Monday, December 27, 2010

Court of Appeals Declines to Disturb SUM Arbitration Award Despite Arbitrator's Refusal to Give Collateral Estoppel Effect to Prior No-Fault Arbitration Award

Matter of Falzone v. New York Cent. Mut. Fire Ins. Co.
(Ct. Apps., decided 10/21/2010)

Falzone arbitrated New York Central Mutual's denial of no-fault benefits and won.  She then arbitrated her related SUM claim against NYCM before a different arbitrator and lost on the ground that her injuries were not caused by the accident.  Contending that the second arbitration decision was inconsistent from the first, and that NYCM was collaterally estopped in the SUM arbitration from relitigating the issue of causation with respect to her injuries, Falzone commenced this CPLR article 75 special proceeding to vacate or modify the SUM arbitration award.  Supreme Erie granted petitioner's motion to vacate the SUM award and NYCM appealed.

In a 3-2 split decision, the Fourth Department, Appellate Division, reversed the order and confirmed the SUM arbitration award, the three-justice majority noting that "[t]he fact that a prior arbitration award is inconsistent with a subsequent award is not an enumerated ground in either subdivision (b) or (c) of CPLR 7511 for vacating or modifying the subsequent award[.]"

In 6-1 split decision, the New York Court of Appeals AFFIRMED the Appellate Division's decision, the six-judge majority holding: 
It is well settled that a court may vacate an arbitration award only if it violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator's power (see Matter of New York City Tr. Auth. v Transport Workers' Union of Am., Local 100, AFL-CIO, 6 NY3d 332, 336 [2005]; Matter of United Fedn. of Teachers, Local 2, AFT, AFL-CIO v Board of Educ. of City School Dist. of City of N.Y., 1 NY3d 72, 79 [2003]; CPLR 7511 [b] [1] [iii]).  Even where an arbitrator has made an error of law or fact, courts generally may not disturb the arbitrator's decision (see Transport Workers' Union of Am., Local 100, AFL-CIO, 6 NY3d at 336 ["[C]ourts are obligated to give deference to the decision of the arbitrator.  This is true even if the arbitrator misapplied the substantive law in the area of the contract (citations omitted)."]).  Here, petitioner's claim —- that the arbitrator erred in failing to apply collateral estoppel to preclude litigation of the causation issue in the SUM arbitration — falls squarely within the category of claims of legal error courts generally cannot review.

* * * * *

Here, the prior (no-fault) arbitration award involved the same parties, the same accident, the same injuries, and resolution of the same issue (causation) as the subsequent (SUM) arbitration award. Respondent insurer, a party to the prior arbitration, lost on the causation issue. Petitioner, the prevailing party on that issue in the prior arbitration, reasonably argued that collateral estoppel should apply to bar relitigation of the causation issue in the subsequent SUM arbitration. The SUM arbitrator rejected petitioner's argument, had the parties relitigate the causation issue and, contrary to the no-fault arbitrator's determination, found in respondent insurer's favor on the causation issue.

It is not for us to decide whether the SUM arbitrator erred in not applying collateral estoppel (i.e., not giving preclusive effect to the no-fault arbitrator's determination on the issue of causation). Because the SUM arbitration award was not patently irrational or so egregious as to violate public policy, the instant SUM arbitration award (and whether the SUM arbitrator erred or exceeded his authority) is beyond this Court's review powers.
As I observed when posting about the Fourth Department's decision, although some practitioners may regard this decision as standing for the proposition that collateral estoppel no longer attaches to no-fault arbitration awards in New York, the ruling is much more narrow than that.  The Fourth Department's majority reversed the trial judge and confirmed the award not because they believed collateral estoppel could or did not apply to preclude NYCM from relitigating injury causality, but because they (and the dissent) adhered to the rule that collateral estoppel is not a basis on which Supreme Court may, under CPLR 7511, vacate an arbitration award.  On that procedural basis the Court of Appeals agreed and declined to disturb the arbitrator's award. 

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