Schiferle v. Capital Fence Co.

• Decision Date: 06 October 2017
• Docket Number: 1075 CA 17-00526
• Citation: 2017 NY Slip Op 07059
• Court: New York Supreme Court — Appellate Division
• Parties: WILLIAM SCHIFERLE, PLAINTIFF-APPELLANT, v. CAPITAL FENCE CO., INC., DEFENDANT-RESPONDENT.

2017 NY Slip Op 07059

WILLIAM SCHIFERLE, PLAINTIFF-APPELLANT, v. CAPITAL FENCE CO., INC., DEFENDANT-RESPONDENT.

1075 CA 17-00526

SUPREME COURT OF THE STATE OF NEW YORK Appellate Division, Fourth Judicial Department

Decided on October 6, 2017

PRESENT: CARNI, J.P., LINDLEY, NEMOYER, AND CURRAN, JJ.

BARCLAY DAMON, LLP, BUFFALO (MICHAEL E. FERDMAN OF COUNSEL), FOR PLAINTIFF-APPELLANT.

LAW OFFICE OF RALPH C. LORIGO, WEST SENECA (JON F. MINEAR OF COUNSEL), FOR DEFENDANT-RESPONDENT.

NeMoyer

Appeal from an order of the Supreme Court, Erie County (John F. O'Donnell, J.), entered August 29, 2016. The order, among other things, denied plaintiff's motion to vacate and/or modify an arbitration award.

It is hereby ORDERED that the order so appealed from is unanimously affirmed without costs.

Opinion by NeMoyer, J.:

When an employee prevails on a wage nonpayment claim under article 6 of the Labor Law, "the court shall allow such employee to recover . . . all reasonable attorney's fees" (§ 198 [1-a]). We hold that a wage claimant may, in certain circumstances, validly waive their statutory right to attorney's fees under section 198. And because this case presents a textbook instance of such a valid waiver, there is no basis to upset the challenged arbitration award.

FACTS

The material facts are uncontested. Plaintiff worked as a salesman for defendant Capital Fence Co., Inc., a small business owned by plaintiff's brother. A dispute subsequently erupted regarding the amount of commissions that defendant owed plaintiff. Plaintiff sued defendant in Supreme Court, asserting common law causes of action for breach of contract and unjust enrichment. Plaintiff also asserted a statutory wage nonpayment claim under Labor Law article 6. Defendant answered, and discovery ensued. The parties later agreed to resolve "this matter . . . through binding arbitration, pursuant to CPLR Article 75," and they executed an arbitration agreement. This appeal centers around paragraph 9 of the arbitration agreement, which says in relevant part:

"The parties shall bear their own costs and attorneys' fees related to the arbitration. However, this provision does not prevent the arbitrator from awarding reasonable legal fees to [plaintiff] based on Labor Law, Article 6, as demanded in the amended complaint, including reasonable legal fees related to the arbitration."

Following an arbitration hearing, the arbitrator rendered a comprehensive decision finding in plaintiff's favor on his Labor Law article 6 wage claim and awarding him the sum of $40,942.54 in "unpaid earned commissions." The arbitrator refused to grant plaintiff any pre-award interest, however, and he further "decline[d] to award attorney's fees."

Plaintiff thereafter moved in Supreme Court to vacate and/or modify the arbitrator's award insofar as it denied pre-award interest and attorney's fees (see generally CPLR 7511). Noting that a successful plaintiff "in a Labor Law Article 6 [wage] claim is automatically entitled to attorney's fees by the express language of Labor Law § 198(1-a)" as well as to "pre-judgment interest under CPLR 5001(a)," plaintiff argued that the arbitrator, by "treating awards of pre-judgment interest and attorney's fees as discretionary . . . and declining to award them, . . . acted in manifest disregard of well-established law and undermined the strong and well-defined public policy considerations of Article 6 of the Labor Law." Supreme Court denied plaintiff's motion and confirmed the arbitration award.

Plaintiff appeals, and we now affirm.

DISCUSSION

Arbitration is a creature of contract, and arbitrators draw their power from the consent of the arbitrants, not from the sovereignty of the State. It is thus "well settled that judicial review of arbitration awards is extremely limited" (Wien & Malkin LLP v Helmsley-Spear, Inc., 6 NY3d 471, 479, cert dismissed 548 US 940). Indeed, "courts are obligated to give deference to the decision of the arbitrator . . . even if the arbitrator misapplied the substantive law" (Matter of New York City Tr. Auth. v Transport Workers' Union of Am., Local 100, AFL-CIO, 6 NY3d 332, 336). An arbitration award is not immune from judicial scrutiny, however, and it will be vacated if, inter alia, the arbitrator "exceeded his power" (CPLR 7511 [b] [1] [iii]; see also 9 USC § 10 [a] [4] [same provision in Federal Arbitration Act]). An arbitrator can exceed his or her power in a variety of ways, three of which are relevant to this appeal.

First, an arbitrator exceeds his or her power by transgressing a "specifically enumerated limitation" on their authority (New York City Tr. Auth., 6 NY3d at 336). The most obvious example of such a transgression occurs when the arbitrator expands his or her subject matter jurisdiction in direct contravention of the terms of the governing arbitration agreement (see e.g. Matter of Local 2841 of N.Y. State Law Enforcement Officers Union, AFSCME, AFL-CIO [City of Albany], 53 AD3d 974, 976 ["the arbitrator exceeded his power in amending the terms of the CBA . . . in contravention of an expressed term of the CBA which prohibited amending, modifying or deleting any provision thereof"]; Matter of Albany County Sheriffs Local 775 of N.Y. State Law Enforcement Officers Union, Dist. Council 82, AFSCME, AFL-CIO [County of Albany], 27 AD3d 979, 980-981 [arbitral award properly vacated where arbitrator, "in effect, made a new contract for the parties" in contravention of explicit provision of arbitration agreement which denied arbitrator power to "alter, add to or detract from the CBA" (internal quotation marks omitted)]). A specifically enumerated restriction upon the arbitrator's power can also arise by negative implication from the arbitration agreement (see Matter of Hunsinger v Minns, 197 AD2d 871, 871). In Stolt-Nielsen S.A. v AnimalFeeds Intl. Corp. (559 US 662), for instance, the United States Supreme Court held that an agreement by specified parties to arbitrate their commercial disputes on a bilateral basis necessarily precluded the arbitrator from compelling the parties to submit to binding class arbitration (see id. at 684-687). A specifically enumerated restriction on the arbitrator's power can arise even from a source wholly independent of the arbitration agreement itself, such as when a statute "requires the arbitrator to consider and determine the merits of [a particular issue] where such [issue] is raised" (Matter of Kowaleski [New York State Dept. of Corr. Servs.], 16 NY3d 85, 91 [applying Civil Service Law § 75-b (3) (a)]).

Second, an arbitrator exceeds his or her power by rendering an award that contravenes a "strong public policy" of this State (Hackett v Milbank, Tweed, Hadley & McCloy, 86 NY2d 146, 155 [internal quotation marks omitted]). Indeed, " it is the established law in this State that an award which is violative of public policy will not be permitted to stand' " (Matter of Buffalo Police Benevolent Assn. [City of Buffalo], 4 NY3d 660, 664, quoting Matter of Sprinzen [Nomberg], 46 NY2d 623, 630). An arbitral award violates public policy when, inter alia, it "creates an explicit conflict with other laws and their attendant policy concerns" (Matter of New York State Corr. Officers & Police Benevolent Assn. v State of New York, 94 NY2d 321, 327). Contrary to defendant's contention, the Court of Appeals did not hold in Sprinzen that an arbitral award is categorically immune from vacatur on public policy grounds unless it involved "punitive damages, [the] antitrust laws, claims concerning liquidating insolvent insurance companies, and certain matters involving public schools". As the Sprinzen court repeatedly stated, those categories were merely "examples" and "illustrations of instances where courts will intervene in the arbitration process" in order to vindicate public policy (id. at 630-631).

Third, an arbitrator exceeds his power when he "manifestly disregard[s]" the substantive law applicable to the parties' dispute (Wien & Malkin LLP, 6 NY3d at 480-481). "To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case' " (id. at 481, quoting Wallace v Buttar, 378 F3d 182, 189; see Transparent Value, L.L.C. v Johnson, 93 AD3d 599, 601 [recapitulating standard]; see e.g. Matter of Kingdon Capital Mgt., LLC v Kaufman, 110 AD3d 648, 648, lv denied 22 NY3d 861 [recognizing and applying manifest disregard standard]; Matter of WBP Cent. Assoc., LLC v Deco Constr. Corp., 44 AD3d 781, 781 ["In a proceeding pursuant to CPLR article 75 . . . (a)n award made by an arbitration panel will not be vacated for errors of law or fact committed by the arbitrators unless the award exhibits a manifest disregard of the law" (emphasis added)]).¹

The manifest disregard standard is, admittedly, a controversial one (compare Comedy Club, Inc. v Improv West Assocs., 553 F3d 1277, 1290, cert denied 558 US 824, with Affymax, Inc. v Ortho—McNeil—Janssen Pharms., Inc., 660 F3d 281, 285 and Matter of Banc of Am. Sec. v Knight, 4 Misc 3d 756, 760-763), but we think the controversy is unwarranted. Under both the Federal Arbitration Act (9 USC § 10 [a] [4]) and our State law (CPLR 7511 [b] [1] [iii]), an arbitration award is subject to vacatur when the arbitrator exceeds his or her power, and as the Second Circuit has explained, arbitrators who act in "manifest disregard of the law" have "thereby exceeded their powers' " within the meaning of 9 USC § 10 (a) (4) (Stolt-Nielsen S.A. v AnimalFeeds Intl. Corp., 548 F3d 85, 95, revd on other grounds 559 US 662). After all, as Judge Sack astutely observed for the Stolt-Nielsen S.A. panel, "parties do not agree in advance to submit to arbitration that is carried out in manifest disregard of the law" (id.). The United States...