Matter of City of Newburgh v McGrane

[*1] Matter of City of Newburgh v McGrane 2009 NY Slip Op 51463(U) [24 Misc 3d 1215(A)] Decided on May 27, 2009 Supreme Court, Orange County Onofry, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on May 27, 2009
Supreme Court, Orange County

In the Matter of the City of Newburgh, Petitioner,

against

Jean-Ann McGrane, Respondent.



3144/2009



GREGORY J. SPAUN, ESQ.

OXMAN, TULIS, KIRKPATRICK, WHYATT & GREIGER, LLP

Attorney's for Petitioner

120 Bloomingdale Road

White Plains, New York 10605

VINCENT L. DeBIASE, ESQ.

CORBALLY, GARTLAND & RAPPLEYEA, LLP

Attorney's for Respondent

33 Market Street

Poughkeepsie, New York 12601

Robert A. Onofry, J.

Upon the foregoing papers it is ORDERED that the petition is dismissed in its entirety and the Stay of Arbitration heretofore issued by the Court in the Order to Show Cause, dated April 3, 2009, is hereby vacated. In accordance therewith, the parties are directed to proceed to Arbitration.

[*2]

Procedural History-Factual Background

The record shows that petitioner, the City of Newburgh (hereinafter "the City"), by its then City Council, adopted a resolution on May 22, 2006 authorizing the Mayor to enter into an Employment Agreement (the "Agreement") with Respondent, Jean-Ann McGrane (hereinafter "McGrane") for the position of City Manager for the City of Newburgh. The Agreement, in substance, provided for an initial three (3) year term, with a commencement date of June 1, 2006 and a termination date of May 31, 2009. The Agreement further provided for an automatic three (3) year renewal unless notice of termination was given by either party at least six (6) months prior to the termination date. Notwithstanding the initial three (3) year term, and on January 12, 2009, the current City Council (successor to the original contracting Council) adopted a resolution terminating McGrane's employment as City Manager, effective immediately. Thereafter, and on February 13, 2009, McGrane filed a Demand for Arbitration seeking an award of all remaining salary and benefits allegedly accrued to which she was entitled pursuant to the parties Employment Agreement.

In response to the Demand for Arbitration, the City, by Order to Show Cause dated April 3, 2009, filed a petition pursuant to CPLR Section 7503, seeking the issuance of an Order permanently staying the arbitration proceeding, commenced by McGrane, and vacating her Demand for Arbitration upon the ground that the Employment Agreement was void and unenforceable as a matter of New York State Constitutional Law.

In relevant part the City's petition alleges the following:

"(A) The agreement is void as against public policy since it contracts for governmental services to be provided to the City beyond the duration of the City Council which authorized the Agreement, and the attempt by the previous City Council to bind a successor Council is illegal and ultra vires; (b) As the Agreement provides for a term of employment greater than that which is provided for in the City Charter, it is illegal and violative of that Charter, as well as the New York State Constitution; (c)By adopting a resolution, rather than a local law, providing for a specific term of office for the City Manager, the previous City Council violated the rule of legislative equivalency; and (d) By failing to hold a public referendum before curtailing the ability of a future City Council to terminate the City Manager at will, the previous City Council violated Section 23(2)(f) of the Municipal Home Rule Law."

In opposition, McGrane argues that: "(a)Both Federal and State Law require the arbitrator, not the court, to determine the issue of arbitrability including the validity and enforceability of the Employment Contract; and (b) The stated term of Respondent's Employment Contract (3 years) did not exceed the four (4) year term of the City Council and, in fact was terminable at will so as not to bind a future City Council." [*3]

The review and consideration of the parties contentions requires an analysis by the Court of the Newburgh City Charter (the "City Charter") which defines the City's governmental structure and powers and the Employment Agreement, itself, to determine whether the two documents can be reconciled or whether the City Council exceeded its governmental powers in entering into the Agreement in the first instance.

The Newburgh City Charter empowers the City (through its council) to regulate its business and defines the terms of the Mayor, Councilmen and the City Manager. The City Charter, insofar as it is relevant to the current proceeding, provides for the following:

Article II, Section C2.00 provides:

"The City shall have the power to regulate, manage and control its property and local affairs and shall have the rights, privileges and jurisdiction necessary for carrying such power into execution. No enumeration of powers in this Charter or any other law shall operate to restrict this general power."

Section C3.10 defines the terms of the elective officers and

provides for the following:

"The terms of office of the elective officers of the city shall be as follows: Mayor, four (4) years; Councilman four (4) years...the terms of office of the City Manager and of the City Clerk shall be at the pleasure of the Council."

Section C5.00 defines the City Manager and provides for the

following:

"The City Manager shall be the chief administrative and executive officer of the city. He shall be selected by the Council upon the basis of his administrative and executive qualifications. He may be suspended or removed from office at the pleasure of the Council." (Emphasis added).

Although each of the Councilmen are elected to a four (4) year term, it is undisputed that the terms are "staggered" with one-third of the Council being subject to election every two (2) years.

The Employment Agreement, dated June 1, 2006, entered into between the City and McGrane, insofar as it is relevant to the matter before this Court, provides for the following:

Section 1: Term

"The term of this agreement shall be for an initial period of 3 years from June 1,2006 through May 31, 2009. This Agreement shall automatically be renewed on its anniversary date for a 3 year term [*4]unless notice that the Agreement shall terminate is given by either party to the other at least 6 months before the termination date, or unless it is otherwise terminated by the parties as provided herein . . . In the event the Employee is terminated, as defined in Section sic [9] of this Agreement, the Employee shall be entitled to all compensation including salary, accrued vacation and sick leave, car allowance paid in one lump sum plus continuation of all benefits for the remainder of the term of this Agreement."

Section 8: Termination

"For the purpose of this Agreement, termination shall occur when:

1. The majority of the governing body votes to terminate the employee at a duly authorized public meeting.

2. If the Employee, citizens or legislature acts to amend any provision of the [charter, code, enabling legislation] pertaining to the role, powers, duties, authority, responsibilities of the Employee's position that substantially changes the form of government, the Employee shall have the right to declare that such amendments constitute termination . . ."

Section 9: Severance provides in relevant part for the following:

"Severance shall be paid to the Employee when employment is terminated as defined in Section sic [9].

If the Employee is terminated, the Employer shall provide a minimum severance payment of equal to one year salary at the then current rate of pay. This severance shall be in a lump sum unless otherwise agreed to by the Employer and the Employee.

The Employee shall also be compensated for all accrued but unused sick leave, vacation time, all paid holidays, and executive leave." Section 19: General Provisions provides in relevant part

for the following:

B. Binding Effect. This Agreement shall be binding on the Employer and the Employee as well as their heirs, assigns, executors, personal representatives and successors in interest . . .

D. Severability. The invalidity or partial invalidity of any portion of this Agreement will not effect the validity of any other provision. In the event that any provision of this Agreement is held to be invalid, the remaining provisions shall be deemed in full force [*5]and effect as if they have been executed by both parties subsequent to the expungement or judicial modification of the invalid provision . . .

F. Governing Law and Dispute Resolution. This Agreement shall be governed by the laws of the State of New York . . . All claims, disputes and other matters in question between the parties to this Agreement arising out of or relating to this Agreement thereof, shall be decided by binding arbitration in accordance with New York law and the rules of the American Arbitration Association. The prevailing party shall be entitled to its reasonable attorney's fees, costs and disbursements. The award rendered by the arbitrator shall be final, and judgment may be entered upon it in accordance with applicable law of the State of New York." (emphasis added).

Questions Presented

1.Does the Employment Agreement entered into between the City and McGrane evince an intent that all disputes arising out of the contractual relationship be decided by resort to binding arbitration and, if so, is the arbitration provision contained in Section 19[F] enforceable according to its terms? and

2.Is the Employment Agreement dated June 1, 2006, authorized and adopted by the predecessor City Council, when read as a whole, void from its inception as against public policy, unenforceable in that it provides for a term of employment greater than that which is authorized by the Newburgh City Charter so as to constitute an impermissible curtailment of the current City Council's ability to terminate the City Manager on an "at will" basis, thus precluding arbitration?

For the reasons hereinafter set forth, the Court concludes that the Employment Agreement entered into between the City and McGrane on June 1, 2006 evinces, in clear and unambiguous terms, an intent by the parties to arbitrate all disputes arising out of the Agreement, that the arbitration provision is enforceable according to its terms, and that the Employment Agreement entered between the City and former City Manager McGrane is not void as against public policy and does not represent an impermissible curtailment of the current City Council's ability to terminate the City Manager on an "at will" basis, thus precluding the impending arbitration.

Discussion/Legal Analysis

Preliminarily, it is to be noted that the Court of Appeals has

articulated, on numerous occasions, its longstanding policy favoring arbitration as an expeditious and economical alternative to judicial adjudication and resolution of disputes. See, Weinrott v. Carp, 32 NY2d 190, 344 NYS2d 848 [1973]; Smith Barney Shearson, Inc. v. Sacharow, 91 NY2d 39, 666 NYS2d 990 [1997]; Board of Education of [*6]Bloomfield Central School District v. Christa Construction, Inc., 80 NY2d 1031, 593 NYS2d 178 [1992]; Sprinzen v. Nomberg, 46 NY2d 623, 415 NYS2d 974 [1979]. Further, New York Courts have typically been guided by the fundamental principle that resolution of disputes by arbitration is grounded in the agreement of the parties. See, County of Sullivan v. Edward L. Nezelek, Inc., 42 NY2d 123, 397 NYS2d 371 [1977].

Notwithstanding the strong articulated public policy favoring arbitration, the courts of this state have long recognized that resort to arbitration, in certain instances, may potentially result in the relinquishment of certain procedural and/or substantive rights. See, Silverman v. Benmore Coats, Inc., 61 NYS2d 299, 473 NYS2d 774 [1984]. As such, it is incumbent upon the Court, as a threshold matter, to determine whether in fact the parties intended to arbitrate their disputes, what issues are or were intended to be embraced within the arbitration clause, whether the arbitration agreement itself is valid, whether any applicable conditions precedent (to the extent they exist) have been satisfied and whether public policy precludes arbitration of the subject matter of the dispute.

Initially, the Court is guided by the principle that a party cannot be compelled to arbitrate a dispute unless the language contained in the Agreement is express, unequivocal and evinces a clear intent to do so. See, Marlene Industries Corp. v. Carnac Textiles, Inc., 45 NY2d 327, 408 NYS2d 410 [1978]; Gangel v. N. DeGroot, PVBA, 41 NY2d 840, 393 NYS2d 698 [1977].

Application of the above enunciated principles warrants a finding that the parties by express, direct and unequivocal language intended, by paragraph 19(f), to not only arbitrate this dispute but that the arbitration clause was sufficiently broad-based to encompass "all claims, disputes or other matters in question between the parties". Specifically, Paragraph 19(f) of the Agreement provides in relevant part for the following:

" . . . All 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, shall be decided by binding arbitration in accordance with New York Law and the rules of the American Arbitration Association." (Emphasis added).

Broad and unrestricted arbitration clauses, as a matter of law, are entitled to be given their full effect. See, Weinrott v. Carp, 32 NY2d 190, 344 NYS2d 848 [1973]; Nationwide General Insurance Co. v. Investors Insurance Company of America, 37 NYS2d 91, 371, NYS2d 463 [1975]; Sisters of St. John the Baptist v. Phillips R. Geraghty Constructor, Inc., 67 NY2d 997, 502 NYS2d 997 [1986]. Thus, the Court concludes (and so finds) that not only did the parties evince a clear and unequivocal intent to arbitrate all disputes arising out of their contractual relationship but also that the subject matter of the current pending dispute is embraced within the broad and [*7]unrestrictive arbitration provision contained in the Agreement.

Application of longstanding precedent, requires that the Court, in analyzing this Agreement, undertake a bifurcated approach treating such Agreement as if there are two (2) separate and distinct agreements; the substantive agreement between the parties and the agreement to arbitrate. Implementation of this analysis results in a finding that a valid agreement to arbitrate exists between the parties and that the broadly worded arbitration clause, itself, is severable from the substantive provisions of the Agreement. See, Matter of Weinrott, supra ; Prinze v. Jonas, 38 NY2d 570, 381 NYS2d 824 [1976]; Candid Productions, Inc. v. SMN Media Service Corp., 51 AD2d 943, 381 NYS2d 280 [1st Dept. 1976]; O'Neill v. Krubs Communications Corp., 16 AD3d 144, 790 NYS2d 451 [1st Dept. 2005]; Oberlander v. Fine Care, Inc., 108 AD2d 798, 485 NYS2d 313 [2d Dept. 1985].

Further, the Court can discern no contractual or statutory conditions precedent that exist or would otherwise bar the impending arbitration. See, County of Rockland v. Primiano Construction Co., 51 NY2d 1, 431 NYS2d 478 [1980].

Turning to the issue of whether public policy precludes arbitration of the subject matter of this dispute and this Agreement, the Court concludes, for the reasons hereinafter set forth, that it does not. In addressing petitioner's claim of alleged illegality, the Court is compelled to examine the argument based upon its reading of the Agreement as a whole. See, CNR Healthcare Network, Inc. v. 86 Lefferts Corp., 59 AD3d 486, 2009 WL 324038 (2d Dept. 2009). Based upon its review, the Court is unable to infer that the June 1, 2006 Agreement, represented a substantive deviation from predecessor agreements; an issue petitioners could have and should have addressed in the context of their petition. Although petitioner asserts that respondent McGrane, as a lawyer, should have known of the Agreement's illegality, petitioner ignores the Agreement's tacit (if not explicit) approval "as to form" (and presumably substance) by the City Comptroller and Corporation Counsel, both of whom are signatories to the Agreement. Great weight is typically given to the interpretation placed upon particular statutes (in this instance the City Charter) by public officials vested with the authority to administer them. Interpretation of the Agreement, by the Court, requires, to the extent possible, reconciliation of the provisions of the City Charter with the Agreement under consideration. Application of these principles, particularly in view of the tacit approval of the City itself, significantly undercut petitioner's argument. See, Hollands v. City of Lakawanna, 12 AD2d 1000 [4th Dept. 1961]; Srogie v. Cayhill, 40 AD2d 948 [4th Dept. 1972]; Matter of Limousine Rental Service, Inc. v. Feinberg, 9 AD2d 986, 194 NYS2d 1013 [3d Dept. 1959]; City of Syracuse v. Murray, 52 AD2d 341, 383 NYS2d 774 [4th Dept. 1976].

Supplementing these considerations, the Court must look at the extent to which the contractual provisions impact upon the [*8]governmental powers with which the Newburgh City Council has been vested pursuant to the City Charter and whether those powers have been curtailed. See, Morin v. Foster, 45 NY2d 287, 408 NYS2d 387 [1978]; Fogarty v. Warden, 191 Misc. 916, 79 NYS2d 364 [Supreme Court Orange County 1948]; Edsall v. Wheler, 29 AD2d 622, 285 NYS2d 306 [4th Dept. 1967]. Employment of this analysis, and notwithstanding the initial three (3) year term of the Agreement, warrants a finding that the City Manager served at the pleasure of the Board; a finding consistent with and in conformity with Section C5.00 of the City Charter such that McGrane's services were contractually and in fact "terminable at will".

Section 8 of the Agreement provides, in relevant part, that "termination" occurs "when: the majority of the governing body votes to terminate the employee at a duly authorized public meeting . . .", a contractual right that the City Council opted to avail itself of at the January 12, 2009 meeting. Parenthetically, the Court notes that termination of McGrane's services occurred prior to the expiration of the initial three (3) year term and the January 12, 2009 resolution was likewise devoid of any reference to the illegality of the Agreement itself; both of which lend further support to the inference that the City's latent claim of illegality is and was pretextual. Nor does the Court find the authorities cited by petitioner persuasive. Petitioner's reliance upon the case of DeSantis v. City of Troy, 83 Misc 2d 195, 371 NYS2d 310 (Rensselaer County 1975), in this Court's view, is misplaced. Although decided, in part, upon the cumulative effect of multiple contracts entered into between the City and the City Manager, the underpinnings of the decision are clearly driven by the apparent violation of the conflict of interest provisions governed by General Municipal Law Sections 801 and 804 respectively, illegality not present here. Similarly, the Court finds the facts in Harrison (Harrison Central School v. Nyquist, 83 Misc 2d 1042, 373 NYS2d 796 [1975]) distinguishable from the instant case. In Harrison, supra , the "outgoing board" implemented a two year term for the school attorney without a curative provision permitting the successor board to terminate the contractual relationship upon vote of the "majority of the governing body"; a provision clearly present in this Agreement.

Since both petitioner and respondent concur in their interpretation that the services of the City Manager could be terminated "at will" it cannot be said that the Agreement, on its face or as applied, is "interlaced with such strong policy considerations" (Associated Teachers of Huntington, Inc. v. Board of Education, Union Free School District No. 3, Town of Huntington, 33 NY2d 229, 351 NYS2d 670 [1973])or is "prohibited, in an absolute sense by public policy, statute or decisional law". See, Sprinzen v. Nomberg, 46 NY2d 623, 415 NYS2d 974 [1979]. Therefore, guided by the severability doctrine, the decision concerning the arbitrability of this contract ultimately rests with the arbitrator. Matter of Weinrott v. Carp, 32 NY2d 190, 344 NYS2d 848 [1973]. [*9]

Accordingly, and for the reasons cited herein, the petition of the City of Newburgh in which it seeks to permanently stay the arbitration proceeding is hereby dismissed in its entirety and the stay of arbitration heretofore issued by the Court pursuant to the April 3, 2009 Order to Show Cause is correspondingly vacated. In accordance therewith, the parties are therefore directed to proceed to arbitration.

This constitutes the decision and order of the court.

Dated: May 27, 2009

Goshen, New York

E N T E R

_________________________________Hon. Robert A. Onofry, A.J.S.C.

TO:GREGORY J. SPAUN, ESQ.

OXMAN, TULIS, KIRKPATRICK, WHYATT & GREIGER, LLP

Attorney's for Petitioner

120 Bloomingdale Road

White Plains, New York 10605

VINCENT L. DeBIASE, ESQ.

CORBALLY, GARTLAND & RAPPLEYEA, LLP

Attorney's for Respondent

33 Market Street

Poughkeepsie, New York 12601