Petitioner NTSE Communications, Inc. ("NTSE") moves pursuant to CPLR Article 75 for an order staying an arbitration between NTSE and NTSE's alleged parent and alter ego, 9278 Communications, Inc. ("9278"), and respondent MCI Worldcom International, Inc.("MCI"). For the reasons set forth below, the petition is denied.

In 2003, MCI and NTSE entered into a "Usage Based Exchange Card Distribution Agreement" ("UBA" or the "agreement")^[FN1] that contains an arbitration clause that states: [*2]

Any dispute arising out of or related to this Agreement, . . . shall be settled by binding arbitration in accordance with the J.A.M.S. Arbitration Rules and Procedures, as amended by this agreement. The costs of arbitration, including the fees and expenses of the arbitrator, shall be shared equally by the parties unless the arbitration award provides otherwise.

(Petition, Ex. A, Art. 12)

In 2004, MCI submitted a demand for arbitration to J.A.M.S. alleging that, pursuant to the UBA, NTSE and 9278 had failed to pay MCI almost fifty million dollars ($50,000,000) for telecommunications services. NTSE answered and counterclaimed for thirty million dollars ($30,000,000).

On June 29, 2007, the J.A.M.S. administrator advised the parties that the arbitrator, Margaret Shaw, Esq. ("Shaw" or the "arbitrator") had selected nine dates for the hearing in this matter and that each party's share of the fees, $48,457.79, had to be paid by July 27, 2007 in order to preserve the hearing dates (Petition, Ex. E). On July, 27, NTSE informed the J.A.M.S. administrator that "[d]ue to financial hardship, NTSE is unable to pay its share of the J.A.M.S. hearing fees which are due today." (Petition, Ex. F). Thereafter, on August 2, MCI submitted a letter brief to the arbitrator, by way of the J.A.M.S. case manager, asking the arbitrator to strike NTSE's answer and counterclaim on account of its failure to comply with the arbitrator's discovery orders. The letter brief also requested that the arbitrator issue an order, pursuant to J.A.M.S. Arbitration Rule 31 ^[FN2], precluding NTSE from submitting an affirmative case on its counterclaim in light of its last minute refusal to pay its share of the arbitration fees. (Petition, [*3]Ex. G).

NTSE objected to the letter brief and requested that the J.A.M.S. case administrator not forward the letter brief to the arbitrator, arguing that it was "patently improper for MCI to inform the arbitrator of the status of the parties' fees prior to the time the proceedings have concluded." (Petition, Ex. H). However, by e-mail dated August 6, the J.A.M.S. case administrator informed the parties that, after consultation with J.A.M.S. Associate General Counsel, MCI's letter brief would be forwarded to the arbitrator. (Petition, Ex. 5). Despite NTSE's continued objection, the J.A.M.S. case administrator forwarded MCI's letter brief to the arbitrator. NTSE responded to the letter brief arguing, inter alia, that " a long series of cases has pointed to the obvious peril to the fairness of proceeding when arbitrators become directly involved in discussions with the parties about their fees before proceedings have concluded.'" (Petition, Ex. N, citing Coty Inc. v Anchor Constr., Inc., 2003 NY Slip Op. 50013U, *14 [Sup. Ct. NY County] aff'd 7 AD3d 438 [1st Dept. 2004]). By decision dated September 4, 2007, the arbitrator held that, in light of the J.A.M.S. rules, if NTSE did not deposit its pro rata share of its fees and expenses for the arbitration prior to the hearing, it would not be permitted to offer evidence of any affirmative claim at the hearing. (9/27/07 Fink Aff., Ex. 2).

Thereafter, but prior to the commencement of the arbitration, MCI advanced NTSE's portion of the arbitration fees.

On September 21, 2007, immediately before the arbitration was set to begin, NTSE moved this court by Order to Show Cause with a temporary restraining order ("TRO"), to remove Ms. Shaw and to stay the arbitration until a new arbitrator was appointed, "on the grounds that NTSE has demonstrated potential arbitrator bias or misconduct, as well as violations of petitioner's due process rights and right to a fundamentally fair hearing, because the arbitrator was . . . informed by MCI of NTSE's inability to pay its portion of the arbitration fees prior to a hearing on the merits."On September 21st another justice of this court granted NTSE's request for a TRO and stayed the arbitration until September 26, 2007, this part's first available calendar day. The TRO was conditioned upon NTSE posting a $250,000 bond. On September 26th, the parties appeared for the first time before this court, and upon the court learning that NTSE had failed to secure a bond, the TRO was dissolved. Upon inquiry from the court, it was determined that notwithstanding the absence of a TRO, the parties wished to proceed with the petition seeking injunctive relief. A new Order to show cause dated September 26, 2007 was signed and a briefing schedule set. Meanwhile, the arbitration commenced on September 27, 2007 without any restrictions on NTSE's ability to present its affirmative case. However, based on MCI's allegations that NTSE had repeatedly violated the arbitrator's scheduling orders and the arbitrator's September 20, 2007 decision ^[FN3], MCI moved the arbitrator to preclude NTSE from [*4]offering any exhibits at the hearing. On September 28, 2007, the arbitrator ruled on MCI's application finding that, "NTSE has willfully disregarded my rulings and I'm going to order as I warned in my order dated September 20th that NTSE will not be permitted to offer any exhibits at this hearing." (10/31/07 Fink Aff, Ex. I, p. 377, ll. 19-25).

In support of the application to stay the arbitration, NTSE cites to Coty v Anchor Constr., Inc., 2003 NY Slip Op. 50013U, and argues that MCI's insistence that the arbitrator learn of NTSE's inability to pay its share of the arbitration fees coupled with the arbitrator's decision to take punitive action against NTSE, demonstrates the existence of the arbitrator's potential or actual bias against NTSE. NTSE also argues that J.A.M.S. Rule 31 violates its due process rights and its right to a fundamentally fair hearing by precluding it from presenting its case and that even though it agreed to the rules of the selected forum, it cannot bargain away its right to due process and a fundamentally fair hearing.

In opposition, MCI argues that NTSE consented to be bound by the J.A.M.S. arbitration rules; that Coty is inapposite because, here, unlike Coty, J.A.M.S. rules specifically permitted the arbitrator to preclude NTSE if it failed to pay its share of the fees and that there is no indication that NTSE's ultimate preclusion was based on the arbitrator's bias because all fees had been paid prior to the commencement of the arbitration and NTSE had been warned in prior decisions of the consequences of its failure to obey the arbitrator's scheduling orders. MCI contends that NTSE's preclusion was based on its own deliberate behavior.

CPLR Section 7502 ( c) permits the court to entertain an application for a preliminary injunction in connection with a pending arbitration on the ground that "the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief." Among other things, an arbitration may be stayed if the applicant demonstrates the potential for bias on the part of the arbitrator. (See, Grendi v LNL Const. Mgmt. Corp., 175 AD2d 775 [1st Dept. 1995]) In Bronx-Lebanon Hosp. Ctr. v Signature Med. Mgmt. Group, LLC, 6 AD3d 261 (1st Dept. 2004), the court stated:

While in an appropriate case, the courts have inherent power to disqualify an arbitrator before the award has been rendered,' that extraordinary relief should only be employed where there exists a real possibility that injustice will result.' An application to disqualify an arbitrator during the course of arbitration must be based on misconduct on the part of the arbitrator and, while the appearance of bias may suffice, that bias must be clearly apparent upon the established facts, not merely supported by unproved and disputed assertions. (6 AD3d at 261, citations omitted).

Here, NTSE has failed to establish that Shaw must be disqualified. NTSE has not demonstrated that the arbitrator's knowledge that NTSE was unable to pay its share of the [*5]arbitration fees created an appearance of impropriety or called into question the arbitrator's impartiality. Indeed, at the commencement of the arbitration, NTSE was not precluded from presenting evidence on its affirmative claims. Scheduling Orders 6 and 7 required both parties to identify exhibits and witnesses that they intended to present at the hearing. (10/31/07 Fink Aff. Exs. A & B). The arbitrator's subsequent preclusion order was based on NTSE's well documented failure to comply with Scheduling Orders 6 and 7 and prior directions from the arbitrator. The preclusion order was not related to NTSE's inability to pay its pro rata portion of the arbitration fees and there is absolutely no evidence that such inability caused the arbitrator to be prejudiced against NTSE. In analogous circumstances, where a party has requested that a judge recuse him or herself, the Court of Appeals has stated, "bias or prejudice which may be urged against a judge must be based on something other than rulings in the case." (People v Moreno, 70 NY2d 403, 407 [1987]; see also, S.L. Greene Props., Inc. v Shaoul, 155 AD2d 331, 331 [1st Dept. 1989] ["the practice of impugning without proof the motives of a judge simply because he or she does not agree with . . . one of the parties . . . can only be deplored."]).

NTSE's reliance on Coty, Inc. v Anchor Constr., Inc., 2003 NY Slip Op. 50013U is unavailing. Unlike here, in Coty the arbitration panel failed tofollow the rules thatthe parties agreed would control the arbitration. In that case, the arbitration was governed by Construction Industry Dispute Resolution Procedures, specifically, R-54 which states:

If arbitrator compensation or administrative charges have not been paid in full, the administrator may so inform the parties in order that one of them may advance the required payment. If such payments are not made, the arbitrator may order the suspension or termination of the proceedings. If no arbitrator has yet been appointed the AAA may suspend the proceedings.

(Coty, Inc. v Anchor Constr., Inc., 2003 NY Slip Op. 50013U at *4 ). In violation of this rule, and based on the arbitration panel's knowledge that Coty had paid its fees while Anchor had not, the panel defaulted Anchor, and granted Coty's application to proceed without Anchor. The panel proceeded with the hearing permitting Anchor to attend, audit, and record, but not actively participate.

The Coty court found that the award had been procured by arbitrator misconduct because Anchor had been denied its statutory right to be heard, to present evidence, and to cross examine witnesses pursuant to CPLR 7506 (c), and to be represented by an attorney, a right which CPLR 7506 (d) expressly provides may not be waived. The Coty court also found that the arbitration rules that the parties agreed upon did not permit the panel to expel Anchor or declare it in default on the underlying contractual claim merely because Anchor could not pay the arbitrators before the conclusion of the hearing. The court held that the arbitrators, "were permitted to suspend or terminate the entire proceeding, but they were not permitted to continue it for a paying party while terminating participation of a non-paying party." (Coty, Inc. v Anchor Constr., Inc. 2003 NY Slip Op. 50013U at *23).

The Coty court stated at *26:

In sum, the problem presented by Anchor's financial difficulties did not present an unusual situation. It was the panel's response which was unusual. More typically, problems in making advanced payments for an arbitrator's compensation are dealt with in accordance with the AAA Rules and in statute - the proceedings can be suspended, the fees can be adjusted, the opposing party can advance payment, the panel can apportion fees in the final award, or the Court can modify the [*6]assessment as justice requires. Neither the Rules, AAA past practices or applicable statutes contemplate a default or a one-sided presentation as a consequence of financial inability to pay fees before the conclusion of the arbitration.

In the case before the court, NTSE agreed that any dispute arising out of the UBA would be settled by binding arbitration in accordance with J.A.M.S. Arbitration Rules and Procedures. Rule 31 of J.A.M.S. Rules and Procedures expressly permitted the arbitrator to preclude NTSE from presenting evidence of any affirmative claim if its pro rata share of the fees was not paid prior to the hearing. However, NTSE's pro-rata share of the fees was paid prior to the hearing and the evidence demonstrates that NTSE was not precluded from presenting its case because it did not pay its fee. Rather, the arbitrator's preclusion order was based on NTSE's well- documented failure to comply with the arbitrator's scheduling orders and prior decisions regarding the evidence it would present in support of its case.

NTSE urges that any communication with an arbitrator regarding the payment of fees creates potential bias. However, there is no per se rule that any communication with an arbitrator regarding payment of fees impairs the integrity of the arbitration process. (See, Matter of Goldfinger v Lisker, 68 NY2d 225, 232 [1986]). Rather, the particular facts and circumstances of each case must be examined to reach an appropriate determination. (Montague Pipeline Tech. Corp. v Grace-Lansing & Grace Indus., Inc., 238 AD2d 510 [2nd Dept. 1997]) Here, NTSE's conclusory assertion that the communication to the arbitrator was prejudicial is not supported by the evidence which demonstrates rather that NTSE was precluded from presenting evidence because it consistently failed to submit documents in accordance with Scheduling Orders and the arbitrator's September 20, 2007 decision. Indeed, in her September 28th preclusion order (on the record), Arbitrator Shaw outlined NTSE's recalcitrance, explaining that:

Scheduling order 6 modified by scheduling order 7 required the parties to exchange all documentary evidence they intended to offer at the hearing to establish their claims or defenses . . . not later than September 18th. Supplementary documents may be designated by September 20th.

She went on to state that once NTSE submitted its list of documents and witnesses, MCI objected on the ground that the list was overbroad; upon review, she found that NTSE's only effort to comply with Scheduling Order 7 was to designate every single document as well as 54 witnesses together with any former MCI employee with relevant knowledge. Indeed, she quoted her September 20th decision that states:

This response is plainly neither in compliance with the arbitrator's order or direction nor in compliance with J.A.M.S.' rules which govern these proceedings. Disagreement with the arbitrator's rulings is not justification for failure to comply and thus the arbitrator rules as follows . . .

1. NTSE shall submit no later than 11 o'clock tomorrow, September 21, 2007 a listing of specific documents identified by Bates number that it intends to offer at the hearing . . . .

2. NTSE shall premark all exhibits. . . .

3. Failure to comply with this order will result in NTSE's not being permitted to offer any exhibits at this hearing.

In the September 28th preclusion order the arbitrator found that NTSE's response, [*7]"purports to identify the documents by Bates numbers but with no specificity or [sic] total of over a hundred thousand documents identified, and that does not comply with my order." The arbitrator also stated that NTSE had not pre-marked exhibits. Based on NTSE's responses, the arbitrator found that NTSE had willfully disregarded her rulings, and she precluded them from offering exhibits at the hearing. The arbitrator explained to NTSE's counsel that he could cross examine witnesses and use any exhibits MCI introduced, but that he would not be permitted to introduce his own exhibits.

Clearly, the September 28th preclusion order was grounded in NTSE's refusal to comply with the arbitrator's directives regarding the exhibits and witnesses it intended to introduce at the hearing in support of its claims.

In this case, NTSE has not presented any evidence of the arbitrator's actual or potential bias based on MCI's communication regarding fees or that the arbitrator disregarded J.A.M.S.

Rules and Procedures or that the communication regarding fees compromised NTSE's right to

due process and a fundamentally fair hearing. Thus, it has failed to establish a basis for injunctive relief. The arbitration should be concluded as scheduled in December 2007 and January 2008 without intervention by the court. Accordingly, it is

ORDERED and ADJUDGED that NTSE's petition seeking the arbitrator's removal and staying the arbitration until a new arbitrator is appointed is denied and the proceeding is dismissed.

This constitutes the decision, order and judgment of the court.

DATED: November 20, 2007E N T E R :

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J.S.C.

2007 Pt 52 D & O_112708_2007_001