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New York Assembly Bill A9505-C - What are your thoughts?

Governor Cuomo submitted a number of proposals to the Assembly as part of an omnibus budget bill. One of those proposals (an amendment to CPLR Article 75) affects arbitration in New York -- including a requirement for "third-party arbitrator," disclosures, witnesses, and manifest disregard, etc. Assembly Bill A9505-C attached here. See, e.g., pp. 189-190.

The Senate counterpart Bill S7848 did not include the same language as in the Assembly Bill.

These issues will be part of the budget negotiations that the Governor and Legislature aim to conclude by March 29.*

Please provide your thoughts/comments below.


* Thank you to the co-chairs of the Arbitration Committee of the DR Section of NYSBA, Steven Skulnik and Rekha Rangachari, for drafting this blog.

Comments (5)

Geri Krauss:

Section 3c is in my view very problematic. It provides a possible ground for vacatur of an award after a hearing merely upon an objection by one of the parties to the appointment without providing any mechanism or standard to address the objection prior to conducting the proceeding. This is particularly troubling since the disclosure could be as simple as having had a prior professional interaction with counsel or the firm of one of the parties. This type of disclosure is unlikely generally to create sny bias but a party could place a cloud over the proceeding merely by filing an objection. There should be a mechanism to determine the objection before the proceeding, or at a minimum a a standard that sets out grounds upon when such an objection could be deemed substantial or significant enough to justify vacatur. Without such a mechanism or standard there is a risk of increased motion practice challanging the award after the award is issued and of a waste of time and money by having held the proceeding over a valid objection.

Jose W Cartagena:

Adding "manifest disregard of the law" as grounds to vacate an award not only negates the very equitable spirit of arbitration but also disqualifies non-lawyers from serving as arbitrators except in three person panels. The law does not always provide for an equitable remedy. More and more arbitration is turning into court-like litigation, with more consideration given to legalities where lawyers must intervene than the more flexible dispute resolution process with less emphasis on legal strictures that non-lawyers can provide.

Paul B. Marrow:

1. Given the restrictions on mandatory arbitration proposed for Section 7515 CPLR, is there a preemption issue, and if so, does the statement "Except when inconsistent with federal law," operate as a valid work around? Federal law is clear; discrimination, including acts involving sexual harassment, is against federal law and against public policy. But there is no provision in federal law restricting arbitrators from dealing with this or any other class of claims arsing from a contract that is Section 2 compliant. So the issue is whether or not a bar on the scope of arbitration offends the preemptive effect of Section 2 of the F.A.A.? Does the declaration of public policy in the New York Bill come within the protection afforded by Sections 2's "save upon such grounds as exist at law or in equity for the revocation of a contract"? Perhaps this Bill, if enacted, will serve to answer that question.

2. Since any provision other than those in 7504 (d) and (e) (right to counsel and the vote of a majority) can be waived, these rules are designed to address badly drafted arbitration clauses. The vast majority of arbitration clauses adopt the rules of some provider such as the AAA and those that don't very often have provisions that track this Bill. So for the most part, this Bill is really quite limited in scope.

3. There are provisions through out the bill placing the burden - including financial - on the arbitrator to assure notice requirements are met. These provisions are unfair to the arbitrator in a case where both sides are represented by counsel and know all about the notice issues because counsel agreed to the notice requirements or same were ordered by the arbitrator because the lawyers couldn't agree. The Bill's language should be amended to only oblige the arbitrator to deal with notice when parties aren't represented by counsel.

4 The language proposed for 7505 (a) is long over due. But if these provisions can be waived, there is nothing to stop a provider from doing so in their rules. FINRA has no rule that mandates more than a one sentence statement and the Bill doesn't address this problem. This provision should not be allowed to be waived if it is to have any real meaning.

I know I'm late to the conversation, but I'd like to chime in with two comments. I wonder about the cost-benefit of 7507 (the requirement that the Award set out Findings of Fact and Conclusions of Law). How will that standard affect the cost of the average commercial arbitration? Although, I suppose it fits with the provision in 7508 that permits an Award to be vacated if the arbitrator manifestly disregards the law. I'm not sure an arbitrator can, or should, examine the universe of applicable case law and statutes, but to ignore general rules of law in the jurisdiction governing the matter- especially as to liability and awarding damages, is unfair to the parties and gives ADR another undeserved black eye.

There are at least three serious problems with the proposed bill:

It would add to the statutory standard of judicial review of arbitral awards under New York law: "the arbitrator evidenced a manifest disregard of the law in rendering the award." This is a problematic standard that no other state has adopted in its arbitration law.

It could substantially increase the cost of arbitration in small and mid-sized disputes by requiring that arbitral awards "state the issues in dispute and contain the arbitrator's findings of fact and conclusions of law."

It would require that all arbitrators be "neutral third-party arbitrator[s]," and prohibit waiver of this requirement, even by sophisticated commercial parties, prior to the beginning of the arbitration. This could make impossible the widespread practice in certain industries, in particular, the reinsurance industry, for disputes to be settled by tribunals that include expert but non-neutral arbitrators appointed by each party.

The drafters may likely have been thinking of consumer and employment arbitration, which is much in the news. But they have "overdrafted" and these provisions, and others, pose significant risks to the choice of New York as a seat to resolve business-to-business disputes.

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This page contains a single entry from the blog posted on March 19, 2018 6:06 PM.

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