CHAMOIS v. COUNTRYWIDE HOME LOANS INC (2008)

Upon the foregoing papers it is ordered that petition is partially GRANTED and partially DENIED.

Factual and Procedural Background

Following a dispute arising from an employment relationship, an arbitration proceeding was conducted and an award was rendered in favor of the petitioners (the “Award”).   As set forth in the Award, petitioner Alice Chamois is entitled to payment from respondent in the total sum of $125,000 ¹ and petitioner Rachel Douglas is entitled to payment from the respondent in the total sum of $70,000 ² .

By Decision and Order dated February 26, 2008 ³ , this Court granted petitioner's November 5, 2007 application and confirmed the Award (the “Order”).   In the Order, this Court made clear that it was confirming the Award as written and declined to execute the proposed Judgment petitioners submitted with their petition finding that the Judgment (1) took the liberty “of splitting the Award of compensatory damages into two separate awards for back wages' and emotional distress' for each petitioner”, and (2) included an award of pre-judgment interest dating back to the fall of 2001 when no such award was included in the Arbitration Award.   The Order then directed petitioners to submit a new Judgment in conformance with the Order on notice to the respondent.

Thereafter, in March 2008, petitioners filed an Order to Show Cause seeking to renew and reargue the Order pursuant to CPLR 2221 and upon such renewal/reargument to enter a separate Judgment on behalf of each petitioner including separate awards for “back wages” and “emotional distress” and pre-judgment interest on the back wages.

Respondent opposed the March 2008 motion.   It appeared therein for the limited purpose of advising the Court of its opposition to said renewal/reargument motion and alleged that it was never properly served with the original petition commencing this special proceeding ⁴ .

By decision and order dated May 22, 2008, this Court granted petitioners' motion to renew and reargue and upon reargument, sustained respondent's jurisdictional objection, finding the respondent was not properly served.   It then vacated the Order granting confirmation and dismissed the Petition without prejudice.

Petitioners now bring a second petition to confirm the arbitration Award ⁵ .  Petitioners seek the following:  (1) separate judgments on behalf of each petitioner;  (2) pre-Award interest dating back to the fall of 2001;  and (3) post-Award, pre-judgment interest from the date of the arbitration award to judgment.

Discussion

As an initial matter, CPLR 7510 provides, in relevant part, that “[t]he court shall confirm an award upon application of a party made within one year after its delivery to him” (Matter of Salamon v. Friedman, 11 A.D.3d 700, 700, 783 N.Y.S.2d 651 [2d Dept.2004] [“[P]roceeding to confirm an arbitration award [must] be brought within one year after its delivery to the applying party”] ). Here, petitioners have complied with the statute and timely commenced this proceeding.

While petitioners ostensibly claim to seek to confirm the Award, in reality they seek to partially confirm the Award, and modify other portions.   Specifically, they seek to modify the Award to provide for interest back to the fall of 2001, i.e. pre-Award interest.   In support of this position, petitioners argue that pre-Award interest on their back pay claims brought pursuant to Title VII of the Civil Rights Act of 1964 (42 U.S.C.A. § 2000e et seq. hereinafter “Title VII”) was an required element of compensation.

Whether reviewed pursuant to New York (CPLR Article 75) or Federal law [Federal Arbitration Act, hereinafter the “FAA” (9 U.S.C.A. § 1 et seq.) ] ⁶ , it is well settled that judicial review of arbitration awards is extremely limited.   See, Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 N.Y.3d 471, 846 N.E.2d 1201, 813 N.Y.S.2d 691 (2006).

 An arbitration award must be upheld when the arbitrator “offer[s] even a barely colorable justification for the outcome reached” (Matter of Andros Cia. Maritima, S.A. [Marc Rich & Co., A.G.], 579 F.2d 691, 704 [2d Cir.1978] ).   Indeed, [the Court of Appeals has] stated time and again that an arbitrator's award should not be vacated for errors of law and fact committed by the arbitrator and the courts should not assume the role of overseers to mold the award to conform to their sense of justice (see Matter of Sprinzen [Nomberg], 46 N.Y.2d 623, 629, 415 N.Y.S.2d 974, 389 N.E.2d 456 [1979];  Matter of New York State Correctional Officers & Police Benevolent Assn. v. State of New York, 94 N.Y.2d 321, 326, 704 N.Y.S.2d 910, 726 N.E.2d 462 [1999] [“A court cannot examine the merits of an arbitration award and substitute its judgment for that of the arbitrator simply because it believes its interpretation would be the better one”] ).  Id., 6 N.Y.3d at 479, 846 N.E.2d at 1206, 813 N.Y.S.2d at 696.

The FAA permits vacatur or modification of an arbitration award on grounds which involve fraud, corruption or misconduct on the part of the arbitrator, none of which are alleged here.   Indeed, the petition specifically alleges that the “arbitrator at all times acted within the scope of his authority and such decision and award is complete, rational, rendered without fraud, corruption or misconduct, and is correct as to all issues including damages.”  (Petition at ¶ 6.) Nevertheless, in addition to the above, an award may also be vacated under federal law if it exhibits a “manifest disregard of law” ⁷ .  9 U.S.C.A. §§ 9, 10(a);  see also, Wallace v. Buttar, 378 F.3d 182, 189 (2d Cir.2004).   This is the crux of petitioners' argument in this case for pre-award interest.

Pre-Award Interest

 Petitioners claim that they are entitled to pre-Award interest on their back pay award in this Title VII case as a matter of law, citing as their authority Miner v. City of Glens Falls, 999 F.2d 655 (2d Cir.1993);  E.E.O.C. v. Erie County, 751 F.2d 79 (2d Cir.1984);  Clarke v. Frank, 960 F.2d 1146 (2d Cir.1992);  Saulpaugh v. Monroe Community Hospital, 4 F.3d 134, 145 (2d Cir.1993);  Gierlinger v. Gleason, 160 F.3d 858 (2d Cir.1998);  Sands v. Runyon, 28 F.3d 1323 (2d Cir.1994);  Donovan v. Sovereign Sec., Ltd., 726 F.2d 55 (2d Cir.1984).   Indeed, each of these hold that a court may grant prejudgment interest on a back pay award.   Nonetheless, none of the foregoing cases is applicable here.   In each case cited by the petitioner pre-judgment interest was requested and denied.

It is true that arbitrators may provide for prejudgment interest as part of their award.   Indeed, Courts have rejected motions to vacate or modify arbitration awards which have failed to provide prejudgment interest.   See, Nicoletti v. E.F. Hutton & Co., Inc., 761 F.Supp. 312, 315 (S.D.N.Y.1991) (arbitrator's failure to provide prejudgment interest was not grounds for vacatur);  Rosenblum v. Aetna Casualty & Sur. Co., 81 A.D.2d 731, 439 N.Y.S.2d 482, 483 (3rd Dept.1981), appeal denied, 54 N.Y.2d 607, 427 N.E.2d 773, 445 N.Y.S.2d 1027 (refusing to modify arbitrator's award which did not include prejudgment interest);  Lian v. First Asset Management, Inc., 273 A.D.2d 163, 164, 710 N.Y.S.2d 52, 53 (1st Dept.2000) (trial court “erred in providing for pre-award interest on the award of punitive damages when the arbitrators did not”).   However, “if the award is silent on pre-judgment interest, a court is not entitled to award such interest.' ” Moran v. Arcano, No. 89 Civ. 6717, 1990 WL 113121, at *2 (S.D.N.Y. July 27, 1990) quoting, In re Gruberg, 143 A.D.2d 39, 531 N.Y.S.2d 557, 558 (1st Dept.1988).

The back wages awarded in this arbitration were pursuant Title VII ⁸ .  Although Title VII authorizes prejudgment interest, it remains within the fact finder's discretion whether or not such interest will be granted and how such prejudgment interest will be calculated.   See, Loeffler v. Frank, 486 U.S. 549, 108 S.Ct. 1965, 100 L.Ed.2d 549 (1988);  Greenway v. Buffalo Hilton Hotel, 143 F.3d 47 (2d Cir.1998).

In the instant case the issue of pre-Award interest is never broached in the Award.   There is no proof offered in these submissions that interest was ever requested by the petitioners, or that the arbitrator had ever considered a claim for interest and by oversight failed to award same.   Instead, petitioners ask this Court to award such interest without regard to the provisions of the Award simply on the allegation that they are entitled to “pre-judgment interest on back wages as matter of law”.   This Court may not do so. Moran v. Arcano, supra.   Accordingly, the arbitrator's failure to award prejudgment interest was not a “manifest disregard of the law”.

Based on the foregoing the request for pre-Award interest is denied.

Post-award, Pre-judgment Interest from the Date of the Award to Judgment

 Under both federal law and Article 75 of the CPLR, the petitioners are entitled to post-Award, pre-judgment interest.

Under federal law, “an arbitration award confirmed under the FAA bears interest from the date of the award until judgment confirming it”.  In re Arbitration Between Westchester Fire Ins. Co. v. Massamont Ins. Agency, Inc., 420 F.Supp.2d 223, 227 (S.D.N.Y.2005) citing, Moran v. Arcano, 1990 WL 113121, at *2 (S.D.N.Y.1990).   Under the FAA, “the award of post-award prejudgment interest is a matter left with the district court”.  Moran v. Arcano, 1990 WL 113121, at *3 (S.D.N.Y.1990).

The result is no different under state law where interest would only be available from the time of the Award, September 4, 2007 until the date of the Judgment, not from the date the claim originally arose.  County of Westchester v. Doyle, 43 A.D.3d 1055, 842 N.Y.S.2d 500 (2nd Dept.2007).   See also, CPLR 5002;  Meehan v. Nassau Community College, 242 A.D.2d 155, 675 N.Y.S.2d 354 (2nd Dept.1998), leave to appeal dism., 92 N.Y.2d 946, 704 N.E.2d 229 (Table), 681 N.Y.S.2d 476 (1998).

While acknowledging this Court's authority to award post-Award, pre-judgment interest, respondent seeks to persuade this Court to deny post-Award/pre-judgment interest, claiming that the petitioners have delayed entering the judgment on the Award unnecessarily.   In support of its argument, respondent cites its offer to petitioners to pay the face amount of the Award in the weeks immediately after petitioners received the Award without the necessity of a confirmation proceeding.   This offer was declined since it did not contain pre-Award interest.

In Love v. State of New York, 78 N.Y.2d 540, 583 N.E.2d 1296, 577 N.Y.S.2d 359 (1991), a bifurcated personal injury action, there was a one year delay between the time of the liability verdict and the damages trial.   The Court of Appeals held that the plaintiff was entitled to pre-judgment interest regardless of who was responsible for delaying the damages trial.   Prior to the Love decision some courts had held that CPLR § 5002 interest would relate back to the earlier liability finding only when the defendant was at fault for delaying the damages assessment.   In Love, the Court of Appeals clarified that “interest is not a penalty.   Rather, it is simply the cost of having the use of another person's money for a specified period” and was “intended to indemnify successful plaintiffs for the nonpayment of what is due to them'․” Love v. State, 78 N.Y.2d 540, 544, 583 N.E.2d 1296, 1298, 577 N.Y.S.2d 359, 361 (1991), quoting, Trimboli v. Scarpaci Funeral Home, 37 A.D.2d 386, 389, 326 N.Y.S.2d 227 (2nd Dept.1971), and citing, Siegel, N.Y.Prac. § 411, at 623 (2d ed.).   See also, Denio v. State, 7 N.Y.3d 159, 851 N.E.2d 1153, 818 N.Y.S.2d 802 (2006).   The rationale behind Love is that a litigant's right to be made whole becomes fixed in law when the verdict holding the defendant liable is rendered.  Id., 78 N.Y.2d at 540, 577 N.Y.S.2d 359, 583 N.E.2d 1296.

Even though the instant matter does not concern a bifurcated personal injury action, the result should be no different.   The back pay awarded in the Award was on account of an existing obligation and/or a breach of duty.   Thus, post-Award, pre-judgment interest is a matter of right and this Court holds that petitioners are entitled to the post-Award, pre-judgment interest regardless if they are responsible for the delay in confirming the Award.   See, Glantz v. Nationwide Mut. Ins. Co., 226 A.D.2d 638, 641 N.Y.S.2d 136 (2nd Dept.1996)[Petitioner was entitled to recover interest from date of arbitration award until date that petitioner entered judgment regardless of petitioner's delay in entering the underlying judgment.]

Accordingly, petitioners are awarded post-Award, pre-judgment interest at the New York State statutory rate from September 4, 2007.

Splitting the Award

With regard to splitting the Award of compensatory damages into two separate awards for “back wages” and “emotional distress” for each petitioner, such request is granted.

Upon an examination of the provisions of the Award the Court notes that while the arbitrator did not break down the amounts awarded in his decision as such, he does state in the body of the Award that one-third of the monies awarded to each petitioner is allocated to personal injury damages.   Therefore the petitioners' application to split the Award of compensatory damages into two separate awards for “back wages” and “emotional distress” is granted.

As a final matter, there is no prejudice, nor does respondent object, to the entry of separate judgments on behalf of each petitioner with awards as applicable to their claims, rather than one judgment.   Therefore the application for separate judgments is also granted.

On account of the foregoing the petition is granted and the arbitration award is confirmed.   Petitioners may submit a proposed judgment on behalf of each petitioner to the Court for entry, in compliance with the instant decision, on notice to respondent, within thirty (30) of this decision.

FOOTNOTES

1.   Consisting of $100,000 in compensatory damages and $25,000 in attorneys fees.

2.   Consisting of $56,000 in compensatory damages and $14,000 in attorneys fees.

3.   Mistakenly dated November February 26, 2007.

4.   As evidenced by the affidavit of service, the initial pleading was served on counsel for respondent, rather than respondent as required.

5.   Albeit under the same index number.

6.   The review of an arbitration award which is the result of a voluntary contractual arbitration procedure is contained in Article 75 of the CPLR.   Nonetheless, respondent informs this Court that the controversy between these parties was initially commenced by petitioner in Federal court forcing respondent to seek an order compelling arbitration under the FAA.   This fact was never previously disclosed nor addressed by petitioner in prior submissions.   Indeed these parties had a contractual agreement to arbitrate claims, agreeing that since respondent was engaged in interstate commerce that the FAA was the governing law.   When an arbitration agreement is governed by the FAA, federal law, as opposed to state arbitration law, governs all questions of interpretation, construction, validity, revocability, enforceability, and allocation of functions between court and arbitrator.   See, In re Salomon Inc. Shareholders' Derivative Litigation, 68 F.3d 554, 559 (2d Cir.1995).   See also, A/S J. Ludwig Mowinckels Rederi v. Dow Chemical Co., 25 N.Y.2d 576, 255 N.E.2d 774, 307 N.Y.S.2d 660 (1970).   Interestingly, neither party argues whether an Article 75 proceeding is even applicable here.   The FAA provides that if the parties to an arbitration agreement have specified a particular court in their agreement,“then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, ․ If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made.”  9 U.S.C. § 9 (emphasis supplied).Here the arbitration agreement between the parties does not specify a court, but does identify under the heading “Governing Law” that “all arbitrations covered by this Agreement shall be adjudicated in accordance with the state and federal law which would be applied by a United States District Court sitting at the place of the hearing ․” (Arbitration Agreement at ¶ 2.) Thus while the instant action was brought pursuant to Article 75 of the CPLR, the decisions and awards of arbitrator in the instant action must be examined applying federal law, and not Article 75.   See, Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 N.Y.3d 471, 480, 813 N.Y.S.2d 691, 846 N.E.2d 1201 (2006).

7.   As recognized by the New York Court of Appeals the doctrine of “manifest disregard of law” is “severely limited” and a “doctrine of last resort” which is limited to occurrences of “egregious impropriety” requiring a showing of more than a simple error.  Id., quoting, Matter of Arbitration No. AAA13-161-0511-85 Under Grain Arbitration Rules, 867 F.2d 130, 133 (2d Cir.1989) and citing, Duferco Intern. Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 389 (2d Cir.2003).   As defined by the Second Circuit Court of Appeals, “[m]anifest disregard of law implies that the arbitrator appreciates the existence of a clearly governing legal principal but decides to ignore or pay no attention to it.”  Merrill Lynch, Pierce, Fenner & Smith v. Bobker, 808 F.2d 930, 933 (2d Cir.1986).

8.   A review of the Award reveals that the arbitrator specifically, and rightfully, dismissed a breach of contract claim, which petitioners previously argued entitled them to interest pursuant to CPLR § 5001, because “employees cannot bring a claim for employment discrimination and simultaneously bring a breach of contract claim based on the same facts”.   (See Award at Section IV.)

WILLIAM J. GIACOMO, J.