Jonathan Kessler brought a claim in arbitration against his former employer, Kent Building Services, after he was fired from his job as Kent’s president, asserting that he had not been fired for cause and was thus owed severance. The arbitrator determined that Kent breached Kessler’s contract by firing him without cause, a decision the arbitrator found was arbitrary and irrational and thus a breach of the implied covenant of good faith and fair dealing, and thus awarded him six month’s severance pay.
Kent challenged this award in federal court, arguing that the arbitrator’s decision on good faith and fair dealing demonstrated a manifest disregard of New York contract law. Kent based this argument on a New York trial court decision holding that termination of employment only breaches the implied covenant of good faith and fair dealing if it results from a “constitutionally impermissible purpose or [violates] statutory or decisional law,” something not shown during the arbitration. The court rejected this argument, finding that other case law makes it clear that unconstitutionality or illegality are “sufficient but not necessary” to support a claim based on the breach of the implied covenant of good faith and fair dealing. Further, the court found that the arbitrator applied the correct law in finding that Kent had discretion regarding whether to fire Kessler and that the irrational exercise of this discretion could support a breach of the implied covenant of good faith and fair dealing. The court therefore found that the arbitrator had not acted in manifest disregard of the law.
However, the court rejected Kessler’s motion for sanctions under 28 U.S.C. § 1927 for filing a meritless petition to vacate. While the court disagreed with Kent’s argument regarding the requirements of good faith and fair dealing claims under New York law, it found that making argument was not unreasonable. Kessler had also argued that Kent had acted in bad faith when it included in its petition allegations of numerous failures by Kessler in his job performance while failing to mention that the arbitrator had specifically found that these failures were not the basis for Kent’s decision to fire Kessler. The court found that this should be interpreted as simply an attempt by Kent “to provide greater context for the parties’ employment dispute,” rather than a bad faith attempt to mislead the court. Finding no frivolous argument and no bad faith, the court declined to award sanctions.
Kent Building Services, LLC v. Kessler, 17-CV-3509 (JPO) (S.D.N.Y. Mar. 14, 2018)
This post written by Jason Brost.
See our disclaimer.