Union-EndicottCentralSchoolDistrictvPeters ( 2014 )

State of New York
Supreme Court, Appellate Division
Third Judicial Department
Decided and Entered: December 4, 2014 518428
________________________________
UNION-ENDICOTT CENTRAL SCHOOL
DISTRICT et al.,
Appellants,
v
JOANNE PETERS,
Respondent.
(Action No. 1.)
________________________________
In the Matter of the
Arbitration between UNION-
ENDICOTT CENTRAL SCHOOL
DISTRICT,
Appellant,
and MEMORANDUM AND ORDER
ENDICOTT TEACHERS' ASSOCIATION,
on Behalf of JOANNE PETERS,
Respondent.
(Proceeding No. 1.)
_______________________________
In the Matter of UNION-
ENDICOTT CENTRAL
SCHOOL DISTRICT,
Appellant,
v
ENDICOTT TEACHERS' ASSOCIATION
et al.,
Respondents.
(Proceeding No. 2.)
________________________________
Calendar Date: October 15, 2014
-2- 518428
Before: Lahtinen, J.P., McCarthy, Rose, Lynch and Clark, JJ.
__________
Law Firm of Frank W. Miller, East Syracuse (Frank W. Miller
of counsel), for appellants.
Hinman, Howard & Kattell, LLP, Binghamton (Alexander D.
Racketa of counsel), for Joanne Peters, respondent.
Richard E. Casagrande, New York State United Teachers,
Latham, for Endicott Teachers' Association, respondent.
__________
Clark, J.
Appeals from an order of the Supreme Court (Lebous, J.),
entered April 22, 2013 in Broome County, which, among other
things, denied plaintiffs' motion in action no. 1 to amend the
complaint.
Joanne Peters was employed as a teacher by the Union-
Endicott Central School District (hereinafter the District), and
she attempted to retire from that position after allegations
surfaced that she had stolen District property. Peters is a
member of the Endicott Teachers' Association (hereinafter ETA),
the exclusive bargaining representative of teaching personnel in
the District. The present appeals mark the latest chapter in
ongoing litigation, both in the proceedings now before us and
elsewhere, and the underlying facts are set forth in our prior
decisions (Matter of Peters v Union-Endicott Cent. School Dist.,
77 AD3d 1236, 1236-1237 [2010]; Matter of Union-Endicott Cent.
School Dist. [Endicott Teachers' Assn.], 59 AD3d 799, 799-800
[2009]). As is relevant here, a dispute exists as to whether
Peters is entitled to receive retiree health insurance benefits
provided for in a collective bargaining agreement (hereinafter
CBA) between the ETA and the District given the circumstances of
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her departure from employment with the District.
The District and its Board of Education (hereinafter the
Board) commenced action No. 1 against Peters in 2007 and sought
to recover damages stemming from, among other things, her alleged
theft of District property and breach of the duty of loyalty owed
by an employee. The District also determined that it had
terminated Peters effective July 1, 2007 and that, as a result,
she was not entitled to retiree health benefits. The ETA and
Peters grieved the District's determination under the CBA and
demanded binding arbitration of it. The District responded by
commencing proceeding No. 1 to seek a permanent stay of
arbitration. Supreme Court rejected the District's application
and granted a cross motion by the ETA and Peters to compel
arbitration and, upon appeal, we affirmed (Matter of Peters v
Union-Endicott Cent. School Dist., 25 Misc 3d 1210[A], 2009 NY
Slip Op 52025[U] [2009], affd 77 AD3d 1236 [2010]). In so doing,
we noted that "[t]he issue of the effect, if any, of Peters'
alleged misconduct on her entitlement to benefits goes to the
merits of her grievance, not to its arbitrability" (Matter of
Peters v Union-Endicott Cent. School Dist., 77 AD3d at 1240).
At the ensuing arbitration hearing, the District and the
ETA stipulated that the arbitrator would first assess whether the
District's determination had violated the terms of the CBA. If
the arbitrator found a violation, he would then be obliged to
decide whether Peters' right to retiree health insurance benefits
was impacted by the faithless servant doctrine, which provides
that "[o]ne who owes a duty of fidelity to a principal and who is
faithless in the performance of his [or her] services is
generally disentitled to recover his [or her] compensation,
whether commissions or salary" (Feiger v Iral Jewelry, 41 NY2d
928, 928 [1977]). In 2012, the arbitrator issued an opinion and
award finding that the District had violated the terms of the CBA
and that the faithless servant doctrine was inapplicable. The
arbitrator went on to state that he "believe[d] the District's
claims [were] better suited for a lawsuit than a grievance
arbitration proceeding."
The District and Board thereafter moved for leave to amend
their complaint in action No. 1 to assert causes of action
-4- 518428
invoking the faithless servant doctrine, seeking to both bar
Peters' receipt of retiree health insurance benefits and recover
damages for the value of the benefits that she had already
received. The District also commenced proceeding No. 2 and
sought to either vacate the arbitration award or stay its
enforcement until issues regarding the applicability of the
faithless servant doctrine in action No. 1 had been resolved.
The ETA, in turn, cross-moved for leave to intervene in action
No. 1 in order to oppose the proposed amendments to the
complaint. Supreme Court, among other things, declined to vacate
the arbitration award or prevent it from going into effect,
denied leave to amend the complaint in action No. 1 and granted
the ETA leave to intervene in that action.1 The District appeals
in proceeding Nos. 1 and 2, and the District and Board appeal in
action No. 1.
We initially agree with Supreme Court that vacatur of the
arbitration award is not warranted. "It is well established that
an arbitrator's award is largely unreviewable" (Matter of
Adirondack Beverages Corp. [Bakery, Laundry, Beverage Drivers &
Vending Mach. Servicemen & Allied Workers, Local Union No. 669 of
Albany, N.Y. & Vic.], 108 AD3d 832, 833 [2013] [citations
omitted]; see Matter of Falzone [New York Cent. Mut. Fire Ins.
Co.], 15 NY3d 530, 534 [2010]). Vacatur of an arbitration award
is only appropriate where "it violates a strong public policy, is
irrational, or clearly exceeds a specifically enumerated
limitation on the arbitrator's power" (Matter of Falzone [New
York Cent. Mut. Fire Ins. Co.], 15 NY3d at 534; see Matter of
Adirondack Beverages Corp. [Bakery, Laundry, Beverage Drivers &
Vending Mach. Servicemen & Allied Workers, Local Union No. 669 of
Albany, N.Y. & Vic.], 108 AD3d at 833). "Outside of these
narrowly circumscribed exceptions, courts lack authority to
review arbitral decisions, even where 'an arbitrator has made an
error of law or fact'" (Matter of Kowaleski [New York State Dept.
1
The parties stipulated that the papers filed in
proceeding No. 2 would be treated as though they had been filed
in proceeding No. 1. Supreme Court "so ordered" that stipulation
and addressed the District's application to vacate or stay the
arbitration award within the context of proceeding No. 1.
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of Correctional Servs.], 16 NY3d 85, 91 [2010], quoting Matter of
Falzone [New York Cent. Mut. Fire Ins. Co.], 15 NY3d at 534).
The bulk of the arguments presented by the District, even
if meritorious, involve errors of law or fact that we have no
authority to reach. The District does extend one argument that
would warrant vacatur if substantiated, namely, that the
arbitrator did not resolve the issue of whether the faithless
servant doctrine applied. This Court has already held that
"[t]he issue of the effect, if any, of Peters' alleged misconduct
on her entitlement to benefits goes to the merits of her
grievance" (Matter of Peters v Union-Endicott Cent. School Dist.,
77 AD3d at 1240), and other case law confirms that the issue was
arbitrable (see Western Elec. Co. v Brenner, 41 NY2d 291, 294
[1977]; Bravo Knits v De Young, 35 AD2d 932, 932-933 [1970]).
The parties further stipulated that the arbitrator should resolve
the issue and, under these circumstances, a refusal to resolve
the issue by the arbitrator would be "in excess of an explicit
limitation on his power" (Matter of Kowaleski [New York State
Dept. of Correctional Servs.], 16 NY3d at 91).
While this argument is proper, it fails on the merits. The
arbitrator reviewed the relevant case law, noted that the CBA was
silent on the issue of whether the faithless servant doctrine
restricted an employee's right to contractual benefits, and
determined that to apply the doctrine would impermissibly "add to
or alter the terms of" the CBA (see e.g. Matter of Bolin v Nassau
County Bd. of Coop. Educ. Servs., 52 AD3d 704, 706-707 [2008]).
The arbitrator then held, in no uncertain terms, that he was
"declin[ing] to apply" the doctrine. The arbitrator's dictum
that the District's arguments were "better suited for a lawsuit
than a grievance arbitration proceeding," while perhaps better
left unsaid, did not undermine his thoroughly explained holding
that the faithless servant doctrine did not impact Peters' right
to receive retiree health insurance benefits under the CBA.
Thus, we perceive no reason to vacate the arbitration award.
Turning to the motion by the District and the Board for
leave to amend their complaint, the legal issue as to whether the
faithless servant doctrine applied was placed squarely before the
arbitrator, and the parties to the arbitration had a full and
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fair opportunity to litigate it. Notwithstanding the fact that
the arbitrator held the doctrine to be inapplicable, the proposed
amended complaint in action No. 1 seeks to raise precisely the
same issue. Contrary to the arguments advanced by the District
and the Board, the faithless servant doctrine flows from the
contractual relationship between employer and employee (see
Western Elec Co. v Brenner, 41 NY2d at 295; Restatement [Second]
of Agency § 387). Accordingly, if the CBA does not permit the
doctrine to be used, there is no separate ground for its
application (see Matter of Bolin v Nassau County Bd. of Coop.
Educ. Servs., 52 AD3d at 707). Thus, the District and the Board
are barred by collateral estoppel from advancing an issue that
was actually decided by the arbitrator (see Clemens v Apple, 65
NY2d 746, 748-749 [1985]; Matter of Crowley v Board of Educ. of
Yonkers Pub. Schools, 128 AD2d 871, 871 [1987]; compare Matter of
Rourke v New York State Dept. of Correctional Servs., 201 AD2d
179, 182 [1994]), and Supreme Court did not abuse its discretion
in denying leave to amend the complaint in action No. 1
(see Cafferty v Cahill, 53 AD3d 1007, 1008 [2008], appeal
dismissed and lv dismissed and denied 11 NY3d 861 [2008]).
We have reviewed the District's remaining arguments and, to
the extent they are not rendered academic in light of the
foregoing, found them to be lacking in merit. We do note,
however, that Supreme Court was obliged to confirm the
arbitration award "upon the denial of a motion to vacate or
modify" (CPLR 7511 [e]). Inasmuch as Supreme Court did not
explicitly confirm the award, we modify the order to do so
(see Matter of Klein v GEICO Gen. Ins. Co., 109 AD3d 825, 826
[2013]).
Lahtinen, J.P., McCarthy, Rose and Lynch, JJ., concur.
-7- 518428
ORDERED that the order is modified, on the law, without
costs, by confirming the arbitration award dated July 23, 2012,
and, as so modified, affirmed.
ENTER:
Robert D. Mayberger
Clerk of the Court