Arbitration Archives - New York Appellate Digest

Arbitration, Civil Procedure, Employment Law, Unemployment Insurance

ARBITRATOR’S DECISION FINDING CLAIMANT WAS PROPERLY DISCHARGED FOR MISCONDUCT ENTITLED TO COLLATERAL ESTOPPEL EFFECT IN THE UNEMPLOYMENT INSURANCE PROCEEDING (THIRD DEPT).

The Third Department, reversing the Unemployment Insurance Appeal Board, determined the arbitration decision pursuant to the collective bargaining agreement should have been given collateral estoppel effect by the Administrative Law Judge (ALJ) in the unemployment insurance proceeding. The arbitrator found that the claimant engaged in misconduct warranting discharge. The arbitrator’s decision was issued prior to the ALJ’s decision. The ALJ found claimant did not engage in misconduct and was entitled to unemployment insurance benefits:

Although “the Board is not bound by arbitration decisions regarding [a] claimant’s discharge issued subsequent to the time the Board rendered its decision”… , the Board was informed of the arbitration decision prior to its decision. As such, the factual findings of the arbitrator should have been accorded collateral estoppel effect in relation to the final unemployment insurance decision, so long as the parties had a full and fair opportunity to litigate the misconduct issue at the arbitration hearing … . The fact that the arbitration decision was issued after the conclusion of the unemployment insurance hearing does not preclude its consideration for collateral estoppel purposes, as “the final factfinder in the administrative process is the Board, not the ALJ” … . As the Board indicated that the arbitrator’s decision was not part of the record before it — despite that decision being the focus of, and a copy of it annexed to, the employer’s administrative appeal — the matter must be remitted in order for the employer to submit the arbitration decision into the record and to provide an opportunity for claimant and the employer to provide additional evidence and testimony regarding the nature of the arbitration hearing … . Matter of Bruce (Town of N. Hempstead–Commissioner of Labor), 2020 NY Slip Op 03705, Third Dept 7-2-20

July 2, 2020/0 Comments/by Bruce Freeman

Arbitration, Civil Procedure, Insurance Law

PETITION TO STAY ARBITRATION IN THIS UNDERINSURED MOTORIST PROCEEDING WAS SERVED AFTER THE 20-DAY STATUTORY PERIOD FOR SERVICE AND WAS NOT SERVED IN THE MANNER REQUIRED BY THE STATUTE (CPLR 7503(c)); THEREFORE THE APPLICATION TO STAY ARBITRATION WAS JURISDICTIONALLY DEFECTIVE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the insurer’s (State Farm’s) notice and petition to stay arbitration was not served within the required 20 days and was not properly served. The petition therefore should have been dismissed:

… [T]he insured, Joyce Reid, sent State Farm Insurance Company (hereinafter State Farm) a demand for supplemental underinsured motorist (hereinafter SUM) arbitration, which was received by State Farm on February 14, 2019. On March 22, 2019, State Farm filed a notice of petition and petition seeking to temporarily stay the arbitration pending the completion of pre-arbitration discovery. That notice and petition were served upon counsel for Reid by first-class mail on March 22, 2019. …

CPLR 7503(c) requires that an application to stay arbitration be made within 20 days after service of a demand to arbitrate. “This limitation is strictly enforced and a court has no jurisdiction to entertain an untimely application” … . CPLR 7503(c) also directs that notice of an application to stay arbitration “shall be served in the same manner as a summons or by registered or certified mail, return receipt requested.”

… State Farm did not file its notice of petition and petition until March 22, 2019, which was beyond the 20-day statute of limitations. Consequently, the proceeding is time-barred … .

Moreover, State Farm’s notice of petition and petition to stay arbitration were served by regular first-class mail, rather than by registered or certified mail, return receipt requested. Since there was a lack of compliance with CPLR 7503(c), the present proceeding was jurisdictionally defective … . Matter of State Farm Ins. Co. v Reid, 2020 NY Slip Op 03517, Second Dept 6-24-20

June 24, 2020/0 Comments/by Bruce Freeman

Appeals, Arbitration, Contract Law

ALTHOUGH REFORMATION OF THE CONTRACT MAY HAVE CONSTITUTED REVERSIBLE ERROR HAD A COURT DONE IT, THE REFORMATION WAS APPROPRIATE IN THE CONTEXT OF AN ARBITRATION OF THIS COMPLEX COMMERCIAL DISPUTE; THE ARBITRATION AWARD WAS PROPERLY CONFIRMED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Oing, determined that, under the highly deferential standard of court-review of arbitration awards, the award here was properly confirmed, despite an error which might have required reversal if committed by a court. The underlying facts (the provisions of the contract) are too complex to fairly summarize here:

The arbitrator’s reason for inserting a $10 million deduction * * * [was] not in reliance on any of the provisions set forth in the [contract]. Among other arguments made to the arbitrator, petitioner requested that the relevant portion of the … agreement be reformed … . Although the arbitrator did not expressly so characterize his determination, reformation was, in substance, the permissible relief he granted (see Matter of SCM Corp. [Fisher Park Lane Co.], 40 NY2d 788, 792-793 [1976] [arbitrators have the power to fashion remedies, such as reformation, appropriate to the resolution of the dispute]). While a court’s grant of reformation based on this record might constitute reversible error, the arbitrator’s determination here passes muster, given the extremely limited scope of our review of an arbitration award (see American Intl Specialty Lines Ins. Co. v Allied Capital Corp., __ NY3d [*4]__, 2020 NY Slip Op 02529 [2020] [arbitrators routinely use their expertise to orchestrate expeditious resolutions to complex commercial legal disputes and courts are discouraged from becoming unnecessarily entangled in arbitrations]). … The result the arbitrator reached … is supportable as a reformation of the parties’ agreement, given the highly deferential standard of review accorded arbitration awards under CPLR article 75 … . Matter of Rose Castle Redevelopment II, LLC v Franklin Realty Corp., 2020 NY Slip Op 03293, First Dept 6-11-20

June 11, 2020/by Bruce Freeman

Arbitration, Constitutional Law, Contract Law

THE ARBITRATION AGREEMENT CALLED FOR NOTIFICATION OF AN ARBITRATION BY CERTIFIED MAIL; ALTHOUGH THE APPELLANT APPARENTLY NEVER PICKED UP THE MAILED NOTICE AND DID NOT APPEAR AT THE ARBITRATION, HER DUE PROCESS RIGHTS WERE NOT VIOLATED; THE PARTIES’ AGREEMENT ON THE METHOD OF SERVICE CONTROLS (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Miller, determined the appellant, a registered broker with the Financial Industry Regulatory Authority (FINRA), was bound by the notice requirements in the arbitration agreement. The agreement called for notification of an arbitration by certified mail. The appellant did not appear and her former client was awarded over $3 million. The appellant sought to vacate the award arguing that notification by mail deprived her of due process because she was often away from her residence and the client was aware she could be contacted by email. The certified mail notification was never picked up by the appellant:

… [I]n the context of binding arbitration, it is the parties’ consent which vests the authority in the arbitrator to decide a particular dispute. Accordingly, although the CPLR provides that a demand for arbitration, or a notice of intention to arbitrate, must be served “in the same manner as a summons or by registered or certified mail, return receipt requested” (CPLR 7503[c]), New York courts have long recognized that “parties to an arbitration agreement may prescribe a method of service different from that set forth in the CPLR” … . Indeed, “the parties may agree to other methods for service, either by stipulating the manner in the arbitration clause or, more generally, by adopting the arbitration rules of an arbitration agency” … . “Where . . . parties agree to the manner in which a demand for arbitration can be served, they do not have to comply with the service requirements established by CPLR 7503(c)” … . * * *

Where parties to an arbitration agreement have consented to an alternative method of service, “[t]he method of service by which parties have agreed to be bound must be complied with according to the exact terms thereof in order that the requirements of due process be satisfied” … . Matter of New Brunswick Theol. Seminary v Van Dyke, 2020 NY Slip Op 03114, Second Dept 6-3-20

June 3, 2020/by Bruce Freeman

Arbitration, Consumer Law

ARBITRATOR’S AWARD OF $63,000 UNDER THE LEMON LAW BASED UPON NOISES FROM THE VEHICLE WAS NOT SUPPORTED BY ADEQUATE EVIDENCE (FIRST DEPT).

The First Department, reversing Supreme Court, determined the arbitration award in this Lemon Law case was not supported by adequate evidence. Respondent Leonidou leased a BMW and brought an action under the Lemon Law (General Obligations Law 198-a) alleging noises impaired the value of the vehicle. The arbitrator awarded Leonidou nearly $63,000:

The Lemon Law applies to defects in car parts and workmanship that are expressly warrantied from defect by the manufacturer/dealer (see General Business Law § 198-a[b][1]). Under the statute, when a manufacturer is unable to correct a defect or condition that “substantially impairs” the value of the motor vehicle after a reasonable number of attempts, the manufacturer, at the option of the consumer, is required either to (1) replace the motor vehicle with a comparable motor vehicle or (2) accept return of the vehicle and refund the full purchase price to the consumer (General Business Law § 198-a[c][1]). It is undisputed that Leonidou was offered a replacement vehicle by BMW and the dealership in accordance with General Business Law § 198-a (c)(1). Leonidou exercised his option not to replace his vehicle.

Leonidou failed to present any evidence to show a defect in materials or workmanship that was covered by an express warranty … . Leonidou acknowledged that the noise issues did not affect the car’s safety or operation. He admitted that other drivers he knew, driving the same vehicle type, experienced similar noises, and BMW’s witnesses, who testified to their technical experience in repairing such vehicles, attested that the noises at issue were inherent in the SUV design due to its, inter alia, stiffer suspension for off-road conditions. There was no basis in this record to find that the noises otherwise substantially impaired the value of the vehicle to Leonidou … . Matter of BMW of N. Am., LLC v Leonidou, 2020 NY Slip Op 02858, First Dept 5-14-20

May 14, 2020/by Bruce Freeman

Arbitration

THE PARTIES DID NOT AGREE THAT THE INITIAL ‘PARTIAL’ ARBITRATION AWARD WAS A FINAL AWARD; THEREFORE THE ARBITRATORS HAD THE AUTHORITY TO REVISIT THE MATTER AND ISSUE A VALID FINAL AWARD (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Stein, reversing the Appellate Division, determined the arbitrators had the power to revisit a “partial final award” and issue a valid final award. The Appellate Division had held the doctrine of functus officio prohibited the arbitrators from revisiting the initial award:

… [T]he Appellate Division held, that the arbitration panel exceeded its authority because it violated the common law doctrine of functus officio … . Functus officio, Latin for “having performed [one’s] office” … , has operated historically as a restriction on the authority of arbitrators, precluding them from taking additional actions after issuing a final award. As this Court stated well over one hundred years ago, “[a]s soon as [the arbitrators] have made and delivered their award, they become functus officio, and their power is at an end. After having once fully exercised their judgment upon the facts submitted to them and reached a conclusion which they have incorporated into their award, they are not at liberty at another and subsequent time to exercise a fresh judgment on the case and alter their award” … . * * *

This Court has not had occasion to determine whether or under what circumstances parties may agree to the issuance of a final award that disposes of some, but not all, of the issues submitted to the arbitrators; nor must we resolve that question in this case. Even assuming that parties to an arbitration may agree to the issuance of a partial determination that constitutes a final award, the parties here, as the arbitration panel below concluded, did not reach any such agreement. American Intl. Specialty Lines Ins. Co. v Corporation, 2020 NY Slip Op 02529, Second Dept 4-30-20

April 30, 2020/by Bruce Freeman

Arbitration, Contract Law

NONSIGNATORY NOT BOUND BY ARBITRATION CLAUSE IN ENGAGEMENT LETTER (FIRST DEPT).

The First Department, noting that Supreme Court should have decided whether a nonsignatory was bound by an arbitration clause and deciding the issue in the interest of judicial economy, determined the nonsignatory was not bound:

Millennium Lab Holdings, Inc. and Millennium Lab Holdings II, LLC (Millennium Holdings, LLC), pursuant to an engagement letter, retained petitioner KPMG LLP to audit their financial statements for certain time periods. The engagement letter contained a clause requiring arbitration of “[a]ny dispute or claim arising out of or relating to this Engagement Letter or the services provided hereunder.” * * *

The parties agree that the only theory under which respondent, as a nonsignatory to the engagement letter containing the arbitration clause, can be required to arbitrate is on the equitable estoppel/direct benefits grounds. We find that petitioner has not met its “heavy burden” … under that theory.

The benefits that the investors whose interests respondent represents derived from the engagement letters between petitioner and nonparty Millennium were “merely indirect” … . Here … respondent pleaded solely common-law claims and did not invoke the engagement letter … . …

Millennium and petitioner did not contemplate that the investors represented by respondent would benefit from the engagement letter. …

… [T]here is no indication in the record that the investors whom respondent represents had actual knowledge of the engagement letters between petitioner and Millennium … . Matter of KPMG LLP v Kirschner, 2020 NY Slip Op 02286, First Dept 4-16-20

April 16, 2020/by Bruce Freeman

Arbitration, Civil Procedure, Contract Law, Education-School Law, Employment Law

RESPONDENT WAIVED HIS RIGHT TO ARBITRATE HIS TERMINATION PURSUANT TO THE COLLECTIVE BARGAINING AGREEMENT BY BRINGING A BREACH OF CONTRACT ACTION SEEKING THE SAME RELIEF ON THE SAME GROUNDS, AS WELL AS DAMAGES (THIRD DEPT).

The Third Department, reversing Supreme Court, determined respondent (Ferreira) had waived his right to arbitrate his discharge from employment as a teacher pursuant to the collective bargaining agreement (CBA) because he sought an action at law seeking the same relief on the same grounds, as well as damages:

“Generally, when addressing waiver, courts should consider the amount of litigation that has occurred, the length of time between the start of the litigation and the arbitration request, and whether prejudice has been established” … . Moreover, the Court of Appeals has found no waiver where the ultimate objective of multiple procedures is the same, but the grounds urged for relief are discrete … .

Here, Ferreira waived his right to arbitrate because he chose to pursue an action at law asserting virtually the same grounds for relief and remedies sought in the arbitration. His notice of claim, alleging breach of contract, was filed approximately three months prior to his request for arbitration. An action was thereafter commenced, which was still pending at the time of oral argument, and, “[b]y commencing an action at law involving arbitrable issues, [Ferreira] waived whatever right [he] had to arbitration” … . Although use of litigation to preserve the status quo while awaiting arbitration does not effectuate waiver, Ferreira did not merely seek an equitable relief; rather, he sought monetary damages and other affirmative relief as a result of the termination of his employment and petitioner’s alleged violation of the CBA … . Matter of New Roots Charter Sch. (Ferreira), 2020 NY Slip Op 02223, Third Dept 4-9-20

April 9, 2020/by Bruce Freeman

Arbitration, Insurance Law

RESPONDENT’S FAILURE TO ATTEND INDEPENDENT MEDICAL EXAMS RENDERED THE NO-FAULT INSURANCE POLICY VOID AB INITIO (FIRST DEPT).

The First Department, vacating the arbitrator’s award, determined the no-fault policy was void because respondent failed to attend independent medical examinations:

The master arbitrator’s award was arbitrary in that it irrationally ignored well-established precedent that “the no-fault policy issued by petitioner was void ab initio due to respondent’s assignor’s failure to attend duly scheduled independent medical exams” … . Matter of Global Liberty Ins. Co. of N.Y. v Capital Chiropractic, P.C., 2020 NY Slip Op 01466, First Dept 3-3-20

March 3, 2020/by Bruce Freeman

Arbitration, Contract Law, Employment Law

THE COLLECTIVE BARGAINING AGREEMENT DID NOT ALLOW THE AWARD OF BACK PAY TO AN EMPLOYEE WHO FACED DISCIPLINARY ACTION RELATING TO A CRIMINAL OFFENSE BUT WAS ULTIMATELY ACQUITTED AFTER TRIAL; THEREFORE THE ARBITRATOR EXCEEDED HIS AUTHORITY (THIRD DEPT).

The Third Department determined the arbitrator exceeded his authority in awarding back pay to a corrections officer (Spratley) who was terminated by the Department of Corrections and Community Services (DOCCS) after shooting someone while off-duty. The officer was found not guilty of the criminal offense but was subject to disciplinary action based upon the incident:

… Section 8.4 of the CBA [collective bargaining agreement] sets forth the procedures under which DOCCS may suspend an employee without pay prior to the service of a notice of discipline and the limited circumstances under which back pay is owed following that act. Spratley was suspended without pay pursuant to section 8.4 (a) (2), which, in relevant part, authorizes that step for “an employee charged with the commission of a crime.” The same section provides that, where DOCCS fails to serve a notice of discipline within 30 days of the suspension or seven days after learning of a disposition of the criminal charges, “whichever occurs first,” an award of back pay is called for. There is nothing to suggest, and the arbitrator did not find, that either of those conditions were satisfied. … Section 8.4 (a) (5) provides another path for an award of back pay where the suspended employee does not face related disciplinary action and is “not found guilty” of the pending criminal charges, but Spratley did face related disciplinary action. The CBA accordingly contains no provision for the “retroactive” invalidation of the interim suspension and award of back pay under the circumstances presented, and the arbitrator, who was expressly barred by a term of the CBA from adding to, subtracting from or otherwise modifying its provisions, was powerless to add one … . Thus, the arbitrator exceeded his authority in making an award of back pay, and Supreme Court should have granted respondents’ cross motion to the extent of vacating that award. Matter of Spratley (New York State Dept. of Corr. & Community Supervision), 2020 NY Slip Op 01424, Third Dept 2-27-20

February 27, 2020/by Bruce Freeman