Opinion
102771/2007.
Decided April 4, 2008.
David Lackowitz, Esq., New York, NY, for Petitioner.
Donald Neidhardt, Esq., Hauppauge, NY, Gersten Savage, LLP, Law Offices of Donald Neidhardt, for the Respondent.
In this Article 75 proceeding, petitioner pursuant to CPLR 7511(b)(1)(iii) seeks to vacate an award given to respondent following an arbitration. Respondent opposes the petition to vacate and cross-petitions to confirm the arbitration award. For the reasons which follow, petitioner's application is denied, respondent's cross-petition to confirm is granted and the arbitration award is confirmed.
Factual and Procedural Background
Petitioner Brean Murray, Carret Co., LLC. f/k/a Brean Murray Company (Brean Murray) is a licensed broker/dealer and a former member of the New York Stock Exchange (NYSE) (Pet., ¶ 1).
On December 24, 2004, respondent Christopher Cornette, a floor broker with the American Stock Exchange (ASE) or NYSE, commenced a NYSE arbitration against petitioner, Brean Murray, and also against Benito Chinea (Chinea), and Direct Access Partners, LLC (DAP) (Pet., ¶ 2). In his Statement of Claim, respondent alleges that, petitioner and Chinea defrauded him into giving up his thriving business in order to associate with petitioner (Pet., Ex. A, ¶ 5). Respondent further alleges that on or about July 2001, he, petitioner and Chinea made an agreement that would create "synergy" for their respective businesses; respondent agreed to bring his clients to petitioner, and become a member of the NYSE (Pet., Ex. A, ¶¶ 5, 7). Respondent also agreed to execute trades for petitioner on the NYSE floor (Pet., Ex. A, ¶ 8). In exchange, petitioner agreed to take over respondent's ASE business, employ him, and compensate him with an annual salary of $250,000 (Pet., Ex. A, ¶¶ 8, 10). Respondent further alleges that while he performed his responsibilities under the agreement, petitioner and Chinea did not, and as a result, respondent suffered approximately $100,000 in economic loss, for which he now seeks compensation (Pet., Ex. A, ¶¶ 5, 17) .
According to respondent, the parties agreed to settle any disputes by arbitration (Resp. Memo of Law, p. 4), and accepted the three proposed arbitrators, who all had substantial experience on the floor of the NYSE (Ans. ¶ 5, 6; Aff. of Donald Neidhart [hereinafter Neidhardt Aff.], ¶ 3, Ex., 2). A hearing before a panel, comprised of three NYSE arbitrators, was commenced on November 27, 2006 (Pet., ¶ 5). At the arbitration hearing, testimony was taken and each witness was subject to both direct examination and cross examination (Resp. Memo of Law p. 4; Neidhardt Aff. ¶ 5). The arbitrators also had the opportunity to examine the witnesses (Ans. and Cross-Mot. ¶ 7). During the course of the arbitration proceeding, the parties submitted approximately 34 exhibits; petitioner, Chinea and DAP introduced seven exhibits into evidence and respondent introduced 27 exhibits (Neidhardt Aff. ¶ 4). The parties were also given the opportunity to raise objections (Resp. Memo of Law p. 4).
On December 1, 2006, after six evidentiary sessions occurring over the course of three full days, the arbitration proceeding concluded (Pet., ¶ 5). At the close of the hearing, the parties by their respective counsel, acknowledged that they each had been given a "full and fair opportunity to prosecute their claims and defend against the other side's assertion" (Ans. and Cross-Mot., ¶ 12). On or about December 26, 2006, the arbitration panel, without providing an explanation for its decision, issued an award to respondent in the amount of $63,497.45 (Pet., Ex., C).
On or about February 28, 2007, petitioner commenced this special proceeding requesting the court to vacate the arbitration award pursuant to CPLR § 7511 (b)(1)(iii) on the ground that "the panel exceeded its power in granting a totally irrational award to Cornette notwithstanding the overwhelming evidence adduced as the hearing evidencing an absence of any merit whatsoever" to respondent's claims (Pet., ¶ 7). Petitioner argues that the panel of arbitrators exhibited "manifest disregard of the law and/or manifest disregard of the facts" (Memo of Law in Opp. to Cross-Mot.). Respondent opposes the petition to vacate and cross-petitions to confirm the arbitration award arguing that the award is not totally irrational (Ans. and Cross-Mot.).
Respondent removed the case to federal court on the basis of diversity jurisdiction. By opinion and order dated June 20, 2007, the United States District Court, Southern District of New York, remanded the case to the New York State Supreme Court due to respondent's inability to show that the amount in controversy exceeded $75,000, a requirement under 28 USC § 1332(a) (Opin. of U.S. Dist. Ct, S.D.NY).
By interim decision and order dated October 12, 2007, this court restored the matter to the court's active calendar with instructions for respondent's to file an answer. The matter was subsequently scheduled for oral argument.
Legal Analysis
New York State has long sanctioned arbitration as an effective alternative method of settling legal disputes in a non-judicial forum ( Goldfinger v Lisker, 68 NY2d 225, 230). Where the parties have agreed to submit their dispute to binding arbitration, an award should be given effect, unless it is in clear violation of public policy ( Hackett v Milbank Tweed, Hadley and McCloy, 86 NY2d 146, 157). Thus, the scope of judicial review of an arbitration proceeding is very limited ( see, CPLR 7511 [b]; see also, Matter of Campbell v New York City Trans. Auth. , 32 AD3d 350 , 351 [1st Dept. 2006]). Under CPLR 7511(b)(1), an arbitration award may be vacated only if the rights of a party were prejudiced by: (I) corruption, fraud, or misconduct in procuring the award; or (ii) partiality of an arbitrator; or (iii) the arbitrator exceeded his or her power or failed to make a final and definite award; or (iv) the arbitration did not follow the proper procedure (CPLR 7511[b]; Matra Bldg, Corp. v Kucker , 2 AD3d 732 , 733 [2d Dept. 2003]).
The issue before the Court is whether the arbitrators exceeded their powers in issuing a totally irrational award based on the panel's manifest disregard of the law. Generally, an excess of power occurs only where an arbitrator's award violates a strong public policy, is totally irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator's power ( see, Matter of Henneberry v ING Capital Advisers, LLC, ___ NY3d ___, 2008 NY Slip Op 2459 [2008]). To vacate an award on the ground that it is "totally irrational" requires a showing that there was no proof whatsoever to justify the award ( see Peckerman v D D Assoc., 165 AD2d 289, 296 [1st Dept. 1991]). Manifest disregard is a judicially-created doctrine of last resort that is generally restricted to rare situations in which the arbitrators have demonstrated "apparent egregious impropriety" ( Wien Malkin LLP v Helmsley-Spear, Inc. , 6 NY3d 471 , 480). Manifest disregard of the facts is not a legally permissible ground for vacatur of an arbitration award ( 212 Inv. Corp. v Kaplan, ___ AD3d ___, 2007 NY Slip 51577 [U] [1st Dept. 2007]; Wien Malkin LLP, 6 NY3d at 479). To vacate an arbitration award on the ground of manifest disregard of the law requires a court to find that: (1) the arbitrators knew of a governing legal principle and either ignored it or refused to apply it; and (2) the law ignored by the arbitrators was "well-defined, explicit, and clearly applicable to the case" ( Wien Malkin LLP, 6 NY3d at 481). The doctrine of manifest disregard accords extreme deference to arbitrators ( Di Russo v Dean Witter Reynolds, Inc., 121 F.3d 818, 821 [2d Cir. 1997]).
Unless an agreement provides to the contrary, an arbitrator is not bound by principles of substantive law or by rules of evidence but "may do justice as he sees it, applying his own sense of law and equity to the facts as he finds them to be" ( Silverman v Benmor Coats Inc.,
61 NY2d 299, 308; Lentine v Fundara, 29 NY2d 382, 385). Any limitation on an arbitrator's power must be set forth as part of the arbitration clause itself ( Silverman, 61 NY2d at 302). To infer a limitation from the substantive provisions of an agreement containing an arbitration clause requires the court to be involved in the merits of the dispute, in violation of a legislative mandate ( see CPLR 7501; see also, Board of Education v Dover-Wingdale, Teacher's Assoc., 61 NY2d 913, 915).
In reviewing an award, courts are to be guided by the "fundamental principle that the resolution of disputes by arbitration is grounded in agreement of the parties" ( Secs. Inv. Planning Co. v J.P.C. Contr. Co., 2004 NY Slip Op. 51446[U] [Sup. Ct., Nassau County 2004], quoting County of Sullivan v Edward L Nezelek, Inc., 42 NY2d 123, 128). Courts are obligated to give deference to the decision of the arbitrator ( see, Matter of Henneberry, ___ NY3d ___,2008 NY Slip Op. 2459 [2008]). In other words, they are bound by the arbitrator's factual findings and interpretations of the contract ( World Trade Corp. v Seigmann, 158 AD2d 300, 301 [1st Dept. 1990]). Courts are not permitted to review mistakes of law or facts ( United Paperworkers Int'l Union v Misco, Inc., 484 US 29, 38). In United Paperworkers, the United States Supreme Court stated that "where it is contemplated that the arbitrator will determine remedies for contract violations that he finds, courts have no authority to disagree with his [or her] honest judgment in that respect. If the courts were free to intervene on these grounds, the speedy resolution of grievances by private mechanisms would be greatly undermined . . . " ( 484 US at 38). Courts are also not permitted to sit as courts of review of the procedural standards used by the arbitrators or of the merits of the case ( Lieberman v Lieberman, 149 Misc 2d 983, 986 [Sup. Ct., Kings County 1991]). In essence, a court "cannot examine the merits of an arbitration award and substitute its judgment for that of the arbitrator simply because it believes its interpretation would be the better one" ( New York State Correctional Officers and Police Benevolent Assoc., Inc. et al v New York State, 94 NY2d 321, 326).
Where the arbitrator makes a mistake of fact or law, or misconstrued the apparent, or even obvious, meaning of the parties' contract, the award may not necessarily be vacated ( Sprinzen v Nomberg, 46 NY2d 623, 629; Sims v Siegelson, 246 AD2d 374, 376 [1st Dept. 1998]). Even an excessive award which shocks the conscience is not a ground to vacate an arbitration award (CPLR 7511[b]). An award may not be vacated if there exists any plausible basis for it ( Azrielant v Azrielant, 301 AD2d 269, 275 [1st Dept. 2002]) . Thus, the party seeking to vacate the arbitration award is imposed with a heavy burden to vacate that award ( see Lehman Bros. Inc. v Cox, ___ NY3d ___, 2008 NY Slip Op. 1261 [2008]).
Generally, arbitrators are not required by law to provide reasons for their decisions (see, e.g., Solow Bldg. Co., LLC v Morgan Guar. Trust Co. , 6 AD3d 356 , 356-357 [1st Dept. 2004]). In this case, the NYSE arbitration panel did not provide reasons for their decision. However, upon a thorough review of the record, which included transcripts from all six evidentiary sessions, there is nothing to suggest that the arbitrators improperly exercised their power in construing the parties agreement in light of what they found to be the intent of the parties at the time of the agreement ( see, Matter of Local Union 1179, Amalgamated Transit Union v Green Bus Lines, 50 NY2d 1007, rearg denied 51 NY2d 770; Matter of Morris v County of Suffolk, 106 AD2d 446 [2d Dept. 1984]).
Petitioner's contention that the evidence was insufficient to support the arbitration award is wholly without merit, since CPLR 7511 does not provide adequacy of the evidence as a ground for vacating an arbitration award. Again, it is well-settled that assessment of the evidence presented at arbitration is the role of the arbitrator and not that of the court. Moreover, contrary to petitioner's contention, the award itself is not a totally irrational interpretation of the disputed agreement between the parties. The court finds that even if the arbitrators' interpretation contained errors of fact or law, said errors are insufficient grounds for vacatur of the award ( see Sherri Constr. Corp. v Capek Corp., 231 AD2d 576, 576-577 [2d Dept. 1996] [holding that the arbitrator did not exceed its powers in granting an award of progress payment to a contractor because the award was based on the arbitrator's interpretation of the evidence, and was therefore not totally irrational]; see also, Turkewitz v Fuchsberg Fuchsberg, 273 AD2d 149, 150 [1st Dept. 2000] [holding that the arbitration award of partnership income was not totally irrational where arbitrator's findings were based on its own understanding of the facts]).
Petitioner's allegation that the arbitration panel exhibited manifest disregard for the law, is unsubstantiated. There is no evidence in the record to establish petitioner's claim. Petitioner has not directed the court's attention to a single governing legal principle that the arbitration panel either ignored or refused to apply ( but see, e.g., Wein v Malkin, 6 NY3d at 484-486). Even if petitioner were able to identify a clearly well-defined applicable law that the arbitrators ignored or refused to apply, manifest disregard of the law would still not be found unless, petitioner can meet the very heavy burden of demonstrating that the panel "knew" when it awarded respondent the sum of $63,497.45 that it was ignoring or refusing to apply said law. Here, since this has not been established, the petition to vacate the arbitration award must be denied.
It is therefore
ORDERED that the petition to vacate the arbitration award is denied and the cross-petition to confirm the arbitration award rendered in favor of respondent and against petitioner is granted and the award confirmed; and it is further
ORDERED and ADJUDGED that respondent Christopher Cornette, having an address at Rumson, New Jersey, have judgment and recover against petitioner, Brean Murray having an address at 570 Lexington Avenue, New York, NY10022-6822, in the amount of $63,497.45, plus interest at the rate of _____% per annum from the date of _________, as computed by the Clerk in the amount of $______________ together with costs and disbursements in the amount of $_____________ as taxed by the Clerk, for the total amount of $_______________, and that respondent have execution therefor
This constitutes the decision, order and judgment of the court.