Opinion
04 Civ. 4643 (SAS).
October 5, 2004
Eric D. Witkin, Esq., Brown Raysman Millstein Felder Steiner L.L.P., New York, New York, for Petitioner.
Andrew L. Strom, Esq., Office of the General Counsel, Service Employees International Union, Local 32BJ, AFL-CIO, New York, New York, for Respondent.
OPINION AND ORDER
I. INTRODUCTION
Petitioner, Skyview Owners Corporation ("Skyview"), brings this action to vacate an arbitration award issued in a dispute between Skyview and Service Employees International Union, Local 32BJ, AFL-CIO ("the Union"), arising out of Skyview's termination of an employee. Skyview filed a petition to vacate the award in New York Supreme Court on June 14, 2004. The Union removed the case to federal court, asserting preemption under section 301 of the Labor Management Relations Act ("LMRA"). The Union then filed a motion to dismiss the action. Skyview cross-moved to vacate the award. For the following reasons, Skyview's motion to vacate the award is denied, and the Union's motion to dismiss is granted. II. FACTS
The following facts, which must be accepted as true for the purposes of the Union's motion to dismiss, are drawn from Skyview's petition and the attached exhibits.
A. Background
Skyview owns and operates a three building cooperative apartment complex in Riverdale, New York. On July 3, 2003, Skyview terminated its employee Nevruz Rexhepi, the superintendent of one of its buildings. Rexhepi's termination followed Skyview's discovery that Rexhepi had taken Skyview's supplies for his personal use, and directed employees under his supervision to work off-site on his personal property during working hours.
See 6/14/04 Verified Petition ("Petition") ¶ 6.
See id.
See id.
Rexhepi is a member of the Union, and the terms and conditions of his employment were covered by a collective bargaining agreement ("CBA") between the Union and Skyview's representative, the Bronx Realty Advisory Board ("BRAB"). The CBA provides for arbitration of disputes arising under it. Under the CBA, unresolved grievances may be submitted to "a contract arbitrator who shall be appointed from [a] rotating panel of arbitrators." Article XXII(2) of the CBA provides that "the decision and/or award of said arbitrator shall be final and binding and shall be enforceable under the laws of the State of New York." On September 12, 2003, pursuant to the CBA, the Union initiated arbitration regarding Rexhepi's discharge by issuing a Notice of Intention to Arbitrate ("Notice"). The Notice named Ronald Betso as arbitrator. Betso was appointed from a rotating panel of contract arbitrators.
See id. ¶ 3.
See id. ¶ 4.
Id. ¶ 4.
Id.
See id. ¶ 11.
See id.
See id. ¶ 12.
B. The Arbitration Proceeding
At the arbitration hearing, two members of Skyview's staff, Louis Sala and Rogelio Reyes, both porters, testified that Rexhepi had taken them off-site to work on his personal property during working hours, and that Rexhepi had instructed them to load Skyview supplies into Rexhepi's personal vehicles. One of them also testified that Rexhepi threatened to retaliate against them and others who testified against him. Skyview argued that Rexhepi was guilty of gross misconduct that justified his discharge because he supervised a staff of over fifteen employees and could no longer be trusted with the responsibilities of his position.
See id. ¶ 7.
See id.
See id. ¶ 8.
Skyview also argued that Rexhepi was not entitled to reinstatement, regardless of the merits of his termination, because he claimed to be unable to perform his job due to injury. Prior to the arbitration, Rexhepi had filed a Worker's Compensation claim, alleging that he was injured on the job on July 2, 2003, the day before his termination. During the arbitration, Rexhepi continued to claim that he was unable to work due to his injury. Article XXXVI(4) of the CBA provides that employees of Rexhepi's seniority who become unable to work due to illness or injury are entitled to retain their jobs despite their incapacity for 120 days, but no more.
See id. ¶ 24.
See id. ¶ 25.
See id.
See id. ¶ 24.
On May 24, 2004, Betso issued an award, finding that Rexhepi was terminated without good and just cause. Betso noted that neither Sala nor Reyes could identify the dates they worked on Rexhepi's personal properties and were not even able to identify the year. He concluded that "the vagueness of the testimony of both Sala and Reyes does not meet the preponderance of evidence standard required to sustain a discharge in an arbitration proceeding" and that "the Union produced witnesses who credibly refuted their [Sala and Reyes'] testimony."
See id. ¶ 9; 5/24/04 Arbitrator's Award ("Award"), Ex. 9 to Petition, at 6.
See Petition ¶ 20; Award at 5.
Award at 5; see also Petition ¶ 21.
Betso ordered Rexhepi reinstated, without loss of benefits or seniority, notwithstanding the fact that he had claimed to be unable to work for more than 120 days. Betso found Article XXXVI(4) of the CBA inapplicable, because Rexhepi's termination meant that "it was not his option to return to work within the 120 days as stated in the article." However, Betso denied Rexhepi back pay, on the ground that Rexhepi "has been medically unable to work [but] did not seek unemployment insurance benefits nor did he seek to mitigate his losses by actively seeking employment."
See Award at 6; Petition ¶ 9.
Award at 5; Petition ¶ 24.
Award at 5; see also Petition ¶ 9.
C. Betso's Relationship with Goldman
Regina E. Faul of the Raab, Sturm Goldman L.L.P. law firm represented the Union in the arbitration proceeding. After Betso's decision, Skyview discovered that Betso had a business relationship with Ronald Goldman, a named partner of Faul's firm. This relationship was never disclosed to Skyview. Skyview points to public records, including a 1994 application to the New York State Liquor Authority for an on-premises liquor license on behalf of 156 Montague Restaurant Corporation, in connection with a restaurant/bar located at 156 Montague Street in Brooklyn, New York, that reveal that Betso was an original shareholder and director of the same business in which Goldman was an original shareholder and director. Documentation submitted by Skyview shows that this relationship lasted from 1994 until February 2001. Skyview asserts that had it known of Betso's relationship with Goldman, it would have moved to disqualify him and to request a different arbitrator. Shortly after Skyview filed its original petition to vacate the Award in New York Supreme Court, BRAB exercised its right to eliminate Betso from the arbitration panel pursuant to the terms of the CBA.
See Petition ¶ 13.
See id. ¶ 17.
See id.
See id ¶ 17(a).
See id. ¶ 17(b); see also Application for On-Premises Liquor License, dated June 20, 1994 ("1994 Application"), Ex. 10 to Petition; Application for Approval of Corporate Change, dated February 27, 2001 ("2001 Application"), Ex. 11 to Petition. The 1994 Application lists both Betso and Goldman as original shareholders, but the 2001 Application no longer lists Betso as a shareholder.
See Petition ¶ 27.
See 7/27/04 Affidavit of Eric D. Witkin, counsel for petitioner, in Support of Petitioner's Cross-Motion to Vacate Award and In Opposition to Respondent's Motion to Dismiss ("Witkin Aff.") ¶ 4.
III. LEGAL STANDARD
When deciding a motion to dismiss pursuant to Rule 12(b)(6), a court must construe the complaint in the light most favorable to the plaintiff and accept the factual allegations in the complaint as true. "Given the Federal Rules' simplified standard for pleading, `[a] court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" "Thus, the issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims."
See Desiano v. Warner-Lambert Co., 326 F.3d 339, 347 (2d Cir. 2003).
Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002) (quoting Hishon v. King Spalding, 467 U.S. 69, 73 (1984)). See also Gmurzynska v. Hutton, 355 F.3d 206, 210 (2d Cir. 2004) ("A complaint `should not be dismissed for failure to state a claim unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'") (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
Desiano, 326 F.3d at 347 (quotation marks and citation omitted).
IV. DISCUSSION
A. Federal Law Determines the Standard of Review Applicable to the Award
At the outset, it is necessary to determine whether New York or federal law applies to the Court's review of the Award. Because this suit is governed by section 301 of the LMRA, the court must apply federal common law. Though section 301 contains no substantive provisions, the Supreme Court held in Textile Workers Union v. Lincoln Mills of Alabama, that "the substantive law to apply in suits under [section] 301 (a) is federal law, which the courts must fashion from the policy of our national labor laws."
Section 301 of the LMRA provides federal jurisdiction over suits alleging violation of contracts between an employer and certain labor organizations. See 29 U.S.C. § 185(a). Courts must apply federal common law in suits under section 301. See Livadas v. Bradshaw, 512 U.S. 107, 109 (1995). Although Skyview brought this action in New York state court pursuant to Section 7511 of the New York Civil Practice Law and Rules, it was removed to federal court based on preemption by Section 301 of the LMRA.
Textile Workers Union v. Lincoln Mills of Alabama, 353 U.S. 448, 456 (1957).
Skyview, however, argues that the Court should apply case law developed under New York's arbitration law, because the CBA specifies that the award "shall be enforceable under the laws of the State of New York." Skyview relies on Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, in which the Supreme Court held that state procedural law will apply under the Federal Arbitration Act ("FAA") where a provision in the arbitration agreement incorporates state procedural rules, and applying the state procedural rules does not undermine the goals and policies of the FAA.
Skyview's Memorandum of Law in Opposition to Defendant's Motion to Dismiss and in Support of Plaintiff's Cross-Motion to Vacate Award ("Skyview Mem.") at 4.
489 U.S. 468 (1989).
Skyview's reliance on Volt is misplaced. The Supreme Court stated in Doctor's Associates, Inc. v. Casarotto that " Volt involved an arbitration agreement that incorporated state procedural rules, one of which, on the facts of that case, called for arbitration to be stayed pending the resolution of a related judicial proceeding. The state rule examined in Volt determined only the efficient order of proceedings. . . ." Skyview, by contrast, is asking this Court to apply state substantive law in making a determination as to the enforceability of an arbitration award issued pursuant to a collective bargaining agreement. To do so would undermine the principle that "the subject matter of § 301 (a) is peculiarly one that calls for uniform law." The Court must therefore apply federal common law, under section 301, to its review of the Award.
517 U.S. 681, 688 (1996).
Local 174, Teamsters, Chauffeurs, Warehousemen Helpers of Am. v. Lucas Flour Co., 369 U.S. 95, 103 (1962) (quotation marks and citations omitted).
In applying federal common law, a court may look to the FAA for guidance. The Second Circuit has held that "the logic of Lincoln Mills cannot be squared with adherence to the FAA in [section] 301 cases" and as such, cases brought under section 301 are based "on a body of federal law analytically distinct from the FAA." "It may be, of course, that the body of law developed under [section] 301 will at times draw upon provisions of the FAA, but by way of guidance alone." While I am mindful of the dangers of conflating review of awards under the FAA and under section 301, adherence to the FAA in section 301 cases seeking vacatur of arbitration awards does not lead to "anomalous" or "bizarre results." The policies of section 301 and the FAA are analogous in this context, as both recognize the importance of arbitration and provide for limited judicial review of arbitral decisions. Accordingly, the Court will look to the FAA for guidance.
Coca-Cola Bottling Co. of New York v. Soft Drink and Brewery Workers Union Local 812, Int'l Bhd. of Teamsters, 242 F.3d 52, 54-55 (2d Cir. 2001) (overruling Signal-Stat Corp. v. Local 475, United Elec., Radio Mach. Workers, 235 F.2d 298, 301 (2d Cir. 1956), which held that the FAA applies to collective bargaining agreements other than those that cover employees in the transportation industry).
Id. at 54 (citing United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 41 n. 9 (1987) ("the federal courts have often looked to the [Federal Arbitration] Act for guidance in labor arbitration cases. . . .")).
See id. at 54. See also Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 221 (2d Cir. 2002) (stating, "[t]he unfortunate tendency of courts in this Circuit to conflate review of awards under the FAA and under § 301 has been an understandable byproduct of the rule established in Signal-Stat. . . .").
Coca-Cola, 242 F.3d at 55.
See, e.g., Livadas, 512 U.S. at 109 ("we have read the text of § 301 . . . to authorize the development of federal common-law rules of decision, in large part to assure that agreements to arbitrate grievances would be enforced"); United Steelworkers of America v. Warrior Gulf Navigation Co., 363 U.S. 574, 578 (1960) (stating that, because providing for arbitration of grievances in collective bargaining agreements is "a major factor in achieving industrial peace . . . the hostility evinced by courts towards arbitration . . . has no place here").
Under the FAA, the party challenging an arbitral award has the burden of proving the existence of grounds to vacate. Arbitration awards are subject to limited review and a court is required to confirm the award unless a specific ground for vacatur exists. The FAA states that an award may be vacated:
See Saxis S.S. Co. v. Multifacs Int'l Traders, Inc., 375 F.2d 577, 582 (2d Cir. 1967).
See id. at 581-82.
(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
9 U.S.C. § 10(a). In addition, the Second Circuit has recognized that a court may vacate an arbitration award that was rendered in "manifest disregard of the law." Greenberg v. Bear, Stearns Co., 220 F.3d 22, 28 (2d Cir. 2000). Skyview does not argue that the award was made in manifest disregard of the law.
Skyview argues (1) that Betso displayed evident partiality, and (2) that the Award exceeded Betso's powers and was imperfectly executed. I will consider each argument in turn.
B. Evident Partiality
Skyview contends that the Award should be vacated because Betso's relationship with Goldman is a sign of his partiality. The FAA allows vacatur of an arbitration award "where there was evident partiality or corruption in the arbitrators." To vacate an award because of evident partiality, the challenging party has the burden of showing that "a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration." "[A]n arbitrator's failure to disclose a material relationship with one of the parties can constitute `evident partiality' requiring vacatur of the award" under the FAA. The Second Circuit has "not been quick to set aside the results of an arbitration because of an arbitrator's alleged failure to disclose information." Indeed, it points to the "obvious possibility, alluded to by Justice White in Commonwealth Coatings, that `a suspicious or disgruntled party can seize' upon an undisclosed relationship `as a pretext for invalidating the award.'" Commonwealth Coatings does not establish a per se rule requiring vacatur of an award whenever an undisclosed relationship is discovered. Only dealings that "might create an impression of possible bias" must be disclosed. This does not require arbitrators to provide the parties with a "complete and unexpurgated business biography." "Whether ties are so indirect or remote that they could not reasonably create an impression of bias is a question that must be answered by reference to the facts of the particular case." When evaluating the purported bias of an arbitrator, courts examine such factors as: (1) any financial interest the arbitrator may have in the proceeding; (2) the directness and nature of the alleged relationship between the arbitrator and a party to the proceeding; and (3) whether the relationship existed at the same time as the challenged proceeding.
See Skyview Mem. at 1-2.
Morelite Constr. Corp. v. New York City Dist. Council Carpenters Benefit Funds, 748 F.2d 79, 84 (2d Cir. 1984) (brought under the FAA).
Lucent Tech. Inc. and Lucent Tech. GRL LLC v. Tatung Co., 379 F.3d 24, 28 (2d Cir. 2004) (citing Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145, 147-48 (1968)). See also Sun Refining Marketing Co. v. Statheros Shipping Corp., 761 F. Supp. 293, 300 (S.D.N.Y. 1991) (holding that "when an arbitrator fails to make the required disclosures, a court will later examine the entire record to determine if there are grounds, such as `evident partiality,' to vacate the award").
Andros Compania Maritima, S.A. v. Marc Rich Co., A.G., 579 F.2d 691, 700 (2d Cir. 1978) (brought under the FAA).
Id. (quoting Commonwealth Coatings, 393 U.S. at 151 (White, J. concurring)).
See Lucent Tech., 379 F.3d at 30.
Sanko S.S. Co. Ltd. v. Cook Industries, Inc., 495 F.2d 1260, 1263 (2d Cir. 1973) (brought under the FAA).
Commonwealth Coatings, 393 U.S. at 151 (White, J. concurring).
Sanko, 495 F.2d at 1264 n. 3.
See Velasco v. Beth Israel Med. Ctr., 279 F. Supp. 2d 333, 336 (S.D.N.Y. 2003); Sun Refining, 761 F. Supp. at 299; Sanford Home for Adults v. Local 6, IFHP, 665 F. Supp. 312, 320 (S.D.N.Y. 1987).
Betso was under no obligation to disclose his prior outside business relationship with a partner in the law firm representing the Union. As to the first factor, Skyview does not allege that Betso stood to benefit from the outcome of the proceeding. Secondly, Skyview does not allege that Betso was connected to any person actually involved in the arbitration proceeding. Skyview only alleges that at an earlier time Betso had a business relationship with one of the partners at the firm representing the Union. This relationship was as co-owner of a bar/restaurant; it was not related to the practice of law. Moreover, as the Second Circuit has noted, "[i]t does not follow that an arbitrator's personal feelings in favor of or against one attorney would necessarily be transferred to another attorney in the same firm." Finally, Skyview's petition and the exhibits attached thereto indicate that the business relationship between Betso and Goldman terminated long before the arbitration proceeding took place. This former business relationship does not require vacating the Award.
International Produce v. A/S Rosshavet, 638 F.2d 548, 551 n. 3 (2d Cir. 1981).
See Sanford Home, 665 F. Supp. at 322 (finding that attorney-client relationship between arbitrator and a party that ended more than a year prior to the arbitration proceeding "does not militate in favor of the vacatur of [the] award.").
The relationship Skyview alleges between Betso and Goldman is analogous to the relationship alleged in Lucent Technologies. The arbitration panel in that case was composed of two party-appointed arbitrators, and a neutral third, appointed by the partisan arbitrators. The Second Circuit held that the failure of the neutral arbitrator and one of the party-appointed arbitrators to disclose that they had been co-owners of an airplane for a period of sixteen years, ending prior to the events that led to the arbitration, was "too insubstantial" to vacate the award. Accordingly, vacatur of the award is not required based on Betso's prior business relationship with Goldman.
See Lucent Tech., 379 F.3d at 25.
Id. at 31.
C. Exceeding Powers or Imperfectly Executed
Alternatively, Skyview contends that the arbitration award should be vacated because Betso exceeded his power by reinstating Rexhepi, contrary to the provisions of the CBA, and because the Award is "internally inconsistent and irrational." Skyview argues that the Award is therefore imperfectly executed. Betso found that Rexhepi was not entitled to back pay because he was medically unable to work between July 2, 2003 and the time of the award, but nevertheless reinstated him to his former position. Skyview argues that this remedy is internally inconsistent, and contrary to Article XXXVI(4) of the CBA, which, as described earlier, permits employees of Rexhepi's seniority who are injured and unable to work to retain their jobs for no more than 120 days. Skyview claims that because Rexhepi's injury occurred prior to his termination and he was unable to work for more than 120 days, he was not eligible for reinstatement.
Skyview Mem. at 2.
See id.
See Award at 5.
See Petition ¶ 24.
See Skyview Mem. at 16.
An arbitration award interpreting a collective bargaining agreement "must draw its essence from the contract and cannot simply reflect the arbitrator's own notions of industrial justice." "But as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision." The fact that there are other possible interpretations of a particular clause of the CBA is not sufficient to require vacatur of the award, even if it is apparent that the arbitrator misread the contract. Article XXXVI(4) makes no mention of post-termination inability to work. The arbitrator concluded that Article XXXVI(4) does not apply to the instant case because Rexhepi was terminated after his injury and it was not his option to return to work within the 120 days. It is within the scope of the arbitrator's authority to interpret the CBA where its language is ambiguous. "When an arbitrator is commissioned to interpret and apply the collective bargaining agreement, he is to bring his informed judgment to bear in order to reach a fair solution of a problem. This is especially true when it comes to formulating remedies." The parties bargained for Betso's interpretation of the CBA, and his interpretation and application of the CBA was well within the scope of his authority.
Misco, 484 U.S. at 38. See also St. Mary Home, Inc. v. Serv. Employees Int'l. Union Dist. 1199, 116 F.3d 41, 44 (2d Cir. 1997).
Misco, 484 U.S. at 38.
See id. ("The arbitrator may not ignore the plain language of the contract; but the parties having authorized the arbitrator to give meaning to the language of the agreement, a court should not reject an award on the ground that the arbitrator misread the contract. So, too, where it is contemplated that the arbitrator will determine remedies for contract violations that he finds, courts have no authority to disagree with his honest judgment in that respect.").
United Steelworkers of Am. v. Enterprise Wheel Car Corp., 363 U.S. 593, 597 (1960).
C. Discovery
Skyview seeks leave to take discovery as to the financial relationship between Betso and Goldman. Skyview has not, however, presented the "clear evidence of impropriety" that the Second Circuit requires before granting post-award discovery into potential arbitrator bias.
See Skyview Mem. at 23-24.
Andros, 579 F.2d at 702. See also Lucent Tech., 379 F.3d at 32.
V. CONCLUSION
For the reasons set forth above, Skyview's cross-motion to vacate the arbitration award issued on May 24, 2004 is denied and the Union's motion to dismiss is granted. The Clerk is directed to close these motions [#4 and 9 on the docket sheet] and this case.
SO ORDERED.