Astoria Medical Group v. Health Ins. Plan of Greater New York
| Decision Date | 29 March 1962 |
| Parties | , 182 N.E.2d 85 In the Matter of the Arbitration between the ASTORIA MEDICAL GROUP et al., Respondents, and HEALTH INSURANCE PLAN OF GREATER NEW YORK, Appellant. |
| Court | New York Court of Appeals Court of Appeals |
John W. Nields, Mathias F. Correa, Marshall H. Cox, Jr., and Francis J. Bloustein, New York City, for appellant.
Cornelius McDougald, New York City, for respondents.
The intendely practical question presented by this appeal revolves about the attempt of one party to a typical tripartite arbitration agreement to have the court intervene, before an award has been made, and disqualify the arbitrator designated by the other party because of his asserted personal interest and partiality.
The appellant Health Insurance Plan (HIP), a nonprofit corporation orgainzed under this State's Insurance Law (art. IX-C), is engaged in writing policies of insurance which provide complete medical care. And, to assure such care to its policyholders, HIP enters into contracts with a number of partnerships of physicians, called Medical Groups, whereby they agree to furnish the necessary medical services. In identical contracts made by HIP with those Medical Groups which are the respondents herein, it was agreed that each of them would be paid a fixed sum, or 'capitation', for each insured person receiving the services of the particular Group. In addition to such 'capitation', HIP agreed to pay each Group an additional sum termed 'supplemental capitation' in an amount depending upon criteria and standards which were to be established in the future.
The contract further recited that, if the parties were unable to agree upon such criteria by a specified date, 'the unresolved issues (were) to go to arbitration' in accordance with the arbitration clause of the contract. This provided, in part that 'One arbitrator shall be appointed by HIP and another by the GROUP, who jointly shall appoint a third arbitrator' and that, if the third arbitrator could not be agreed upon, either party was to request the American Arbitration Association to select him. The decision of two of the three arbitrators was to be final and binding upon both parties.
When the parties failed to agree on the essential criteria for 'supplemental capitation', the Medical Groups demanded arbitration and appointed an attorney, Samuel Seligsohn, Esq., as their arbitrator. HIP, in turn, designated, as its arbitrator, Dr. George Baehr, a phusician with a long and distinguished career in medicine. The Groups objected to the designation of Dr. Baehr. Noting that he was one of the incorporators of HIP and its president from 1950 to 1957 and that he is, currently, a member of its board of directors and one of its paid consultants, they moved for an order (1) disqualifying him on the ground of personal interest, bias and partiality arising out of his relationship with HIP and (2) requiring HIP 'to designate an impartial arbitrator'. The justice at Special Term granting the motion and the Appellate Division affirmed by a divided court, granting leave to appeal to us on certified questions. Since the order here involved is a final order (cf. Matter of Lipschutz (Gutwirth), 304 N.Y. 58, 106 N.E.2d 8; Matter of Delma Eng. Corp. (K & L Constr. Co.), 5 N.Y.2d 852, 181 N.Y.S.2d 794, 155 N.E.2d 675), 'there was neither need nor authorization for the certification of questions, and we dispose of the appeal without answering them.' (Matter of Associated Metals & Minerals Corp. (Kemikalija), 10 N.Y.2d 298, 301, 222 N.Y.S.2d 313, 178 N.E.2d 715.)
Although we recognize that a strong argument may be advanced, in reliance upon our statute (Civil Practice Act, § 1462, subd. 2), to support the appellant HIP's contention that the court lacks authority to intervene until after the arbitrators have made an award (see Matter of Franks (Penn-Uranium Corp.), 4 A.D.2d 39, 162 N.Y.S.2d 685; see, also, Matter of Dover S. S. Co., D.C., 143 F.Supp. 738, 740-741; San Carlo Opera Co. v. Conley, D.C., 72 F.Supp. 825, affd. 2 Cir., 163 F.2d 310), we are persuaded that, in an appropriate case, the courts have inherent power to disqualify an arbitrator before an award has been rendered. (Cf. Western Union Tel. Co. v. Selly, 295 N.Y. 395, 68 N.E.2d 183; Gaer Bros. v. Mott, 144 Conn. 303, 130 A.2d 804, 65 A.L.R.2d 749.) However, the present is not such a case.
Arbitration is essentially a creature of contract, a contract in which 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. We have had before us numerous cases in which we have been asked to decide whether the parties had contracted to arbitrate their disputes. We have had many other cases in which we have examined the contract to determine the scope of the arbitration and the nature and extent of the arbitrators' jurisdiction. In the case now before us, we are called upon to interpret the contract in order to resolve a question as to who may sit on the arbitral tribunal.
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' (Civ.Prac.Act, § 1452). 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.' (Matter of Lipschutz (Gutwirth), 304 N.Y. 58, 61-62, 106 N.E.2d 8, 9, 10, supra; see, also, Matter of Amtorg Trading Corp. (Camden Fibre Mills), 304 N.Y. 519, 109 N.E.2d 606, affg. 277 App.Div. 531, 100 N.Y.S.2d 747.)
In order to determine, therefore, whether HIP's choice of Dr. Baehr was permissible or impermissible, we look to the agreement between the parties. It provides, as we have seen, that 'One arbitrator shall be appointed by HIP and another by the GROUP, who jointly shall appoint a third arbitrator.'
This type of tripartite arbitration provision, requiring each side to name its own arbitrator and such party-designated arbitrators to agree upon a third neutral arbitrator, is one which has been widely used in both labor and commercial arbitration. Arising out of the repeated use of the tripartite arbitral board, there has grown a common acceptance of the fact that the party-designated arbitrators are not and cannot be 'neutral', at least in the sense that the third arbitrator or a judge is. And, as might be expected, the literature is replete with references both to arbitrators who are 'neutrals' and those who are 'partial', 'partisan' or 'interested' and to arbitration boards composed entirely of 'neutrals' and those contrastingly denominated 'tripartite in their membership'.
In short, usage and experience indicate that, in the type of tripartite arbitration envisaged by the contract before us, each party's arbitrator 'is not individually expected to be neutral' (Second Preliminary Report of Advisory Committee on Practice and Procedure (N.Y.Legis.Doc., 1958, No. 13) p. 146; see, also, Pirsig, The New Uniform Arbitration Act, 11 Business Lawyer (April, 1956) 44, 48; Phillips, A Lawyer's Approach to Commercial Arbitration, 44 Yale L.J. 31, 47).
In fact, the very reason each of the parties contracts for the choice of his own arbitrator is to make certain that his 'side' will, in a sense, be represented on the tribunal. And, it was with that though in mind that this court held the choice of an arbitrator to be a 'valuable' contractual right not lightly to be disregarded. (Matter of Lipschutz (Gutwirth), 304 N.Y. 58, 65, 106 N.E.2d 8, 11 supra.) In the Lipschutz case, the several parties had agreed that two of them would jointly choose one arbitrator, that the third party to the contract would choose another and that the two party appointees would select a third. When the first two contracting parties could not agree on their joint arbitrator, one of them moved the court to name a single neutral arbitrator to replace the tripartite tribunal agreed upon in the contract. Although the Appellate Division approved this proposal, we reversed and decided, instead, that the court should appoint an arbitrator for the two contracting parties who could not agree, but that the third party should be allowed the right to choose his own arbitrator.
In thus enforcing the party's contractual right to designate an arbitrator of his own choice, we implicitly recognized the partisan character of tripartite arbitration. The right to appoint one's own arbitrator, which is of the essence of tripartite arbitration and which was vindicated in the Lipschutz case, would be of little moment were it to comprehend solely the choice of a 'neutral'....
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