Chapter 6 ARBITRATION

• Jurisdiction: New York

Chapter Six

Arbitration

I. Arbitration—Desirability

Albeit well over a century in age, the Court of Appeals, in Fudickar v. Guardian Mut. Life Ins. Co.,¹⁸³³ captured the contemporary view of arbitration:

The jealousy with which, at one time, courts regarded the withdrawal of controversies from their jurisdiction by the agreement of parties, has yielded to a more sensible view, and arbitrations are now encouraged as an easy, expeditious and inexpensive method of settling disputes, and as tending to prevent litigation. The arbitrator is a judge appointed by the parties; he is by their consent invested with judicial functions in the particular case; he is to determine the right as between the parties in respect to the matter submitted, and all questions of fact or law upon which the right depends are, under a general submission, deemed to be referred to him for decision. The court possesses no general supervisory power over awards, and if arbitrators keep within their jurisdiction their award will not be set aside because they have erred in judgment either upon the facts or the law. If courts should assume to rejudge the decision of arbitrators upon the merits, the value of this method of settling controversies would be destroyed, and an award instead of being a final determination of a controversy would become but one of the steps in its progress.

N.Y. Civil Practice Law & Rules 7501 (CPLR), "effect of arbitration agreement," provides:

A written agreement to submit any controversy thereafter arising or any existing controversy to arbitration is enforceable without regard to the justiciable character of the controversy and confers jurisdiction on the courts of the state to enforce it and to enter judgment on an award. In determining any matter arising under this article, the court shall not consider whether the claim with respect to which arbitration is sought is tenable, or otherwise pass upon the merits of the dispute.

In Silverman v. Benmor Coats, Inc.,¹⁸³⁴ the Court of Appeals amplified CPLR 7501:

CPLR article 75 evidences in numerous ways the intent of the Legislature that, once it is clear that a valid agreement to arbitrate has been made and complied with and that the claim sought to be arbitrated is not barred by limitations, the authority of the arbitrator is plenary . . . every procedural right provided for in the article other than the right to be represented by counsel is waived either by written consent or simply by continuing with the arbitration without objection (CPLR 7506, subds. [d], [f]; 7511, subd. [b], par. 1, cl. [iv]).

The only basis upon which an award can be vacated at the behest of a party who participated in the arbitration or was served with notice of intention to arbitrate is that the rights of that party were prejudiced by corruption, fraud or misconduct in procuring the award, partiality of an arbitrator, that the arbitrator exceeded his power or failed to make a final and definite award, or a procedural failure that was not waived (CPLR 7511, subd. [b], par. 1).

In Motor Veh. Acc. Indem. Corp. v. Aetna Cas. & Sur. Co.,¹⁸³⁵ the Court of Appeals held:

An arbitration award made after all parties have participated, however, will not be overturned merely because the arbitrator committed an error of fact or of law . . . Moreover, where the arbitration is pursuant to the voluntary agreement of the parties, in the absence of proof of fraud, corruption, or other misconduct, the arbitrator's determination on issues of law, such as the application of the Statute of Limitations, as well as fact, is conclusive (Sherrill v. Grayco Bldrs., 64 N.Y.2d 261, 486 N.Y.S.2d 159, 475 N.E.2d 772).

Arbitration clauses are by now familiar provisions in separation agreements. Aside from expressing the parties' preference for a means of dispute resolution more informal, more expedient and possibly less costly than litigation, an arbitration provision may well have been intended to furnish insulation from the potential for notoriety and other stresses that so often accompanies the airing of marital disputes in court. Moreover, resort to the arbitral forum may afford spouses an opportunity to have their grievances heard by someone who they think may be especially well qualified in matrimonial matters.¹⁸³⁶ Arbitration agreements are contracts and must be interpreted under the accepted rules of contract law.¹⁸³⁷

Courts and arbitrators perform very different functions. Courts perform the initial screening process designed to determine in general terms whether the parties have agreed that the subject matter under dispute should be submitted to arbitration. 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.¹⁸³⁸

It is New York's strong public policy to encourage, by judicial non-interference, an unfettered, voluntary arbitration system, where equity should be done.¹⁸³⁹ Arbitration by its nature contemplates a less formal environment than the judicial forum, and accordingly, arbitrators are not held to the standards prescribed for members of the judiciary. Nevertheless, arbitrators must take a formal oath (CPLR 7506(a)), are expected to "faithfully and fairly" hear the controversy over which they have been chosen to preside and ought to conduct themselves in such a manner as to safeguard the integrity of the arbitration process.¹⁸⁴⁰

One way to encourage the use of the arbitration forum is to prevent parties to such agreements from using the courts as a vehicle to protract litigation.¹⁸⁴¹ Under established law, an agreement to arbitrate is not a defense to an action and, thus, may not be the basis for a motion to dismiss¹⁸⁴² – otherwise stated, an action may not be dismissed pursuant to CPLR 3211(a)(1), premised upon an agreement to arbitrate. Rather, where there is a valid arbitration clause in an agreement and the party sued moves to compel arbitration, the court should stay the judicial action rather than dismiss it.¹⁸⁴³ The Legislature has assigned the courts a minimal role in supervising arbitration practice and procedures.¹⁸⁴⁴ In contractual arbitration, "the parties themselves charter a private tribunal for the resolution of their disputes. The law does no more than lend its sanction to the agreement of the parties, the court's role being limited to the enforcement of the terms of the contract":¹⁸⁴⁵

It is indisputable, as a general proposition, that the parties to an arbitration contract are completely free to agree upon the identity of the arbitrators and the manner in which they are to be chosen. Indeed, our statute so provides, declaring as it does that, "If, in the contract for arbitration * * * provision be made for a method of naming or appointing an arbitrator or arbitrators * * * such method shall be followed." . . . And, in interpreting the provision, this court has expressed the view that "The spirit of the arbitration law being the fuller effectuation of contractual rights, the method for selecting arbitrators and the composition of the arbitral tribunal have been left to the contract of the parties."

A summary review of arbitration is captured in Maross Construction:

Where the parties have expressly agreed to arbitrate their disputes, it remains to be determined whether the subject matter of the dispute is one that may be submitted to arbitration without violation of any law or public policy and, if so, whether it falls within the scope of the arbitration agreement. . . . Hence, where jurisdiction over a particular type of dispute is statutorily bestowed exclusively upon the courts . . . or where judicial, as apposed to arbitral, enforcement of particular rights and prohibitions is mandated by public policy . . . an agreement to arbitrate will not be given effect by the courts. Otherwise, where no such conflict with law or public policy exists, the courts will enforce the parties' contractual decision to submit their disputes to arbitration. . . . Moreover, while a specifically enumerated restriction upon arbitral authority will be upheld by the courts, . . . no such limitation upon either factual or legal dispute resolution will be inferred from a broadly worded contractual provision expressly calling for the arbitration of all disputes arising out of the parties' contract. ¹⁸⁴⁶

It is a fundamental principle that arbitration is a matter of contract "grounded in agreement of the parties."¹⁸⁴⁷ Arbitration is a matter of consent, not coercion.¹⁸⁴⁸ Because arbitration is a creature of contract, the courts may inquire into whether the parties have agreed to arbitrate the particular dispute.¹⁸⁴⁹ It has long been the policy of this state to "interfere as little as possible with the freedom of consenting parties" in structuring their arbitration relationship.¹⁸⁵⁰ The law does not require the parties to arbitrate a claim which they did not intend to arbitrate.¹⁸⁵¹ Mutuality of remedy is not required in arbitration contracts. If there is consideration for the entire agreement that is sufficient, the consideration supports the arbitration option, as it does every other obligation in the agreement. "Our holding" is consistent with decisions which have repudiated the necessity for mutuality of remedy in contracts.¹⁸⁵² It is permissible to afford the remedy of arbitration to only one party to an agreement.¹⁸⁵³

It is not uncommon for marital agreements to include an arbitration provision as an alternate means of dispute resolution over protracted and costly litigation. Arbitration clauses provide an alternative to the judicial forum, permitting dispute resolution in relative privacy, by self-chosen...