New York Commercial and Construction Lawyer Blog
The Appellate Division, Second Department, has handed down an opinion telling a cautionary tale to would-be parties who are considering contracts containing broad arbitration agreements. Litigants in court have the right to rely on a broad array of rights under the Constitutionally protected right to “due process.” In Matter of New Brunswick Theological Seminary v. Van Dyke, 2020 N.Y. Slip Op. 03114, the Court emphasized just how far an unwary litigant can waive those protections in arbitration.
The New Brunswick matter concerned a dispute between a registered financial broker and a former client which was governed by an arbitration agreement. The broker claimed that she did not know that an arbitration had been filed against her until after an award was granted in favor of the former client on default. When the former client went to court seeking to convert the arbitrator’s award into an enforceable money judgment, the broker cross-moved to vacate the award on the grounds that the procedures set forth in the arbitration agreement for giving notice of the commencement of the arbitration violated her due process rights.
Ordinarily, due process does not require actual notice of an action or proceeding. It does, however, require such procedures which are “reasonably calculated” to result in actual notice. The notice provisions in the arbitration agreement provided for notice by certified mail at a specified residential address. The broker contended that this was not “reasonably calculated” to result in actual notice because the former client knew or should have known that the broker spent prolonged periods away from her residence The broker also argued that the former client knew how to reach her by email.
The Court held, in effect, that an agreement to arbitrate which specifies the manner in which notice of the commencement of an arbitration is to be given supersedes common law notions of due process. If a party has agreed to a notice procedure and notice of the commencement of an arbitration is given in accordance with the agreed upon procedures, a party will not be heard to complain that the procedures were procedurally insufficient or that the agreed upon procedures did not result in actual notice.
However, the Court did not hold that an arbitration agreement is beyond judicial review. The Court left open the possibility of attacking an arbitration notice provision based on ordinary contract defenses. Such defenses may, in limited circumstances, relieve a party from an otherwise unfair arbitration agreement. The Court noted, though, that none of these contract based defenses had been raised.
Under these circumstances, the Court stated that it had “little difficulty”’ holding the broker to the letter of the arbitration agreement and ultimately confirmed and upheld a multi-million dollar default judgment.