Allen Knitting Mills, Inc. v. Dorado Dress Corp.

39 A.D.2d 286, 333 N.Y.S.2d 848, 1972 N.Y. App. Div. LEXIS 4182

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: June 27, 1972
• Status: Published

Opinions

Per Curiam.

By this proceeding petitioner seeks to eliminate from the scope of arbitration those demands which seek recovery of consequential damages, i.e., $40,000 for loss of profit; $100,000 from loss of goodwill and reputation. It is petitioner’s contention that the arbitrators are without power to consider such items of damage since the contracts of sale contained a clause limiting the seller’s liability to the difference in value between the goods specified and the goods actually delivered. Special Term, in denying the application, stated that “ the arbitration clauses in the within contracts are sufficiently broad to vest the arbitral tribunal with exclusive jurisdiction of all disputes arising after the making of the contracts. Whether the claims made by respondent are proper are matters for determination by the arbitrators.” We agree with this conclusion.

Each of the arbitration clauses provides as follows: “ Any controversy or claim arising out of or relating to this contract, any interpretation thereof or breach thereof, shall be settled by arbitration ’ ’. The petitioner, despite this broad arbitration clause, would ¡have this court decide that under no circumstances could the arbitrator make any award in excess of that provided for in the contract and hence, that the arbitrator is without power to consider the above-mentioned items of damage. However, the clause limiting the seller’s liability is but one provision of the contract. It does not in any manner restrict the arbitrator ’s powers to consider ‘ ‘ any controversy or claim arising out of or relating to this contract ”. We note that in the absence of the limitation of liability contained in these contracts, the arbitrator under the broad arbitration clause would have the power to make an award of consequential damage. (See United Buying Serv. Int. Corp. v. United Buying Serv. of Northeastern N. Y., 38 A D 2d 75, affd. 30 N Y 2d 822; 23 Carmody-Wait 2d, New York Practice, § 141:139.) The fact that the contracts contain a limitation of liability does not eliminate the question of consequential damages as a controversy or claim within the scope of the arbitration clause. Issues concerning the applicability of the damage limitation clause, its enforceability in this particular instance, its validity, and any other issues concerning the question of the amount of damages recoverable in the face of such provision are for the arbitrator to determine. (Cf. Matter of Chemspun Yarns, 132 N. Y. S. 2d 823, affd. 285 App. Div. 1185.) Indeed, if we were to decide that the respondent is barred from seeking recovery of consequential damages, we would in effect be determining the merits of the claim, and this we may not do, no matter how frivolous the claim might appear to us. (CPLR 7501; Matter of Vogel [Lewis], 25 A D 2d 212, affd. 19 N Y 2d 589; 8 Weinstein-Korn-Miller, N. Y. Civ. Prae., § 7501.20 ; 22 Carmody-Wait 2d, New York Practice, § 141:24.)

A similar problem was considered by the Court of Appeals in Matter of Granite Worsted Mills (Cowen) (25 N Y 2d 451), albeit the issue arose in a different procedural context. In that case the arbitrator, despite the presence of a similar clause limiting liability, awarded damages far in excess of the total purchase price of the goods. The court, in reversing the order of the Appellate Division denying petitioner’s motion to vacate the award, delineated the issue before it as follows. “ Whether, when an arbitrator makes an award which on its face and without express mention of the fact ignores an express provision of the contract limiting damages, he is guilty of ‘ mere error ’ or whether he has in fact exceeded his power ’ ’ (supra, p. 455). It was concluded that where “ from the face of the award itself or from an examination of the computations made by the arbitrator that the arbitrator has included an element of damages specifically excluded by the contract pursuant to which he obtained his very authority to act, he exceeds his powers under the contract and the award thus made must be vacated under proper application ” (supra, p. 456). However, the court remitted the matter to the arbitrator and in so doing noted further: “ There is no doubt that an arbitrator, if he so decides, mag indeed refuse to enforce such a damage limitation clause on the ground of unconscionabilitg or on other grounds

* and today’s decision does not in any way limit that power. What is required, however, is that the award indicate that he has in fact deliberately and intentionally exercised that power so that judicial review can proceed without the need for speculation as to what has in fact occurred in the arbitral tribunal ” (supra, p. 457).

The dissent points to the distinction between an application to limit the scope of the submission as compared to an application to vacate the arbitrator’s award. No doubt, in some instances, the court’s power on a motion to vacate an award might be more circumscribed than if a motion had been made prior to the submission to the arbitrator. However, the question is one concerning the arbitrator’s power to consider the issues raised. Where as here there is a broad grant of power, we may not curtail the submission on a matter well within that grant of power. As recognized by the Court of Appeals in the Granite Worsted case (supra), it is within the arbitrator’s power not to enforce the clause in question. Nor may we speculate that if the arbitrator fails to enforce the limitation of liability, that such would be an impermissible change of the terms of the contract. Such a determination must await a fuller presentation of the facts underlying the controversy. Of course, if the arbitrator does ignore the provision, it must be indicated that he “ in fact deliberately and intentionally exercised [his] power so that judicial review can proceed without the need for speculation as to what has in fact occurred in the arbitral tribunal.” (supra, p. 457).

Accordingly, the judgment entered January 4, 1972 denying petitioner’s application for a stay of arbitration, should be affirmed without costs and disbursements to the respondent.

emphasis supplied