Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

CLARK v. KRAFTCO CORP.

February 26, 1971

Peter F. Clark et al., Plaintiffs,
v.
Kraftco Corporation et al., Defendants


Tyler, D. J.


The opinion of the court was delivered by: TYLER

TYLER, D. J.

This lawsuit concerns an agreement (hereinafter "Breyer Agreement") between Locals 757 and 680 of the Ice Cream, and Milk Drivers and Employees Unions, respectively, and Kraftco Corporation (hereinafter "Kraftco" or "the company") respecting Kraftco's liability to an industry-wide employee pension fund (the "Fund") on account of the termination of operations at its Newark, New Jersey plant. By way of summary judgment, the Union plaintiffs seek to enforce the determination of the actuary, Segal & Co., the Fund's consultants to whom the contract referred the liability question, that the plant closing "damaged" the Fund in the amount of $978,100. Opposing summary judgment, defendants argue that the determination of the actuary reflects an egregious and unintended departure from the established method of assessing employer contributions to the Fund. At a hearing on January 11, 1971, the undersigned delivered orally an interim opinion setting forth the perceived deficiencies in the parties' (particularly plaintiffs') positions and suggesting that further evidence might be produced in support thereof. Both counsel declined further submissions, and, at their request, oral argument was heard on January 26, 1971.

 The parties do not dispute that the initial and all subsequent industry-wide collective bargaining agreements provided that assessments be levied upon contributing employers based on the "entry age normal cost", plus interest on the "unfunded accrued liability". This method requires that for the working term of each employee, the participating employer contributes a determined amount, adjusted for turnover and mortality, which, at an assumed rate of investment return, will accumulate sufficient assets to pay the promised retirement benefits. In addition, the employer pays annual interest at the rate of 3% on the accrued liability, which consists of the sum of past service credit extended to existing employees at the inception of the Fund. These credits comprise a deficit of the Fund, an amount which increases along with benefit levels. This accrued liability was not to be amortized unless the participants or their representatives were to determine, with the advice of the actuary, that amortization is necessary to maintain the ability of the Fund to meet its continuing liability to pensioners. The accrued liability, then, constitutes only a theoretical or potential debt, dependent upon economic conditions generally and in the industry itself. Since it is acknowledged that the major portion of the Segal figure comprises a present assessment in respect of the unfunded accrued liability attributable to Kraftco's Newark employees, there is no question but that the assessment represents a departure, to some extent, from the traditional funding practice.

 The contest turns on (1) the extent to which this court is empowered to scrutinize the actuarial determination, and (2) the intended scope of the Breyer Agreement's submission to the actuary.

 The company's challenge may fairly be characterized not as charging fraud or misconduct but gross error. There is little question but that were the Segal determination the product of an arbitral proceeding, it would be entitled to confirmation. Short of fraud or misconduct, errors of judgment or law are not subject to correction by the courts. Shevell v. Besen, 29 A.D. 2d 751, 287 N.Y.S. 2d 340 (1st Dept. 1968), Korein v. Rabin, 29 A.D. 2d 351, 287 N.Y.S. 2d 975 (1st Dept. 1968). Even resolution of ambiguity in the submission is for the arbitrators. Matter of Colletti, 23 A.D. 2d 245, 260 N.Y.S. 2d 130, 133 (1st Dept. 1965). Only if the construction adopted by the arbitrators defies all reason will an award be set aside. Granite Worsted Mills, Inc. v. Aaronson Cowen, Ltd., 25 N.Y. 2d 451, 306 N.Y.S. 2d 934, 255 N.E.2d 168 (1969), Matter of National Cash Register Co. (Wilson) 8 N.Y. 2d 377, 208 N.Y.S. 2d 951, 955, 171 N.E.2d 302 (1960), Matter of S & W Fine Foods Inc., 7 N.Y. 2d 1018, 200 N.Y.S. 2d 59, 166 N.E.2d 853 (1960).

 Whereas arbitral awards are frequently before the courts for confirmation, judicial review of appraisals is rare. What little precedent there is for guidance, however, suggests, as the company urges, that review of appraisals is governed by different and broader standards. Cohen v. Atlas Assurance Co., 163 A.D. 381, 148 N.Y.S. 563 (1st Dept. 1914), enumerated those factors which, if shown by clear and convincing evidence, would vitiate an appraisal:

 
. . . any inference or finding that the appraisal was not honestly made in good faith, and, under the circumstances, with sufficient thoroughness and by following the ordinary and only tests that could be applied. at 566.

 In Gervant v. New England Fire Insurance Co., 306 N.Y. 393, 118 N.E.2d 574 (1954), the New York Court of Appeals vacated an award because two of three appraisers refused to hear evidence on what the court deemed essential ingredients of a fire loss appraisal. The appraisers' rejection of such measures of loss as market value was held to be "misconduct in a legal sense," supra at 399, 118 N.E.2d 574. Although, framing the defect as legal misconduct, the Gervant court specifically refused to endorse the expedient of declaring appraisals and arbitrations subject to the same standards of review. Supra, at 399, 400, 118 N.E.2d 574.

 Little support for plaintiffs' position that the court may not review an appraisal determination for reasonable correctness is found in the latest revision of New York procedure. New York CPLR § 7601. The object of the statute was to empower the courts to compel performance of an appraisal agreement, not to set standards for judicial confirmation. Moreover, the permissive language of section 7601, contrasted to the mandatory enforcement directed by section 7503 governing arbitrations, strongly suggests that the legislature intended to preserve certain traditional distinctions between the two processes. See discussion concerning In re Delmar Box Co., 309 N.Y. 60, 127 N.E.2d 808 (1955), infra. A court reviewing an agreement to arbitrate may only declare the contract void or compel arbitration. On the other hand, when reviewing an appraisal agreement, a court not only has the newly delegated power to compel appraisal, but retains as well the authority to substitute itself for the appraisers or to enforce the agreement as if it intended the accoutrements of arbitration. Practice Commentary to N.Y. CPLR § 7601 (McKinney 1963). Thus, notwithstanding imprecise dicta equating the rights to challenge appraisals and arbitrations, the Court of Appeals gave effect to the permissive language of the statute by refusing confirmation of the appraiser's determination explicitly because confirmation lies in the discretion of the trial court. Dimson v. Elghanayan, 19 N.Y. 2d 316, 280 N.Y.S. 2d 97, 227 N.E.2d 10 (1967).

 While not inconceivable that New York will follow those sister states which have accorded appraisal the same presumptive validity as arbitration, such a course would fly in the face of precedent and also, perhaps, good sense. The differences between the two processes were quite fully set forth by the present Chief Judge of the State's highest court in In re Delmar Box Co., supra :

 
An agreement for arbitration ordinarily encompasses the disposition of the entire controversy between the parties, upon which judgment may be entered after judicial confirmation of the arbitration award, Civ. Prac. Act, § 1464, while the agreement for appraisal extends merely to the resolution of the specific issues of actual cash value and the amount of loss, all other issues being reserved for determination in a plenary action. See Matter of American Ins. Co., 208 App. Div. 168, 170-171, 203 N.Y.S. 206, 207-208. Appraisal proceedings are, moreover, attended by a larger measure of informality, see Strome v. London Assur. Corp., 20 App. Div. 571, 573, 47 N.Y.S. 481, 483, affirmed 162 N.Y. 627, 57 N.E. 1125, and appraisers are "'not bound to the strict judicial investigation of an arbitration.'" See Matter of American Ins. Co., supra, 208 App. Div. 168, 171, 203 N.Y.S. 206, 208. Arbitrators are required to take a formal oath, Civ. Prac. Act, § 1455, and may act only upon proof adduced at a hearing of which due notice has been given to each of the parties, Civ. Prac.Act, § 1454. They may not predicate their award upon evidence garnered through an ex parte investigation of their own, at least unless so authorized by the parties. See Stefano Berizzi Co. v. Krausz, 239 N.Y. 315, 146 N.E. 436. Appraisers, on the other hand, are not required to take an oath. See Syracuse Savings Bank v. Yorkshire Ins. Co., 301 N.Y. 403, 411, 94 N.E. 2d 73, 78; Wurster v. Armfield, 175 N.Y. 256, 264, 67 N.E. 584, 586; Williams v. Hamilton Fire Ins. Co., 118 Misc. 799, 194 N.Y.S. 798. They are likewise "not obliged to give the claimant any formal notice or to hear evidence"; and they may apparently proceed by ex parte investigation, so long as the parties are given an opportunity to make statements and explanations to the appraisers with regard to the matters in issue. See Kaiser v. Hamburg-Bremen Fire Ins. Co., 59 App. Div. 525, 530, 69 N.Y.S. 344, 347, affirmed 172 N.Y. 663, 65 N.E. 1118; Townsend v. Greenwich Ins. Co., 86 App. Div. 323, 326-327, 83 N.Y.S. 909, 911-912, affirmed 178 N.Y. 634, 71 N.E. 1140; Matter of American Ins. Co., supra, 208 App. Div. 168, 171, 203 N.Y.S. 206, 208. *fn1"
 
Furthermore, in an arbitration, all the arbitrators, if there be more than one, "must meet together and hear all the allegations and proofs of the parties" Civ. Prac. Act, § 1456. The standard appraisal clause, in contrast, specifically recites that the umpire is not to participate in the appraisal in all cases, but is only to pass on such differences as there may be between the appraisers designated by the respective parties. In addition, the vacatur of an arbitration award invariably results in a new arbitration, Civ. Prac. Act, § 1462; see Matter of Fletcher, 237 N.Y. 440, 449, 143 N.E. 248, 251, whereas after an appraisal award has been set aside without any fault on the part of the insured, he is not required to submit to any further appraisement but is free to litigate the issues in an action at law on the policy. See Gervant v. New England Fire Ins. Co., 306 N.Y. 393, 400, 118 N.E. 2d 574, 577.

 Delmar Box refused to give effect to a minor revision of the arbitration statute which arguably empowered the courts to compel performance of an appraisal agreement so long as the formalities of arbitration were observed. The absence of a clear legislative directive to change traditional judicial practice is as relevant here as it was in that case:

 
It is a cardinal principle of statutory interpretation that the intention to change a long-established rule or principle is not to be imputed to the legislature in the absence of a clear manifestation. See Homnyack v. Prudential Ins. Co. of America, 194 N.Y. 456, 460, 87 N.E. 769, 771; Seligman v. ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.