Sablosky v. Edward S. Gordon Co., Inc.

• Decision Date: 21 February 1989
• Citation: Sablosky v. Edward S. Gordon Co., Inc., 538 N.Y.S.2d 513, 73 N.Y.2d 133, 535 N.E.2d 643 (N.Y. 1989)
• Parties: , 535 N.E.2d 643, 4 IER Cases 1315 Thomas SABLOSKY, Respondent, v. Edward S. GORDON COMPANY, INC., Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 513

538 N.Y.S.2d 513

73 N.Y.2d 133, 535 N.E.2d 643, 4 IER

Cases 1315

Thomas SABLOSKY, Respondent, v. Edward S. GORDON COMPANY, INC., Appellant.

Court of Appeals of New York.

Feb. 21, 1989.

Edward L. Sadowsky and Owen D. Kurtin, New York City, for appellant.

A. Richard Golub and Gary S. Graifman, New York City, for respondent.

OPINION OF THE COURT

SIMONS, Judge.

Plaintiff, Thomas Sablosky, was formerly employed as a commission salesman for defendant, Edward S. Gordon Company, Inc., a New York City real estate brokerage firm. In this action, he alleges that he helped defendant sell the Exxon Building in Midtown Manhattan at a price of $610 million, and claims that he is entitled under his employment agreement to a commission of $3.6 million. Defendant has moved to stay the action and to compel arbitration, and plaintiff has made a cross motion to stay arbitration permanently. Plaintiff contends that the arbitration clause ^* is invalid for lack of mutuality of remedy, and that it should not be given effect as a matter of public policy because the employment agreement constitutes a contract of adhesion and is unconscionable. Supreme Court granted defendant's motion and directed the parties to proceed to arbitration. The Appellate Division, 139 A.D.2d 416, 526 N.Y.S.2d 820, reversed and granted plaintiff's cross motion, holding that the arbitration agreement was unenforceable for lack of mutuality of obligation. We granted defendant leave to appeal and now reverse and reinstate the judgment of Supreme Court.

The principal issue submitted is whether an employment contract, which is supported by consideration on both sides and which contains an arbitration clause compelling one party to submit all disputes to arbitration but allows the other party the choice of pursuing arbitration or litigation, is invalid for lack of mutuality of remedy or obligation.

There is no dearth of authority on the subject. The Appellate Division, First Department, held almost 20 years ago that an arbitration provision granting one party the unilateral right to elect arbitration was invalid, notwithstanding that there was consideration to support the entire agreement (Hull Dye & Print Works v. Riegel Textile Corp., 37 A.D.2d 946, 325 N.Y.S.2d 782; Matter of Kaye Knitting Mills [Prime Yarn Co.], 37 A.D.2d 951, 326 N.Y.S.2d 361). It has followed that rule ever since, with some notable exceptions, and its decisions have generally been approved and followed by the other departments (see, e.g., Cored Panels v. Meinhard Commercial Corp., 72 A.D.2d 544, 420 N.Y.S.2d 731 [2d Dept.]; Arcata Graphics Corp. v. Silin, 59 A.D.2d 1007, 399 N.Y.S.2d 738 [4th Dept.] ).

The exceptions are to be found in Matter of Riccardi v. Modern Silver Linen Supply Co., 45 A.D.2d 191, 356 N.Y.S.2d 872, affd. 36 N.Y.2d 945, 373 N.Y.S.2d 551, 335 N.E.2d 856 and Kessner & Rabinowitz v. Winchester Textiles, 46 A.D.2d 239, 361 N.Y.S.2d 933; see also, Aegis Prop Servs. Corp. v. Mihalski, 91 A.D.2d 577, 458 N.Y.S.2d 185 [affg. for reasons stated by Meyers, J., at Special Term], as reported in Matter of Waldron [Goddess], 93 A.D.2d 706, 707, 460 N.Y.S.2d 793, revd. 61 N.Y.2d 181, 473 N.Y.S.2d 136, 461 N.E.2d 273. In Riccardi the employment contract provided that both parties were obligated to arbitrate all disputes arising out of the agreement except disputes involving whether the employee violated a restrictive covenant contained in the agreement. Disputes concerning the restrictive covenant could be arbitrated or litigated at the option of the employer. The Appellate Division enforced the arbitration clauses, despite their lack of complete mutuality. At the outset, it recognized that the enforceability of arbitration agreements is governed by the rules applicable to contracts generally and that contract law has abandoned the idea that to render an agreement enforceable there must be mutual promises creating identical rights and obligations in each party (45 A.D.2d 191, 193-194, 356 N.Y.S.2d 872, supra ). Rather than following these principles to their logical conclusion, however, and overruling Hull Dye & Print Works v. Riegel Textile Corp. (supra) and Matter of Kaye Knitting Mills (Prime Yarn Co.) (supra), the court decided the case on narrower grounds, emphasizing that the parties exchanged binding promises to submit all disputes to arbitration except those relating to breach of the restrictive covenant provision, and held that it was permissible for the parties to carve out an area of potential controversy from an otherwise mutually binding arbitrati agreement and give one party the unilateral right to select the dispute resolution forum in that area.

Riccardi is the only case in which we have considered the mutuality issue in an arbitration context. We affirmed the Appellate Division, but it should not be inferred from our affirmance or our citation of the Hull Dye and Kaye Knitting decisions that we implicitly adopted a general rule requiring mutuality. Rather, we cited Hull Dye and Kaye Knitting to distinguish those cases, urged upon us for reversal, and proceeded, as did the Appellate Division, to decide no more than necessary to resolve the particular case before us (see also, Kessner & Rabinowitz v. Winchester Textiles, 46 A.D.2d 239, 361 N.Y.S.2d 933, supra [using a similar analysis] ).

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 (see, Walter v. Hoffman, 267 N.Y. 365, 368, 196 N.E. 291; Epstein v. Gluckin, 233 N.Y. 490, 493-494, 135 N.E. 861) and with similar views of leading commentators (Restatement [Second] of Contracts § 363, comment c. at 183 ["the law does not require that the parties have similar remedies in case of breach"]; Farnsworth, Contracts § 12.4, at 822 [speaking of the "now discredited 'mutuality of remedy' rule"]; 5A Corbin, Contracts §§ 1178-1204; 11 Williston, Contracts § 1433, at 884 [3d ed. Jaeger] ). Since it is settled that the validity of an arbitration agreement is to be determined by the law applicable to contracts generally (Matter of Zimmerman v. Cohen, 236 N.Y. 15, 19, 139 N.E. 764), there is no reason for a different mutuality rule in arbitration cases. Moreover, recognition that mutuality of remedy is not required in arbitration is logically consistent with our recent statement in Weiner v. McGraw-Hill, Inc., 57 N.Y.2d 458, 457 N.Y.S.2d 193, 443 N.E.2d 441 that "while coextensive promises may constitute consideration for each other, 'mutuality', in the sense of requiring such reciprocity, is not necessary when a promisor receives other valid consideration" (id., 57 N.Y.2d at 464, 457 N.Y.S.2d 193, 443 N.E.2d 441).

It is also noteworthy that an increasing number of jurisdictions enforce commercial arbitration clauses notwithstanding the lack of mutuality of remedies (see, LaBonte Precision v. LPI Indus. Corp., 507 So.2d 1202 [Fla.Dist.Ct.App.]; Kalman Floor Co. v. Jos. L. Muscarelle, Inc., 196 N.J.Super. 16, 481 A.2d 553, affd. for reasons stated below 98 N.J. 266, 486 A.2d 334; Willis Flooring v. Lease Constr. Co. & Assocs., 656 P.2d 1184 [Alaska]; Becker Autoradio U.S.A. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 47 [3rd Cir.] [applying Federal law]; contra, Roberts Constr. Co. v. St. John's Riv. Water Mgt. Dist., 423 So.2d 630 [Fla.Dist.Ct.App.] ).

Nor should the court refuse to enforce the clause on policy grounds. Over the last 20 years arbitration has emerged as a preferred method for the settlement of many controversies (Mobile Oil Indonesia v. Asamera Oil [Indonesia], 43 N.Y.2d 276, 281-282, 401 N.Y.S.2d 186, 372 N.E.2d 21; Matter of Prinze v. [Jonas], 38 N.Y.2d 570, 574, 381 N.Y.S.2d 824, 345 N.E.2d 295). Arbitrators customarily have an expertise over a particular subject matter and are able to offer parties a relatively expeditious and inexpensive forum to resolve their...