An arbitrator found the partnership agreement enforceable, and thus Hackett was not entitled to the supplemental payments. Hackett moved to vacate the decision. The supreme court and appellate division dismissed the arbitrator's decision, reasoning that the scheme denied the repayment of undistributed net profits and resulted in a restriction on the practice of law. Focusing on the public policy favoring arbitration, the Court of Appeals reversed, holding that as long as the firm's payment provision did not facially restrict the practice of law, there was no clear violation of public policy and thus no reason to overturn the arbitrator's decision.
The evaluation of the clause in question was made in the light of the court's strong affirmation of arbitration. Engaging in a thorough discussion of the arbitrator's reasoning, the court noted that the arbitrator found the section in question was "competition neutral." The court noted that an arbitrator's decision may not be vacated pursuant to CPLR 7509, unless serious flaws in the decision-making process occurred (such as fraud, corruption, or unwaived procedural defects). As a result, the court reached its conclusion that the clause was not anticompetitive, in light of a certain amount of deference to the arbitrator's decision.
28 ALR 5th 420 considers restrictive covenants on competition between lawyers to be enforceable where the covenant is reasonable, not against public policy, supported by consideration, and ancillary to a lawful contract. In Howard v. Babcock, 863 P.2d 150 (Calif. 1994), the California court followed a similar test. The court balanced the need for diligent counsel against the business interests of the law firm and upheld the noncompetition covenant, which resulted in a forfeiture of benefits to the departing partner.
It is unclear whether the "inevitably anticompetitive" test is the standard for future cases, or whether the court will retain the Cohen test of "functionally and realistically discourag[ing]...partner[s] from serving clients who might wish to continue to be represented by the withdrawing lawyer." Additionally, the court did not set guidelines for how anticompetitive a clause must be before the court invalidates an arbitrator's decision to uphold it.
This lack of precision may result from the court's strong support for arbitrators and the outcome of arbitration. It is doubtful that the court would provide similar deference to a lower court's decision. After all, an arbitrator's mistake of law does not support overturning an award. See, e.g., Maross Constr. Inc. v. Central N.Y. Regional Transp. Auth., 66 N.Y.2d 341, 346 (N.Y. 1985). As a result, while this decision strongly reaffirms public policy favoring arbitration, it provides minimal insight on the doctrines of DR 2-108A and Cohen.
Favoring arbitration as a solution to contract disputes does not require that courts turn away challenges to an arbiter's directives. On the contrary, the courts retain their role as the assurers of fair, rational, and legal arbitration. Despite this, the Court of Appeals merely required facial validity of the arbitration settlement to uphold it. Arbiters are not experts like administrative law judges or boards. They are merely non-judicial bodies that settle disputes according to their own, or previously agreed upon, rules. In that sense, their decisions deserve no greater deference than those of a trial court. Only judicial economy counsels that arbitration results are not scrutinized with great rigor.
Given the increasing procedural difficulties and costs of litigation, arbitration (and contracts requiring it) are increasingly palatable alternatives to the more traditional method of dispute settlement. Unfortunately, if courts regularly and unquestioningly uphold arbitration results, except where facial impropriety exists, then unseen and unremedied unfairness may increase.
Lawyers may seek to extend this case to other cases involving neutral mediators (administrative law judges or professional boards, for example), arguing that the Hackett standard should apply similarly to these proceedings. This slant would require construing the policy favoring arbitration as one that in fact favors non-litigation. Accordingly, one probable result of Hackett will be a strengthening of non-judicial dispositions, and courts will not hear parties complain that they did not get their day in court when the parties chose that option; there will be no second bite at the apple.