Petitioners Crestwood Mech. Co., Inc. and Vincent Plumbing & Mechanical Co., Inc., ("Crestwood," "Vincent Plumbing," or collectively, "petitioners") move by order to show cause and verified petition to confirm an arbitration award dated February 1, 2011 ("Award") pursuant to CPLR § 7510 ^[FN1]. Respondent Main Street Lofts Yonkers, LLC ("Main Street Lofts" or "respondent") opposes the petition and cross-petitions to vacate or modify the Awardpursuant to CPLR § 7511.

Petitioners are subcontractors who entered into a contract with respondent to perform certain work on a luxury rental building called "Main Street Lofts" located at 66 Main Street, Yonkers, New York ("Project"). The contract contained a clause which provides for arbitration to resolve disputes of the parties. Crestwood and Vincent Plumbing claimed that respondent respectively owed them $121,297.18 and $96,547.34, totaling approximately $218,000.00, on the multi-million dollar Project. On April 30, 2009, petitioners sought arbitration to collect the unpaid sums from respondent. The cost of petitioners' collection efforts included payment of legal fees of more than $100,000 and arbitration costs and fees of $17,750.00. [*2]

The arbitration commenced on June 22, 2010, and was settled pursuant to a letter agreement that same day between the parties ("Letter Agreement"). The Letter Agreement was negotiated and executed by the principals (including Alan Litt of Main Street Lofts who has extensive experience as a real estate developer) and competent counsel for the parties. The Letter Agreement provided, in pertinent part, that respondent would pay petitioners the full amount of $218,000 claimed owed as follows: (1) $50,000 on or before June 30, 2010, (2) $75,000 on or before July 29, 2010, (3) $50,000 on or before September 27, 2010, and (4) $43,000 on or before October 26, 2010. It further provided for a fifteen business day grace period for the second payment and a five day grace period for the third and fourth payments. The parties negotiated a default provision providing petitioners an option to collect an additional $82,000 in the event respondent failed to comply with any of the terms and conditions of the Letter Agreement.

Respondent timely paid the first two installments. However, respondent only made a partial payment of $32,542.10 on September 30, 2010, leaving a shortfall of $17,457.90. Under the terms of the Letter Agreement which provided for a five day grace period, respondent had until October 1, 2010, to make the third installment payment. On October 6th or 8th, respondent made up the shortfall and paid the fourth installment.Petitioners collected and deposited the last payment with a full reservation of all rights and defenses. By letter dated October 19, 2010, petitioners provided respondent with notice of default, and exercised the option to collect an additional $82,000 due to late payment and non-compliance with the Letter Agreement. Respondent refused to pay the additional $82,000.

Petitioners moved for summary judgment before the Arbitrator to enforce the default provisions in the Letter Agreement. Respondents opposed the motion with the same argument which forms the basis for the cross-petition, that the default provision is an unenforceable default provision having no nexus to actual damages suffered by petitioners due to the six day delay in not receiving timely payment. Petitioners essentially replied that the default provision should be enforced as it was negotiated by sophisticated parties and competent counsel.

The Arbitrator granted summary judgment for petitioners and awarded petitioners the $82,000 under the default provision of the Letter Agreement. (Award of Arbitrator dated February 1, 2011). The Arbitrator rejected respondent's arguments and upheld petitioners' position stating, that "I have carefully considered the Letter Agreement, which I find was carefully negotiated by two competent attorneys." (Id.) The Arbitrator denied petitioners' request for reimbursement of attorney's fees and other costs.

There is a strong public policy in New York State favoring arbitration as an efficacious method of dispute resolution. This policy is especially pronounced in the context of commercial matters as arbitration is routinely relied upon for an expeditious resolution of disputes by arbitrators with practical knowledge of the subject area. (Matter of Goldfinger v Lisker, 68 NY2d 225 [1986].) Courts are reluctant to set aside arbitration awards even when arbitrators err in deciding the law or facts "lest the value of this method of resolving controversies be undermined." (68 NY2d at 230.) The policy favoring arbitration gives rise to judicial deference because "it is imperative that the integrity of the process, as opposed to the correctness of the [*3]individual decision, be zealously safeguarded." (Id.) Consistent with this strong public policy, there are few grounds for vacating or modifying arbitration awards and they are narrowly applied.

It is well settled law that courts must confirm an arbitration award pursuant to CPLR § 7510,unless there are grounds to vacate or modify the award pursuant to CPLR § 7511.

CPLR § 7511(b)(1) enumerates the following grounds for vacating an award where the parties participated in the arbitration:

(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 (her) power or so imperfectly executed it that a final and definite award upon the subject matter was not made; or

(iv)failure to follow the procedure in this article, unless the party applying to vacate the award continued with the arbitration with notice of the defect and without objection.

The grounds for modifying an award are set forth in CPLR § 7511(c)) as follows:

1.there was a miscalculation of figures or a mistake in the description of any person, thing or property referred to in the award; or

2.the arbitrators have awarded upon a matter not submitted to them and the award may be corrected without affecting the merits of the decision upon the issues submitted; or

3.the award is imperfect in a matter of form, not affecting the merits of the controversy.

Where a dispute has been arbitrated pursuant to an agreement between the parties, the award may not be set aside unless it violates a strong public policy, is totally irrational or clearly exceeds a specifically enumerated limitation on the arbitrator's power. (Matter of Town of Callicoon [Civil Serv. Empls. Assn., Town of Callicoon Unit], 70 NY2d 907, 909 [1987]); Matter of New York City Tr. Auth. v Transport Workers Union of Am., Local 100, 14 NY3d 119, 124 [2010]).

In this case, respondent contends, as it previously argued before the Arbitrator, that the Award is irrational and against public policy because the amount awarded was an unenforceable penalty since it was not tied to any actual damages petitioners incurred as a result of the untimely payment. Inasmuch as the Arbitrator had already determined that the award of an additional $82,000 did not constitute an improper penalty, respondent is bound by that determination. (Matter of Associated Gen. Contrs., NY State Ch. [Savin Bros.], 36 NY2d 957 [1975]) (when arbitration is selected as the forum for resolution of disputes, the parties are bound by the [*4]arbitrator's determination that the damages clause was not a penalty and enforceable.) Moreover, the Arbitrator's award of an additional $82,000 was rational in the face of uncontroverted evidence that petitioners were compelled to expend more than $120,000 in fees and costs to recover $218,000 that respondent had long owed and agreed to pay in a timely manner. The default provision in the Letter Agreement which settled the arbitration "was carefully negotiated by two competent attorneys" and should not be set aside as respondent has failed to meet the limited and narrow grounds to vacate or modify the Award. (Matter of Goldfinger v Lisker, 68 NY2d 225 [1986].)

A court, in its discretion, may impose financial sanctions upon any party who engages in frivolous conduct. (22 NYCRR §130-1.1.) Conduct is frivolous if: (1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law; (2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or (3) it asserts material factual statements that are false. (22 NYCRR §130-1.1 [c][1-3].) In determining whether the conduct was frivolous, "the court shall consider, among other issues the (1) circumstances under which the conduct took place, including the time available for investigating the legal or factual basis of the conduct; and (2) whether or not the conduct was continued when its lack of legal or factual basis was apparent or should have been apparent, or was brought to the attention of counsel or the party." (22 NYCRR §130-1.1[c].)

Petitioners contend that respondent's conduct was frivolous as it had no basis in law or fact to vacate or modify the Arbitrator's Award. Quite to the contrary, respondent proffered reasonable legal arguments that the default provision was an unenforceable penalty that had no nexus to any actual damages. In fact, respondent's position was the very same one that the then Chief Judge took in his dissenting opinion in Matter of Associated Gen. Contrs., NY State Ch. (Savin Bros.), (36 NY2d 957 [1975]), that formed the basis of this court's determination. Inasmuch as there was a legal basis for respondent's arguments, the imposition of sanctions and other costs are not warranted.

Accordingly, it is

ADJUDGED, that the petition is granted, the cross-petition is denied, and the Arbitration Award rendered in favor of petitioners and against respondent is confirmed; and it is further

ADJUDGED, that petitioners Crestwood Mech. Co., Inc. and Vincent Plumbing & Mechanical Co., Inc. do recover from respondent Main Street Lofts Yonkers, LLC , the amount of $82,000.00, plus interest at the statutory rate of 9% from the date of Arbitration Award on February 1, 2011, as computed by the Clerk, together with costs and disbursements as taxed by the Clerk, and that petitioners have execution therefor.

The foregoing constitutes the decision and order of this Court. Courtesy copies of this decision and order have been sent to counsel for the parties.

Dated:New York, New York [*5]

April 13, 2011Hon. Shlomo S. Hagler, J.S.C.