Title: In the Matter of Joan Hansen & Company, Inc. v. Everlast World's Boxing Headquarters Corp.

State: new-york

Issuer: New York Appellate Court

Document:

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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 138  
In the Matter of Joan Hansen & 
Company, Inc.,
            Respondent,
        v.
Everlast World's Boxing 
Headquarters Corp.,
            Appellant.
Jed R. Schlacter, for appellant.
George Berger, for respondent.
GRAFFEO, J.:
In this case, we hold that after issuance of an
arbitration award, a party may not seek to reopen the arbitration
proceeding to request that the arbitrators consider an issue that
was not previously presented to the panel.
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No. 138
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Everlast World's Boxing Headquarters Corp. is a major
seller of boxing-related merchandise and athletic apparel.  In
1983, Everlast hired Joan Hansen & Co., Inc. as its independent
licensing agent for the purpose of finding companies that would
be interested in marketing goods bearing the Everlast name.  This
arrangement continued until the beginning of 1994 when the
parties entered into a new licensing contract.  Under the terms
of this agreement, Hansen would remain Everlast's non-exclusive
licensing consultant and, in return, Hansen was to be paid fees
based on a schedule of the revenues generated from the clients
that it secured for Everlast.  
The contract was for a five-year term, with an
automatic five-year renewal, resulting in a completion date of
December 31, 2004, unless terminated sooner.  The termination
provisions in the agreement specified that either party could
sever the relationship, but only on certain grounds, such as
insolvency, the failure to fulfill a contractual obligation or
engaging in a material misrepresentation.  The agreement also
contained a clause that addressed Hansen's right to receive
royalties after the contract ended:
"the participation by HANSEN in royalty
payments shall continue for so long as
licensees remain licensees of EVERLAST,
except that: . . . In the event of a
termination of this Agreement, HANSEN shall
continue to receive consultation fees on
existing agreements for the earlier of two
(2) years after termination or the end of the
license agreements then in affect (sic)."
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No. 138
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In the event of termination, Hansen was entitled to receive 100%
of its fees in the first year following termination and 50% in
the second year.
In 2000, Everlast's parent company decided to merge
with the Active Apparel Group.  At some point, Hansen was
informed that the newly-created entity intended to develop an in-
house licensing department and, therefore, Hansen's services
might not be needed.  Hansen responded with a lawsuit against
Everlast challenging the legality of the proposed merger, but its
claims were eventually dismissed and the merger was completed.
Approximately three years later, Everlast claimed that
Hansen had breached its licensing agreement by failing to obtain
new licensees.  After Everlast discontinued the arrangement,
Hansen demanded arbitration.  The dispute was presented to three
arbitrators and, in April 2005, the panel determined that
Everlast's conduct toward Hansen precluded it from invoking any
of the termination grounds set forth in the parties' contract.
The arbitrators declared that the termination notice issued to
Hansen by Everlast was invalid and Everlast was required to pay
Hansen "both now and in the future on the basis of the Agreement
being in full force and effect up to its stated December 31, 2004
term expiration date, pursuant to the Agreement, as though no
termination notice had been given."  Everlast was also "directed
to account for, and pay to [Hansen], all unpaid moneys payable
under the Agreement" and future fees "promptly after they are
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No. 138
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payable."  On Hansen's motion, Supreme Court confirmed the
arbitration award.
Everlast thereafter paid Hansen 100% of the fees due in
2005 and 2006, but did not make any further payments for revenues
realized in 2007.  In Everlast's view, the contract automatically
terminated on December 31, 2004, triggering the two-year, post-
termination compensation provision that relieved it of any
further obligation to compensate Hansen after December 31, 2006.
Once the payments from Everlast ceased, Hansen asked
Supreme Court to hold Everlast in contempt of the confirmation
ruling, contending that it was owed royalty payments beyond 2006
because the contract had "expired" -- as opposed to being
"terminated" -- on December 31, 2004.  In light of its
interpretation, Hansen asserted that it was entitled to
additional payments for as long as the clients it secured
remained licensees of Everlast.  
Supreme Court denied Hansen's contempt motion,
concluding that "the primary issue before the arbitrators in this
matter was whether the Termination Notice was valid" and that
"the arbitrators did not rule on the meaning of 'termination'" in
the continuing compensation clause or determine "what monies
would be payable to Hansen once the Representation Agreement
ended on December 31, 2004."  The court therefore declined to
interpret the arbitration award as directing payments to Hansen
after December 31, 2006.
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No. 138
1 CPLR 7509 allows a party to an arbitration decision to
request modification if a written application is made to the
arbitrator "within twenty days after delivery of the award to the
applicant."
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Hansen then sought relief from the former arbitration
panel, seeking to reopen its proceedings to "clarify" that the
original award required Everlast to continue paying Hansen its
fees "for so long as the licensees remain licensees" of Everlast. 
Reflecting its argument before Supreme Court, Hansen claimed that
the two-year, post-termination compensation provision was
inapplicable because there had been an expiration of the
contractual relationship rather than a termination.  In response,
Everlast filed a motion in Supreme Court to stay Hansen's request
for clarification.  Everlast maintained that Hansen was actually
seeking a "modification" of the original arbitration decision
that was untimely pursuant to the 20-day time limitation in CPLR
7509 since Hansen's request was made about two and a half years
after the issuance of the arbitration decision.1  In the
alternative, Everlast contended that the arbitrators did not have
the authority to consider the continuing compensation issue
because it had not been raised in the original arbitration
proceeding.
Supreme Court denied Everlast's motion.  Although the
court acknowledged that it had previously held that the
continuing compensation claim was not a subject of the
arbitration award, the court concluded that clarification was
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No. 138
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appropriate because the controversy regarding the length of
payments involved the same contractual provision that had been
addressed in arbitration.  As such, the court determined that
Hansen's request was not barred by CPLR 7509.  The Appellate
Division affirmed for substantially the same reasons (55 AD3d 317
[1st Dept 2008]) and we granted leave to appeal (11 NY3d 713
[2008]).  We now reverse.
Everlast advances several arguments in support of its
position.  It maintains that a request for clarification is no
different than an application for modification and is therefore
subject to the CPLR 7509 time restriction.  Everlast also asserts
that, even if there is a distinction between "clarification" and
"modification," the arbitrators lacked the power to reconsider
their award once Supreme Court confirmed it.  Finally, Everlast
claims that an arbitrator has no power to reconsider an award
based on an issue that was not raised in the arbitration
proceeding.  We agree with Everlast's third argument:  the
dispositive factor in this appeal is the limited scope of the
dispute that was originally before the arbitration panel. 
Consequently, it is unnecessary for us to address Everlast's
other two contentions.
It has long been established that an arbitrator's
authority extends to only those issues that are actually
presented by the parties (see e.g. Hiscock v Harris, 74 NY 108,
113 [1878]; see also Ottley v Schwartzberg, 819 F2d 373, 376 [2d
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No. 138
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Cir 1987]).  Thus, an arbitrator may not reconsider an award --
regardless of whether the request is couched as a clarification
or modification -- if the matter was not previously raised in
arbitration (see generally Matter of Denihan v Denihan, 97 AD2d
69, 73 [1st Dept 1983, Alexander, J.]).  Here, the primary issue
pursued by Hansen during arbitration involved the validity of the
termination notice.  The arbitrators necessarily had to decide
whether the contract encompassed the grounds that Everlast cited
as a basis for termination and, if so, whether the facts
supported Everlast's assertions.  But the panel was not asked to
consider the extent of Everlast's alleged duty to pay Hansen
royalties after December 31, 2004.  Indeed, when Supreme Court
denied the motion to hold Everlast in contempt of the
confirmation ruling, it correctly recognized that "the issue of
the interpretation of" the continuing compensation provisions
"was not a subject of the arbitration" and "the arbitrators did
not rule on the meaning of 'termination' in those provisions, or
what monies would be payable to Hansen once the [contract] ended
on December 31, 2004."
The fact that a particular contractual provision may
apply to more than one arbitrable claim does not expand the scope
of the arbitration if the issues presented were materially
different or legally distinct.  In this case, the termination
dispute focused on whether Hansen's conduct (actions such as
initiating the 2000 litigation) was prohibited by the contract or
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No. 138
2 Although Hansen relies on the recollection of its attorney
that an arbitrator asked whether Hansen would be entitled to
receive commissions in perpetuity, in its briefs to this Court
Hansen does not allege that it specifically raised that issue in
the original arbitration proceeding.
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if Hansen had failed to perform its obligation to secure
licensees.  But the continuing compensation claim that arose at
the end of 2006 was a separate question -- whether a
"termination" of the contract was the same as an "expiration" for
purposes of computing the length of time that Hansen was entitled
to receive royalties.  Simply put, the issues presented in the
original arbitration proceeding and Hansen's request to "clarify"
the award involved distinct disputes despite the fact that the
same contractual provision applied to both.
In addition, the controversy over Hansen's right to
further payments had not arisen at the time the arbitration
decision was issued -- approximately one and a half years before
Everlast stopped paying Hansen at the end of December 2006. 
Nothing in the panel's written decision suggests that the
arbitrators considered, let alone decided, whether Hansen was
owed continuing compensation "for so long as the licensees" kept
doing business with Everlast.2  We conclude that Everlast's
motion to stay further arbitration should have been granted
because Hansen could not use the compensation issue as a basis
for reconsideration of the arbitration decision, regardless of
whether Hansen denominated its request as one for clarification
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No. 138
3 Everlast concedes that nothing prevents Hansen from
initiating a new arbitration proceeding to have the merits of the
continuing compensation matter decided.
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or modification.3
Accordingly, the order of the Appellate Division should
be reversed, with costs, and the motion by Everlast World's
Boxing Headquarters Corp. to stay all further arbitration
proceedings between it and petitioner Joan Hansen & Company, Inc.
regarding Case No. 13 133 00438 03 of the American Arbitration
Association granted.
*   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *
Order reversed, with costs, and motion by Everlast World's Boxing
Headquarters Corp. to stay all further arbitration proceedings
between it and petitioner Joan Hansen & Company, Inc. regarding
Case No. 13 133 00438 03 of the American Arbitration Association
granted.  Opinion by Judge Graffeo.  Judges Ciparick, Read,
Smith, Pigott and Jones concur.  Chief Judge Lippman took no
part.
Decided October 15, 2009