Arbitration Archives - New York Appellate Digest

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

Arbitration, Contract Law, Securities

RESPONDENT WAS A CUSTOMER OF PETITIONER SECURITIES CORPORATION WITHIN THE MEANING OF FINANCIAL INDUSTRY REGULATORY AUTHORITY (FIRA) RULES AND THEREFORE COULD COMPEL ARBITRATION (FIRST DEPT).

The First Department, reversing Supreme Court, over an extensive dissent, determined respondent was a customer of petitioner (LekUS) and therefore could compel FINRA (Financial Industry Regulatory Authority) arbitration. Petitioner had been sued by FINRA in connection with shares of Cannibis Science, Inc. (CBIS) purchased by respondent and held by petitioner for trading:

The record establishes that respondent was a customer of nonparty Lek Securities UK, Ltd. (LekUK), where he had his account, and was also a client of petitioner Lek Securities Corp. (LekUS), with which he had a series of direct agreements. Under those agreements, LekUS conditioned its provision of depository and execution services for certain trades on respondent’s providing certain representations and an indemnity … .

Specifically, respondent purchased shares of Cannabis Science, Inc. (CBIS) in a series of transactions in 2015 and 2016 that required that the shares be held and sold in the United States. For each transaction, respondent executed an agreement (Deposit Agreement) directly with LekUS pursuant to which LekUS deposited the shares in its account at the Depository Trust & Clearing Corporation (DTCC). In each Deposit Agreement, (1) respondent represented that his answers to certain questions were true and acknowledged that LekUS would rely on those representations; (2) LekUS agreed to act as the “Processing Broker” to provide the services of depositing and reselling the shares; and (3) LekUS accepted respondent’s “Deposit Securities Request” on certain conditions, including that any claims by respondent or disputes arising from respondent’s representations in the Deposit Agreement “shall be governed by New York law and subject to the exclusive venue and jurisdiction of the courts and arbitration forums in the City and State of New York,” and that respondent would indemnify LekUS in connection with claims arising from respondent’s representations in the Deposit Agreement or from “the deposit process or the subsequent sale of the securities.”

When respondent sought to trade the CBIS shares deposited with LekUS, he communicated with Michael Mainwald, who was located at the office of LekUS, had a LekUS phone number and email address, and was registered with FINRA as the “principal operating officer” of LekUS.

… LekUS notified respondent that it had been sued by FINRA in connection with CBIS transactions and that LekUS sought indemnification by defendant pursuant to the Deposit Agreements. …

… [R]espondent was a “customer” of LekUS within the meaning of FINRA Rule 12200, and was therefore entitled to demand arbitration. Matter of LEK Sec. Corp. v Elek, 2020 NY Slip Op 01134, First Dept 2-18-20

February 18, 2020/by Bruce Freeman

Arbitration, Contract Law, Employment Law, Human Rights Law, Privilege

ARBITRATOR’S AWARD IN FAVOR OF DONALD J TRUMP FOR PRESIDENT INC VACATED AS VIOLATING PUBLIC POLICY AND EXCEEDING THE ARBITRATOR’S AUTHORITY (FIRST DEPT).

The First Department, reversing Supreme Court, determined the arbitrator’s award in this action based upon a non-disclosure, non-disparagement agreement (NDA) was against public policy and exceeded the arbitrator’s authority. Plaintiff was employed by defendant, Donald J. Trump For President, Inc. She signed the NDA as a condition of her employment. Plaintiff brought an employment discrimination action in Supreme Court alleging a hostile work environment, sexual discrimination, defamation and intentional and negligent infliction of emotional distress. Pursuant to the NDA defendant demanded arbitration. Plaintiff then started a federal lawsuit seeking a declaration that the NDA was void and unenforceable and defendant, pursuant to the NDA again demanded arbitration. The arbitrator found plaintiff had breached the NDA by disclosing confidential information in the federal action and making disparaging comments on her GoFundMe pages and on her Twitter account. The First Department held the information disclosed in the federal action was protected by privilege and the comments posted on the Internet were not part of the defendant’s demand for arbitration:

Plaintiff’s negative statements about defendant, for which the arbitrator made an award, were made in the context of the federal action in which she sought a declaration that the NDA was unenforceable … . By concluding that the allegations in the federal action are tantamount to disclosure of confidential information violative of the NDA, the arbitrator improperly punished plaintiff for availing herself of a judicial forum. Defendant is hard-pressed to explain how plaintiff could have pursued her rights without setting forth necessary factual statements for the federal court to consider.

The remainder of the award was based upon certain Twitter “Tweets” and statements on a GoFundMe page. The nature of the Demand to Arbitrate, however, was limited to statements made “in connection” with this state action. * * * Defendant relies on plaintiff’s actions subsequent to the date of its Demand to Arbitrate in an effort to have the arbitration award confirmed. Since the award takes into account events occurring after the demand, which could not have been legitimately considered at arbitration, the award was made in excess of the arbitrator’s enumerated authority. Denson v Donald J. Trump for President, Inc., 2020 NY Slip Op 00923, First Dept 2-6-20

February 6, 2020/by Bruce Freeman

Arbitration, Attorneys, Debtor-Creditor, Real Property Law

QUESTION OF FACT WHETHER AGREEMENT TO ARBITRATE WAS VOID PURSUANT TO REAL PROPERTY LAW 265-b; NOT CLEAR WHETHER DEFENDANT LAW FIRM WAS ACTING AS A CONSULTANT IN A MATTER CONCERNING A DISTRESSED HOME LOAN; IF SO, THE DEFENDANT CAN VOID THE AGREEMENT TO ARBITRATE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined there was a question of fact whether defendant law firm was acting as a consultant in matters related to distressed home loans such that any related agreement to arbitrate was void pursuant to Real Properly Law 265-b. Supreme Court had granted the law firm’s motion to compel arbitration:

Real Property Law § 265-b governs the conduct of distressed property consultants. “Distressed property consultant” or “consultant” is defined as “an individual or a corporation, partnership, limited liability company or other business entity that, directly or indirectly, solicits or undertakes employment to provide consulting services to a homeowner for compensation or promise of compensation with respect to a distressed home loan or a potential loss of the home for nonpayment of taxes” … . A consultant does not include, inter alia, “an attorney admitted to practice in the state of New York when the attorney is directly providing consulting services to a homeowner in the course of his or her regular legal practice” … . Real Property Law § 265-b further provides, in part, that “[a]ny provision in a contract which attempts or purports to require arbitration of any dispute arising under this section shall be void at the option of the homeowner” … .

Here, the plaintiff raised a question of fact as to whether the Donado defendants directly provided consulting services to the plaintiff in the course of the Donado defendants’ regular legal practice … . The plaintiff asserted in his affidavit, among other things, that he never met with an attorney from Donado Law Firm, P.C. … . Inasmuch as the plaintiff raised a question of fact as to whether the Donado defendants were consultants within the meaning of former Real Property Law § 265-b[1][e][i], there is a question of fact as to whether the plaintiff would be allowed to void the arbitration provision … , and a hearing is required. Ventura v Donado Law Firm, P.C., 2020 NY Slip Op 00888, Second Dept 2-5-20

February 5, 2020/by Bruce Freeman

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

THE PORTION OF THE ARBITRATOR’S AWARD WHICH CONFLICTED WITH THE COLLECTIVE BARGAINING AGREEMENT AND THE PORTION OF THE AWARD WHICH WAS NONFINAL SHOULD NOT HAVE BEEN CONFIRMED BY SUPREME COURT (FOURTH DEPT).

The Fourth Department determined certain findings made by the arbitrator shouldn’t have been confirmed by Supreme Court. The matter concerned the elimination of teaching positions to accommodate the hiring of teachers’ aides. In one instance the arbitrator’s ruling conflicted with the terms of the collective bargaining agreement (CBA). And in the other instance the arbitrator’s ruling was nonfinal:

An award may be vacated where an arbitrator, “in effect, made a new contract for the parties in contravention of [an] explicit provision of [the] arbitration agreement which denied [the] arbitrator power to alter, add to or detract from” the collective bargaining agreement (CBA) … . …

An award is nonfinal and indefinite if, inter alia, “it leaves the parties unable to determine their rights and obligations” … . Matter of Arbitration Between Buffalo Teachers Fedn., Inc. (Board of Educ. of the Buffalo Pub. Schs.), 2020 NY Slip Op 00794, Fourth Dept 1-31-20

January 31, 2020/by Bruce Freeman

Arbitration, Contract Law, Employment Law, Labor Law

PLAINTIFFS WERE NOT SIGNATORIES TO CONTRACTS WHICH REQUIRED ARBITRATION OF WAGE-UNDERPAYMENT ALLEGATIONS AND PLAINTIFFS DID NOT EXPLOIT THE BENEFITS OF THE CONTRACTS; THEREFORE PLAINTIFFS COULD NOT BE COMPELLED TO ARBITRATE (SECOND DEPT).

The Second Department determined the plaintiffs in this putative class action alleging wage-underpayment in violation of Labor Law article 6 could not be compelled to arbitrate. Plaintiffs were not parties to the contracts with defendants which compelled arbitration and did not seek to exploit the benefits of those contracts:

… [U]nder limited circumstances nonsignatories may be compelled to arbitrate” … . Under the direct benefits theory of estoppel, a nonsignatory may be compelled to arbitrate where the nonsignatory “knowingly exploits” the benefits of an agreement containing an arbitration clause, and receives benefits flowing directly from the agreement … . “The benefits must be direct, and the party seeking to compel arbitration must demonstrate that the party seeking to avoid arbitration relies on the terms of the agreement containing the arbitration provision in pursuing its claim” … . Where the benefits are merely “indirect,” a nonsignatory cannot be compelled to arbitrate a claim … . “A benefit is indirect where the nonsignatory exploits the contractual relation of the parties, but not the agreement itself” … .

Here, contrary to the defendants’ contention, the plaintiffs should not be compelled to arbitrate based upon the agreements. The record does not establish that the plaintiffs were even aware of the existence of the agreements or that they knowingly exploited the benefits of the agreements … . Arboleda v White Glove Enter. Corp., 2020 NY Slip Op 00098, Second Dept 1-8-20

January 8, 2020/by Bruce Freeman

Appeals, Arbitration, Attorneys

RESPONDENT, THE PREVAILING PARTY IN AN ARBITRATION, WAS ENTITLED TO ATTORNEY’S FEES FOR THE SUBSEQUENT ARTICLE 75 PROCEEDING TO VACATE THE AWARD AND FOR THE APPEAL TO THE APPELLATE DIVISION (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined the respondent, who prevailed in an arbitration proceeding, was entitled to attorney’s fees for the subsequent Article 75 proceedings and appeal to the Appellate Division:

Judgment … awarding respondent attorney’s fees in the sum total of $980 in connection with a no-fault arbitration award … [remanded] to Supreme Court for a determination of respondent’s reasonable attorney’s fees incurred in the article 75 proceeding brought by petitioner to vacate the arbitration award and on this appeal … .

“The attorney’s fee for services rendered … in a court appeal from a master arbitration award and any further appeals, shall be fixed by the court adjudicating the matter” (11 NYCRR § 65-4.10[j][4]). The term “court appeal” applies to a proceeding taken pursuant to CPLR article 75 to vacate or confirm a master arbitration award … . Accordingly, respondent TC Acupuncture, as a prevailing applicant for payment by petitioner insurer of attorney’s fees in an article 75 proceeding reviewing an arbitration award, is entitled to an additional award of attorney’s fees, as fixed by the court, for its motion to modify the order, in a 2015 article 75 proceeding denying Countrywide’s petition to vacate the arbitration award, to include a ruling confirming the arbitration and its opposition to Countrywide’s motion to reargue that order. Supreme Court erred in failing to award these additional fees.

Respondent is also entitled to the attorney’s fees incurred in this appeal to this Court of the order issued in the article 75 proceeding, to be fixed by the court, upon remand, pursuant to 11 NYCRR § 65-4.10(j)(4) … . Matter of Country-Wide Ins. Co. v TC Acupuncture P.C., 2020 NY Slip Op 00048, First Dept 1-2-20

January 2, 2020/by Bruce Freeman

Arbitration, Contract Law

THE SUBCONTRACTORS DID NOT SIGN THE PRIMARY CONTRACT WHICH INCLUDED AN ARBITRATION PROVISION; HOWEVER THE SUBCONTRACTORS EXPLOITED THE ARBITRATION PROVISION BY PARTICIPATING IN PRE-ARBITRATION MEDIATION; THEREFORE THE SUBCONTRACTORS WERE ESTOPPED FROM COMPELLING LITIGATION (THIRD DEPT).

The Third Department, reversing Supreme Court, determined that the subcontractors, who did not sign the primary contract which included an arbitration provision in the “General Conditions,” had exploited the benefits of the primary contract and therefore should be compelled to arbitrate. The primary contract was between Corning Hospital and Gilbane, the general contractor. One subcontractor (Mancini) was responsible for general construction of the building and the other (Alliance) was responsible for the installation of veneer stone panels, which had begun to fall off the building:

… “[U]nder the direct benefits theory of estoppel, a nonsignatory may be compelled to arbitrate where the nonsignatory knowingly exploits the benefits of an agreement containing an arbitration clause, and receives benefits flowing directly from the agreement” … . … “Where the benefits are merely ‘indirect,’ a nonsignatory cannot be compelled to arbitrate a claim. A benefit is indirect where the nonsignatory exploits the contractual relation of the parties, but not the agreement itself” … . Noting that “it can be difficult to distinguish between direct and indirect benefits,” the Court of Appeals stated that “[t]he guiding principle is whether the benefit gained by the nonsignatory is one that can be traced directly to the agreement containing the arbitration clause” … .

Respondent argues that Mancini and Alliance are estopped from compelling litigation regarding the veneer stone panels because Alliance previously served a demand for arbitration on Gilbane and Mancini, with the demand specifically stating that one of the bases for seeking arbitration was the dispute resolution section of the General Conditions related to the construction project … . Following that demand for arbitration, Alliance, Gilbane and Mancini took part in mediation, as required prior to arbitration per a provision of the dispute resolution section of the General Conditions — a provision that Alliance also cited in its demand for arbitration. As a result of the mediation, those three entities then entered into a settlement agreement and released each other from liability regarding anything related to the veneer panels. …

Based on Alliance’s demand citing the applicability of the arbitration section of the General Conditions, and Mancini’s acquiescence to that demand, both of these nonsignatories to the prime contract and General Conditions should be compelled to arbitrate pursuant to the direct benefits theory of estoppel. Accordingly, the applications to permanently stay arbitration should have been denied, and the parties should proceed to arbitration. Matter of Alliance Masonry Corp. (Corning Hosp.), 2019 NY Slip Op 09348, Third Dept 12-26-19

December 26, 2019/by Bruce Freeman

Arbitration, Contract Law

THE TERMS OF THE CONTRACT CONTROL WHETHER THE COURT OR THE ARBITRATOR DETERMINES THE MATTER IS ARBITRABLE; HERE THAT DETERMINATION HAS BEEN DELEGATED TO THE ARBITRATOR BY THE CONTRACT (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Manzanet-Daniels, determined that the contract controls and the arbitrator, not the court, must rule on whether the matter is arbitrable:

The motion court correctly declined to enjoin the arbitration proceeding filed by respondent Baltimore Orioles with the American Arbitration Association [AAA]. The duty to arbitrate arises from contract … .

Pursuant to section 19.3 of the partnership agreement, the Orioles and the Nationals agreed to arbitrate “any disputes” before the AAA when MLB has … a financial interest, and to do so pursuant to AAA Commercial Rules. Those rules include Rule 7(a), pursuant to which an “arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.”

These provisions evince a clear and unmistakable intent to delegate the threshold arbitrability question of whether MLB had a financial interest in the Nationals to the AAA … . …

“When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue. That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless” … . Matter of WN Partner, LLC v Baltimore Orioles Ltd. Partnership, 2019 NY Slip Op 08383, First Dept 11-19-19

November 19, 2019/by Bruce Freeman