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Posted: January 17, 2017

Court Confirms Arbitration Award Despite Party’s Misconduct

On January 9, 2017, Justice Kornreich of the New York County Commercial Division issued a decision in 1552 Broadway Retail Owner LLC v. McDonald’s Corporation, 2017 NY Slip Op. 50011(U), confirming an arbitral award despite evidence of misconduct by a party, explaining:

It is a bedrock principle of arbitration law that the scope of judicial review of an arbitration proceeding is extremely limited. . . . CPLR 7511(b)(1) provides that an arbitration award:

shall be vacated if the court finds that the rights of [a party who participated in the arbitration] were prejudiced by: (i) corruption, fraud or misconduct in procuring the award; or (ii) partiality of an arbitrator appointed as a neutral, except where the award was by confession; or (iii) an arbitrator, or agency or person making the award exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made; or (iv) failure to follow the procedure of this article, unless the party applying to vacate the award continued with the arbitration with notice of the defect and without objection.

(emphasis added). These are the only grounds to vacate an arbitration award.

To wit, even where an arbitrator has made an error of law or fact, courts generally may not disturb the arbitrator’s decision. Consequently, a court cannot examine the merits of an arbitration award and substitute its judgment for that of the arbitrator simply because it believes its ruling would be the better one.

. . .

The court assumes that misconduct sufficient for vacatur has been demonstrated. While neither party cites a case involving analogues misconduct on the part of a party, the court need not substantively address whether, as a matter of law, Tenant’s behavior amounts to misconduct under CPLR 7511(b)(1)(i). Such a ruling is unnecessary because the court finds that Landlord failed to demonstrate by clear and convincing evidence that the alleged misconduct affected the arbitrators’ Award.

It is entirely unclear which party’s understanding of FMV was accepted by the arbitrators. The Award is silent on this issue. Nonetheless, Landlord places great weight on the Award’s statement that the courts have, largely, refused to intervene, suggesting that the only reasonable inference that can be gleaned from the word largely is that the arbitrators failed to follow this court’s highest and best use ruling. Landlord argues that since such ruling was the most hotly contested issue, the Award’s suggestion that this court largely abstained from ruling on the parties’ disputes is proof that the arbitrators did not believe this court actually issued a binding ruling that they had to follow.

The court disagrees. At best, this statement is ambiguous. When read in the context of the terse award, which otherwise does not explain its reasoning (an issue neither party protests), such statement can reasonably be read as providing basic context for the Award, such as the brief description of the subject contractual provision that immediately precedes it. While Landlord’s gloss on the word largely is not unreasonable, pointing to such an ambiguity falls well short of meeting its clear and convincing burden of proof. At most, Landlord has raised a question of fact, which is insufficient to vacate an arbitration award.

For these reasons, the Award is confirmed.

(Internal quotations and citations omitted).

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