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Arbitrator Exceeded His Authority by Modifying Punishment Imposed by Town Upon Employee for Misconduct

The Second Department determined an arbitrator exceeded his authority (by modifying punishment) as that authority was described in a stipulation prior to the hearing, and further determined objection to the arbitrator’s exceeding his authority was not waived by the town. Petitioner was a town employee who had been suspended for thirty days for misconduct.  The arbitrator determined there was just cause for the town’s action, but imposed a lesser penalty.  The town brought the Article 75 proceeding to address whether the arbitrator had exceeded his authority by modifying the punishment:

“Judicial review of an arbitrator’s award is extremely limited” … . A court may vacate an arbitration award pursuant to CPLR 7511(b)(1)(iii) “only if it violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator’s power” (…see CPLR 7511[b][1][iii]…).

A party can only waive its contention that an arbitrator acted in excess of his or her power “by participating in the arbitration with full knowledge” of the alleged error that is being committed and “by failing to object until after the award” is issued … . * * *

At the beginning of the arbitration, the issue to be determined was defined as whether there was just cause to punish [the employee] and, “if not,” what the remedy should be. As framed in this manner, the issue to be determined by the arbitrator was in accordance with his powers, as set forth in Article X(E)(6) of the [Collective Bargaining Agreement], which only empowered the arbitrator to provide [the employee] with a remedy upon a finding that the imposition of discipline was not founded on just cause. Since the arbitrator found that there was just cause for the discipline imposed, the arbitrator exceeded his authority in reducing the penalty imposed. Matter of Town of Babylon v Carson, 2013 NY Slip Op 07980, 2nd Dept 11-27-13

 

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Affirmative Defense of Arbitration Waived by Participation in Judicial Process

The Third Department determined that defendant waived a contractual provision requiring arbitration by participating in the judicial process:

…[W]hile defendant asserted the contractual arbitration provision as an affirmative defense in its answer, it did not move to stay the action and compel arbitration (see CPLR 7503 [a]).  Instead, it aggressively participated in the discovery process and received the benefit of extensive discovery from plaintiff, which would not otherwise have been available in arbitration … . In doing so, defendant’s acceptance of the judicial forum “manifested a preference ‘clearly inconsistent with . . . [a] claim that the parties were obligated to settle their differences by arbitration'” … .  Thus, we agree with Supreme Court’s determination that defendant’s actions resulted in a waiver of its right to compel arbitration … . Masson v Wiggins & Masson LLP…, 515340, 515427, 3rd Dept 10-31-13

 

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No Justification for Vacation of Arbitration Award—Strict Standard Applies

The Second Department determined Supreme Court erred in vacating an arbitration award in a case involving an uninsured motorist endorsement. Petitioner had won a $25,000 (default) civil judgment against the driver, but in the arbitration under the uninsured motorist endorsement, the arbitrator awarded $10,000:

The Supreme Court erred in vacating the arbitration award. “[J]udicial review of arbitration awards is extremely limited” … . ” An arbitration award must be upheld when the arbitrator “offer[s] even a barely colorable justification for the outcome reached”‘” … . In addition, an “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” … . “An arbitrator is not bound by principles of substantive law or rules of evidence, and may do justice and apply his or her own sense of law and equity to the facts as he or she finds them to be” … . Insofar as is relevant to the instant proceeding, pursuant to CPLR 7511(b)(1)(iii), a court may only vacate an arbitration award if the rights of the party moving to vacate the award were prejudiced by the arbitrator “exceed[ing] his [or her] power or so imperfectly execut[ing] it that a final and definite award upon the subject matter submitted was not made.” “Such an excess of power occurs only where the arbitrator’s award violates a strong public policy, is irrational or clearly exceeds a specifically enumerated limitation on the arbitrator’s power” … .

Here, the terms of the SUM endorsement clearly provide that any sum [the insurer] was obligated to pay the petitioner, which the petitioner was legally entitled to recover, was subject to arbitration, and that the parties agreed to be bound by the arbitrator’s award.  Matter of Aftor v Geico Ins Co, 2013 NY Slip Op 07032, 2nd Dept 10-30-13

 

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Nonsignatory Could Not Be Compelled to Arbitrate Under Direct Benefit Estoppel Doctrine

The Court of Appeals, in a full-fledged opinion by Judge Rivera, reversed the appellate division and determined a party who was not a signatory to an agreement which included an arbitration clause could not be compelled to arbitrate under the direct benefit estoppel doctrine.  In explaining the doctrine, the court wrote:

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 … .

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 … .  Matter of Belzberg v Verus Investments Holdings Inc, 149, CtApp 10-17-13

 

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Stay of Arbitration Properly Denied, Collective Bargaining Agreement Allowed Issue to Be Determined in Arbitration

In affirming Supreme Court’s dismissal of an Article 75 petition seeking a permanent stay of arbitration (with respect to a collective bargaining agreement [CBA]), the Fourth Department explained the operative analysis:

In determining whether an issue is subject to arbitration under a collective bargaining agreement (CBA), a court must apply the two-step analysis set forth in Matter of Acting Supt. of Schs. of Liverpool Cent. Sch. Dist. (United Liverpool Faculty Assn.) (42 NY2d 509, 513).  “First, a court must determine whether there is any statutory, constitutional or public policy prohibition against arbitration of the grievance” … .  If the court determines that there is no such prohibition and thus that the parties have the authority to arbitrate the grievance, it proceeds to the second step, in which it must determine whether that authority was in fact exercised, i.e., whether the CBA demonstrates that the parties agreed to refer this type of dispute to arbitration … .  With respect to the second step, where there is a broad arbitration clause such as the one in the CBA at issue, “[a] 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’ ” … .  “Succinctly, the test centers on two distinct inquiries as to the public parties’ purported entry into the arbitral forum:  may they do so and, if yes, did they do so” … .  Here, with respect to the issue whether petitioner properly followed the procedures mandated by the CBA in terminating the employee in question, we conclude that the court properly determined that the parties had the authority to agree to arbitrate this grievance, and that they in fact agreed to do so.  Matter of Arbitration…, 1019, 4th Dept 10-4-13

 

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Reinstatement of Charge Against Teacher After Dismissal of Charge in Arbitration Proper; Interlocutory Ruling by Arbitrator was “Final” in Effect/Courts Can Impose Higher Level of Scrutiny when Arbitration Mandated by Statute

The Second Department affirmed Supreme Court’s reinstatement of a charge against a teacher (Hogan) which had been dismissed by the arbitrator. The Second Department explained the criteria for court review of an interlocutory ruling of an arbitrator, noting that more scrutiny is appropriate in an arbitration mandated by statute:

Initially, we reject Hogan’s contention that the petition should have been dismissed because courts do not have the authority to review an interlocutory award dismissing one of the charges in an arbitration proceeding brought pursuant to Education Law 3020-a. As a general rule, a court lacks authority to entertain a petition to review an interlocutory ruling of an arbitrator on a procedural matter … . Here, however, the award sought to be reviewed is not one which involves “only a very limited procedural question” … . Rather, the award dismissed the most serious disciplinary charge preferred against Hogan, and the only one of the three charges which alleged that he was guilty of misconduct. The award is final as to that charge, and, if allowed to stand, would prevent the District from adducing evidence in support of the alleged misconduct at the hearing. Under these circumstances, the award dismissing Charge No. 1 can be viewed as a final determination subject to review under CPLR 7511 … .

Furthermore, the Supreme Court properly granted the District’s petition and reinstated Charge No. 1 against Hogan. Where, as here, the obligation to arbitrate arises through statutory mandate (see Education Law § 3020-a), the arbitrator’s determination is subject to closer judicial scrutiny than it would receive had the arbitration been conducted voluntarily … . The award in a compulsory arbitration proceeding must have evidentiary support and cannot be arbitrary and capricious … . Matter of Board of Educ of Hauppauge Union Free Sch Dist v Hogan, 2013 NY Slip Op 05816, 2nd Dept 9-11-13

 

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Error to Exclude Petitioner from Arbitration Proceeding

Although the First Department determined the error was harmless, the court noted that petitioner should not have been excluded from an arbitration proceedings concerning the termination of her employment:

The arbitrator exceeded the scope of his authority by excluding petitioner from certain portions of the arbitration proceedings, over her objection, in violation of Rule 23 of the American Arbitration Association’s Commercial Arbitration Rules  (see CPLR 7511[b][iii]…).

The exclusion of petitioner from approximately 5% of the proceedings was, however, harmless error, since the result would have been the same had she been present. Petitioner’s case rested on her argument that respondents’ reasons for terminating her were merely a pretext to avoid paying her what she believed would be very high commissions. Since the evidence presented during petitioner’s absences from the proceedings had no bearing on that issue, there is no basis for vacating the arbitrator’s finding that petitioner was fired for her repeated, and severe, violations of the conflict of interest provisions of her contract, as well as for her threats against her employer… . Caruso v Viridian Network, LLC, 2013 NY Slip Op 05780, 1st Dept 9-10-13

 

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Although Arbitrator in Statutorily-Required Arbitration Proceeding Properly Found Teacher Engaged in Misconduct, Teacher’s Actions Were Protected by First Amendment

Teachers demonstrated in front of a school while negotiations for a new collective bargaining agreement were on-going.  On a rainy day, some teachers parked their cars in front of the school, displaying signs inside the cars.  Because the teachers were parked where children are usually dropped off by their parents, children were being dropped off in the street. The board of education brought a disciplinary charge against petitioner pursuant to Education Law 3020-a alleging the creation of a health and safety risk.  The matter went to statutorily-required arbitration and the arbitrator found the petitioner had created a health and safety risk.  Petitioner challenged the ruling in this Article 78 proceeding. The Second Department explained the court’s role in reviewing a statutorily-required arbitration, found that the arbitrator’s ruling was supported by the evidence, but determined petitioner’s activity was protected by the First Amendment:

Where, as here, arbitration is statutorily required, “judicial review under CPLR article 75 is broad, requiring that the award be in accord with due process and supported by adequate evidence in the record” … . “The award must also be rational and satisfy the arbitrary and capricious standards of CPLR article 78” … . “Due process of law requires . . . that the [arbitrator’s determination] under the power conferred by statute have a basis not only in his good faith, but in law and the record before him [or her]” … . … In this proceeding… the evidence at the hearing provided a rational basis for the arbitrator’s decision, and the award was not arbitrary and capricious … .Nonetheless, we hold …that the petition should have been granted. The petitioner’s expressive activity regarding collective bargaining issues indisputably addressed matters of public concern …, and the District failed to meet its burden of demonstrating that the petitioner’s exercise of her First Amendment rights so threatened the school’s effective operation as to justify the imposition of discipline… .  Matter of Lucia v Board of Educ of E Meadow Union Free Sch Dist, 2013 NY Slip Op 05633, 2nd Dept 8-14-13

 

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Arbitrator Exceeded Powers Afforded by Collective Bargaining Agreement Re: Time Limitations for Filing Grievances

In affirming Supreme Court’s determination that an arbitrator had exceeded a limitation on his power enumerated in the collective bargaining agreement (CBA), the Third Department explained:

It is well established that an arbitrator’s award is largely unreviewable….  However, such an award may be      vacated upon a showing that it “‘violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on  the arbitrator’s power'” ….  Here, Supreme Court properly concluded that the arbitrator exceeded a specifically enumerated limitation on his power by failing to recognize the grievance and arbitration procedures as outlined in the CBA and, more particularly, the time limitation for filing grievances that is contained therein.  Matter of Adirondack Beverages Corporation…, 516022, 3rd Dept 7-3-13

 

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Court’s Limited Role Re: Contract with Arbitration Clause Explained

In determining a dispute involving a lease must be resolved in arbitration, the Fourth Department explained the court’s limited role in this context:

Plaintiff …. commenced this action pursuant to RPAPL article 15 seeking, inter alia, “to compel the determination of claims to the real property described herein,” and defendant moved to compel arbitration under the lease and to stay the action. Supreme Court properly granted the motion. “Where parties have entered into an agreement containing a broad arbitration provision, the question of whether the arbitration clause governs a particular aspect of the controversy, as well as the determination of the merits of the dispute, are matters within the exclusive province of the arbitrator”….“Once it appears that there is, or is not[,] a reasonable relationship between the subject matter of the dispute and the general subject matter of the underlying contract, the court’s inquiry is ended. Penetrating definitive analysis of the scope of the agreement must be left to the arbitrators whenever the parties have broadly agreed that any dispute involving the interpretation and meaning of the agreement should be submitted to arbitration”…. Thus, contrary to plaintiff’s contention, it is not entitled to a judicial determination with respect to the continued force and effect of the lease, i.e., “the ultimate issue in this case” …, before submitting the matter to arbitration.  Gray v Talisman Energy USA Inc, 534, 4th Dept, 6-14-13

 

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