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RABBINICAL COURT IMMUNE FROM SUIT UNDER DOCTRINE OF ARBITRAL IMMUNITY.

The Second Department, reversing Supreme Court, determined rabbinical arbitrators were immune from suit in the absence of an allegation the rabbinical court acted in the clear absence of all jurisdiction. The fact that a court previously determined the rabbinical court acted in excess of its authority did not destroy the arbitral immunity:

Here, the factual allegations of the complaint merely asserted conduct by the rabbinical defendants in their capacity as arbitrators … . It is well established that arbitrators are immune from liability for acts performed in their arbitral capacity … . Such immunity also applies to acts taken in excess of authority … . As the plaintiffs failed to allege how any of the acts of the rabbinical court defendants were undertaken in the clear absence of all jurisdiction, these defendants enjoy arbitral immunity from civil liability … . Pinkesz Mut. Holdings, LLC v Pinkesz, 2016 NY Slip Op 04034, 2nd Dept 5-25-16

ARBITRATION (RABBINICAL COURT IMMUNE FROM SUIT UNDER DOCTRINE OF ARBITRAL IMMUNITY)/IMMUNITY (RABBINICAL COURT IMMUNE FROM SUIT UNDER DOCTRINE OF ARBITRAL IMMUNITY)/RABBINICAL COURTS (RABBINICAL COURT IMMUNE FROM SUIT UNDER DOCTRINE OF ARBITRAL IMMUNITY)/ARBITRAL IMMUNITY (RABBINICAL COURT IMMUNE FROM SUIT UNDER DOCTRINE OF ARBITRAL IMMUNITY)

AFTER MAKING A FINAL AWARD, THE RABBINICAL COURT EXCEEDED ITS AUTHORITY BY MAKING A SECOND AWARD BASED ON NEW EVIDENCE.

The Second Department determined the arbitration award made by the rabbinical court was properly vacated. After making a final award, the rabbinical court, based on new information, made a second award:

“An arbitration award may not be vacated unless it violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation of the arbitrator's power” … . After an arbitrator renders an award, he or she is generally without power to render a new award or to modify the original award … . Here, because the arbitration award dated May 5, 2011, was final and definite within the meaning of CPLR 7511 … , the rabbinical court exceeded its authority in modifying the original award by rendering the new arbitration award dated July 22, 2013… . Matter of Pinkesz v Wertzberger, 2016 NY Slip Op 04060, 2nd Dept 5-25-16

ARBITRATION (AFTER MAKING A FINAL AWARD, THE RABBINICAL COURT EXCEEDED ITS AUTHORITY BY MAKING A SECOND AWARD BASED ON NEW EVIDENCE)/RABBINICAL COURT (AFTER MAKING A FINAL AWARD, THE RABBINICAL COURT EXCEEDED ITS AUTHORITY BY MAKING A SECOND AWARD BASED ON NEW EVIDENCE)

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ARBITRABLE CLAIMS WHICH ARE INEXTRICABLY TIED TO CLAIMS ALREADY IN COURT SHOULD BE LITIGATED IN COURT.

The First Department, over a two-justice dissent, reversing Supreme Court, determined the contract disputes should be litigated, despite arbitration clauses in some of the related agreements. One of the agreements, the Quennington Agreement, included a forum selection clause which designated the courts as the sole forum for dispute resolution. The First Department held that the forum selection clause demonstrated the intent of the parties, and the fact the Quennington Agreement had been terminated by a subsequent agreement did not contradict that intent. The issues which were arguably subject to arbitration under the other agreements were deemed to be intertwined with the issues which were already in court pursuant to the Quennington Agreement:

Although this Court does not appear to have directly addressed the issue, the other Departments have held that, where some of a group of claims are covered by an arbitration agreement, it is appropriate to litigate the entire group in court if all of the claims were already asserted in court and the claims not subject to arbitration would be “inextricably bound together” with the claims that are subject to arbitration … .

Here, one could argue that all of the claims in the complaint arose under the Quennington Agreement … . … [E]ven if some of the claims could be said to arise out of the Quennington Agreement, and others out of [another agreement], they are cut from the same cloth, and are, unquestionably, inextricably bound together and therefore should be litigated in court. Garthon Bus. Inc. v Stein, 2016 NY Slip Op 03102, 1st Dept 4-26-16


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CONSTRUCTION CONTRACT PROVISION MAKING LITIGATION THE SOLE METHOD FOR RESOLVING A DISPUTE RENDERED VOID BY GENERAL BUSINESS LAW. 

The Third Department determined the General Business Law rendered void a provision in a construction subcontract mandating litigation as the sole method for resolving a dispute:

… General Business Law § 757 (3) … unambiguously voids and renders unenforceable any contractual provision that makes expedited arbitration unavailable to one or both parties. … [T]he obvious function of section 6.2 of the subcontract is to establish litigation as the sole legal option for the resolution of disputes under the subcontract, which, in turn, denies both parties the opportunity to arbitrate such claims. Inasmuch as General Business Law § 757 (3) clearly operates to void and render unenforceable the subcontract's dispute resolution provision, we find that Supreme Court properly denied petitioner's application to stay arbitration. Matter of Capital Siding & Constr., LLC (Alltek Energy Sys., Inc.), 2016 NY Slip Op 02878, 3rd Dept 4-14-16


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DELEGATION CLAUSES, PLACING THE DETERMINATION OF ARBITRABILITY IN THE ARBITRATOR, NOT THE COURT, ENFORCEABLE UNDER FEDERAL ARBITRATION ACT.

The Court of Appeals, in a full-fledged opinion by Judge Stein, reversing the Appellate Division, determined “delegation clauses” in insurance-related contracts were enforceable under the Federal Arbitration Act (FAA). The “delegation clauses” required that the initial determination whether a dispute is arbitrable is to be made by the arbitrator, not the court. Before reaching the merits, and after explaining the history of the FAA and the McCarran-Ferguson Act, the Court of Appeals decided, under the facts, the McCarran-Ferguson Act did not remove the matter from the jurisdiction of the FAA:

 

… [A] review of the record reveals that [the insureds] did not specifically direct any challenge to the delegation clauses empowering the arbitrators to determine gateway questions of arbitrability … . Those delegation provisions, which state that the arbitrators “have exclusive jurisdiction over the entire matter in dispute, including any question as to its arbitrability,” are valid because the parties “clearly and unmistakably” agreed to arbitrate arbitrability … . As the delegation clauses are severable from the remainder of the agreements to arbitrate, we must enforce them according to their terms and, under these circumstances, the question of arbitrability is one for the arbitrators … . …

… [W]e hold that the FAA applies to the [contracts in issue] because it does not “invalidate, impair, or supersede” … any insurance regulations and, consequently, the McCarran-Ferguson Act is not triggered … . Further, because the parties clearly and unmistakably delegated the question of arbitrability and enforceability of the arbitration clauses to the arbitrators — in provisions that were not specifically challenged by the insureds — the FAA mandates that the arbitration provisions be enforced as written. Matter of Monarch Consulting, Inc. v National Union Fire Ins. Co. of Pittsburgh, PA, 2016 NY Slip Op 01209, CtApp 2-18-16

 

ARBITRATION (DELEGATION CLAUSES IN INSURANCE-RELATED AGREEMENTS, PLACING THE DECISION WHETHER A MATTER IS ARBITRABLE IN THE ARBITRATOR, ENFORCEABLE UNDER THE FEDERAL ARBITRATION ACT)/FEDERAL ARBITRATION ACT (DELEGATION CLAUSES IN INSURANCE-RELATED AGREEMENTS, PLACING THE DECISION WHETHER A MATTER IS ARBITRABLE IN THE HANDS OF THE ARBITRATOR, ENFORCEABLE)/INSURANCE LAW (DELEGATION CLAUSES IN INSURANCE-RELATED AGREEMENTS, PLACING THE DECISION WHETHER A MATTER IS ARBITRABLE IN THE HANDS OF THE ARBITRATOR, ENFORCEABLE UNDER THE FEDERAL ARBITRATION ACT)

DISPUTES INVOLVING COMMERCIAL REAL ESTATE WERE SUFFICIENTLY RELATED TO INTERSTATE COMMERCE TO FALL UNDER THE JURISDICTION OF THE FEDERAL ARBITRATION ACT; PLAINTIFFS’ RESORT TO LITIGATION AND THE RESULTING PREJUDICE TO DEFENDANTS CONSTITUTED A WAIVER OF ARBITRATION.

The Court of Appeals, in a full-fledged opinion by Judge Lippman, determined that the intrafamilial contractual disputes involving commercial real estate fell under the jurisdiction of the Federal Arbitration Act (FAA), but that the plaintiffs, by litigating the disputes in the courts and thereby prejudicing the rights of the defendants, had waived arbitration:

… [T]he Supreme Court has made it abundantly clear that the FAA's reach is expansive. The idea that the intrafamilial nature of the agreements has some bearing on whether the FAA is applicable finds no support in the caselaw. Nor does the fact that these agreements do not themselves evidence the commercial transactions appear to be significant. The ultimate purpose of the agreements was to authorize participation in the business of commercial real estate and that is, in fact, what the entities did. In determining whether the FAA applies, the emphasis is meant to be on whether the particular economic activity at issue affects interstate commerce — and, here, it does.

Nonetheless, plaintiffs have waived their right to arbitrate this dispute. “'[L]ike contract rights generally, a right to arbitration may be modified, waived or abandoned.' Accordingly, a litigant may not compel arbitration when its use of the courts is 'clearly inconsistent with [its] later claim that the parties were obligated to settle their differences by arbitration'” … . While it is true that “[n]ot every foray into the courthouse effects a waiver of the right to arbitrate,” we are satisfied that the totality of plaintiffs' conduct here establishes waiver… .

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 … . The majority of federal courts have taken the position that waiver cannot be established in the absence of prejudice … .  * * *

Here, … prejudice … [has] been established. After vigorously pursuing their litigation strategy for approximately one year, plaintiffs moved to compel arbitration. Even more telling, the desire for arbitration only arose after Supreme Court made plain its view that plaintiffs' claims were vexatious and largely time-barred. Indeed, plaintiffs had expressly represented to Supreme Court that they did not want to go to arbitration. Plaintiffs' behavior is indicative of blatant forum-shopping and, under these circumstances, prejudice has clearly been established. Therefore, plaintiffs have waived the right to arbitration and the issue of timeliness should be determined by the court … . Cusimano v Schnurr, 2015 NY Slip Op 09232, CtApp 12-16-15

ARBITRATION (DISPUTES RE: COMMERCIAL REAL ESTATE FELL UNDER JURISDICTION OF FEDERAL ARBITRATION ACT)/FEDERAL ARBITRATION ACT (DISPUTES INVOLVING COMMERCIAL REAL ESTATE)/ARBITRATION (WAIVER BY INVOLVEMENT IN LITIGATION AND PREJUDICE TO OPPOSING PARTY)/WAIVER OF ARBITRATION (INVOLVEMENT IN LITIGATION AND PREJUDICE TO OPPOSING PARTY)

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Arbitrator’s Misapplication of Law Is Not Reviewable by a Court

In affirming the denial of an application to vacate an arbitrator’s award (in which petitioners were found to have wrongfully removed trees), the Fourth Department noted that the misapplication of law by an arbitrator is not reviewable by a court:

We reject, however, petitioners’ contention that the arbitrator’s alleged misapplication of RPAPL 861 is a sufficient ground to vacate the award in its entirety. “An arbitrator’s resolution of questions of substantive law or fact is not judicially reviewable” … . Thus, even assuming, arguendo, that the arbitrator misapplied RPAPL 861, we conclude that such error is beyond our review. Matter of Svenson v Swegan, 2015 NY Slip Op 08525, 4th Dept 11-20-15

 

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Criteria for Whether Public Employer/Employee Dispute Is Arbitrable Explained

The Second Department determined the village’s petition to stay arbitration was properly denied. The firefighters’ union filed a grievance when the town decided to lay off six bargaining unit members and assign bargaining unit work to nonbargaining unit volunteers. Supreme Court determined the parties had agreed to arbitrate these matters in the collective bargaining agreement (CBA). The court explained the criteria for determining whether a public employer/employee dispute is arbitrable:

” The determination of whether a dispute between a public sector employer and employee is arbitrable is subject to [a] two-prong test'” …” Initially, the court must determine whether there is any statutory, constitutional, or public policy prohibition against arbitrating the grievance'”  … . “If there is no prohibition against arbitrating, the court must examine the parties’ collective bargaining agreement and determine if they in fact agreed to arbitrate the particular dispute” … .

Here, the petitioner argued that arbitration of layoffs of union-member firefighters is prohibited by public policy. Regarding a violation of public policy, “a dispute is not arbitrable if a court can conclude “without engaging in any extended factfinding or legal analysis” that a law “prohibit[s], in an absolute sense, [the] particular matters [to be] decided’ by arbitration”‘ … . The petitioner failed to point to any law or public policy that would prohibit arbitration of the grievance. * * *

The grievances were reasonably related to the general subject matter of the CBA and, therefore, the petitioner’s management rights granted under Article XVII, and “the question of the scope of the substantive provisions of the CBA [are] a matter of contract interpretation and application reserved for the arbitrator” … . Matter of Village of Garden City v Local 1588, Professional Firefighters Assn., 2015 NY Slip Op 07672, 2nd Dept 10-21-15

 

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Criteria for Arbitrability of Dispute Involving Public Employees Succinctly Explained

Reversing Supreme Court, the Second Department determined the dispute about compensation for police officers during Hurricane Sandy was arbitrable under the terms of the Collective Bargaining Agreement (CBA). The court explained the relevant analytical criteria:

Public policy in New York favors arbitral resolution of public sector labor disputes … . However, a dispute between a public sector employer and employee is only arbitrable if it satisfies a two-prong test … . “Initially, the court must determine whether there is any statutory, constitutional, or public policy prohibition against arbitrating the grievance” … . If there is no prohibition against the arbitration, the court must determine whether the parties agreed to arbitrate the particular dispute by examining their collective bargaining agreement … .

Here, the Village does not assert on appeal that arbitration of this grievance was prohibited by statute or public policy, and we find no such prohibition. “In analyzing whether the parties in fact agreed to arbitrate the particular dispute, a court is merely to determine whether there is a reasonable relationship between the subject matter of the dispute and the general subject matter of the CBA'” … . Here, the relevant arbitration provisions of the CBA are broad, as they provide for arbitration of any grievance, defined as “any claimed violation, misinterpretation or inequitable application of this Agreement,” which remains unresolved following completion of step three of the grievance procedure. Moreover, there is a reasonable relationship between the subject matter of the dispute, which involves compensation over a specific time period, and the general subject matter of the CBA … . Contrary to the Village’s contention, whether the evidence supports the grievance is a question for the arbitrator, and not the courts, to decide … .

Moreover, the Village’s contention that arbitration of the grievance was precluded because the PBA failed to comply with a condition precedent is without merit. The “threshold determination of whether a condition precedent to arbitration exists and whether it has been complied with, is for the court to determine” … . By contrast, “[q]uestions concerning compliance with a contractual step-by-step grievance process have been recognized as matters of procedural arbitrability to be resolved by the arbitrators, particularly in the absence of a very narrow arbitration clause or a provision expressly making compliance with the time limitations a condition precedent to arbitration” … . Matter of Incorporated Vil. of Floral Park v Floral Park Police Benevolent Assn., 2015 NY Slip Op 07026, 2nd Dept 9-30-15

 

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Allegations of Fraud in the Inducement Did Not Invalidate the Arbitration Clause in the Agreement

The Second Department, over a dissent, determined that plaintiff’s motion to stay arbitration was properly denied. Plaintiff alleged that an agreement to sell her business and related real property was induced by fraud and, therefore, the arbitration clause in the agreement was invalid and unenforceable. The court noted that the agreement was properly signed by plaintiff’s attorney as her attorney-in-fact and plaintiff attended the closing where she signed the relevant documents. She was deemed, therefore, to have read and understood the documents. The court explained its limited role in determining whether a matter is arbitrable, and further explained that, absent fraud which permeated the entire agreement, the arbitration clause will still be enforced in the face of allegations of fraud in the inducement:

Arbitration is a favored method of dispute resolution in New York … . “[T]he announced policy of this State favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties” … . “New York courts interfere as little as possible with the freedom of consenting parties’ to submit disputes to arbitration” … . Parties to arbitration agreements should be prevented from using the courts as a vehicle to protract litigation … . The threshold issue of whether there is a valid agreement to arbitrate is for the courts … . Once it is determined that the parties have agreed to arbitrate the subject matter in dispute, the court’s role has ended and it may not address the merits of the particular claims … . * * *

… [T]he Court of Appeals ruled that an arbitration clause is generally separable from substantive provisions of a contract, so that an agreement to arbitrate is valid even if the substantive provisions of the contract are induced by fraud … . However, if a party can demonstrate that “the alleged fraud was part of a grand scheme that permeated the entire contract, including the arbitration provision, the arbitration provision should fall with the rest of the contract” … . “To demonstrate that fraud permeated the entire contract, it must be established that the agreement was not the result of an arm’s length negotiation or the arbitration clause was inserted into the contract to accomplish a fraudulent scheme” … . Here, the plaintiff failed to make such a showing. Ferrarella v Godt, 2015 NY Slip Op 06571, 2nd Dept 8-19-15

 

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