IN RE: POUGHKEEPSIE CHEVROLET (2004)

In a proceeding pursuant to CPLR article 75, to permanently stay arbitration, the appeal is from an order of the Supreme Court, Suffolk County (Catterson, J.), dated July 17, 2003, which granted the petition and permanently stayed arbitration.

ORDERED that the order is reversed, on the law, with costs, the petition is denied, and the proceeding is dismissed.

The petitioner, Poughkeepsie Chevrolet, Inc. (hereinafter Poughkeepsie), hired the appellant to conduct a four-day sales event (hereinafter the sale) at Poughkeepsie's automobile dealership.   The agreement between Poughkeepsie and the appellant contained a broad arbitration provision applicable to “[a]ny controversy or claim rising [sic] out of or relating to [the agreement], or the breach thereof.”

In August 2001 the Attorney-General notified Poughkeepsie of his intention to commence an action against it in connection with alleged false advertising used in connection with the sale.   Subsequently, Poughkeepsie and the appellant entered into separate Assurances of Discontinuance with the Attorney-General, agreeing, inter alia, to pay costs and penalties without any admission of wrongdoing.

In April 2003 the appellant sent Poughkeepsie a demand for arbitration alleging that Poughkeepsie owed it between $32,000 and $35,000 in connection with the sale.   Poughkeepsie commenced this proceeding to permanently stay arbitration on the ground, inter alia, that the agreement was illegal and unenforceable as against public policy.   The Supreme Court granted the petition.

 “The courts may intervene in a dispute which the parties had agreed to arbitrate where the arbitrators could not grant any relief without violating public policy” (Board of Educ. v. Areman, 41 N.Y.2d 527, 394 N.Y.S.2d 143, 362 N.E.2d 943;  see Matter of Port Washington Union Free School Dist. v. Port Washington Teachers Assn., 45 N.Y.2d 411, 417, 408 N.Y.S.2d 453, 380 N.E.2d 280).   However, “where a court examines an arbitration agreement ․ on its face and concludes that the granting of any relief would violate public policy without extensive fact-finding or legal analysis, [it] may then intervene and stay arbitration” (Matter of City of New York v. Uniformed Fire Officers Assn., Local 854, IAFF, AFL-CIO, 95 N.Y.2d 273, 284, 716 N.Y.S.2d 353, 739 N.E.2d 719 [emphasis in original];  see Matter of Sprinzen, 46 N.Y.2d 623, 631, 415 N.Y.S.2d 974, 389 N.E.2d 456;  Matter of County of Sullivan, 235 A.D.2d 748, 652 N.Y.S.2d 371).

 Where, as here, an agreement is lawful on its face, yet unlawful conduct is alleged to have tainted its performance, the question of whether the agreement may be enforced (see Hilgendorff v. Hilgendorff, 241 A.D.2d 481, 660 N.Y.S.2d 150) or must be deemed wholly unenforceable as against public policy (see McConnell v. Commonwealth Pictures Corp., 7 N.Y.2d 465, 199 N.Y.S.2d 483, 166 N.E.2d 494) generally requires the type of extensive fact-finding that courts should avoid in a proceeding to stay arbitration (see Matter of Nationwide Gen. Ins. Co., 37 N.Y.2d 91, 95-96, 371 N.Y.S.2d 463, 332 N.E.2d 333;  cf. Matter of Hirsch Constr. Co., 180 A.D.2d 604, 604-605, 580 N.Y.S.2d 314). The Supreme Court improperly granted the petition to permanently stay arbitration on public policy grounds because it cannot be determined, at this stage in the proceeding, that an arbitrator could not grant any relief without violating public policy.   However, if, after arbitration, the arbitrator's award violates public policy, the Supreme Court retains the power to vacate the award (see Matter of United Fedn. of Teachers, Local 2, AFT, AFL-CIO v. Board of Educ. of City School Dist. of City of N.Y., 1 N.Y.3d 72, 79, 769 N.Y.S.2d 451, 801 N.E.2d 827;  Mendelsohn v. A & D Catering Corp., 100 A.D.2d 209, 213, 473 N.Y.S.2d 481).