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In re the Arbitration between Staklinski & Pyramid Electric Co.

6 N.Y.2d 159 Court N.Y. Decision date 1959-05-29 English

Decision Majority — Desmond, J. · Concurring — Fboessel, J. (concurring). · Dissent — Btjbke, J. (dissenting).

Contents

Majority

p. 159
In the Matter of the Arbitration between Stanley J. Staklinski, Respondent, and Pyramid Electric Company, Appellant.
Argued March 3, 1959;
decided May 29, 1959.
p. 160
Marvin E. Frankel, Harold H. Levin, Howard Lichtenstein and Michael L. Matar for appellant.
I. The decree of reinstatement violates the legislatively declared public policy that corporate management is for the directors. (Long Park v. Trenton-New Brunswick Theatres Co., 297 N. Y. 174 ; D’Arcangelo v. D’Arcangelo, 137 N. J. Eq. 63 ; Jackson v. Hooper, 76 N. J. Eq. 592 ; Clark v. Dodge, 269 N. Y. 410 ; Ripin v. United States Woven Label Co., 205 N. Y. 442 ; Matter of Burkin [Katz], 286 App. Div. 740 , 1 N Y 2d 570 ; Rochester v. Bergen, 265 App. Div. 547 , 291 N. Y. 656 ; Christal v. Petry, 275 App. Div. 550 , 301 N. Y. 562 ; Matter of Western Union Tel. Co. [ACA], 299 N. Y. 177 .) II. The decree of reinstatement, where damages would be an ample remedy, offends basic principles of equity. (Cuppy v. Ward, 187 App. Div. 625 , 227 N. Y. 603 ; Bleendes v. Fellerman, 264 App. Div. 223 ; Kerr S. S. Co. v. Kerr Nav. Corp., 113 Misc. 56 ; Matter of Devery [Daniels & Kennedy], 266 App. Div. 213 , 292 N. Y. 596 ; Matter of United Culinary Bar & Grill Employees [Schiffman], 272 App. Div. 491 , 299 N. Y. 577 ; Goldman v. Cohen, 222 App. Div. 631 ; United Office & Professional Workers v. Monumental Life Ins. Co., 88 F. Supp. 602 ; Case Co. v. Labor Bd., 321 U. S. 332 ; Odom v. Thompson, 85 F. Supp. 477 ; Matter of Freydberg Bros. v. Corey, 177 Misc. 560 , 263 App. Div. 805 .) III. The courts in arbitration proceedings follow the commands of public policy and the principles of equity in determining the jurisdiction of arbitrators and the propriety of awards. (Matter of Lipschutz [Gutwirth], 304 N. Y. 58 ; Matter of Feuer Transp. [Local No. 445], 295 N. Y. 87 ; Reconstruction Finance Corp. v. Harrisons & Crosfield, 204 F. 2d 366 , 346 U. S. 854 ; Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F. 2d 978 ; Matter of Western Union Tel. Co. [ACA], 299 N. Y. 177 ; Matter of Publishers’ Assn. [Newspaper Union], 280 App. Div. 500 ; Matter of Marchant v. Mead-Morrison Mfg. Co., 252 N. Y. 284 , 282 U. S. 808 ; Matter of Kingswood Management Corp. [Salzman], 272 App. Div. 328 ;
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Matter of Hill [Hill], 199 Misc. 1035 ; Matter of Swislocki v. Spiewak, 273 App. Div. 808 ; Matter of Knickerbocker Agency [Holz], 4 N Y 2d 245 ; Wilko v. Swan, 346 U. S. 427 ; Black v. Cutter Laboratories, 43 Cal. 2d 788 , 351 U. S. 292 ; Matter of Ruppert [Egelhofer], 3 N Y 2d 576 .) IV. The contract did not authorize the arbitrators to order petitioner’s reinstatement or to compel him to work if he quit. But even if it had, the award would be unenforcible. (Matter of Riverdale Fabrics Corp. [Tillinghast-Stiles Co.], 306 N. Y. 288 ; Dolman v. United States Trust Co., 2 N Y 2d 110 ; Curtis v. Gokey, 68 N. Y. 300 ; Matter of Berkovits v. Arbib & Houlberg, 230 N. Y. 261 ; Matter of Kingswood Management Corp. [Salzman], 272 App. Div. 328 .) V. The decree of reinstatement effects an improper interference with the internal affairs of a foreign corporation. (Langfelder v. Universal Laboratories, 293 N. Y. 200 ; Bickart v. Kelly-Springfield Tire Co., 243 App. Div. 72 ; Travis v. Knox Terpezone Co., 215 N. Y. 259 ; Cohn v. Mishkoff Costello Co., 256 N. Y. 102 ; Sternfeld v. Toxaway Tanning Co., 290 N. Y. 294 ; Nothiger v. Corroon & Reynolds Corp., 293 N. Y. 682 ; Cohen v. American Window Glass Co., 126 F. 2d 111 ; Long Park v. Trenton-New Brunswick Theatres Co., 297 N. Y. 174 ; Cuppy v. Ward, 187 App. Div. 625 , 227 N. Y. 603 ; Hallenborg v. Greene, 66 App. Div. 590 ; Butler v. Standard Milk Flour Co., 146 App. Div. 735 ; People ex rel. Ruman v. National Slavonic Soc., 144 App. Div. 574 ; Gregory v. New York, L. E. & W. R. R. Co., 40 N. J. Eq. 38 ; Guilford v. Western Union Tel. Co., 59 Minn. 332 ; Edwards v. Schillinger, 245 Ill. 231 ; Wason v. Buzzell, 181 Mass. 338 .) VI. Matter of Ruppert (Egel hofer) ( 3 N Y 2d 576 ) neither requires nor justifies the decision below. (Matter of Finsilver, Still & Moss v. Goldberg, Maas & Co., 253 N. Y. 382 ; Matter of Mencher [Abeles & Kahn], 274 App. Div. 585 ; Matter of Klein, 261 App. Div. 941 ; Matter of of Lipschutz [Gutwirth], 304 N. Y. 58 ; Matter of Feuer Transp. [Local No. 445], 295 N. Y. 87 .)
Philip G. Samuels, Jacob Gruber and Arthur Elfenbein for respondent.
I. The judgment, confirming the award of reinstatement which gives effect to the clearly manifested contractual intention of the parties, should be affirmed. (Matter of Julliard & Co. [Baitch & Castaldi], 2 Misc 2d 753 ; Matter of Level Export Corp. [Wolz, Aiken & Co.], 305 N. Y. 82 ; Matter
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of Marchant v. Mead-Morrison Mfg. Co., 252 N. Y. 284 ; Matter of River Brand Rice Mills v. Latrobe Brewing Co., 305 N. Y. 36 ; Matter of Wilkins, 169 N. Y. 494 ; Matter of Pine St. Realty Co. v. Coutroulas, 233 App. Div. 404 , 258 N. Y. 609 ; Matter of Ruppert [Egelhofer], 3 N Y 2d 576 ; Matter of Lipman [Haeuser Shellac Co.], 289 N. Y. 76 .) II. The arbitrators’ award is final and binding, unless vacated on grounds set forth in section 1462 of the Civil Practice Act and appellant’s contention that the arbitrators exceeded their powers in making the award is untenable. (Matter of Grayson-Robinson Stores [Iris Constr. Corp.], 9 Misc 2d 796 ; Matter of Publishers’ Assn. [Newspaper Union], 280 App. Div. 500 ; Matter of Devery [Daniels & Kennedy], 292 N. Y. 596 ; Matter of Freydberg Bros. v. Corey, 177 Misc. 560 , 263 App. Div. 805 , 263 App. Div. 858 ; Matter of Young [Deschler], 202 Misc. 811 ; Matter of Samuel Adler, Inc., v. Local 584, Int. Brotherhood of Teamsters, 282 App. Div. 142 ; Cuppy v. Ward, 187 App. Div. 625 , 227 N. Y. 603 ; Kerr S. S. Co. v. Kerr Nav. Corp., 113 Misc 56 ; Matter of United Culinary Bar & Grill Employees [Schiffman], 299 N. Y. 577 ; Goldman v. Cohen, 222 App. Div. 631 ; Matter of Kingswood Management Corp. [Salzman], 272 App. Div. 328 ; Matter of Western Union Tel. Co. [ACA], 299 N. Y. 177 ; Matter of Spectrum Fabrics Corp. v. Main St. Fashions, 285 App. Div. 710 , 309 N. Y. 709 ; Matter of Lipschutz [Gutwirth], 304 N. Y. 58 .) III. The award creates no interference with the functions of the board of directors; nor does it regulate the affairs of this foreign corporation. (Matter of DeCaro, 261 App. Div. 975 ; Long Park v. Trenton-New Brunswick Theatres Co., 297 N. Y. 174 ; Langfelder v. Universal Laboratories, 293 N. Y. 200 ; Gilbert v. Burnstine, 255 N. Y. 348 ; Matter of Gantt [Hurtado & Cia.], 297 N. Y. 433 , 335 U. S. 843 ; Westchester Mtge. Co. v. Grand Rapids & I. R. R. Co., 246 N. Y. 194 .)

We see nothing illegal about this arbitration award and no reason for vacating it. Petitioner was for years appellant’s president and in charge of its production and engineering and one of its directors and largest stockholders. In 1954 appellant entered into an 11-year contract employing petitioner as manager in charge of production and engineering at a large salary plus a percentage of net profits. Included was

p. 163
a covenant that, if petitioner should be declared permanently disabled, he would receive reduced compensation for the next three years and then the contract would end. The contract provided that any controversy arising out of it should be settled by arbitration in accordance with American Arbitration Association rules and the rules of that Association in so many words authorized an arbitrator to grant equitable relief including “ specific performance of a contract

In June, 1956 the corporation’s directors made a determination that appellant was permanently disabled and that his services should be terminated. Petitioner disputed the finding of permanent disability. The resulting difference of opinion was just such a controversy as the parties had agreed to submit to arbitration and to arbitration it went. The arbitrators held in favor of petitioner on the issue and ordered petitioner’s reinstatement. That, of course, put beyond reach of the courts the question thus conclusively determined by arbitration as to whether petitioner was in fact permanently disabled. It is now asserted, however, that it is against public policy to compel a corporation to continue the services of an officer whose services are unsatisfactory to the directors. But we must remember that this corporation made a valid long-term employment contract with this man and agreed that any disputes would go to arbitrators who would be empowered to order specific performance. Since the contract was indisputably valid, so is the arbitration award. The power of an arbitrator to order specific performance in an appropriate case has been recognized from early times (see Justice Story in McNeil v. Magee, Fed. Cas. No. 8915 [1829]).

In Matter of Ruppert (Egelhofer) ( 3 N Y 2d 576 ) we upheld the grant by arbitrators of an injunction against a strike in a labor dispute, and we cited a number of precedents therefor. A supposed “public policy” against such an injunction was urged on us in Buppert since there we had a specific statute (Civ. Prac. Act, § 876-a) which would have made it impossible for a court to grant that same injunction. However, we held in Buppert that the parties had agreed not only to submit their controversies to arbitration but had validly authorized the arbitrators to issue an injunction. The same is true here. Whether a court of equity could issue a specific performance

Concurrence

p. 164
decree in a case like this (see Matter of Buffalo & Erie Ry. Co., 250 N. Y. 275 , 280-281) is beside the point. There is no controlling public policy which voids an arbitration agreement like this one and the courts are not licensed to announce a new public policy to fit the supposed necessities of the case (see Matter of Rhinelander, 290 N. Y. 31 , 36).

The judgment should be affirmed, with costs.

I concur for affirmance. I do not, however, read the arbitrator’s award or the judgment entered thereon as directing ‘ ‘ specific performance ” of a personal service contract.

The only dispute submitted to arbitration was whether petitioner was ‘ ‘ permanently disabled ’ ’, so as to entitle the corporation to terminate its liability to him after making specified payments for three years from the date of disability. All the arbitrators decided was that petitioner was not “ permanently disabled ”, and hence was improperly discharged under the “permanent disability” clause of the contract. In directing the corporation to reinstate him in his position, the arbitrators awarded the natural and logical relief called for by the nature of the dispute submitted to them.

Future performance will depend upon future events which cannot now be foreseen. The board of directors of the corporation may discharge petitioner for good cause, and any discharge without good cause will be at the peril of damages.

An arbitrators’ award of specific performance of a contract for personal services directing the issuance of a mandatory injunction against a foreign employer in behalf of a nonresident employee who has been wrongfully discharged is without precedent and violates settled principles of equity. In such a situation, the courts of this State are not bound to uphold an arbitration award that offends established principles of law and public policy.

"While a public corporation may be liable in damages for a breach of a long-term contract of employment (Douglass v. Merchants’ Ins. Co., 118 N. Y. 484 ; Cuppy v. Stollwerck Bros., 216 N. Y. 591 ; 2 Fletcher’s Cyclopedia Corporations [Perm, ed.], § 353, p. 151; § 363, p. 177), we have found no case wherein a court has decreed specific performance of these contracts

Dissent

p. 165
The reason is that equity has traditionally declined to afford such relief (Cuppy v. Ward, 227 N. Y. 603 ; 81 C. J. S., Specific Performance, § 82).

While no statute expressly defines the arbitrators’ powers to grant relief, the provisions of section 1448 of the Civil Practice Act, making valid and enforcible arbitration submissions and contracts, suggests the adoption of the common-law concept of remedies. This follows from the fact that an arbitration submission and agreements to arbitrate must be capable of being the subject of an action (Civ. Prac. Act, § 1448; Matter of Burkin [Katz], 1 N Y 2d 570 ).

Where equitable relief has been granted in an arbitration proceeding, it is the court that fashions the decree based on the determination of the arbitrator (Matter of Ruppert [Egel hofer], 3 N Y 2d 576 ; Matter of Albert, 160 Misc. 237 ). Heretofore, we have refused to confirm arbitrators’ awards where such were illegal or violative of some well-defined public policy. (See, e.g., Matter of Western Union Tel. Co. [American Communications Assn.], 299 N. Y. 177 ; Matter of Publishers’ Assn. [Newspaper Union], 280 App. Div. 500 .)

In this case the mandatory injunction- exceeded the powers of the arbitrator and the decree enforcing it violates both the statutory policy confiding to directors the management of public corporations and the principles of equity barring injunctive relief of this nature. We do not believe that, under a general grant of equitable powers, arbitrators may disregard equitable principles and issue an award not possible either at law or equity. As Judge Pound said, dissenting in Matter of Buffalo & Erie Ry. Co. ( 250 N. Y. 275 , 280-281), “ It by no means follows that the findings of the arbitrators may be enforced by the court by the remedy of specific performance. No man may be compelled to work for another or to continue another in his employment. I hold merely that industrial disputes as to future wages may be submitted to arbitration where the parties so agree.” (Emphasis added.)

Cases involving collective bargaining agreements are inapposite here. The reason for this conclusion was stated by the United States Supreme Court in Case Co. v. Labor Bd., ( 321 U. S. 332 , 334-335) wherein the court stated that: “ Collective bargaining between employer and representatives of a

p. 166
unit, usually a union, results in an accord as to terms which will govern hiring and work and pay in that unit. The result is not, however, a contract of employment except in rare cases; no one has a job by reason of it and no obligation to any individual ordinarily comes into existence from it alone. The negotiations between union and management result in what often has been called a trade agreement, rather than a contract of employment.”

Further, it has become clear both under the State and National Labor Relations Acts, as well as in arbitration, that specific performance is frequently essential to maintain and further the collective relationships involved. (See Goldman v. Cohen, 222 App. Div. 631 .)

However, the reasons compelling the courts and arbitrators to grant both specific performance and injunctive relief in collective bargaining agreements do not apply to contracts such as the one in question. A decree for the reinstatement of a nonresident manager in a public corporation is subject to all the obstacles and objections equity has always recognized, and is not justified by the special considerations that make this type of relief desirable in the collective bargaining area.

Matter of Ruppert (Egelhofer) (supra), involving a collective bargaining agreement, is cited as upholding an arbitrators ’ award of equitable relief (injunction) where a court, under the same circumstances, would be powerless to act. However, as we view Buppert, it is neither determinative nor controlling of the issues here.

Implicit in the Buppert decision was a finding (p. 581) that net only had the parties authorized the imposition of equitable relief but that “ nothing short of an injunction would have accomplished the evident intent of these parties that there be a speedy and immediately effective relief against strikes, lockouts and slowdowns.”

Even if the agreement here authorizes specific performance of this contract, we are still of the opinion that the injunctive relief should not have been granted by the arbitrators. (Matter of Publishers’ Assn. [Newspaper Union], supra.) To hold otherwise is to state in effect that under this agreement the corporation itself could seek specific performance of a recalcitrant employee and that arbitrators could award specific per

p. 167
forman.ee compelling the employee to work for the corporation. Such a result would be clearly undesirable.

On a motion to confirm an award, the court does not sit as an administrative rubber stamp over an arbitrator’s determination, but rather as a court of equity applying equitable principles and enjoys a certain latitude of discretion. (Cf. Matter of Lipschutz [Gutwirth], 304 N. Y. 58 , 63; Matter of Feuer Transp. [Local No. 445], 295 N. Y. 87 ; Western Union Tel. Co. v. Selly, 295 N. Y. 395 .) In Matter of Finsilver, Still & Moss v. Goldberg, Maas & Co. ( 253 N. Y. 382 , 392), this court wrote (per Cardozo, Oh. J.): “ The motion to confirm is equivalent to a suit in equity to carry into effect the terms of the agreement and the arbitration had thereunder.” Proceedings involving arbitration have always been considered as equitable in nature “ and the practice of equity as to relief should be followed.” (Matter of Feuer Transp. [Local No. 445], supra, p. 92 .)

We conclude that the confirmation of an award compelling reinstatement of a nonresident official in a foreign corporation in the form of specific performance of a contract for personal services should not be made by this court even though the parties may have provided for it.

Accordingly, the judgment of the Appellate Division and that of Special Term should be reversed and the motion to vacate the award should be granted.

Judges Dye and Fuld concur with Judge Desmond ; Judge Froessel concurs in a separate memorandum; Judge Burke dissents in an opinion in which Judge Van Voorhis concurs; Chief Judge C'onway taking no part.

Judgment affirmed.

Cases cited