A New York state appeals court has reversed a lower court and sided with Everlast World’s Boxing Headquarters Corp., a major seller of boxing-related merchandise and athletic apparel, in its dispute with an independent licensing agent.
The litigation surfaced after Everlast terminated an agreement it had with Joan Hansen & Co., Inc., which was responsible for finding companies that would be interested in marketing goods bearing the Everlast name.
After going through a merger in 2000, Everlast sought to terminate the agreement, claiming Hansen had breached its licensing agreement by failing to obtain new licensees.
After Everlast discontinued the arrangement, Hansen demanded arbitration. The dispute was presented to three arbitrators and, in April 2005, the panel determined that Everlast’s conduct toward Hansen precluded it from invoking any of the termination grounds set forth in the parties’ contract. The arbitrators declared that the termination notice issued to Hansen by Everlast was invalid and Everlast was required to pay Hansen “both now and in the future on the basis of the Agreement being in full force and effect up to its stated December 31, 2004 term expiration date, pursuant to the Agreement, as though no termination notice had been given.” Everlast was also “directed to account for, and pay to Hansen, all unpaid moneys payable under the Agreement” and future fees “promptly after they are payable.” On Hansen’s motion, the Supreme Court confirmed the arbitration award.
Everlast thereafter paid Hansen 100 percent of the fees due in 2005 and 2006, but did not make any further payments for revenues realized in 2007. In Everlast’s view, the contract automatically terminated on December 31, 2004, triggering the two-year, post-termination compensation provision that relieved it of any further obligation to compensate Hansen after December 31, 2006.
Once the payments from Everlast ceased, Hansen asked the Supreme Court to hold Everlast in contempt of the confirmation ruling, contending that it was owed royalty payments beyond 2006 because the contract had “expired,” as opposed to being “terminated,” on December 31, 2004. In light of its interpretation, Hansen asserted that it was entitled to additional payments for as long as the clients it secured remained licensees of Everlast.
The Supreme Court denied Hansen’s motion, concluding that “the primary issue before the arbitrators in this matter was whether the Termination Notice was valid” and that “the arbitrators did not rule on the meaning of ‘termination.’”
The court therefore declined to interpret the arbitration award as directing payments to Hansen after December 31, 2006. Hansen challenged the ruling, leading, ultimately, to the instant opinion.
“Everlast claims that an arbitrator has no power to reconsider an award based on an issue that was not raised in the arbitration proceeding,” wrote the panel of judges. “We agree with Everlast’s third argument: the dispositive factor in this appeal is the limited scope of the dispute that was originally before the arbitration panel. Consequently, it is unnecessary for us to address Everlast’s other two contentions.
“It has long been established that an arbitrator’s authority extends to only those issues that are actually presented by the parties ( see e.g. Hiscock v. Harris, 74 N.Y. 108, 113 [1878]; see also Ottley v. Schwartzberg, 819 F.2d 373, 376 [2d Cir1987] ). Thus, an arbitrator may not reconsider an award-regardless of whether the request is couched as a clarification or modification-if the matter was not previously raised in arbitration (see generally Matter of Denihan v. Denihan, 97 A.D.2d 69, 73 [1st Dept 1983, Alexander, J.] ).
“Here, the primary issue pursued by Hansen during arbitration involved the validity of the termination notice. The arbitrators necessarily had to decide whether the contract encompassed the grounds that Everlast cited as a basis for termination and, if so, whether the facts supported Everlast’s assertions. But the panel was not asked to consider the extent of Everlast’s alleged duty to pay Hansen royalties after December 31, 2004. Indeed, when Supreme Court denied the motion to hold Everlast in contempt of the confirmation ruling, it correctly recognized that ‘the issue of the interpretation of’ the continuing compensation provisions ‘was not a subject of the arbitration’ and ‘the arbitrators did not rule on the meaning of termination in those provisions, or what monies would be payable to Hansen once the [contract] ended on December 31, 2004. The fact that a particular contractual provision may apply to more than one arbitrable claim does not expand the scope of the arbitration if the issues presented were materially different or legally distinct.
The court continued, noting that “in this case, the termination dispute focused on whether Hansen’s conduct (actions such as initiating the 2000 litigation) was prohibited by the contract or if Hansen had failed to perform its obligation to secure licensees. But the continuing compensation claim that arose at the end of 2006 was a separate question-whether a “termination” of the contract was the same as an “expiration” for purposes of computing the length of time that Hansen was entitled to receive royalties. Simply put, the issues presented in the original arbitration proceeding and Hansen’s request to “clarify” the award involved distinct disputes despite the fact that the same contractual provision applied to both.
“In addition, the controversy over Hansen’s right to further payments had not arisen at the time the arbitration decision was issued-approximately one and a half years before Everlast stopped paying Hansen at the end of December 2006. Nothing in the panel’s written decision suggests that the arbitrators considered, let alone decided, whether Hansen was owed continuing compensation “for so long as the licensees” kept doing business with Everlast. We conclude that Everlast’s motion to stay further arbitration should have been granted because Hansen could not use the compensation issue as a basis for reconsideration of the arbitration decision, regardless of whether Hansen denominated its request as one for clarification or modification.
“Accordingly, the order of the Appellate Division should be reversed, with costs, and the motion by Everlast World’s Boxing Headquarters Corp. to stay all further arbitration proceedings between it and petitioner Joan Hansen & Company, Inc. regarding Case No. 13 133 00438 03 of the American Arbitration Association granted.”
Joan Hansen & Company, Inc. v. Everlast World’s Boxing Headquarters Corp.; Ct.App.N.Y.; N.E.2d, 2009 WL 3294970 (N.Y.), 2009 N.Y. Slip Op. 07328’ 10/15/09
Attorneys of Record: (for appellant) Jed R. Schlacter. (for respondent) George Berger.
