Reversal of Supreme Court’s vacatur on a First Department 75

Country-Wide Ins. Co. v TC Acupuncture, P.C., 2016 NY Slip Op 05104 (1st Dept. 2016)

Respondent commenced an arbitration against petitioner insurance company for reimbursement of bills for alleged health care services rendered by respondent to Alexander Oneal. Petitioner, relying on State Farm Mut. Auto Ins. Co. v Mallela (4 NY3d 313[2005]), asserted that it could withhold payment because respondent was fraudulently incorporated. After a hearing, an arbitrator awarded respondent full reimbursement, and found that petitioner failed to meet its burden of providing clear and convincing evidence showing that respondent was fraudulently incorporated. On appeal, the master arbitrator affirmed the arbitration award and rejected petitioner’s argument that its burden of proof on its Mallela defense should have been preponderance of the evidence.

Supreme Court erred in vacating the master arbitrator’s award on the ground that the master arbitrator mistakenly applied the wrong burden of proof to petitioner’s Mallela defense. Even assuming, without deciding, that the master arbitrator applied the wrong burden of proof, the award is not subject to vacatur on that ground (Matter of New York State Correctional Officers & Police Benevolent Assn. v State of New York, 94 NY2d 321, 326 [1999]). Nor is there any other basis for vacating the award

The problem here as I see it as that the arbitrator made a factual finding.  As with all factual findings, if they have some record support, the Courts will not disturb the award.  I am not completely sold on the Court’s reasoning that it did not matter if the arbitrator applied the wrong burden of proof.  My belief is that if the correct fact pattern came before the Court, this could have been dispositive.

The problem for Countrywide – besides Article 75’ing and appealing the wrong cases because the hate to pay anything- is that the underlying award had factual support.  Since the analysis began and ended there, everything else is “dichta”.  My words would be wasted verbiage.