Decided May 3, 2010.
Roy Martin, Esq., Hodgson Russ LLP, New York, NY, Attorney for Plaintiff.
Jason Goodstein, Esq., Tratner, Molloy Goodstein LLP, New York, NY, Attorney for Defendant.
Plaintiffs 528-538 West 159th Street LLC, 1025 Boynton LLC, M.P. Management LLC and Morris Piller have moved by Order to Show Cause to vacate a stay of this action entered on April 12, 2007 and to compel defendants to provide responses to all outstanding discovery requests and to produce all previously noticed witnesses for deposition. Defendants Soloff Management Corporation, Soloff Management, La Cosa Management, Abe Green a/k/a Abe Soloff, Dov Soloff and Ralph Soloff have cross-moved, pursuant to CPLR 7504, to appoint new arbitrators in the place of Rabbi Yehuda Tzvi Hakohen Kurzock (Kurzock) and Rabbi Peretz Steinberg (Steinberg), both of whom gave notice of resignation by letter dated September 2, 2009.
On or about November 2004, Plaintiffs, through Piller, hired defendants Soloff Management, Abe Green, Dov Soloff and Ralph Soloff to manage a series of apartment buildings located at 528-538 West 159th Street, Bronx, New York and 1025 Boynton Avenue, Bronx, New York. Plaintiffs commenced this action on December 13, 2005 alleging, inter alia, breach of contract, unjust enrichment, conversion and fraud. This court issued an order on September 20, 2006 directing that documents to be demanded in a modified demand limited to the subject properties be delivered within 30 days and that depositions for all parties be held on or before December 15, 2006. According to the plaintiffs, the parties failed to comply with the court order due to defendants' unwillingness to proceed with discovery. On February 26, 2007, the parties executed an agreement that provided for the arbitration of the claims raised in this action before an arbitration panel (Beis Din) composed of Kurzock, Steinberg and Rabbi Israel Belsky (Belsky). The arbitrators were permitted to "make their award based upon Din Torah," which the court understands to be Jewish law, or by "compromise of settlement." The 2007 Arbitration Agreement specifically provided for "[d]epositions [to] continue under the auspices of the [Beis] Din" and for "[d]epositions to commence by April 17, 2007 and to be completed by May 30, 2007" (Martin Aff., Exhibit I). Based upon the agreement to arbitrate, the court stayed this action on April 12, 2007.
This agreement shall be referred to herein as the 2007 Arbitration Agreement.
For reasons not clear to the court, in October 2007, Kurzock and Steinberg resigned from the Beis Din. On November 30, 2007, defendants sent plaintiffs a letter indicating their willingness to reassemble the Beis Din under the condition that Rabbi Belsky from the original panel was to be included. Defendants promised to "oppose any effort to remove this matter to the Supreme Court, as the parties by their actions have clearly indicated and consented to have this matter adjudicated before the Rabbinical Court consisting of Rabbi Kurzrock, Rabbi Steinberg and Rabbi Belsky" (Martin Aff., Exhibit K). Thereafter, the parties reassembled the same panel of arbitrators and executed another agreement dated May 7, 2008 that did not expressly require depositions. The new agreement required that the parties "refer all disputes and matters in difference whatsoever between them . . . to award, order and final binding determination of a [Beis] Din consisting of the following three rabbis . . . Rabbi Peretz Steinberg, Rabbi Yisrael Belsky and Rabbi Hevstrel Kurzrock." The 2008 Arbitration Agreement also provided that an award or decision by a majority of the rabbis would be enforceable. Plaintiffs allege that, notwithstanding the absence of express provisions in the 2008 Arbitration Agreement, there was an understanding among all parties that the completion of discovery was of critical importance. On June 2, 2008, plaintiffs issued a letter to defendants requesting a number of documents be produced by defendants pursuant to a directive that plaintiffs claim was issued by the Beis Din on May 30, 2008 (Martin Aff., Exhibit L). In a letter dated February 18, 2009, executed by Kurzrock and Steinberg, the Rabbinical Court of the Rabbinical Alliance of America directed the parties to "commence the appropriate proceedings in the Kings County Supreme Court for the purpose of obtaining requisite [d]iscovery that plaintiff has previously requested and has not obtained" (Martin Aff., Exhibit B). Based upon such direction, plaintiffs moved by Order to Show Cause on May 18, 2009 to temporarily vacate the stay of this action so that the court could supervise the completion of discovery, which would enable the Beis Din to issue a decision on the merits of the dispute. On August 12, 2009, this court denied the application in light of the parties' agreement to submit their dispute to arbitration. This court did not find it appropriate to permit the parties to litigate discovery issues in this court while the arbitration panel remained in control of the decision-making process.
The 2008 Arbitration Agreement contained a parenthetical that permitted the parties to designate a general Beis Din court to arbitrate the dispute in lieu of specifying arbitrators. The parties opted to leave the parenthetical blank and to name specific arbitrators.
Kurzock executed the letter a month later on March 18, 2009.
Unless otherwise distinguished, all correspondence and agreements are executed by at least two of the three rabbis from the arbitration panel and are considered to be authorized by the Beis Din. No explanation was provided as to the significance of the different letterheads used to execute agreements. The 2007 Arbitration Agreement appears to lack a letterhead. The 2008 Arbitration Agreement lists the Rabbinical Court of Kollel Avreichim and Yeshiva located at 1340 E. 4th Street in Brooklyn, New York at the top of its letterhead. All other letters issued by the panel list the Rabbinical Court of the Rabbinical Alliance of America on the letterhead. The court does not find the divergence in letterheads used to be significant in light of the fact that the identity of the panel members remained unchanged.
The court notes that the evidence submitted by the parties on the instant motions primarily consists of documents that have been translated from Hebrew into English. No objections have been raised with respect to said translations.
CPLR 3102 [c] states that, "[b]efore an action is commenced, disclosure to aid in bringing an action, to preserve information or to aid in arbitration, may be obtained, but only by court order." Thus, the court will intervene in aid of arbitration only before an action is commenced and only when the movant has demonstrated "extraordinary circumstances" ( see Hendler Murray, P.C. v Lambert, 127 AD2d 820 [2d Dept 1987]). Once the parties have selected an arbitral forum, "[t]he courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration" ( De Sapio v Kohlmeyer, 35 NY2d 402, 406 ).
On September 2, 2009, the Rabbinical Court of the Rabbinical Alliance of America issued another letter in which the signing judges resigned, stating that, based upon their understanding of Jewish law, it was impossible for the panel to reach a decision. The letter stated that, "[t]wo years have already elapsed since the beginning of the case and . . . it is impossible for the Beis Din to make such an investigation." The Resignation Letter referenced this court's August 12, 2009 decision denying plaintiff's application for court supervision of discovery and concluded that, in the absence of necessary discovery, "it is impossible for us, or any other Beis Din, to reach a justified decision in this issue." The letter concluded that the Beis Din had "no other option other than to resign from this Din Torah case" and encouraged a compromise suggested earlier by the Beis Din, noting, "[i]f it is impossible to reach a compromise, it is incumbent upon the plaintiff to seek and utilize any methods in his power to influence the defendant to agree to undergo a full discovery and investigation" ( see Martin Aff., Exhibit A). Defendants contend that the letter does not reflect the resignation of the Beis Din as a whole but only reflects the resignation of the two arbitrators who signed the letter. They assert that Belsky was never apprised of the resignation of the other two arbitrators and remains available to reassemble the Beis Din and arbitrate the dispute.
This letter shall be referred to herein as the Resignation Letter.
The Resignation Letter was only signed by Kurzrock and Steinberg and not by Belsky, the third arbitrator on the Beis Din. The Resignation Letter lists the Rabbinical Court of the Rabbinical Alliance of America located at 3 16th Street, New York, New York and 305 Church Avenue, Brooklyn, New York at the top of its letterhead. It also lists Kurzrock as the Chief Justice, Steinberg as an Associate Chief Justice and Dov Aaron Brisman as another Associate Chief Justice.
On October 15, 2009, the Union of Orthodox Rabbis of the United States and Canada wrote a letter signed by Zvi Meir Ginzberg stating that, "even though it is totally and severely prohibited to go before secular courts . . . in this case . . . Mr. Moshe Piller has no other choice, only to go to secular court" (Martin Aff., Exhibit D). On December 4, 2009, the Rabbinical Court Orach Mishor for Marital and Financial Matters stated that Kurzrock and Steinberg "have reached a decision that it is impossible for any Rabbinical Court to ascertain the truth in this matter; therefore . . . pursuant to [Jewish law] . . . where the aforementioned Rabbinical Court has expressly attested that it is impossible for any Rabbinical Court to ascertain the truth in this matter . . . then there could be no greater permission than this one, that the aforementioned Mr. Moshe may pursue litigation in secular court" (Supplemental Martin Aff., Exhibit O). On January 12, 2010, the Beis Din issued another letter executed only by Kurzrock and Steinberg stating that, with respect to the Resignation Letter, the "letter does not have a component that allows going to secular court" ( see Def. Reply, Exhibit A).
For reasons unknown to the court, plaintiffs presented two translations of this letter. The court relied upon the translation that was prepared and certified by Targem Translations. Defendants allege that this letter was later retracted via a December 3, 2009 letter ( see Goodstein Aff., Exhibit D) also signed by Ginzberg. That letter merely states that, "in light of [his] health condition, it is impossible for [him] to get involved in this matter, and that the aforementioned letter should not be utilized." Because the December 3 letter does not imply in any way that the October 15 letter contained inaccuracies or that Ginzberg's position had changed, the court does not find the later letter to be a "retraction" of the October 15 letter.
This letter uses the same letterhead as the Resignation Letter and actually references a letter dated September 8, 2009. Although the Resignation Letter was executed September 2, 2009, defendants contend, and plaintiffs do not contest, that this letter is, in fact, referring to the Resignation Letter of September 2.
Plaintiffs request a rescission of the 2008 Arbitration Agreement and a vacatur of the stay. They contend that the defendants have breached the covenant of good faith and fair dealing implicit in the 2008 Arbitration Agreement and have rendered the enforcement of the agreement impossible due to defendants' repeated refusal to comply with the Beis Din's directives to complete discovery, thus preventing the Beis Din from reaching a final decision. According to the plaintiffs, defendants frustrated the purpose of the contract, causing the arbitrators to resign in protest of defendants' refusal to comply with discovery requests. The resignations, according to the plaintiffs, reflect changed circumstances that require the court to vacate the stay of the action.
It is well-settled law that "arbitration agreements are contracts and must be interpreted under the accepted rules of contract law" ( Salvano v Merril Lynch, Pierce, Fenner Smith, 85 NY2d 173, citing Cowen Company, 76 NY2d 318,321 ). Thus, within all arbitration agreements, as within all contracts, "[t]here is implicit . . . an implied covenant of fair dealing and good faith" ( Van Valkenburg, Nooger Neville v Hayden Publ. Co., 30 NY2d 34, 45). The covenant "requires that neither party shall do anything which will have the effect of destroying or injuring the rights of the other party to receive the fruits of the contract'" ( Dalton v Educational Testing Serv., 87 NY2d 384, 389, quoting Kirke La Shelle Co. v Armstrong Co., 263 NY 79, 87). In the event of a breach, the contract may be rescinded if the breach is "material and willful, or, [if] it [is] not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract" ( RR Chester, LLC v Arlington Building Corp. , 22 AD3d 652 , 654 [2d Dept 2005], quoting Callanan v Keeseville, Ausable Chasm Lake Champlain R.R. Co., 199 NY 268, 284 ).
In this action, based upon the covenant of good faith and fair dealing, both parties were obligated to arbitrate in good faith and to comply with the directives of the Beis Din. Both arbitration agreements specifically created a panel and named the three rabbis who were to arbitrate the matter. Both agreements specify arbitration by a "Din Torah," the 2008 Arbitration Agreement further specifying "according to Jewish Law," and both agreements contain provisions which allow for a decision to be made by two out of the three rabbis. Kurzock and Steinberg, two out of the three selected rabbis, wrote the Resignation Letter stating that "it is impossible for us, or any other Beis Din, to reach a justified decision in this issue" (Martin Aff., Exhibit A) and cited the defendants' refusal to comply with discovery directives and the inability of the panel to compel discovery as the cause for the resignation.
The 2007 Arbitration Agreement states that the "award of the arbitrators shall be in writing and shall be signed by a majority of the arbitrators" and the 2008 Arbitration Agreements states that "[t]he decision shall be signed by at least two Rabbis."
For the past two years, defendants have not moved forward in the arbitration proceedings in good faith. Defendants have failed to explain why they have failed to comply with the discovery previously directed in the 2007 Arbitration Agreement, or by the arbitrators themselves, or to provide a response to plaintiffs' contention that the 5,000 documents defendants initially produced were non-responsive ( see Plaintiff's Reply Aff. ¶ 22). Defendants also have not sufficiently explained how a new Beis Din would assist in the successful completion of discovery.
Defendants allege that plaintiffs were acting in bad faith and attach an affidavit by Rabbi Belsky, who accuses the plaintiffs of attempting to take another "bite of the apple" and of "drag[ging] this case on for another few years in the secular courts" ( see Belsky Aff. at ¶ 7). The defendants allegations are meritless, given that the Beis Din was never able to issue a final judgement resolving the matter and advised plaintiffs to seek recourse in secular court.
In response to plaintiffs' motion, defendants insist that the 2008 Arbitration Agreement, which does not include an express provision directing the completion of depositions, supersedes the 2007 Arbitration Agreement. Thus, defendants claim their failure to complete discovery did not frustrate the purpose of the 2008 Arbitration Agreement, nor did it constitute a breach of contract.
Whether an arbitration agreement can be superseded by a later arbitration agreement presents a general question of contract interpretation under New York law. As noted above, arbitration agreements are creatures of contract, and the parties are entitled to modify their agreements as they choose; however, as in this action, when "the subsequent writing can be construed in harmony with the original contract, there is no need to alter the original" ( see Matter of Intercontinental Packaging Co. v China Natl. Cereals, Oils Foodstuffs Import Export Corp., 159 AD2d 190, 195 [1st Dept 1990]; Primex Int'l Corp. v Wal-Mart Stores, 89 NY2d 594). Here, the 2008 Arbitration Agreement does not indicate in any way that it is intended to supersede the 2007 Arbitration Agreement. Because both agreements were signed by the same parties and do not contradict each other, the contractual provisions of both agreements can be enforced in tandem. However, this court need only recognize the 2008 Arbitration Agreement as binding, because, even absent the express provisions requiring discovery, defendants' bad faith is patently obvious. Under the 2008 Arbitration Agreement, the Beis Din continued to issue directives ordering discovery and clearly intended both parties to comply with its directives, as evidenced by the February 18, 2009 letter issued by the Beis Din ordering the parties to complete discovery under court-ordered supervision. The court finds that the defendants have breached the covenant of good faith and fair dealing implicit in the 2008 Arbitration Agreement. The court also finds that such breach is both willful and material, and of such a substantial and fundamental nature that it has paralyzed the arbitration process, so that rescission of the 2008 Arbitration Agreement is warranted.
Furthermore, New York courts will decline to enforce a contract if its frustrated purpose was" so completely the basis of the contract that . . . without it, the transaction would have made little sense'" ( Arons v Charpentier , 36 AD3d 636 [2d Dept 2007], quoting Crown IT Servs., Inc. v Koval-Olsen , 11 AD3d 263 , 265). Here, the plaintiffs have demonstrated, and letters from multiple rabbinical courts, including the original Beis Din, the Union of Orthodox Rabbis of the United States and Canada and the Rabbinical Court Orach Mishor for Marital and Financial Matters, have confirmed, that without the completion of discovery, the Beis Din is unable to fully arbitrate the dispute, which is the obvious purpose of the arbitration agreement. Thus, the defendants' failure to complete discovery has frustrated the entire purpose of the arbitration agreement. The court finds that, based upon the doctrine of frustration, the 2008 Arbitration Agreement cannot be enforced.
The court may grant a motion to vacate a stay "on the grounds that it is no longer serving the ends of justice" ( see Blittner v Filroben Assoc., 183 AD2d 645 [1st Dept 1992]; 56 Marquis, Inc. v Mark A. Mosello, 239 AD2d 544, 544-545 [2d Dept 1997]; Haenel v November November, 144 AD2d 298 [1st Dept 1988]). "Where it is apparent that the relief requested by a litigant is impossible of performance because of a fundamental impediment such as lack of jurisdiction [or competence] of the arbitral body to which the Court is urged to send the matter, the Court will not commit itself to the issuance of futile orders, or to the granting of relief that cannot be implemented" ( Matter of the Application of Instinet Corp., 2003 NY Slip Op 51414 [U] 2003, Sup Ct, New York County, 2003 WL 22721404 *7). In the instant action, the arbitration has not progressed in any meaningful way in the past two years, having been stymied by the defendants' bad faith and delay tactics. Maintaining the stay of the action would not further the interest of justice nor would it lead to an expedient resolution of the dispute. Because defendants have breached the covenant of good faith and fair dealing implicit within the 2008 Arbitration Agreement and have frustrated the arbitration process, the Beis Din has resigned in protest on the grounds that the rabbinical court fundamentally can not arbitrate this particular matter. Thus, the court finds that the stay of the action pending arbitration must be vacated.
Defendants contend that, because the 2008 Arbitration Agreement is still binding and enforceable, the court should, pursuant to CPLR 7504, merely appoint new arbitrators to replace the two resigning arbitrators. CPLR 7504 provides "[i]f the arbitration agreement does not provide for a method of appointment of an arbitrator, or if the agreed method fails or for any reason is not followed, or if an arbitrator fails to act and his successor has not been appointed, the court, on application of a party, shall appoint an arbitrator." Courts are inclined to respect and encourage the contractually-designed arbitration process and will not intervene to appoint replacement arbitrators except "when an arbitrator cannot act for reasons of health or unavailability or other circumstances tantamount to the occurrence of a vacancy" ( Matter of Siegel v Lewis, 40 NY2d 687, 689).
As defendants correctly argue, the resignation of an arbitrator creates a vacancy that may be filled by the court pursuant to CPLR 7504 where the personalities of the arbitrators are merely incidental to the larger agreement to arbitrate. Matter of Klines v Green, 2 AD2d 373 (2d Dept 1956), affd 3 NY2d 816 (1957); see also Basil Castrovinci Associates, Inc. v District 65 Pension Plan , 16 AD3d 493 (2d Dept 2005). In the instant action, however, the two arbitrators, Kurzock and Steinberg, were not merely unavailable or unable to act. As noted, the two arbitrators resigned in frustration via a joint letter written on the letterhead of the Rabbinical Court of the Rabbinical Alliance of America, of which Kurzock is Chief Justice and Steinberg is one of two Associate Chief Justices. (Belsky's name does not appear on the letter.) The Resignation Letter indicates that Kurzock and Steinberg did not simply withdraw, nor did they fail to act. Rather, they resigned for cause because they were prevented from acting by the defendants' refusal to complete discovery and by their own inability to compel discovery.
Furthermore, the identity of the arbitrators was not, as the defendants claim, incidental to the arbitration agreements. Both agreements expressly created a Beis Din composed specifically of Kurzock, Steinberg and Belsky to arbitrate the dispute between the parties. Defendants rely on Matter of Klines v Green, in which one of the two arbitrators named in the contract resigned, and the court held that a substitute arbitrator could be appointed pursuant to CPLR 7504 due to the court's finding that "the proper construction of the contract [was] that the intention to arbitrate [was] the dominant intention, the personality of the arbitrator being an auxiliary incident rather than the essence, and that the frustration of that dominant intention [was] not to be permitted merely because the precise method of accomplishing that intent ha[d] become impossible" ( Matter of Klines v Green, 2 AD2d at 375, quoting Marchant v Mead-Morrision Mfg. Co., 252 NY 284). In Matter of Klines v Green, the arbitration agreements expressly provided that "a dispute shall be referred to the named arbitrators pursuant to and in accordance with the arbitration laws of the State of New York'" ( Matter of Klines v Green, 2AD2d at 374). Here, however, the 2007 Arbitration Agreement and the 2008 Arbitration Agreement were to be governed by Jewish law, as interpreted by the specific Beis Din chosen to uphold that law. In fact, the 2007 Arbitration Agreement does not even anticipate the substitution of arbitrators as indicated by its provision that "in the event that one arbitrator resigns or is incapacitated or cannot continue for any reason, the remaining two arbitrators may elect to continue the proceeding and they shall have the same powers and authority" (Martin Aff., Exhibit I).
Moreover, as previously noted, by defendants' own November 30, 2007 letter, when negotiating the terms of the 2008 Arbitration Agreement, defendants specifically required that the defendants would return to the Beis Din "as originally chosen by all parties, which of course [would include] not only Rabbis Kurzrock and Steinberg, but also Rabbi Belsky" and that "the parties by their actions have clearly indicated and consented to have this matter adjudicated before the Rabbinical Court [Beis Din] consisting of Rabbi Kurzrock, Rabbi Steinberg and Rabbi Belsky" (Martin Aff., Exhibit K). It is clear from the defendants' November 30, 2007 letter that the parties determined the identities of the arbitrators through negotiation. In fact, the 2008 Arbitration Agreement contained an optional parenthetical provision where the parties, if they so desired, could have inserted the name of a general rabbinical court to arbitrate the dispute. The parties tellingly opted to leave the parenthetical provision blank and instead named specific rabbis to comprise their Beis Din. This court finds that the identities of the arbitrators were not merely incidental and auxiliary to the parties' intention to arbitrate before a rabbinical court and that the arbitration agreements seem to preclude the substitution of arbitrators. Thus, the court declines to appoint arbitrators pursuant to CPLR 7504.
The court further declines to appoint new arbitrators to the Beis Din as it is mindful of its obligation to uphold the neutral application of law in a context in which religious strictures control. ( See First Presbyterian Church v United Presbyterian Church, 62 NY2d 110, 116). The Beis Din process is governed by Jewish law and not the secular law upon which this court must premise its decisions. Defendants' other suggestions, that the court order the parties to select arbitrators from the same rabbinical court or that Belsky appoint two new arbitrators, are not appropriate given the intent of the agreements to arbitrate before specific individuals, nor are such suggestions appropriate given the protracted history of this case and the evidence that arbitration has failed. Thus, the court finds CPLR 7504 to be inapplicable to the instant action.
Rabbi Belsky's affirmation clearly suggests some lack of neutrality in this matter and his continuing service as an arbitrator would be inconsistent with the secular rules of arbitration. See, e.g., CPLR 7511 [b] [ii] providing that partiality of an arbitrator is grounds for vacating an award. It is therefore not a feasible alternative, consistent with the arbitration agreements, to authorize him to select two other arbitrators to replace Kurzrock and Steinberg.
Defendants also argue, in support of their cross-motion, that both plaintiffs and defendants, as orthodox Jews, are prohibited from resolving disputes through the secular court system. When issuing a decision, this court must apply neutral principles of law. "[C]ivil courts are forbidden from interfering in or determining religious disputes. Such rulings violate the First Amendment because they simultaneously establish one religious belief as correct . . . while interfering with the free exercise of the opposing faction's beliefs" ( see First Presbyterian Church v United Presbyterian Church, 62 NY2d 110 at 116). Furthermore, "[t]o permit a party to introduce evidence or offer experts to dispute an interpretation or application of religious requirements would place fact-finders in the inappropriate role of deciding whether religious law has been violated" ( Lightman v Flaum, 97 NY2d 128, 137). Thus, the court will not consider whether plaintiffs' motion to vacate the court's previous order staying the action pending arbitration violates principles of Jewish law.
The court grants plaintiffs' motion to vacate the stay of this action issued April 12, 2007 and to direct the defendants to complete discovery. All discovery must be complete, including all depositions, on or before September 29, 2010. Failure of any party to comply with the CPLR and prior orders of this court will be sanctioned. The defendants' cross-motion to appoint replacement arbitrators is denied. The parties are to appear on June 2, 2010 for a compliance conference at 9:45 A.M. at 360 Adams Street, Brooklyn, NY, Room 756.