owed royalties as long as its clients remained Everlast licensees, arguing the contract ‘expired’ not ‘terminated.’ The New York Court of Appeals held that the arbitrators lacked authority to consider this new issue because it was not presented during the initial arbitration. The key determination was the limited scope of the original dispute, which focused on the validity of the termination notice, not the interpretation of continuing compensation clauses after the contract’s expiration.

    Facts

    Everlast hired Hansen as a licensing agent in 1983. A 1994 contract stipulated Hansen would receive fees based on revenues from clients it secured. The contract had a five-year term with automatic renewal until December 31, 2004, unless terminated under specific conditions. Post-termination, Hansen was entitled to royalties for two years. In 2000, after Everlast’s parent company merged, Hansen sued, but the merger proceeded. In 2003, Everlast claimed Hansen breached the contract and terminated the agreement, leading Hansen to demand arbitration.

    Procedural History

    The arbitration panel found Everlast’s termination invalid in April 2005, requiring Everlast to pay Hansen as if the agreement was in full effect until its expiration date. Supreme Court confirmed the arbitration award. When Everlast ceased payments after 2006, Hansen sought a contempt order, which was denied because the court found the arbitrators hadn’t ruled on post-expiration payments. Hansen then sought to reopen the arbitration for clarification. Everlast sought a stay, which was denied by Supreme Court and affirmed by the Appellate Division. The Court of Appeals reversed, granting Everlast’s motion to stay further arbitration.

    Issue(s)

    Whether an arbitrator has the authority to reconsider an arbitration award to address an issue (specifically, the interpretation of a continuing compensation clause) that was not raised in the original arbitration proceeding.

    Holding

    No, because an arbitrator’s authority is limited to the issues presented by the parties in the original arbitration proceeding.

    Court’s Reasoning

    The Court of Appeals emphasized that an arbitrator’s authority extends only to issues presented by the parties. It cited Hiscock v. Harris, 74 NY 108, 113 (1878). The court reasoned that the initial arbitration focused on the validity of Everlast’s termination notice and whether Hansen’s actions justified termination under the contract. The issue of continuing compensation after the contract’s expiration, based on a different interpretation of the contract (expiration vs. termination), was a distinct matter not previously considered by the arbitrators. The court noted that at the time of the original arbitration decision, the controversy over post-expiration payments had not yet arisen. The court quoted its prior finding that “the issue of the interpretation of’ the continuing compensation provisions “was not a subject of the arbitration” and “the arbitrators did not rule on the meaning of ‘termination’ in those provisions, or what monies would be payable to Hansen once the [contract] ended on December 31, 2004”. The court held that Hansen could not use a request for clarification to introduce a new issue and expand the scope of the original arbitration. While Everlast conceded that Hansen could initiate a new arbitration proceeding regarding the continuing compensation matter, it successfully prevented the reopening of the original, completed arbitration. The court emphasized that a party cannot introduce new issues under the guise of seeking ‘clarification’ or ‘modification’ of a prior award.

  • Matter of Griesenbeck v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 28 N.Y.2d 690 (1971): Scope of Arbitration Agreements Limited to Transactions on the Exchange

    Matter of Griesenbeck v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 28 N.Y.2d 690 (1971)

    An arbitration clause limited to controversies arising out of transactions “made on the Exchange” does not extend to disputes arising from transactions made on other exchanges, even if those transactions are related.

    Summary

    Griesenbeck (defendant) sought to compel arbitration with Merrill Lynch (plaintiff) regarding losses sustained from copper futures contracts. Merrill Lynch purchased copper futures on the London Metal Exchange for Griesenbeck’s account, which was connected to Griesenbeck’s existing account with copper future contracts on the New York Commodities Exchange. The New York Court of Appeals held that the arbitration clause in the agreement between the parties, which covered controversies “arising out of any transaction in commodities made on the Exchange,” did not apply to transactions on the London Metal Exchange, even if those transactions related to the New York commodities exchange transactions. The Court affirmed the order denying arbitration.

    Facts

    Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) and Griesenbeck had a customer agreement that included an arbitration clause.
    The arbitration clause covered any controversy between a member and member firms arising out of any transaction in commodities made on the Exchange.
    Griesenbeck sustained losses on copper futures contracts and sought to compel arbitration.
    Merrill Lynch had purchased copper futures contracts short on the London Metal Exchange for Griesenbeck’s account.
    Griesenbeck also held copper futures contracts on the New York Commodities Exchange.
    The transactions on the London Metal Exchange were related to a drop in the price of copper on the New York Commodities Exchange.

    Procedural History

    The lower court initially ruled in favor of Merrill Lynch, denying Griesenbeck’s motion to compel arbitration.
    The Appellate Division affirmed the lower court’s decision.
    Griesenbeck appealed to the New York Court of Appeals.

    Issue(s)

    Whether an arbitration clause in an agreement between a customer and a brokerage firm, which provides for arbitration of controversies arising out of transactions made on a specific exchange, applies to transactions made on a different exchange, even if the transactions are related.

    Holding

    No, because the arbitration clause is limited to transactions made on the specified exchange and does not extend to transactions made on other exchanges, even if those transactions are related to activities on the specified exchange.

    Court’s Reasoning

    The Court reasoned that the plain language of the arbitration clause limited its scope to transactions made on the New York Commodities Exchange. The clause stated that it covered controversies “arising out of any transaction in commodities made on the Exchange.” The Court emphasized that the transaction at issue, the purchase of copper futures on the London Metal Exchange, was not a transaction made on the New York Commodities Exchange.
    The Court rejected the argument that the connection between the London Metal Exchange transactions and the New York Commodities Exchange transactions was sufficient to bring the dispute within the scope of the arbitration clause. The Court stated that even though the London Metal Exchange transaction was causally related to the drop in the price of copper on the New York Commodities Exchange, it was still a separate transaction. The court emphasized the importance of adhering to the plain language of the arbitration agreement.
    The dissenting opinion argued that the arbitration clause should be interpreted broadly, but the majority rejected this argument, stating that they have never applied arbitration clauses in contravention of their plain language. Judge Keating, in dissent, stated, “While it is true that in cases such as Matter of Exercycle Corp. (Maratta) (9 Y 2d 329) we have broadly interpreted arbitration clauses, we have never applied them in contravention of the plain language in which they are couched.”