In re the Arbitration between Waldron & Goddess ( 1983 )

Sullivan, J. P., and Ross, J., dissent in a memorandum by Sullivan, J. P., as follows:

This is an appeal from a dismissal of a petition to stay arbitration sought on the ground of lack of an agreement to arbitrate. The underlying dispute between petitioner Robert Waldron and respondent Lynn Goddess, both of whom are real estate brokers employed by Cross & Brown Company, concerns the right to a brokerage commission earned in connection with a lease negotiated through Cross & Brown. Each claims entitlement to the real estate broker’s share of the commission. Both Waldron and Goddess had written employment contracts with Cross & Brown. Goddess’ contract contained the following arbitration clause: “The employee agrees that in the event of an irreconcilable commission dispute, or other dispute between himself and another employee(s), to have such dispute arbitrated and settled by one of the following two bodies: (a) the American Arbitration Association in the Borough of Manhattan, or (b) an impartial panel of three of the employer’s senior officers, whose membership shall be determined by the disputants. If accord cannot be reached as to the method of arbitration, then selection will default to the American Arbitration Association.” Waldron’s contract contained a somewhat similar provision. While Waldron’s employment contract was in effect at all relevant times, Goddess’ contract expired on December 28, 1979, and in 1980 she rejected Cross & Brown’s offer of a new written contract. The commission dispute between Goddess and Waldron did not arise until at the earliest April, 1981, approximately 15 months after the expiration of Goddess’ employment contract. When Goddess served a demand for arbitration before the American Arbitration Association Waldron commenced this proceeding. In dismissing the petition and granting Goddess’ cross motion to compel arbitration, Special Term found that Waldron and Goddess had agreed in separate contracts of employment to arbitrate commission disputes with other real estate brokers employed by Cross & Brown. To reach this determination Special Term ruled that although Goddess’ contract contained an expiration date of December 28, 1979, both Goddess and Cross & Brown had, by their conduct, extended her contract so that it, along with the arbitration clause contained therein, was in éffect both at the time the underlying dispute arose and when Goddess demanded arbitration. We cannot agree. In our view Goddess may not compel arbitration either as a party to, or beneficiary of, any arbitration agreement with Cross & Brown. Accordingly, we would reverse and grant the petition to stay arbitration. The rule is well settled that “[in commercial matters] parties will not be held to have chosen arbitration as the forum for the resolution of their disputes in the absence of an express, unequivocal agreement to that effect; absent such an explicit commitment neither party may be compelled to arbitrate”. (Matter of Acting Supt. of Schools of Liverpool Cent. School Dist. [United Liverpool Faculty Assn.], 42 NY2d 509, 512.) It hardly needs repeating that arbitration “may not be invoked by one who is not a party to the agreement and does not otherwise possess the right to compel arbitration”. (Moruzzi v Dynamics Corp. of Amer., 443 F Supp 332, 334.) Goddess contends, and Special Term found that, notwithstanding the expiration of her employment contract long before the dispute arose, all of the terms and conditions of the expired contract, including the arbitration clause, were impliedly extended by Cross & Brown simply because Goddess continued to render services to Cross & Brown, Cross & Brown continued to pay her, and Cross & Brown later elected her a senior vice-president. This argument ignores significant portions of the record which not only dispel Special Term’s finding but point to a different conclusion. In 1980, as already noted, Cross & Brown offered Goddess a new employment contract, which she refused to sign and which differed from the expired contract. Specifically, the arbitration clause in the expired contract had provided for arbitration through the American Arbitration Association or “an impartial panel of three of the employer’s senior officers”. By contrast the arbitration clause in the rejected contract provided for arbitration only through a committee of the Real Estate Board of New York. No one disputes the proposition that a contract implied in fact is as binding as a written one. (See Jemzura v Jemzura, 36 NY2d 496, 504.) But unless a party has spoken or conducted himself in such manner that his assent may fairly be inferred, a contract cannot be implied in fact since there has been no meeting of the minds. (See Miller v Schloss, 218 NY 400.) As the Court of Appeals has noted: “A contract cannot be implied in fact where the facts are inconsistent with its existence; or against the declaration of the party to be charged; or where there is an express contract covering the subject-matter involved; or against the intention or understanding of the parties; or where an express promise would be contrary to law. The assent of the person to be charged is necessary and unless he has conducted himself in such a manner that his assent may fairly be inferred he has not contracted.” (Miller v Schloss, 218 NY, at pp 406-407, supra; see Grombach Prods. v Waring, 293 NY 609.) By its tender of a new and different written contract Cross & Brown tellingly signified the withholding of its consent — which might otherwise be presumed (see, e.g., Douglass v Merchants’ Ins. Co. of N. Y.„ 118 NY 484) —• to a carryover of all the terms of the contract that expired on December 28, 1979. Mere continued employment, even coupled with a promotion, does not necessarily imply the extension of all the terms of an employment contract that has expired. Certainly, Goddess continued to work for Cross & Brown, and probably on terms strongly similar to the previous contract. But at the time this dispute arose she was not working under a contract containing an agreement to arbitrate. Undoubtedly, she could resist a demand to arbitrate a dispute with her employer or another employee on the ground that she had refused to sign a contract with an arbitration provision. For all that appears, Goddess may have rejected the proposed new contract precisely because she did not want to obligate herself to arbitrate. An arbitration clause is, of course, separable from the contract in which it is contained. (Matter of Weinrott [Carp], 32 NY2d 190,198.) Moreover, “[A)n agreement to arbitrate must be clear and direct, and must not depend upon implication” (Matter of Doughboy Inds. [Pantasote Co.], 17 AD2d 216, 220). Under such circumstances the finding that all the terms of the expired contract, including the provision for arbitration, were extended is without factual support. We also cannot accept Goddess’ contention that Waldron’s arbitration agreement with Cross & Brown inures to her benefit. That agreement provides as follows: “It is expressly understood and agreed by and between the corporation and the employee that any dispute or difference in respect to any matter covered by any of the terms, provisions or conditions of this Agreement or in respect to any of the affairs or relations of the respective parties hereto shall be finally settled by submitting the same promptly to arbitration upon the request of either party hereto before the American Arbitration Association in the Borough of Manhattan, City of New York. The provisions of this paragraph numbered eleventh shall also apply in the event that any such dispute or difference may involve an employee or employees of the corporation in addition to the employee whether or not such other employee or employees submit to arbitration. And it is "further expressly understood and agreed by and between the parties hereto that any dispute or difference between the employee and any other employee or employees of the corporation shall, if all of the parties to such dispute or difference agree in writing, be settled by submitting the same promptly to arbitration in pursuance of the arbitration procedure adopted by the corporation and on file with the Secretary of the corporation, such arbitration procedure being open for inspection at all times by any of the parties so affected. In the event that the parties do not promptly agree in such latter case to arbitration in pursuance of the procedure of the corporation (and delay in so agreeing for a period in excess of ten days shall be deemed to be equivalent to failure to agree), then such dispute or difference shall forthwith be submitted to the American Arbitration Association in the Borough of Manhattan, City of New York, for final determination by either party to this Agreement.” Thus Waldron’s agreement with Cross & Brown contains two separate arbitration provisions. The first requires that any dispute between Cross & Brown and Waldron be arbitrated before the American Arbitration Association, regardless of whether the dispute involves another employee who has not agreed to arbitrate. The second provision then requires that any dispute between employees be arbitrated internally, if the parties agree in writing, and, if they do not, before the American Arbitration Association. Clearly, the first provision has nothing to do with a dispute between employees, and is designed only to assure that Cross & Brown can arbitrate with a contracting employee, even if another employee involved in the dispute did not agree to arbitrate. Noteworthy is the language, “whether or not such employee or employees submit to arbitration.” The agreement thus contemplates situations where certain Cross & Brown employees are not required to submit to arbitration, precisely the situation here. The second provision, through which Goddess claims the right to enforce arbitration, cannot bind Waldron to arbitrate with Goddess, since she is not bound to arbitrate with him. When “mutuality of the right of invocation of arbitration is not * * * present” a party cannot compel another to arbitrate. (Matter of Kaye Knitting Mills [Prime Yarn Co.], 37 AD2d 951; see, also, Hull Dye & Print Works v Riegel Textile Corp., 37 AD2d 946.) This court’s holding in Matter of Riccardi (Modern Silver Linen Supply Co.) (45 AD2d 191, affd 36 NY2d 945) is not to the contrary. There, the parties agreed to arbitrate any and all controversies or claims arising out of employment contracts which also contained restrictive covenants not to compete. The employer, however, was given the unilateral right either to seek arbitration or to bring an action to enforce the restrictive covenant. Distinguishing those cases where the option to invoke arbitration as to the whole contract is vested in one party, both this court and the Court of Appeals found that, save for the limited issue of enforcement of the restrictive covenant, the parties were mutually and fully obligated to arbitrate with each other. Here, however, there is no reciprocity of any obligation between Goddess and Waldron under his arbitration agreement. Aegis Prop. Servs. Corp. v Mihalski (91 AD2d 577), cited by the majority, is equally unavailing, inasmuch as it concerns the peculiar situation where only one party, the employee, could ever be aggrieved by the determination for the review of which arbitration was provided. Since the employer unilaterally fixed the division of commission, he would have no occasion to challenge his own determination. The employee, on the other hand, was afforded the opportunity to make claim against the employer for additional commissions in arbitration. Thus, the consideration for the employee’s unilateral right to demand arbitration was the employee’s unilateral right to fix the division of commission. No such mutuality of obligation exists in this case, since Goddess has refused to bind herself to a proffered contract calling for arbitration. Nor, under well-established principles of contract law, may Goddess claim third-party beneficiary status under Waldron’s contract with Cross & Brown. In order to establish rights as a third-party beneficiary, a party must demonstrate that he is among the members of the class intended to reap the benefit of the contract. (Port Chester Elec. Constr. Corp. v Atlas, 40 NY2d 652, 655; Beveridge v New York El. R.R. Co., 112 NY 1, 26.) The clause in Waldron’s contract calling for arbitration of any dispute between him and another Cross & Brown employee provides that, in the absence of written agreement between the disputants to internal arbitration, obviously not the case here, the dispute “shall forthwith be submitted to the American Arbitration Association * * * by either party to this Agreement.” Since an employee at will such as Goddess is an “employee”, but not a “party to this agreement”, he or she cannot, by the very terms of the clause upon which Goddess relies, compel arbitration. Having been expressly denied the right to compel arbitration, such employee can hardly be a member of a class that the clause was intended to benefit. Absent a manifest intent that the third party benefit, he is merely “an incidental beneficiary with no right to enforce the particular contract” (Port Chester Elec. Constr. Corp. v Atlas, 40 NY2d, supra, at p 655). The only third-party beneficiary of Waldron’s agreement to arbitrate is another Cross & Brown employee who, having a contract and being a “party to this agreement”, has similarly obligated himself to arbitrate. Accordingly, the judgment should be reversed, the petition to stay arbitration granted, and the cross motion to compel arbitration denied.