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April 11, 2011

Parties directed to proceed to arbitration based on the court finding that its decision could not be made “without extensive fact-finding or legal analysis”

Parties directed to proceed to arbitration based on the court finding that its decision could not be made “without extensive fact-finding or legal analysis”
Matter of Newburgh v McGrane, 2011 NY Slip Op 02665, Appellate Division, Second Department

The City Council of the City of Newburgh passed a resolution reappointing Jean-Ann McGrane to the position of City Manager for the City of Newburgh for a three year period ending May 31, 2009. Subsequently the City and McGrane entered into an employment agreement consistent with that resolution passed by the City Council which provided that McGrane was entitled to severance pay and other benefits if the City terminated her employment.

In addition, the agreement set out a broad arbitration provision applicable to "[a]ll claims, disputes and other matters in question between the parties to this Agreement arising out of or relating to this Agreement or the breach thereof."
When the City Council passed a resolution dated January 12, 2009 terminating McGrane's employment as City Manager "effective immediately," McGrane filed a demand for arbitration seeking an award of her salary and all benefits pursuant to the employment agreement.

The City filed a petition seeking to vacate the demand for arbitration and permanently stay arbitration on the ground that the employment agreement was void as against public policy. The City contended that the agreement violated the “term limits rule” by binding the successor members of the City Council to a contract relating to the area of governance entered into by members of the predecessor City Council.

The Supreme Court denied the City’s petition, dismissed the proceeding, and directed the parties to proceed to arbitration.

The Appellate Division affirmed Supreme Court’s ruling, explaining tha:

Arbitration is favored in the State of New York as a means of resolving disputes, and courts interfere as little as possible with agreements to arbitrate.

1. "The courts may intervene in a dispute which the parties had agreed to arbitrate where the arbitrators could not grant any relief without violating public policy."

2. Where a court examines an arbitration agreement ". . . on its face and concludes that the granting of any relief would violate public policy without extensive fact-finding or legal analysis, [it] may then intervene and stay arbitration.";

3. Citing Matter of Karedes v Colella, 100 NY2d 45, the Appellate Division noted that "The term limits rule prohibits one municipal body from contractually binding its successors in areas relating to governance unless specifically authorized by statute or charter provisions to do so"; and

4. "An agreement that violates the term limits rule is against public policy (see Matter of City of Utica Urban Renewal Agency v Doyle, 66 AD3d 1495; Karedes v Village of Endicott, 297 AD2d 413, 415)."

In this instance the Appellate Division found that any determination as to whether an arbitrator could not grant any relief without violating public policy on the ground that the employment agreement violated the term limits rule could not be made at this stage in the proceeding without extensive fact-finding or legal analysis.

Accordingly, said the court, the Supreme Court properly denied the petition and dismissed the proceeding, directing the parties to proceed to arbitration.

The Appellate Division noted that in the event that the arbitrator's award violates public policy, the Supreme Court retained the power to vacate the award."

The decision is posted on the Internet at:

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