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Worker’s Compensation Award Made by Arbitrator Pursuant to an Authorized Dispute Resolution Program Is Reviewed Under the Appellate Court’s Limited Arbitration-Review Powers (Not Under the Usual “Substantial Evidence” Standard)

The Third Department noted that a worker's compensation award made by an arbitrator pursuant to an authorized dispute resolution program is not reviewed by the Worker's Compensation Board and is reviewed by the appellate court under the court's limited arbitration-review powers:

Workers' compensation claims generally reach this Court on direct appeal from decisions of the Workers' Compensation Board and are subject to the substantial evidence standard of review (see Workers' Compensation Law § 23…). On the other hand, determinations of workers' compensation claims by arbitrators pursuant to an authorized alternative dispute resolution program are not reviewed by the Board, but may be appealed directly to this Court (see Workers' Compensation Law § 25 [2-c] [d]; 12 NYCRR 314.3 [b]). The substantial evidence standard does not apply to appeals of claims reaching us through the latter procedural route … . Instead, these cases are reviewed under the standard applicable to review of arbitration awards in general (see CPLR 7511).

Pursuant to that standard, courts have limited power to review an arbitrator's award … . Courts may vacate an arbitration award only if it was procured by “corruption, fraud or misconduct,” if the arbitrator was biased (CPLR 7511 [b] [1] [i]; see CPLR 7511 [b] [1] [ii]) or “if [the award] violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator's power” … . “[A]n arbitrator's award should not be vacated for errors of law and fact committed by the arbitrator and the courts should not assume the role of overseers to mold the award to conform to their sense of justice”…, nor should courts “otherwise pass upon the merits of the dispute” … . Matter of Diaz, v Kleinknecht Elec, 2014 NY Slip Op 0882, 3rd Dept 12-18-14

 

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Condition Precedent to Arbitration Re: a Hit-and-Run Accident Involving an Unidentified Vehicle Is Physical Contact with Unidentified Vehicle—Lack of Proof of Physical Contact Justified Permanent Stay of Arbitration

The Second Department noted that a condition precedent to an arbitration based upon a hit-and-run accident involving an unidentified vehicle is physical contact.  Here there was insufficient evidence of physical contact with the unidentified vehicle:

The appellant sought uninsured motorist benefits under a policy of insurance issued by the petitioner for physical injuries allegedly sustained by him in a hit-and-run accident. The petitioner commenced this proceeding pursuant to CPLR article 75 to permanently stay arbitration of the claim.

Physical contact is a condition precedent to an arbitration based upon a hit-and-run accident involving an unidentified vehicle (see Insurance Law § 5217…). “The insured has the burden of establishing that the loss sustained was caused by an uninsured vehicle, namely, that physical contact occurred, that the identity of the owner and operator of the offending vehicle could not be ascertained, and that the insured’s efforts to ascertain such identity were reasonable” … . Matter of Progressive Northwestern Ins Co v Scott, 2014 NY Slip Op 08847, 2nd Dept 12-17-14

 

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Appeal Board Was Bound by Arbitrator’s Findings of Fact Re: Employee’s Serious Safety-Rule Violations

The Third Department reversed the Unemployment Insurance Appeal Board after the Board determined petitioner should not have been terminated for rule violations.  Pursuant to arbitration under a collective bargaining agreement, the arbitrator had made factual findings re: serious rule violations.  The Third Department explained that the Board was bound by those factual findings:

[“While the Board was free to make ‘independent additional factual findings’ and draw its own independent conclusion as to whether claimant’s behavior rose to the level of disqualifying misconduct for purposes of entitlement to unemployment insurance benefits, it was also bound by the [arbitrator’s] ‘factual findings regarding claimant’s conduct and [her] conclusion’ that claimant had” committed serious violations of safety rules … . The arbitrator here found that claimant had committed grave violations of the employer’s policies that had endangered the safety of his passengers, violations that were rendered even more egregious by the fact that he had previously been disciplined for similar conduct. The Board, in contrast, inexplicably found that claimant had “substantially complied with” the employer’s policies and made no effort to consider claimant’s behavior within the context of his prior disciplinary history. Thus, as the Board improperly contradicted factual findings of the arbitrator, remittal is necessary for it to “reconsider[] upon appropriate findings” … . Matter of Boretsky …, 2014 NY Slip Op 07414, 3rd Dept 10-30-14

 

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Failure to Comply with California Insurance Law Rendered Arbitration Clauses in Agreements Issued by a California Workers’ Compensation Insurance Carrier Unenforceable

The First Department, in a full-fledged opinion by Justice Moskowitz, over a dissent, determined that the arbitration clauses within payment agreements issued by the California workers’ compensation insurance carrier were not enforceable because the clauses had not been reviewed as required by California law.  The agreements provided that any arbitration be under the auspices of the Federal Arbitration Act (FAA).  But the court determined California’s insurance law was not preempted by the FAA (pursuant to the McCarran-Ferguson Act) and, therefore, the failure to comply with California law rendered the arbitration clauses void and unenforceable:

…”[T]he McCarran-Ferguson Act was an attempt to . . . assure that the activities of insurance companies in dealing with their policyholders would remain subject to state regulation” (…see 15 USC § 1011). Courts have established a four-part test to determine whether the McCarran-Ferguson Act precludes application of a federal statute (in this case, the FAA). Under this test, a federal statute is precluded if: (1) the statute does not “specifically relate” to the business of insurance; (2) the acts challenged under the statute constitute the “business of insurance”; (3) the state has enacted laws regulating the challenged acts; and (4) the state laws would be “invalidated, impaired, or superseded” by application of the federal statute ….

…[T]he FAA does not specifically regulate the business of insurance, and an act specifically relating to the business of insurance is the only type of federal legislation that can preempt state insurance law under McCarran-Ferguson. Furthermore, application of the FAA would modify California law because it would mandate arbitration even though [the insurer] did not, as required by California law, file the payment agreements, and the payment agreements, in turn, contained the arbitration clauses. Matter of Monarch Consulting Inc v National Union Fire Ins Co of Pittsburgh PA, 2014 NY Slip Op 06158, 1st Dept 9-11-14

 

Arbitrator’s Award Which Did Not Resolve the Controversy Properly Vacated

The Second Department held the arbitrator’s award was properly vacated because it was neither final nor definite and failed to determined damages.  The petitioner was injured while riding in respondent-county’s bus:

Although judicial review of arbitration awards is limited …, an award will be vacated when the arbitrator making the award “so imperfectly executed it that a final and definite award upon the subject matter submitted was not made” (CPLR 7511[b][1][iii]…). An award will be vacated as indefinite or nonfinal for purposes of CPLR 7511 if it does not “dispose of a particular issue raised by the parties” …, or ” if it leaves the parties unable to determine their rights and obligations, if it does not resolve the controversy submitted or if it creates a new controversy'” … .

Here, the arbitrator’s award was neither definite nor final, as it failed to resolve the controversy submitted, to wit, the negligence of each party and the amount of damages, if any. The arbitrator did not make any specific findings of fact or credibility or dispose of the issues raised by the parties. Instead, the arbitrator pointed to a fact not in dispute—that the petitioner was not wearing a seatbelt—and determined that he did not need to decide whether the County was negligent. In doing so, the arbitrator failed to dispose of the controversy with which he had been charged … .

Moreover, the arbitrator also failed to determine damages and instead referred to the parties’ agreement, to which he was not privy, and awarded the petitioner “the low” sum of damages, despite finding that the petitioner was barred from recovering any damages … .  Matter of Andrews v County of Rockland, 2014 NY Slip Op 06078, 2nd Dept 9-10-14

 

Arbitrator’s Award Which Did Not Resolve the Controversy Properly Vacated

The Second Department held the arbitrator’s award was properly vacated because it was neither final nor definite and failed to determined damages.  The petitioner was injured while riding in respondent-county’s bus:

Although judicial review of arbitration awards is limited …, an award will be vacated when the arbitrator making the award “so imperfectly executed it that a final and definite award upon the subject matter submitted was not made” (CPLR 7511[b][1][iii]…). An award will be vacated as indefinite or nonfinal for purposes of CPLR 7511 if it does not “dispose of a particular issue raised by the parties” …, or ” if it leaves the parties unable to determine their rights and obligations, if it does not resolve the controversy submitted or if it creates a new controversy'” … .

Here, the arbitrator’s award was neither definite nor final, as it failed to resolve the controversy submitted, to wit, the negligence of each party and the amount of damages, if any. The arbitrator did not make any specific findings of fact or credibility or dispose of the issues raised by the parties. Instead, the arbitrator pointed to a fact not in dispute—that the petitioner was not wearing a seatbelt—and determined that he did not need to decide whether the County was negligent. In doing so, the arbitrator failed to dispose of the controversy with which he had been charged … .

Moreover, the arbitrator also failed to determine damages and instead referred to the parties’ agreement, to which he was not privy, and awarded the petitioner “the low” sum of damages, despite finding that the petitioner was barred from recovering any damages … .  Matter of Andrews v County of Rockland, 2014 NY Slip Op 06078, 2nd Dept 9-10-14

 

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Arbitrator Not Precluded from Considering Punitive Damages by Provision that the Agreement Is To Be “Construed and Enforced” in Accordance with New York Law

In a full-fledged opinion by Justice Manzanet-Daniels, over an extensive dissent, the First Department determined that the provision in an agreement covering arbitration of disputes stating that the agreement is to be “construed and enforced” in accordance with New York law did not necessarily preclude the arbitrator from considering punitive damages.  The court found the language in the agreement insufficiently specific to invoke the “Garrity rule. ” Under “Garrity,” arbitrators in New York are prohibited from considering punitive damages. But the Federal Arbitration Act, which may apply here because of the involvement of interstate commerce, does not. The court also noted that participation in arbitration precludes a party from seeking a stay of arbitration pursuant to CPLR 7503. The choice of law issue is framed by the following passages:

Merely stating, without further elaboration, that an agreement is to be construed and enforced in accordance with the law of New York does not suffice to invoke the Garrity rule. The Supreme Court has made clear that in order to remove the issue of punitive damages from the arbitrators, the agreement must “unequivocal[ly] exclu[de]” the claim … . The agreement in this case, which provided only that it was to be “construed and enforced” in accordance with the law of New York, did not unequivocally exclude claims for punitive damages from the consideration of the arbitrators

From the dissent:

The core issue in this case – an appeal from an order denying petitioners’ motion to stay arbitration of claims for punitive damages – relates to the tension between New York State policy against the privatization of punitive damages and the federal policy that there is no such prohibition. Specifically, under New York State law, as expressed by Garrity v Lyle Stuart, Inc. (40 NY2d 354 [1976]), the power to award punitive damages is limited to judicial tribunals, and is not within an arbitrator’s authority… . Conversely, the federal view, as reflected in the Federal Arbitration Act (FAA),… which applies to arbitration disputes concerning interstate commerce, generally empowers arbitrators to award punitive damages, absent a contractual intent to the contrary. Unlike the majority, I find that, while the agreement here evidences a transaction involving interstate commerce, the provision stating that the agreement is to be “construed and enforced” in accordance with the laws of New York suffices to invoke the Garrity rule. Therefore, I dissent and would grant petitioners’ motion to stay arbitration of the claims for punitive damages. Matter of Flintlock Constr Servs LLC v Weiss, 2014 NY Slip Op 05818, 8-14-14

 

“Transactions Involving Commerce” and “Waiver of Arbitration by Participating in Litigation” (Re: the Federal Arbitration Act) Defined

The First Department, in a full-fledged opinion by Justice Richter, determined that the Federal Arbitration Act applied because the underlying transactions “involv[ed] commerce” within the meaning of the federal statute. The court further determined that the plaintiffs did not pursue litigation to the extent necessary to constitute a waiver of arbitration.  The court explained the criteria for “transactions involving commerce” and waiver of arbitration by participating in litigation:

[The Supreme Court] found the phrase “involving commerce” to be the equivalent of “affecting commerce,” a term associated with the broad application of Congress’s power under the Commerce Clause … .

The Supreme Court reaffirmed this interpretation of “involving commerce” … , stating that “it is perfectly clear that the FAA encompasses a wider range of transactions than those actually in commerce, that is, within the flow of interstate commerce” … . Further, the Court held that individual transactions do not need to have a substantial effect on interstate commerce in order for the FAA to apply … . Rather, as long as there is economic activity that constitutes a general practice “bear[ing] on interstate commerce in a substantial way” … . * * *

Although a party may have a right to arbitrate, the court may determine that a party has waived this right by having participated in litigation … . There is a “strong federal policy [*6]favoring arbitration,” and waiver should not be “lightly inferred” under the FAA … . A party does not waive the right to arbitrate simply by pursuing litigation, but by “engag[ing] in protracted litigation that results in prejudice to the opposing party” … . Cusimano v Schnurr, 2014 NY Slip Op 05702, 1st Dept 8-7-14

 

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Arbitration Award Based Upon Collective Bargaining Agreement Does Not Have a Preclusive Effect Upon a Subsequent Employment Discrimination Action Based on the Same Facts

The Second Department noted that an arbitration award based upon the terms of a collective bargaining agreement does not bar a subsequent employment discrimination action under the doctrine of collateral estoppel.  Here the employee was terminated based upon excessive absences.  He subsequently  brought a discrimination action alleging the employee failed to accommodate his disability.  (The Second Department determined the “disability” alleged by the employee did not require accommodation):

An arbitrator’s award may be given preclusive effect in a subsequent judicial proceeding … . However, arbitration is an inappropriate forum for the disposition of an employment discrimination claim where “the arbitrator’s sole task is to effectuate the intent of the parties in connection with the collective-bargaining agreement, and not to consider a statutory claim of discrimination . . . The violation of these contractual and statutory rights by the same factual occurrence does not vitiate their separate nature” … . Thus, the arbitrator’s decision did not have preclusive effect on the plaintiff’s separate action based on unlawful discrimination in employment …, and the complaint is not barred by the doctrine of collateral estoppel. Caban v New York Methodist Hosp, 2014 NY Slip Op 05292, 2nd Dept 7-16-14

 

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Grievance Did Not Relate to Provisions of Collective Bargaining Agreement

In finding that one of two grievances was not arbitrable because the grievance (overtime pay for police officers privately employed as security officers at the airport) did not relate to the provisions of the collective bargaining agreement (CBA), the Fourth Department explained the operative criteria:

It is well settled that, in deciding an application to stay or compel arbitration under CPLR 7503, we do not determine the merits of the grievance and instead determine only whether the subject matter of the grievance is arbitrable (see CPLR 7501…). “Proceeding with a two-part test, we first ask whether the parties may arbitrate the dispute by inquiring if there is any statutory, constitutional or public policy prohibition against arbitration of the grievance’ . . . If no prohibition exists, we then ask whether the parties in fact agreed to arbitrate the particular dispute by examining their collective bargaining agreement. If there is a prohibition, our inquiry ends and an arbitrator cannot act” … .

“Where, as here, the [CBA] contains a broad arbitration clause, our determination of arbitrability is limited to whether there is a reasonable relationship between the subject matter of the dispute and the general subject matter of the CBA’ ” … . If such a “reasonable relationship” exists, it is the role of the arbitrator, and not the court, to “make a more exacting interpretation of the precise scope of the substantive provisions of the CBA, and whether the subject matter of the dispute fits within them” … .

Matter of City of Syracuse v Syracuse Police Benevolent Assn Inc, 2014 NY Slip Op 05251, 4th Dept 7-11-14

 

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