Case Name: Rembrandt Industries, Inc., Respondent, v. Hodges International, Inc., Appellant
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1976-01-08
Citations: 38 N.Y.2d 502
Docket Number: 
Parties: Rembrandt Industries, Inc., Respondent, v Hodges International, Inc., Appellant.
Judges: 
Reporter: New York Reports
Volume: 38
Pages: 502–506

Head Matter:
Rembrandt Industries, Inc., Respondent, v Hodges International, Inc., Appellant.
Argued November 26, 1975;
decided January 8, 1976
J. John Lawler for appellant.
I. Individual calendar Part I erred in holding that the arbitration award confirmation and judgment did not constitute a final and binding determination of the controversy existing between Rembrandt and Hodges. (Matter of Weinberger [Friedman], 41 AD2d 620; Matter of Local 459, Int. Union of Elec., Radio & Mach. Workers, AFL-CIO [Remington Rand, Div. of Sperry Rand Corp.], 21 Misc 2d 221; Matter of Springs Cotton Mills [Buster Boy Suit Co.], 275 App Div 196, 300 NY 586.) II. The majority decision of the court below overlooked facts in the record in affirming the order of the Supreme Court which was not properly made. (Matter of Springs Cotton Mills [Buster Boy Suit Co.], 275 App Div 196, 300 NY 586.)
Henry L. Bayles for respondent.
The courts below correctly denied defendant’s motion to dismiss the complaint for upon the record the award does not as a matter of law bar plaintiffs claim which had been specifically excluded at the arbitration. (Silberstein v Silberstein, 218 NY 525; Alper v Greater N. Y. Broadcasting Corp., 178 Misc 411, 266 App Div 839; Marine Tr. Corp. v Switzerland Gen. Ins. Co., 263 NY 139; Matter of Weinberger [Friedman], 41 AD2d 620; Matter of Local 459, Int. Union of Elec., Radio & Mach. Workers, AFL-CIO [Remington Rand, Div. of Sperry Rand Corp.], 21 Misc 2d 221, 11 AD2d 657; Cypress Hills Cemetery v Werner & Acker Cypress Hills Florists, 34 AD2d 659, 27 NY2d 997; Matter of Kaplan [Continental Time Corp.] 44 AD2d 670; Matter of Greater Continental Corp. v Schechter, 34 AD2d 825; Abrams v Macy Park Constr. Co., 282 App Div 922; Matter of Hladik [Lipkin] 279 App Div 759.)

Opinion:
Memorandum. The Appellate Division was eminently correct in denying the motion to dismiss the complaint. On the demand for arbitration and the ensuing award, together with the intermediate correspondence, it is entirely unclear whether the arbitrators determined the merits of the plaintiff buyer's claim for breach of warranty. True, by letter sent before the hearing, the arbitrators "unanimously ruled not to admit [buyer's] counterclaim as a part of this arbitration proceeding". Despite this "exclusion", however, testimony supporting the counterclaim seems to have been offered at the arbitration hearing.
In such circumstances, the Appellate Division justly exercised its discretion in allowing defendant seller to plead the defense of res judicata. Under that defense, seller will be allowed to show, if it can, that the arbitrators' award did determine the merits of the warranty claim.
It is settled law that the doctrine of res judicata is applicable to issues resolved by earlier arbitration (see, e.g., 23 Carmody-Wait, 2d, NY Practice, Arbitration, § 141:151, p 80, and cases cited). Where, however, an issue not passed upon by the arbitrators is the subject of a later action, obviously the award is not a bar to that action (p 85, and cases cited; cf. Matter of Spring Cotton Mills [Buster Boy Suit Co.], 275 App Div 196, 199-200, affd 300 NY 586; Matter of Weinberger [Friedman], 41 AD2d 620). The scope of the award and, therefore, its res judicata effect, is an issue properly determinable by the court and not the arbitrators (see Matter of Spring Cotton Mills [Buster Boy Suit Co.], supra; Matter of Weinberger [Friedman], supra; 23 Carmody-Wait, 2d, op. cit, 1975 Supp, at p 9).
Either a judgment or an award in arbitration may be explored through parol evidence to discover its scope and therefore its res judicata effect (see Ripley v Storer, 309 NY 506, 518-519 [judgments]; Aetna Cas. & Sur. Co. v American Sur. Co. of N. Y., 64 F2d 577, 581, and cases cited; 6 CJS, Arbitration, § 176, p 449, n 31; cf. Butler v The Mayor, 7 Hill 329, 330-331, 334 [arbitration awards]). As was said in the Aetna case (supra, at p 581), a case involving the scope of the res judicata effect to be given to an arbitration award: "when the record leaves the matter in doubt, parol evidence not inconsistent with the award may be introduced to show what was litigated before the arbitrator and what was determined by his decision."
Thus, the Appellate Division, in the exercise of its discretion, permitted seller to interpose an affirmative defense of res judicata, and, in light of the ambiguous record, properly denied buyer's motion to dismiss the complaint. The exercise of discretion in allowing the pleading of the affirmative defense should not be disturbed. The Appellate Division holding as a matter of law may not be overturned upon a ground which leaves to the arbitrators unbridled bootstrap authority to determine the scope of its own award, contrary to settled principles of law.
The order of the Appellate Division should be affirmed, with costs, and the question certified should be answered in the affirmative.