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De Sapio v. Kohlmeyer

Court of Appeals of the State of New York
Nov 27, 1974
35 N.Y.2d 402 (N.Y. 1974)

Summary

holding that a defendant who had pled arbitration as an affirmative defense had nevertheless waived arbitration by engaging in protracted litigation and noting that "the existence of an arbitration agreement is not a defense"

Summary of this case from Manos v. Geissler

Opinion

Argued October 9, 1974

Decided November 27, 1974

Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, SAMUEL R. ROSENBERG, J.

John Condon Young for appellants. Bernard Meyerson and Harry Evans for respondent.


The plaintiff-respondent James De Sapio was employed as a block trader by defendant-appellant Kohlmeyer from November, 1970 until April, 1971, at which time he was discharged. In January, 1972, plaintiff sought employment with another firm which, like Kohlmeyer, was a member of both the New York and American Stock Exchanges. In so applying, plaintiff authorized an investigation of his employment history. As part of the investigation, a representative of the defendant Fidelifacts interviewed a partner of Kohlmeyer. Subsequently, plaintiff instituted this action alleging that the Kohlmeyer partner published defamatory remarks to the investigator regarding the facts underlying plaintiff's discharge. The complaint further alleges that Fidelifacts republished the defamation in its report to plaintiff's prospective employer.

As part of its answer, Kohlmeyer pleaded as an affirmative defense that it had arbitration agreements with the plaintiff providing that any controversy between them arising out of plaintiff's employment or the termination of his employment "shall be settled by arbitration." Following its answer, Kohlmeyer obtained a deposition of plaintiff and then moved to stay the action on the basis of the agreements to arbitrate. Special Term denied the stay on the ground that the instant action for defamation could not be said to arise out of either plaintiff's employment or its termination. The Appellate Division affirmed, by a divided court, the majority holding that the agreements to arbitrate were no longer effective at the time the alleged defamatory utterances were made. Leave to appeal to this court was granted by the Appellate Division which certified for review the following question of law: "Was the order of the Supreme Court, as affirmed by this Court, properly made?"

Of course, the existence of an arbitration agreement is not a defense. ( American Reserve Ins. Co. v. China Ins. Co., 297 N.Y. 322, 327; Aschkenasy v. Teichman, 12 A.D.2d 904.)

Defendant-appellant Kohlmeyer urges that Special Term improperly denied its motion for a stay and contends that the defamation controversy falls within the arbitration agreements and that, in any event, the question of the scope of coverage is for the arbiter to determine. In this court, the plaintiff-respondent defends the correctness of Special Term's denial of the motion for a stay on two grounds: (1) Kohlmeyer waived any right to move for a stay; and (2) the arbitration agreements do not apply to this action because they were no longer effective and because this controversy did not arise out of plaintiff's employment or its termination. We agree with the waiver argument advanced by plaintiff-respondent and consequently do not reach the other issues raised. The defendant Kohlmeyer waived any right to stay the action by its affirmative use of the judicial proceedings.

In this instance, defendant's contention that we may not consider the waiver argument because it was not raised below is incorrect. Had the waiver issue been raised below defendant would not have been able to cure or answer it. (See Cohen and Karger, Powers of the New York Court of Appeals, § 161, pp. 627-628; § 162, p. 630.)

While the party who commences an action may generally be assumed to have waived any right it may have had to submit the issues to arbitration, this assumption, of course, does not apply to a defendant. (See 8 Weinstein-Korn-Miller, N.Y. Civ. Prac., pars. 7503.15, 7503.16.) Nevertheless a defendant's right to compel arbitration, and the concomitant right to stay an action, does not remain absolute regardless of the degree of his participation in the action. ( Matter of Zimmerman v. Cohen, 236 N.Y. 15.) In Matter of Zimmerman (pp. 17, 21), we held that the right of a defendant to compel arbitration was not absolute down to the time of trial and could be forfeited prior to trial. The defendant in Zimmerman (p. 19) waived his right to compel arbitration and stay the action when he set up a counterclaim, gave notice of trial, and procured an order for the taking of a deposition in preparation for trial. On the other hand, interposing an answer of itself does not work to waive a defendant's right to a stay. ( Matter of Hosiery Mfrs. Corp. v. Goldston, 238 N.Y. 22, 27.)

The crucial question, of course, is what degree of participation by the defendant in the action will create a waiver of a right to stay the action. In the absence of unreasonable delay, so long as the defendant's actions are consistent with an assertion of the right to arbitrate, there is no waiver. However, where the defendant's participation in the lawsuit manifests an affirmative acceptance of the judicial forum, with whatever advantages it may offer in the particular case, his actions are then inconsistent with a later claim that only the arbitral forum is satisfactory. Thus, entering a stipulation to extend the time to answer is a purely defensive action and is not inconsistent with a later attempt to force arbitration. ( Matter of Haupt v. Rose, 265 N.Y. 108.) In contrast, contesting the merits through the judicial process is an affirmative acceptance of the judicial forum and waives any right to a later stay of the action. ( Gold Plastering Co. v. 200 East End Ave. Corp., 282 App. Div. 1073, affd. 307 N.Y. 668; Board of Educ. v. Mancuso Bros., 25 Misc.2d 122 [motion for summary judgment].)

In the present case, plaintiff urges that two actions of the defendant Kohlmeyer constitute a waiver of any right to stay the action: (1) interposing a cross claim demanding apportionment of any liability; and (2) procuring a deposition of plaintiff. We agree that each of these actions is a sufficiently affirmative use of the judicial process so as to be inconsistent with a later motion to stay. The defendant Fidelifacts is not a party to any arbitration agreement with the other litigants, and Kohlmeyer would not be able to obtain apportionment of liability in arbitration. Similarly, Kohlmeyer's utilization of judicial discovery procedures is also an affirmative acceptance of the judicial forum. The availability of disclosure devices is a significant differentiating factor between judicial and arbitral proceedings. "It is contemplated that disclosure devices will be sparingly used in arbitration proceedings. If the parties wish the procedures available for their protection in a court of law, they ought not to provide for the arbitration of the dispute." (8 Weinstein-Korn-Miller, N.Y. Civ. Prac., par. 7505.06, pp. 75-101.) Under the CPLR, arbiters do not have the power to direct the parties to engage in disclosure proceedings. (Par. 7505.06.) While a court may order disclosure "to aid in arbitration" pursuant to CPLR 3102 (subd. [c]), it is a measure of the different place occupied by discovery in arbitration that courts will not order disclosure "except under extraordinary circumstances". ( Matter of Katz [ Burkin], 3 A.D.2d 238, 238-239.)

In light of these differences between arbitral and judicial proceedings with regard to the availability of discovery, the defendant's procurement of a pretrial deposition of plaintiff in the judicial action constitutes an election between the forums available for resolving the dispute, and therefore a waiver of any right to stay the action. The courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration. (See Matter of Commercial Solvents Corp. [ Louisiana Liquid Fertilizer Co.], 20 F.R.D. 359, 361.)

Accordingly, the order of the Appellate Division should be affirmed and the question certified answered in the affirmative.

Chief Judge BREITEL and Judges JASEN, GABRIELLI, JONES and WACHTLER concur; Judge STEVENS taking no part.

Order affirmed, with costs. Question certified answered in the affirmative.


Summaries of

De Sapio v. Kohlmeyer

Court of Appeals of the State of New York
Nov 27, 1974
35 N.Y.2d 402 (N.Y. 1974)

holding that a defendant who had pled arbitration as an affirmative defense had nevertheless waived arbitration by engaging in protracted litigation and noting that "the existence of an arbitration agreement is not a defense"

Summary of this case from Manos v. Geissler

holding that despite the fact that the defendant raised the right to arbitration in his answer, the defendant waived the right by taking the plaintiff's deposition because "utilization of judicial discovery procedure is . . . an affirmative acceptance of the judicial forum" and "[t]he courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration."

Summary of this case from Smile Inc. v. Britesmile Management

finding waiver after defendant interposed cross-claim and procured deposition

Summary of this case from Isaac v. Morgan Stanley DW, Inc.

In De Sapio v. Kohlmeyer, 35 N.Y.2d 402, 321 N.E.2d 770 (1974), the Court of Appeals of New York held that a defendant who set up a counterclaim, gave notice of trial and procured an order for the taking of a deposition in preparation for trial, waived his right to compel arbitration. If the facts of this case were more similar to De Sapio, we would be inclined to follow it.

Summary of this case from Tothill v. Richey Ins. Agency, Inc.

In De Sapio v. Kohlmeyer, 35 N.Y.2d 402, 362 N.Y.S.2d 843, 321 N.E.2d 770 [1974] the Court of Appeals held that [t]he availability of disclosure devices is a significant differentiating factor between judicial and arbitral proceedings. It is contemplated that disclosure devices will be sparingly used in arbitration proceedings. If the parties wish the procedures available for their protection in a court of law, they ought not to provide for the arbitration of the dispute.' (8 Weinstein–Korn–Miller, N.Y.Civ.Prac., par. 7505.

Summary of this case from Weisz v. Weisz
Case details for

De Sapio v. Kohlmeyer

Case Details

Full title:JAMES DE SAPIO, Respondent, v. HERMAN S. KOHLMEYER, SR. et al., Appellants

Court:Court of Appeals of the State of New York

Date published: Nov 27, 1974

Citations

35 N.Y.2d 402 (N.Y. 1974)
362 N.Y.S.2d 843
321 N.E.2d 770

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