New York Law Review

Tag: Scope of Arbitration Clause

  • Board of Education v. Watertown Education Association, 74 N.Y.2d 912 (1989): Determining Arbitrability in Collective Bargaining Agreements

    74 N.Y.2d 912 (1989)

    When an arbitration clause in a collective bargaining agreement is broad enough to encompass the subject matter of a dispute, the question of the scope of the substantive provisions of the contract is a matter of contract interpretation for the arbitrator, not the courts.

    Summary

    The Watertown Education Association sought arbitration, alleging the Board of Education violated their collective bargaining agreement by failing to distribute funds received under Education Law § 3602 (27) to a member. The Board argued the “Excellence in Teaching” (EIT) agreement was separate and not subject to arbitration. The Supreme Court granted the Board’s petition to stay arbitration. The Court of Appeals reversed, holding that the agreement to arbitrate was clear and broad and that determining whether the dispute fell within the scope of the arbitration provision was the arbitrator’s responsibility, not the court’s. The court emphasized that CPLR 7501 prohibits a court from considering the merits of the claim when arbitration is sought.

    Facts

    The Watertown Education Association (respondent) claimed that the Board of Education of the Watertown City School District (petitioner) violated their collective bargaining agreement, specifically exhibit B concerning the salary schedule. The Association alleged the Board failed to distribute funds received pursuant to Education Law § 3602 (27) to one of its members. These funds, known as EIT funds, were considered part of the teacher’s salary for the school year. The collective bargaining agreement contained an arbitration clause.

    Procedural History

    The Watertown Education Association sought arbitration. The Board of Education commenced a proceeding under CPLR 7503 to stay arbitration, arguing the EIT agreement was separate from the collective bargaining agreement. The Supreme Court vacated the demand for arbitration and granted the Board’s petition to stay arbitration, concluding the dispute was not arbitrable. The Appellate Division affirmed. The Court of Appeals reversed the Appellate Division’s order.

    Issue(s)

    Whether a dispute over the distribution of EIT funds, arguably covered by a separate agreement, falls within the scope of a broad arbitration clause in a collective bargaining agreement, thus requiring arbitration.

    Holding

    Yes, because the parties’ agreement to arbitrate is clear and unequivocal, and the arbitration clause in the collective bargaining agreement is broad enough to encompass the subject matter of the dispute. Any dispute as to the coverage of the substantive provisions of the contract is for the arbitrator to resolve.

    Court’s Reasoning

    The Court of Appeals emphasized that if the arbitration clause is broad enough to encompass the subject matter of the dispute, the scope of the substantive provisions is a matter of contract interpretation for the arbitrator. The court cited Board of Educ. v Barni, 49 NY2d 311, 314, stating, “[t]he question of the scope of the substantive provisions of the contract is itself a matter of contract interpretation and application, and hence it must be deemed a matter for resolution by the arbitrator.” The court also noted that CPLR 7501 prohibits courts from considering the merits of the claim when arbitration is sought. The arbitration clause defined a “grievance” as “[A] claim by any party to the contract that there has been a violation, misinterpretation or misapplication of: (a) law; (b) the employment contract; (c) by-laws and written policies or any unilateral attempt to change the terms and conditions of employment.” The court found that the Supreme Court improperly focused on the separate terms of the EIT agreement instead of determining whether the dispute fell within the scope of the collective bargaining agreement’s arbitration provision. The court emphasized that it was not the court’s role to inject itself into determining the underlying merits of this arbitrable contract dispute.

  • Matter of Perkins and Will Partnership v. Syska and Hennessy and Lehrer McGovern Bovis, 41 N.Y.2d 1045 (1977): Determining Arbitrability Based on Contract Language

    Matter of Perkins and Will Partnership v. Syska and Hennessy and Lehrer McGovern Bovis, 41 N.Y.2d 1045 (1977)

    Whether a dispute is arbitrable depends on whether the parties agreed to arbitrate the particular dispute, and this determination is initially for the courts unless the agreement contains a broad arbitration clause.

    Summary

    This case addresses the question of whether a dispute between an architect and its structural and mechanical engineers should be submitted to arbitration. The agreements between the architect and the engineers contained specific clauses addressing disputes related to arbitration between the architect and the owner, but not a broad arbitration clause covering all disputes. The New York Court of Appeals held that the dispute was not subject to arbitration because the parties had not agreed to arbitrate this specific type of dispute, and the architect’s remedy was to involve the engineers in the ongoing arbitration between the owner and the architect.

    Facts

    Perkins and Will Partnership (the architect) entered into agreements with Syska and Hennessy (structural engineers) and Lehrer McGovern Bovis (mechanical engineers) for a project. The agreements contained a clause (Paragraph 15) specifying that any decision resulting from arbitration between the architect and the owner relating to the engineers’ services would be binding on the engineers, provided they had the opportunity to participate. The architect had an ongoing arbitration with the owner and sought to compel the engineers to arbitrate their dispute as well.

    Procedural History

    The lower courts considered whether the dispute between the architect and the engineers was subject to arbitration based on the agreements. The Appellate Division determined that the engineers had not agreed to submit this specific dispute to arbitration. The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether the dispute between the architect and the engineers is subject to arbitration, or whether the architect’s exclusive remedy is to “vouch in” the engineers in the ongoing arbitration between the owner and the architect.

    Holding

    No, because the agreements between the architect and the engineers did not contain a broad arbitration clause calling for the arbitration of all disputes, and Paragraph 15 of each agreement specifically covered disputes of the type presently at issue by providing that “[a]ny decision or determination resulting from arbitration between the Architect and the Owner which relates to the Consultant’s services shall be binding upon the Consultant, provided that the Consultant has been afforded the opportunity to participate in the arbitration.”

    Court’s Reasoning

    The Court of Appeals emphasized that the determination of whether a dispute is arbitrable rests on whether the parties agreed to arbitrate the specific dispute. The court cited Nationwide Gen. Ins. Co. v. Investors Ins. Co. of Amer., 37 N.Y.2d 91, 95 (1975), stating, “[G]enerally it is for the courts to make the initial determination as to whether the dispute is arbitrable, that is ‘whether the parties have agreed to arbitrate the particular dispute’” (quoting Steelworkers v. American Mfg. Co., 363 U.S. 564, 570-571). In this case, the agreements between the architect and the engineers contained specific clauses regarding disputes related to arbitration between the architect and owner (Paragraph 15). The absence of a broad arbitration clause meant that the court, not an arbitrator, should decide arbitrability. Because the parties had addressed the matter in their agreements, the court found that the architect’s exclusive remedy was to vouch in the engineers in the ongoing arbitration with the owner. The court concluded that the Appellate Division was correct in its determination that the respondents had not agreed to submit this dispute to arbitration.

  • Blum Folding Paper Box Co. v. Friedlander, 27 N.Y.2d 35 (1970): Arbitrability Extends to Disputes ‘In Connection With’ an Agreement

    27 N.Y.2d 35

    Arbitration clauses should be interpreted broadly, encompassing disputes that are logically connected to the agreement, even if they do not arise literally and directly from its terms, especially when the dispute affects a party’s status and rights under the agreement.

    Summary

    This case concerns the scope of an arbitration clause in a stockholders’ agreement. Friedlander inherited stock subject to an agreement requiring arbitration of disputes. Her husband, an employee, was fired. The court addressed whether Friedlander could arbitrate the justness of her husband’s discharge, despite not being the employee herself. The Court of Appeals held that the discharge was arbitrable because her status as a qualifying stockholder was inextricably linked to her husband’s employment. A broad interpretation of the arbitration clause allowed for arbitration of disputes connected to the agreement.

    Facts

    Carole Friedlander became a stockholder in Blum Folding Paper Box Co. after inheriting shares from her father. The shares were subject to a stockholders’ agreement. Paragraph 6(b)(i) required the petitioner to be a “qualifying child,” meaning her husband had to be employed by the company for at least two years preceding her father’s death. Friedlander’s husband was subsequently discharged from his employment with the company. The stockholders’ agreement contained an arbitration clause (Paragraph 15(a)) that rendered arbitrable “the justness of a discharge” of an employee stockholder.

    Procedural History

    Friedlander sought to arbitrate the justness of her husband’s discharge. The lower court denied her motion to compel arbitration. The Appellate Division affirmed. Friedlander appealed to the New York Court of Appeals.

    Issue(s)

    Whether Friedlander, as a stockholder, can compel arbitration of the justness of her husband’s discharge from employment with the company, when the arbitration clause refers to the discharge of an employee stockholder, and Friedlander’s status as a stockholder is dependent on her husband’s employment.

    Holding

    Yes, because Friedlander’s status as a qualifying stockholder is inextricably linked to her husband’s employment, and the arbitration clause should be interpreted broadly to encompass disputes logically connected to the agreement.

    Court’s Reasoning

    The court reasoned that while the arbitration clause (paragraph 15(a)) did not literally encompass the discharge of Friedlander’s husband (since she, not he, was the stockholder), his employment was necessary for her to qualify as a stockholder. The court emphasized the interdependency of Friedlander’s status as a qualifying stockholder and her husband’s employment. The court considered the ramifications of the husband’s possibly unjust discharge, including its effect on Friedlander’s continued qualification as a stockholder, her rights under the agreement, and the disposition of her stock.

    The court cited CPLR 7501 and Matter of Exercycle Corp. (Maratta) (9 N.Y.2d 329) to support its view that arbitrability should be interpreted broadly, forbidding judicial interference with disputes logically connected with the agreement. To require a literal and direct connection to the agreement would revert to a practice of judicial control disavowed in Exercycle. The court also referenced Merrill Lynch, Pierce, Fenner & Smith v. Griesenbeck (28 A.D.2d 99, affd. 21 N.Y.2d 688), noting its adoption of a broader, less literal approach to arbitrability.

    The court clarified that its decision was limited to determining whether the question of interpretation regarding the scope of the arbitration clause was for the arbitrator to decide, not whether the term “stockholder” in paragraph 15(a) included a stockholder’s husband. The ultimate decision on the merits remained with the arbitrator.