Opinion
114312/01.
Decided June 3, 2004.
Kelly Roth New York, New York, William H. Roth, Esq., Lisa A. Frey, Esq., Attorneys for the Plaintiff Palowitch.
Winston Strawn New York, New York, Jerry Silver, Esq., Attorneys for the Defendants.
History
In this lawsuit Palowitch and Numerica sued Cap Gemini Ernst Young ("CGEY") for breach of an employment agreement. As set forth in this Court's decision of November 9, 2001, Palowitch, who had been employed as a Vice President of Ernst Young, became a Vice President of Cap Gemini pursuant to an employment agreement dated May 23, 2000 (the "Employment Agreement"). A separate Consulting Partner Transaction Agreement ("CPT Agreement")was also consummated. Part of Palowitch's compensation included 10,700 shares (Shares) of Cap Gemini stock which was placed into a separate brokerage account controlled by Cap Gemini. Section 9 of the Employment Agreement also provided that Palowitch would forfeit shares if he left voluntarily or was terminated for cause and that he would forfeit at least half if Cap Gemini terminated him "for poor performance". The Transaction Agreement also provided for arbitration of all disputes under Section 9 of the employment Agreement as set forth in the November 9, 2001 decision.
On November 9, 2000, Cap Gemini terminated the Employment Agreement without stating a reason. The letter set forth the severance that Palowitch would receive, including a lump sum payment and six month's salary, and provided that, in exchange for signing a separation agreement with a release and other terms Palowitch would also receive an additional $433,700, representing the value of 24.3% of the Shares. The letter advised Palowitch that he had forfeited the remainder of the Shares, and Cap Gemini proceeded to confiscate all but the $433,700 from the Account.
After receiving the termination notice, Palowitch approached CGEY and offered to complete two of his consulting projects with Pharmacia, Inc. and Johnson Johnson. He formed a company Numerica Corp. which negotiated to form a consulting agreement with Net-Strike Worldwide, LLC, an affiliate of Cap Gemini. According to this court's decision of November 27, 2002, that agreement was never fully consummated in that Kenneth Katzif, the head of Cap Gemini's Life Sciences Consulting Group, never approved it. Palowitch had been negotiating with Mike Livingston and Lawrence Rothman, CGEY vice presidents, for the contract to finish the Pharmacia and Johnson Johnson projects.
Since Palowitch never entered into the separation agreement with Cap Gemini and threatened litigation, Cap Gemini seized the remaining Shares in the Account (the $433,700). Palowitch then brought a lawsuit on July 12, 2001 seeking recovery on a breach of contract and CGEY moved to dismiss the conversion and breach of contract claims based on the arbitration agreement. CGEY filed a notice of motion to compel Palowitch to arbitrate on or about September 28, 2001. In its decision of November 9, 2001, this Court dismissed Palowitch's claims that Cap Gemini had no right to seize the shares because CGEY defended its actions claiming poor performance and the Transaction and Employment Agreements provided such matters were subject to arbitration, and granted CGEY's motion to compel arbitration. In its November 27th 2002 decision, this court granted summary judgment dismissing Palowitch's claims for tortious interference with a contract by Cap Gemini in that no contract between Numerica and Net-strike had been entered into. Additionally, the Court denied Palowitch's cross motion to amend the complaint to add Numerica's claims for breach of contract and promissory estoppel based on a claim that Numerica had an oral agreement with Net-strike. The court found that Palowitch's own testimony that he did not consider the parties to have entered into a contract rendered the breach of contract claim unmeritorious. It also found that if anyone had a claim for promissory estoppel, it was Palowitch and not Numerica. For that reason, the promissory estoppel claim was part of the employment agreement and thus subject to arbitration.
Based on the foregoing decisions, Palowitch, on January 2, 2002, filed a claim with the American Arbitration Association ("AAA") and the parties proceeded to arbitration pursuant to the AAA rules. The arbitrators selected by the parties-Lawrence Drath, William Sondericker and Jeremy Sussman-were all lawyers who had been members of the AAA panel. After seven days of hearings, the AAA issued an award dated October 23, 2003, and on January 9, 2004, the AAA delivered a Modification of Award of the Arbitrators, in the net amount of $1,161,788.00. The award consisted of three elements:
1)An award of $1,125,000 to Palowitch with interest at the rate of 6% per annum from November 10, 2000.
2)An award of $38,788.00 plus interest at the rate of 6% per annum from January 7, 2001 for post termination work for CGEY's clients.
3)An award of $2,000.00 with interest from January 7, 2001 at the rate of 6% per annum in favor of Cap Gemini, the cost of restoring information that Palowitch deleted from his computer.
Additionally the award provided that the interest accrued as straight interest, that claimant's request for punitive damages was denied, that all other counterclaims were denied, and that administration fees of the American Arbitration Association were to be borne equally by the parties.
Although the parties asked the arbitrators for a statement of reasons after receiving the initial award, the arbitrators did not issue one in their Modification of Award.
Claims
In its motion to vacate the arbitral award pursuant to CPLR 7511(b)(iii) defendant claims that the arbitrators exceeded their powers by (i) ignoring, disregarding and/or contradicting applicable law, including two Decisions and Orders of this Court and (ii) ignoring or disregarding and/or contradicting the express terms of the written agreements between the parties. More specifically, defendant claims that the arbitrators did not apply the doctrine of judicial estoppel by making a $38,788 award for post termination services rendered by Palowitch to Cap Gemini or CGEY because this Court had dismissed the promissory estoppel claim brought by Numerica Corporation and because it dismissed the tortious interference claims by both Numerica and Palowitch on the ground that Numerica and Net-strike had never entered into a contract. Defendant contends that by allowing Palowitch to amend his claim in the arbitration proceeding to assert an individual promissory estoppel claim, the arbitrators contradicted this court's prior decisions and that the res judicata or collateral estoppel effect of those decisions precluded such amendment. Defendant further asserts that the elements of promissory estoppel were lacking, that the arbitrators disregarded the express terms of the Employment Agreement that provided that the six months severance pay upon termination of employment was contingent upon Palowitch's returning all proprietary CGEY proprietary information including the contents of his laptop (which he erased). The severance pay of $167,855.14 had been paid and the arbitrators did not require that it be returned, only that $2000 be paid to restore the erased information. Defendant also claims that the arbitrators disregarded that CPT Agreement that provided for forfeiture of the Cap Gemini Shares upon termination of Palowitch's employment for "poor performance", and that the arbitrators ignored the only relevant inquiry which was whether CGEY, particularly Ken Katzif and his superior, John Spinetto, were genuinely dissatisfied with Palowitch's performance.
In support of its cross-motion to vacate the Award based on CPLR 7511(b)(iii), defendant claims that the arbitrators so exceeded their power or so imperfectly executed it that no final award was made because they manifestly disregarded applicable law. Defendant cites Sawtelle v. Waddell Reed, Inc., 304 AD2d 103, 754 N.Y.S.2d 264 (1st Dept. 2003) and In Re Arbitration Between Riverbay Corporation and Local 32-E, 91 AD2d 504, 456 N.Y.S.2d 378 (1s Dept. 1982) for the propositions that arbitrators may not disregard applicable law or rewrite the terms of the agreement. Defendant also cites Matter of Spear, Leeds Kellogg v. Bullseye Securities, Inc., et al., 291 AD2d 255, 738 N.Y.S.2d 27 (1st Dept. 2002) where the appellate court affirmed the trial court's vacatur of part of a NASD arbitral award that the trial court found was "in manifest disregard of the law and the evidence". That court found that the arbitrators exceeded their authority by granting relief on claims not asserted and, even if asserted, individuals could not assert a cause of action belonging to a corporation. In Matter of Spear, the court indicated that while arbitrators have no obligation to explain their awards, a reviewing court when faced with a decision that is in manifest disregard of the law, may take the absence of an explanation into account.
Plaintiff, in seeking to confirm the award, opines that the arbitrators, all experienced lawyers, heard evidence for seven days concerning the value and quality of Palowitch's work both pre and post termination, witnesses were examined and cross examined, post hearing memoranda were submitted, and the award and Modification of Award were unanimous. Plaintiff contends that this Court's decision dismissing Numerica's promissory estoppel claim for post termination work, specifically stated that "the promissory estoppel involves Palowitch, not Numerica and is thus part of the employment agreement and therefore subject to arbitration." Plaintiff also points out that the amount awarded for post termination work was only $38,877 out of a total of $1,161,788 or 4% of the award.
Findings
In this case, defendant invoking the broad arbitration clause in the Employment Agreement, sought to have the dispute submitted to arbitration. Having achieved that goal, defendant is now unhappy with the result and seeks to vacate the decision reached by three lawyer arbitrators after seven days of hearing. Mere misapplication of law or even misconstruction of a contract or agreement is not sufficient to vacate an award unless it is totally irrational or violative of a strong public policy. Maross Construction Inc., v. Central New York Regional Transportation Authority, 66 NY2d 341, 497 N.Y.S.2d 321 (1985) (cases cited therein). Mere errors of law or fact committed by arbitrators, unless shown to be utterly arbitrary or violative of public policy, are insufficient to deny confirmation of an arbitral award. Wien Malkin, LLP et al. v. Helmley-Spear, Inc., 300 AD2d 32, 751 N.Y.S.2d 21 (1st Dept. 2002). The facts here do not demonstrate that the arbitrators violated any public policy or even committed any errors of law. While this court found that Numerica had no claim based on promissory estoppel for post termination remuneration, it implied that Palowitch might well have such a claim. Thus the $38,788 award in the face of a considerably higher request does not directly contradict this court's prior holding. While defendant also asserts that the arbitrators misinterpreted the various agreements between Palowitch and CGEY, the evidence of such misinterpretation is neither manifest nor otherwise clear. Based on the evidence adduced at the hearing the arbitrators could well have determined that Palowitch's performance was good or exemplary and that Katzif's determination that it was "poor" was not based on any objective or fair criteria. The decision to deny the forfeiture of shares and to only charge Palowitch $2000 for the cost of retrieving deleted data on his laptop is consistent with the evidence of cost presented at trial and otherwise rational.
The cases cited by defendant are inapposite inasmuch as the Sawtelle v. Waddell Reed, Inc., 304 AD2d 103, 754 N.Y.S.2d 264 (1st Dept. 2003) case involves an award of punitive damages of fifteen times the compensatory damages, which the Court found violative of the Due Process Clause of the Fourteenth Amendment of the United States Constitution as stated in BMW v. Gore, 517 U.S. 559. Here, the arbitrators denied any punitive award. Similarly, in Matter of Spear, Leeds Kellogg v. Bullseye Securities, Inc., et al., 291 AD2d 255, 738 N.Y.S.2d 27 (1st Dept. 2002), the court found that the arbitral award involved claims not even submitted to the panel. Although the arbitrators here, as in Matter of Spear, did not give reasons for their award, the basis for the award is not at all obscure.
Based on the foregoing, the motion to confirm the arbitral award is granted and the cross-motion to vacate the award is denied.
Parties are directed to submit an ORDER and JUDGMENT consistent with the Arbitration Award of January 9, 2004.