Court Opinion

ID: 5781247
Source: CourtListenerOpinion
Date Created: 2022-01-12 17:50:50.081291+00
Date Added: 2024-06-11T08:41:59.014387
License: Public Domain

McGiverk, J. P. (dissenting).
The order appealed from should be modified so as to vacate the award to United Buying Service of Northeastern New York and Hamilton A. Cunningham (hereinafter Cunningham) and remit the award to the arbitrator for the purpose of making a permissible determination. The award made, insofar as it clearly awards Cunningham consequential damages, was made in excess of the arbitrator’s powers. In reaching this conclusion, I would stress the fact that the questions properly before the arbitrator were not those originally agreed upon, which embraced “ any dispute arising out of or concerning this [franchise] Agreement ”. Thus, we need not reach the question whether the award made to Cunningham would have been permissible under the latter clause. The fact is that the scope of the foregoing agreement was circumscribed and succeeded by a stipulation entered into three years later by the parties in an action brought, and still pending in the United States District Court for the Southern District of New York by franchisees, wherein fraudulent inducement by the petitioner was claimed. And it was the petitioner who thereafter demanded arbitration, raising questions of liability on respondents’ part, and specifically charging respondents with breach of contract in failing to remit the royalty payments provided for in the franchise agreement. It was pursuant to this stipulation that the controversy was submitted to arbitration, and only two questions were submitted with respect to respondents’ claims: “ (1) Whether [appellant] fraudulently induced [respondents] to enter into their Franchise Agreements and “ (2) Whether [appellant] breached any of the Franchise Agreements with [respondents].”
Consequently, we are simply faced with an agreement to arbitrate limited issues, not including consequential damages, which may not be awarded without specific authorization of the parties, here absent. (See 23 Carmody-Wait 2d, New York Practice, *82§ 141:139; De Lillo Constr. Co. v. Lizza & Sons, 7 N Y 2d 102, 106; Matter of Granite Worsted Mills [Cowen], 25 N Y 2d 451.)
The award here made was greatly in excess of any amount that might be required to be paid by appellant by way of restoration of the initial franchise fees, in the event the arbitrator found rescission warranted, and exceeded the powers of the arbitrator under the submission made.
That the arbitrator recognized the limitation of his powers, yet, nevertheless exceeded them, is reflected in the fact that in curtailing the presentation of evidence and cross-examination of witnesses, he apparently misled appellant’s counsel to believe he was not considering consequential damages, which exclusion would have comported with the limitations contained in the two issues submitted to him. Significantly, respondents admit there was no attempt to causally relate Cunningham’s losses with appellant’s breach. And since the burden of establishing appropriate causality was on the respondents, it was error to reject pertinent and material evidence. Under the circumstances here prevailing, respondents’ continuance, without further objection, cannot be deemed a waiver of the challenged defect. Having been suffered to believe that it was not necessary or appropriate for him to present evidence showing the absence of any causal connection between the losses and the claimed breach, it was neither necessary nor appropriate for appellant’s counsel to make a formal objection. There was certainly here no intentional relinquishment of a known right and there is no valid basis, predicated upon the evidence received, for the conclusion that the powers of the arbitrators, as limited by the stipulation, were enlarged by way of waiver. Alsens Amer. Portland Cement Works v. Degnon Contr. Co. (222 N. Y. 34) ; and I find no valid basis for implying such.
Particularly pertinent is the statement of the Court of Appeals in Gervant v. New England Fire Ins. Co. (306 N. Y. 393, 400) wherein it was noted that: “ Even in arbitration proceedings the rule is that ‘ If the arbitrators refuse to hear evidence pertinent and material to the matter in controversy, it is unquestionably such misconduct as will vitiate an award in a court of equity.’ (Van Cortlandt v. Underhill, 17 Johns. 405, 410; Halstead v. Seaman, 82 N. Y. 27, 30-31; Matter of Rosenberg [Wolfe], 180 Misc. 500, 504.) ”
The narrow submission here made at best simply authorized compensatory damages, or reparations, as an incident to the power that had been ceded to declare the rights between the parties, predicated upon their determination as defined by the *83specific and limited questions submitted to arbitration. The latter power alone sustains a validation of the award made to respondents E. M. Buying Services, Ltd. and Graydon Moyer, which awarded no element of purely consequential damages.
In any event, the only viable contract to arbitrate respondents’ claims is that founded upon the June 30, 1970 stipulation, which must be strictly construed. (See Matter of General Silk Importing Co., 200 App. Div. 786, affd. 234 N. Y. 513; 22 Carmody-Wait 2d New York Practice, p. 141:12; Matter of Rosenbaum [Amer. Sur. Co.], 11 N Y 2d 310; Matter of Riverdale Fabrics Corp. [Tillinghast-Stiles Co.], 306 N. Y. 288; also, Matter of American Silk Mills Corp. [Meinhard-Commercial Corp.], 35 A D 2d 197.)
In my view, the background of the proceedings here involved clearly negates the view of the majority opinion that the stipulation was intended to supplement or enlarge the original basis for arbitration;
The unchallenged letter of appellant to the arbitrator dated September 14,1970, following a request made by him at the first preparatory hearing on September 10, 1970 for a delineation of the issues which were before him, which defined such issues pursuant to the stipulation of the parties, clearly discloses there is no basis for the statement in the majority opinion that the stipulation supplemented by way of enlargement the issues properly before the arbitrator.
Finally, I find no persuasion in the majority opinion’s striving to distinguish the Granite case. To the contrary. The Granite case still stands for the proposition that when, the arbitrator awards consequential damages, uncountenanced by the submission, he is guilty not of a “ mere error ” of judgment or a misconstruction, he has disregarded its terms and exceeded his powers.
Except for the foregoing suggested modification, I would affirm the order and judgment appealed from.
Kupeermax, Murphy and Timer, JJ., concur with Eager, J; McGeverx, J. P., dissents in an opinion.
Judgment, Supreme Court, New York County, entered on March 30,1971, affirmed. Respondents shall recover of appellant $50 costs and disbursements of this appeal.