        SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

750
CA 14-01337
PRESENT: SCUDDER, P.J., CENTRA, LINDLEY, AND WHALEN, JJ.


TOWN OF AMHERST, PLAINTIFF-RESPONDENT,

                    V                             MEMORANDUM AND ORDER

GRANITE STATE INSURANCE COMPANY, INC.,
DEFENDANT-APPELLANT.


KAUFMAN DOLOWICH & VOLUCK, LLP, NEW YORK CITY (MARC S. VOSES OF
COUNSEL), FOR DEFENDANT-APPELLANT.

PHILLIPS LYTLE LLP, BUFFALO (JOHN G. SCHMIDT, JR., OF COUNSEL), FOR
PLAINTIFF-RESPONDENT.


     Appeal from an order of the Supreme Court, Erie County (Timothy
J. Walker, A.J.), entered May 16, 2014. The order denied the motion
of defendant to compel arbitration and granted the cross motion of
plaintiff for a permanent stay of arbitration.

     It is hereby ORDERED that the order so appealed from is
unanimously modified on the law by granting defendant’s motion to
compel arbitration except insofar as it concerns defendant’s
counterclaim for equitable subrogation and denying plaintiff’s cross
motion to stay arbitration except insofar as it concerns that
counterclaim and as modified the order is affirmed without costs.

     Memorandum: Plaintiff, the Town of Amherst (Town), was insured
under a special excess liability policy (Policy) issued by defendant,
Granite State Insurance Company, Inc. (Granite State). Following a
personal injury action in which the plaintiff was awarded a judgment
in excess of $23 million, Granite State contributed the policy limit
of $10 million toward satisfaction of that judgment (see Town of
Amherst v Hilger, 106 AD3d 120, 122). Ultimately, a third party was
ordered to indemnify the Town “for all amounts the Town paid” pursuant
to that judgment (id. at 123).

     The third party and its insurer settled the indemnification
claims and agreed to pay the Town and Granite State $31 million, which
represented the amount of the judgment plus postjudgment interest.
The Town and Granite State dispute whether Granite State is entitled
to recover any of the postjudgment interest under either the Policy’s
subrogation clause or principles of equitable subrogation.

     The Policy contained an arbitration clause requiring the parties
to arbitrate any “disagreement as to the interpretation of [the]
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                                                         CA 14-01337

Policy.” In August 2013, the parties entered into a handwritten
agreement in which they “agree[d] to litigate the issue of the
ownership” of the challenged amount of interest. Believing that the
agreement constituted a waiver of the Policy’s arbitration clause, the
Town commenced this action in Supreme Court. Granite State, however,
served the Town with a demand for arbitration based on Granite State’s
belief that the agreement did not waive or modify the arbitration
clause of the Policy.

     Granite State thereafter moved to compel arbitration, and the
Town cross-moved for a permanent stay of arbitration. We conclude
that the court erred in denying that part of Granite State’s motion
insofar as it sought to determine its subrogation rights under the
Policy and in granting the Town’s cross motion insofar as it sought to
stay arbitration on that issue. We therefore modify the order
accordingly.

     “Once the parties to a broad arbitration clause have made a valid
choice of forum, as here, all questions with respect to the validity
and effect of subsequent documents purporting to work a modification
or termination of the substantive provisions of their original
agreement are to be resolved by the arbitrator” (Matter of Schlaifer v
Sedlow, 51 NY2d 181, 185; see Matter of Nassau Ins. Co. v McMorris, 41
NY2d 701, 702-703; Matter of Lipman [Haeuser Shellac Co.], 289 NY 76,
79-80, rearg denied 289 NY 647; see also Vitals986, Inc. v Healthwave,
Inc., 15 AD3d 571, 572). This is not a situation in which the parties
engaged in litigation to such an extent that they “manifested a
preference ‘clearly inconsistent with [a] later claim that the parties
were obligated to settle their differences by arbitration’ ” (Sherrill
v Grayco Bldrs., 64 NY2d 261, 272, quoting Matter of Zimmerman
[Cohen], 236 NY 15, 19; see Les Constructions Beauce-Atlas v Tocci
Bldg. Corp. of N.Y., 294 AD2d 409, 409-410). Nor is this a situation
in which the entire contract containing the arbitration provision has
been cancelled or terminated, such that “the designation of the
arbitration forum for the resolution of disputes is no longer binding
upon the parties” (Bryan v Newman, 237 AD2d 207, 207; see Matter of
Minkin [Halperin], 279 App Div 226, 227-228, affd 304 NY 617). We
thus conclude that the determination of the arbitrability of the
parties’ claims under the Policy should be made by an arbitrator.

     We note, however, that Granite State’s counterclaim for equitable
subrogation is not a claim based on any “disagreement as to the
interpretation of [the] Policy” and, therefore, is not subject to
arbitration.

     We reject the Town’s contention that the demand for arbitration,
which was served by Federal Express, is jurisdictionally defective.
Although we have previously held that service of a demand for
arbitration by Federal Express was jurisdictionally defective because
“Federal Express mail is not one of the permitted methods of service
set forth in CPLR 7503 (c)” (Matter of New York Cent. Mut. Fire Ins.
Co. v Czumaj, 9 AD3d 833, 834), we conclude that such service was
proper in this case inasmuch as the provisions of CPLR 7503 (c) do not
apply. Here, the parties had expressly agreed to be bound by the
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                                                         CA 14-01337

procedural rules of the American Arbitration Association, which
permits such service, and thus “New York law, which requires notice by
registered mail or personal service, is inapplicable” (Smith v
Positive Prods., 419 F Supp 2d 437, 446; see Volt Info. Sciences, Inc.
v Board of Trustees of Leland Stanford Jr. Univ., 489 US 468, 479;
Matter of New York Merchants Protective Co. v Mima’s Kitchen, Inc.,
114 AD3d 796, 797).




Entered:   June 19, 2015                       Frances E. Cafarell
                                               Clerk of the Court
