The opinion of the court was delivered by: Sweet, District Judge.
Collins & Aikman Floor Coverings Corporation, f/k/a Collins
& Aikman Corporation ("C & A") seeks by petition pursuant to
9 U.S.C. § 10 to vacate an arbitration award directing it to
pay Robert Froehlich ("Froehlich") the sum of $152,643.52 for
the alleged breach of an employment agreement between C & A and
Froehlich dated October 22, 1979 (the "Agreement") and to
reimburse Froehlich for the administrative fees he advanced to
the American Arbitration Association ("AAA") in the sum of
$4,394.62. Froehlich has cross-moved for the confirmation of
the Award. For the reasons set forth below, the Award is
vacated and a rehearing is directed.
C & A is a Delaware corporation with an office and its
principal place of business in Dalton, Georgia. It is in the
business of, among other things, manufacturing commercial
flooring and carpeting. Froehlich is a New York resident who
entered into an employment agreement with C & A dated October
22, 1979. The Agreement set out the parties "understanding" as
to Froehlich's "engaging in commission sales activities on
behalf of C & A" and provided in pertinent part:
The Agreement provided for resolution of any "claim or
controversy" by arbitration in accordance with the rules of
the AAA and also provided in ¶ 8(d) that:
On February 19, 1986, C & A notified Froehlich that his
employment with C & A was terminated effective March 21, 1986
and paid him all the commissions due him for C & A products
which were shipped to his accounts as determined by C & A
prior to the termination date.
In August 1986, Froehlich commenced an arbitration
proceeding against C & A before the AAA in New York City
pursuant to the arbitration clause in the Agreement. Diana
Long Nicholson, Esq. (the "Arbitrator") was appointed.
The initial hearings in this matter took place on February
24, 1987. The record of sales (consisting of copies of
invoices produced by C & A at the initial hearing and
computerized statements) reflected the following:
C & A disputed whether or not the Cigna account was assigned
to Froehlich or was a house account on which no commissions
According to Cigna records up to the date of the first
hearing, February 24, 1987 (which was eleven months after the
effective date of termination of employment), damages
including the Cigna account would have been $36,868.32.
Hearings were scheduled to resume on April 22 and April 23,
1987, were adjourned to November 23 and November 24, 1987, and
again to February 24, 1989, due largely to the Arbitrator's
No records were adduced with respect to the alleged GTE sale
The Arbitrator issued an award on August 8, 1989 (the
"Award") which stated that:
By letters dated August 17, 1989, C & A requested that the
AAA submit to the Arbitrator a letter requesting an
explanation as to how she calculated the Award since it was
mathematically incapable of being determined based upon the
evidence presented at trial. Froehlich, by letter dated August
31, 1989, opposed that application.
By letter dated September 28, 1989, the AAA transmitted to
the parties the Arbitrator's Disposition of Application for
Modification of the Award of Arbitrator which was dated
September 21, 1989. In that Disposition, the Arbitrator
determined as follows:
On October 30, 1989, Froehlich filed an application in the
Supreme Court of the State of New York, County of New York
(the "State Action") to confirm the arbitration award.
Thereafter, on November 6, 1989, C & A filed a Notice of
Removal and a Petition in this court to vacate the award (the
Argument was had on the petition and the cross-motion on
December 1, 1989, and the matter was considered fully
submitted at that time.
The Arbitrator Exceeded Her Powers Set Forth In the Agreement
In this case, in order to arrive at the amount of
commissions awarded to Froehlich of $152,643.52, commensurate
sales would have had to approximate $2 million. The only sales
made through the date of Froehlich's termination for which he
did not receive compensation were those sales made to Cigna
which would have, at most, amounted to $8,856.94.
Indeed, if the Arbitrator gave Froehlich credit for all
possible sales to Aetna, GTE, and Cigna through the date of
the first day of the arbitration, it would have amounted to,
at most, $36,868.32 and if the Arbitrator decided to award
Froehlich commissions on all documented sales made to Aetna,
GTE, and Cigna through the last day of hearings, it would have
resulted in commissions, at a rate of $7.5%, of $48,920.27.
There was also a reference by Froehlich in his post-hearing
brief that he had heard of an alleged one million dollar sale
to GTE "which was completed in 1988," as to which no other
evidence was adduced. There is therefore no basis on which the
Award could have been reached except to consider
The Award therefore exceeded the limitations of liability
fixed in paragraphs "5(b)" an "7" of the Agreement. Under
those provisions, no commissions for sales made to Froehlich's
accounts were to be awarded subsequent to the effective date
of his termination. The Agreement in paragraph 8(d) also
the arbitrator sitting in any such controversy
shall have no power to alter or modify any
express provision of this agreement or to render
any award by which its terms effects any such
alteration or modification. . . .
The amount of the Award establishes that the Arbitrator
exceeded her authority by taking into account not only sales
made by C & A subsequent to March 21, 1986, the effective date
of Froehlich's termination, but sales made at a later date or
on the basis of the continuation of the compensation of
Froehlich on the basis of his prior earnings for some period
following his termination.
In Lentine v. Fundaro, 29 N.Y.2d 382, 328 N.Y.S.2d 418,
278 N.E.2d 633 (1972), Chief Judge Breitel, commenting upon CPLR
7511, the New York statute analogous to the Federal Arbitration
Act, 9 U.S.C. § 10, stated:
An Award may be vacated under CPLR 7511, it has
been stated or held, where the construction of a
document is "completely irrational" (Matter of
National Cash Register Co. [Wilson], supra, 8
N.Y.2d  at p. 383, 208 N.Y.S.2d [951 at p.
955, 171 N.E.2d 302], at p. 305 [(1960)]), or where
the document expressly limits or is construed to
limit the powers of the arbitrators, hence,
narrowing the scope of arbitration (Matter of
Granite Worsted Mills [Cowen], supra, 25 N.Y.2d
 at pp. 456-457, 306 N.Y.S.2d  at pp.
938-939, 255 N.E.2d pp. 170-171).
Fundaro, 29 N.Y.2d at 385-86, 328 N.Y.S.2d at 442, 278 N.E.2d
A review of the Agreement establishes that none of its
provisions are unclear, ambiguous or otherwise requires
construction or interpretation, and Froehlich has never
An arbitrator cannot re-write a new agreement for the
parties. Torrington Co. v. Metal Prod. Workers Union Local
1645, 362 F.2d 677, 682 (2d Cir. 1966). There is no provision
of the Agreement which permitted the Arbitrator to render an
Award which encompassed commissions on sales made to
Froehlich's accounts for a "reasonable period of time" after
discharge. Therefore, the Arbitrator exceeded the powers set
forth in the Agreement.
The Award Was Based on a Mistake of Law
Since the Arbitrator exceeded the limits of the Agreement in
making the Award, as set forth above, the relief granted was
apparently in response to the argument advanced by Froehlich
during the arbitration, namely that he was entitled to relief
on the theory that there was an implied duty of good faith
which was breached by C & A when it terminated Froehlich in
order to cut off the commissions to which he would otherwise
have been entitled. Two authorities had been cited to the
Arbitrator for this proposition, Wakefield v. Northern Telecom,
Inc., 769 F.2d 109 (2d Cir. 1985) and Baum Assoc. Inc. v.
Society Brand Hat Co., 340 F. Supp. 1158 (E.D.Mo. 1972), aff'd,
477 F.2d 255 (8th Cir. 1973).
In Wakefield the plaintiff salesperson advanced the theory of
an implied covenant of good faith, breached he maintained by
the defendant's termination of his employment contract in order
to avoid paying him commissions on sales that had been
completed but for the formalities. Froehlich urges that this
situation had been established in the evidence submitted to the
Arbitrator here. C & A here, as did the defendant in Wakefield,
noted the New York authorities with respect to contracts at
will, in particular, Murphy v. American Home Prod. Corp., 58
N Y2d 293, 304-05, 461 N.Y.S.2d 232, 237, 448 N.E.2d 86, 91
(1983). In Wakefield, a diversity case arising in New Jersey,
the court noted the identity between New York and New Jersey
law on the subject at issue and then proceeded to affirm the
judgment below which had granted the relief requested. Zilg v.
Prentice-Hall, Inc., 717 F.2d 671 (2d Cir. 1983), cert. denied,
466 U.S. 938, 104 S.Ct. 1911, 80 L.Ed.2d 460 (1984), was cited
for the proposition that implied contractual obligations may
coexist with express provisions which appear to negate them, a
conclusion previously reached by the court in the publishing
context. No other New York authority was referred to in
However, on December 14, 1989, the New York Court of Appeals
decided Gallagher v. Lambert, 74 N.Y.2d 562, 549 N.Y.S.2d 945,
549 N.E.2d 136 (1989), in which the majority rejected the
dissent's reliance on Wakefield for the proposition that there
is a covenant of good faith which gives rise to obligations
surviving the termination of an employment relationship. In
Gallagher, the plaintiff was an employee at-will and a minority
stockholder in the defendant close corporation with which he
was employed. 549 N.Y.S.2d at 945, 549 N.E.2d 136. The purchase
of Gallagher's stock was subject to a mandatory buy-back
provision: if his employment ended for any reason before
January 31, 1985, at book value the stock would return to the
corporation. Id. at 946, 549 N.E.2d at 137. The defendant
corporation fired Gallagher just prior to the trigger date,
after which the buy-back price would have been higher. Id.
Gallagher sought the higher repurchase price based on an
alleged breach of a fiduciary duty of good faith and fair
In rejecting plaintiff's arguments and in finding no
cognizable breach of any fiduciary duty owed to plaintiff
under the plain terms of the parties' repurchase agreement,
the New York Court of Appeals in Gallagher stated as follows:
The buy-back price formula was designed for the
benefit of both parties precisely so that they
could know their respective rights on certain
dates and avoid costly and lengthy litigation on
the "fair value" issue. (See, Coleman v. Taub,
638 F.2d 628, 637). Permitting these causes to survive
would open the door to litigation on both the value
of the stock and the date of termination, and
hinder the employer from fulfilling its contractual
rights under the agreement. This would frustrate
the agreement and would be disruptive of the
settled principles governing like agreements
whereby parties contract between themselves in
advance so that there may be reliance,
predictability and definitiveness between
themselves on such matters. There being no dispute
that the employer had the unfettered discretion to
fire plaintiff at any time, we should not redefine
the precise measuring device and scope of the
Defendant agreed to abide by these terms and thus
fulfilled its fiduciary duty in that respect.
Id. at 947, 549 N.E.2d at 138.
Under the Agreement, New York law is applicable. The
standard enunciated in Gallagher is the latest reiteration of
New York's view of basic contract principles in an employment
at-will context. The stockholder status of the plaintiff in
Gallagher seems equally applicable in New York to the simpler
employer-employee relationship. The Court in Gallagher
reiterated the applicability of the employment at-will rule and
reconfirmed that a departure from the clear and unambiguous
written agreement between parties is not permissible. Id.
Reliance upon Wakefield turned out to be in error under New
In the affidavit submitted here by Froehlich it is noted
that Baum Assoc. Inc. v. Society Brand Hat Co., 340 F. Supp. 1158
(E.D.Mo. 1972), aff'd, 477 F.2d 255 (8th Cir. 1973) was
also submitted to the Arbitrator on behalf of Froehlich. Baum
involved a written arrangement to pay commissions to an
independent agent for procuring "contracts, orders or reorders"
from designated accounts. Id. at 1159. The Court was faced with
a claim for ongoing commissions for procuring another account.
Id. at 1160. The Court stated that the agency agreement was
terminable at will, and held:
The testimony presented and the many exhibits in
this case, viewed as a whole, convince this Court
that the plaintiff and defendant contemplated and
intended that plaintiff would receive commissions
on all contracts, orders and reorders on accounts
procured by plaintiff for defendant.
Id. at 1162.
In other words, Baum turned on a contract interpretation, not
available here, rather than a cause of action based upon an
implied duty. See id. Reliance on Baum, if such there was, was
a mistake of law as well.
No other authorities on this subject have been presented by
Froehlich, and therefore reliance upon an implied duty in an
at will contract was a mistake of law.
The Mistake of the Arbitrator Was Not Manifest Error\
As indicated above, the Arbitrator exceeded her authority
and in applying New York law made a mistake of law. This
mistake was not, however, manifest error requiring the
vacating of the Award.
The limited standard of review in this court means that if
the findings and conclusions of the Arbitrator are "barely
colorable," the award should be upheld. Kamakazi Music Corp. v.
Robbins Music Corp., 534 F. Supp. 57, 61 (S.D.N.Y. 1981); see
I/S Stavborg v. National Metal Converters, Inc., 500 F.2d 424,
430-31 (2d Cir. 1974) (confirming award that was clearly
erroneous in logic and result); Rochester City School Dist. v.
Rochester Teachers Ass'n, 41 N.Y.2d 578, 582, 394 N.Y.S.2d 179,
182, 362 N.E.2d 977, 980 (1977) (citation omitted) (court will
uphold award unless it is completely irrational). The Second
Circuit has similarly made clear that where the award has even
"colorable justification," litigants cannot avoid confirmation
by merely arguing, as respondent does here, for a different
result. Andros Compania Maritima, S.A. v. Marc Rich & Co.,
A.G., 579 F.2d 691, 704 (2d Cir. 1978).
Courts have consistently held that manifest disregard of the
law requires something more than misinterpretation of the law.
Fried Krupp, GmBH Krupp Reederei Und
Brennstoff-Handel-Seeschiffarht v. Solidarity Carriers, Inc.,
674 F. Supp. 1022, 1026 (S.D.N.Y. 1987), aff'd, 838 F.2d 1202
(2d Cir. 1987) (party moving to vacate must show that
arbitrators deliberately disregarded what they knew to be the
law); Koch Oil, S.A. v. Transocean Gulf Oil Co., 751 F.2d 551,
554 (2d Cir. 1985) (party seeking vacatur must show that
arbitrator ignored relevant law); Office of Supply, Gov't of
Republic of Korea v. N.Y. Navigation Co., Inc., 469 F.2d 377,
379 (2d Cir. 1972) (award will not be set aside for mere error
in interpretation of law); Sobel v. Hertz, Warner & Co.,
469 F.2d 1211, 1214 (2d Cir. 1972) (arbitration award will not
be vacated for misinterpretation of law); Refino v. Feuer
Transp., Inc., 480 F. Supp. 562, 567 (S.D.N.Y. 1979), aff'd,
633 F.2d 205 (1980) (award will not be vacated for mere mistake of
law); Dan River, Inc. v. Cal-Togs, Inc., 451 F. Supp. 497, 505
(S.D.N.Y. 1978) (requiring evidence of deliberate disregard of
relevant law to overturn arbitrator's award).
"Manifest disregard" of applicable law as a ground for
upsetting an arbitration award requires an Arbitrator to
correctly state the law and thereafter, announce his or her
intent to ignore it. Trans-Asiatic Oil Ltd. S.A., M/V Silver
Lady v. UCO Marine Int'l Ltd., 618 F. Supp. 132, 135 (S.D.N Y
1985) (petition to confirm granted absent a showing that
arbitrator deliberately ignored law).
Here, the Arbitrator misapplied, rather than ignored the
applicable law for the reasons set forth above. C & A has
relied upon American Postal Workers Union v. U.S. Postal Serv.,
682 F.2d 1280 (9th Cir. 1982), cert. denied, 459 U.S. 1200, 103
S.Ct. 1183, 75 L.Ed.2d 431 (1983) on this subject. American
Postal Workers, however, was a case where the Arbitrator's
award directed the performance of an illegal act, a
circumstance not present here. The Ninth Circuit, in vacating
the award, noted that more stringent review will be afforded to
awards which sanction illegal conduct as compared to awards
resolving disputes between private litigants, such as an
employer and employee:
[I]n most cases, courts must defer to an
arbitrator's conclusions even where they are
erroneous. These cases involve conclusions of law
with respect to such issues as contract
interpretation, . . . and damages for breach [of
Therefore, even though the Arbitrator erred, that error was
not manifest, certainly at the time.
The Award Was Imperfectly Executed
Assuming that the Arbitrator acted upon a theory now
determined to have been in error though not an error that was
manifest in terms of the authorities cited above, the Award
was imperfectly executed.
Although an arbitrator has broad authority to fashion an
award, such authority is not without limits. As has been
codified in 9 U.S.C. § 10(d), an arbitration award shall be
the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final,
and definite award upon the subject matter
submitted was not made.
Under the theory that it has been presumed that the
Arbitrator was acting, it was necessary to determine some
reasonable period during which it was appropriate for the
challenged commissions to be paid. Further, of course, there
was no determination as to which of the accounts were those
where commissions were appropriate. In addition, the period of
the Award is not defined, nor is the amount of the interest
applied. Under these circumstances the Award was so
imperfectly executed that it cannot be reviewed.
Although arbitrators are under no obligation to give reasons
for their decision, Kurt Orban Co. v. Angeles Metal Sys.,
573 F.2d 739, 740 (2d Cir. 1978), when the proof submitted at the
hearing does not support the award, it should be set aside.
See, e.g., Totem Marine Tug & Barge, Inc. v. North Am. Towing,
Inc., 607 F.2d 649, 651 (5th Cir. 1979) (award vacated where
arbitration panel awarded unrequested amount of damages three
times larger than any item claimed). Awarding damages in the
sum of $152,643.52, an amount not subject to calculation, is
irrational under the provisions of 9 U.S.C. § 10(d).
Under the circumstances here the Court has the power to
remand the Award to the Arbitrator for clarification. See Bell
Aerospace Co. v. Local 516, Int'l Union, 500 F.2d 921, 924 (2d
Cir. 1974); see, e.g., New York Bus Tours, Inc. v. Kheel,
864 F.2d 9, 10 (2d Cir. 1988) (since award does not make clear
whether Company must pay operators, remand to arbitrators for
clarification required); Paperhandlers Union No. 1 v. U.S.
Trucking Corp., 441 F. Supp. 469, 474 (S.D.N.Y. 1977) (subject
of the remand order was clarification of an ambiguity within
the award). However, "[r]emand should not be granted where the
court can resolve any alleged ambiguities in the award by
modification, pursuant to 9 U.S.C. § 11." Fischer v. CGA
Computer Assoc., Inc., 612 F. Supp. 1038, 1041 (S.D.N.Y. 1985).
Both the motion to vacate the Award and the cross motion to
affirm it are denied; the proceeding is remanded for further
arbitration and clarification in accordance with this opinion.
It is so ordered.
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