Integrated Sales, Inc. v. Maxell Corp. of America

• Decision Date: 21 June 1983
• Parties: INTEGRATED SALES, INC., Petitioner-Respondent, v. MAXELL CORPORATION OF AMERICA, Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 809

463 N.Y.S.2d 809

94 A.D.2d 221

INTEGRATED SALES, INC., Petitioner-Respondent, v. MAXELL CORPORATION OF AMERICA, Respondent-Appellant.

Supreme Court, Appellate Division First Department.

June 21, 1983.

Lance Gotthoffer, New York City, of counsel (Gene Y. Matsuo and Matthew Digby, New York City, with him on the brief; Wender, Murase & White, New York City, attorneys), for respondent-appellant.

David Epstein, of counsel (Michael Lovendusky and David N. Ellenhorn, New York City, with him on the brief; Blatchford, Epstein & Brady and Stein, Zauderer Ellenhorn, Friedman & Kaplan, New York City, attorneys) for petitioner-respondent.

Before SANDLER, J.P., and SULLIVAN, BLOOM, FEIN and ALEXANDER, JJ.

SULLIVAN, Justice.

For several years petitioner Integrated Sales Inc. had been the exclusive, and apparently successful, sales representative of respondent Maxell Corporation of America for its consumer audio products in the Ohio, western Pennsylvania and West Virginia region. According to Integrated in 1977 it had surpassed all of Maxell's monthly sales targets, doubled the number of sales in its tri-state territory and sold $629,586 of Maxell-manufactured audiotape, an increase of almost 25% over the previous year. In 1978 it achieved 114% of its annual quota and doubled its sales to $1,757,653. By the end of 1979 it had more than tripled Maxell's accounts and expanded the number of sales locations twelvefold. Utilizing its own employees and funds Integrated recruited and trained a network of dealers, consisting of discount houses, drug store chains and record shops. As a result of its efforts, Integrated estimates that Maxell, over the next ten years, will earn more than $30,000,000 from sales in the Ohio, West Virginia and western Pennsylvania region. Notwithstanding, on October 15, 1979, Maxell, without stating any reason, terminated the relationship, effective 30 days thereafter.

Almost one year earlier, on December 29, 1978, the parties had executed a sales representative agreement which provided in paragraph 3 that the "relationship" was to "continue until either decidefor any reason that we should no longer do business together." Additionally, paragraph 18 gave Maxell the power to terminate the agreement at its sole option on 30 days written notice, and paragraph 23 absolved either party from damages resulting from termination of the agreement. The agreement also contained a broad arbitration clause providing for arbitration in accordance with the Commercial Rules of the American Arbitration Association. The agreement and performance thereunder were to be governed by the laws of the State of New York. In April 1981, 17 months after termination, Integrated served a demand for arbitration, claiming that Maxell had not paid certain back commissions and other amounts due, and that it had wrongfully terminated the agreement. The amount of damages sought was not specified.

At the arbitration hearing Integrated contended that the reason for the termination was its refusal to pay bribes to Maxell's former national sales manager, now deceased, who had himself been discharged by Maxell after Integrated's termination. Through witnesses and documents Integrated described a corrupt scheme in which the former sales manager and a coterie of Maxell officials and consultants played a central role. Apparently, these individuals pressured sales representatives such as Integrated, as well as Maxell suppliers and employees, to make payments to their wholly owned company for the ostensible purpose of purchasing shares of stock. The stock was worthless. Throughout the arbitration hearings Maxell, alleging an absolute right of termination under the sales representative agreement, maintained that its reason for terminating Integrated was not properly before the arbitrator. Nevertheless, Maxell presented witnesses in an effort to establish a non-corrupt reason for the termination. Integrated offered evidence that it sustained damages of $1,500,000.

After taking testimony from seventeen witnesses, divided almost equally between the parties, during five days of hearings, and viewing 80 exhibits, the arbitrator, a New York attorney selected by the American Arbitration Association, found that Maxell had wrongfully terminated the sales representative agreement, and awarded Integrated $500,000 in damages with interest. The arbitrator did not write an opinion explaining the basis of his award since the parties had previously stipulated that none was necessary. Special Term confirmed the award and, rejecting the argument that the arbitrator had exceeded his power (see CPLR 7511(b)the only basis for vacatur asserted by Maxell, denied its cross-motion to vacate. We agree with Special Term and affirm.

In support of its argument that the arbitrator exceeded his authority Maxell contends that the claims of corrupt motive are irrelevant to the termination of an agreement terminable at will and that, in any event, the express contractual limitation on damages contained in the sales representative agreement bars an award for wrongful termination. Thus, it reasons, in fashioning an award in damages for wrongful termination the arbitrator effectively rewrote the parties' agreement by creating obligations to which they had never agreed.

Courts are statutorily mandated to "confirm an award upon application of a party made within one year after its delivery to him, unless the award is vacated or modified upon a ground specified in section 7511." (CPLR 7510.) The grounds for vacating an arbitration award are limited by section 7511 to fraud or misconduct in procuring the award, arbitrator partiality, the arbitrator's abuse of power, or denial of procedural due process. These grounds are exclusive. (Matter of Torano 19 A.D.2d 356, 358, 243 N.Y.S.2d 434, aff'd 15 N.Y.2d 882, 258 N.Y.S.2d 418, 206 N.E.2d 353.) As a matter of public policy the merits of an arbitration are beyond judicial review. "The CPLR arbitration provisions (CPLR 7501 et seq.) evidence a legislative intent to encourage arbitration. Certainly the avoidance of court litigation to save the time and resources of both the courts and the parties involved make this a worthwhile goal." (Matter of Weinrott 32 N.Y.2d 190, 199, 344 N.Y.S.2d 848, 298 N.E.2d 42.) For that reason judicial review is narrowly circumscribed lest the arbitration award "become the commencement instead of the end of litigation." (Matter of Campe Corp. 275 App.Div. 634, 635, 92 N.Y.S.2d 347, citing Matter of Shirley Silk Co. v. American Silk Mills, 257 App.Div. 375, 377, 13 N.Y.S.2d 309.)

In the absence of fraud, corruption or other misconduct, an arbitration award may not be impeached because of arbitrator error as to the law or facts. (Matter of Wilkins, 169 N.Y. 494, 62 N.E. 575; Matter of Pine St. Realty Co., Inc. v. Coutroulos, 233 App.Div. 404, 253 N.Y.S. 174, lv. to app. den. 258 N.Y. 609, 180 N.E. 354, see, also, Rifkin v. Rifkin, Sup., 188 N.Y.S.2d 322, aff'd 281 App.Div. 1035, 121 N.Y.S.2d 277; Matter of Flotill Prods. 14 A.D.2d 328, 334, 220 N.Y.S.2d 496.) "An arbitrator's paramount responsibility is to reach an equitable result, and the courts will not assume the role of overseers to mold the award to conform to their sense of justice. Thus, an arbitrator's award will not be vacated for errors of law and fact committed by the arbitrator and 'even where the arbitrator states an intention to apply a law, and then misapplies it....' " (Matter of Sprinzen 46 N.Y.2d 623, 629-630, 415 N.Y.S.2d 974, 389 N.E.2d 456, citing Matter of Associated Teachers of Huntington v. Board of Educ., 33 N.Y.2d 229, 235, 351 N.Y.S.2d 670, 306 N.E.2d 791.) Nor may a court set aside an arbitration award merely because it believes that the arbitrator's interpretation of a contract "disregards the apparent, or even the plain, meaning of the words." (Matter of Adelstein v. Ortiz Funeral Home Corp., 75 A.D.2d 529, 530, 426 N.Y.S.2d 768, aff'd 52 N.Y.2d 997, 438 N.Y.S.2d 80, 419 N.E.2d 1079.) "Parties who agree to refer contract disputes to arbitration must recognize that 'may do justice' and that the award may well reflect the spirit rather than the letter of the agreement." (Matter of Local Div. 1179, Amalgamated Tr. Union, AFL-CIO 50 N.Y.2d 1007, 1009, 431 N.Y.S.2d 680, 409 N.E.2d 1354, citingRochester City School Dist. v. Rochester Teachers Ass'n, 41 N.Y.2d 578, 582, 394 N.Y.S.2d 179, 362 N.E.2d 977.) Moreover, "in the absence of contrary public policy or an express provision in the arbitration agreement otherwise limiting his authority," an arbitrator has the power to fashion appropriate remedies including reformation of a contract. (Matter of SCM Corp. 40 N.Y.2d 788, 794, 390 N.Y.S.2d 398, 358 N.E.2d 1024.)

New York courts have uniformly held that an arbitrator exceeds his powers only when he ignores specific limitations on the powers delegated to him in the arbitration clause or he gives a completely irrational construction to the provisions of the parties' agreement, thereby effectively rewriting it. (Lentine v. Fundaro, ...