[*1]
Matter of Schwimmer v Malinas
2013 NY Slip Op 50158(U) [38 Misc 3d 1220(A)]
Decided on January 30, 2013
Supreme Court, Kings County
Ruchelsman, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.


Decided on January 30, 2013
Supreme Court, Kings County


In The Matter of the Application of Isaac Schwimmer, Petitioner, For An Order Pursuant to CPLR Article 75 to Confirm the Arbitration Award, dated March 7, 2012,

against

Jonathan Malinas, Respondent.




6320/12

Leon Ruchelsman, J.



The Petitioner, Isaac Schwimmer, submitted a Verified Petition seeking a judgment, pursuant to CPLR 7510 and 7514, confirming the Award and Final Decision (the Award) of the Beth Din Bais Hora'ah Etz Chaim (the "Beth Din" or the "Panel"), "dated as of March 7, 2012". The arbitration award includes (i) a monetary award of $91,578.10 against Respondent, Jonathan Malinas, (ii) an order directing Respondent to turn over control and ownership interest in certain entities owning the Regency and Pond properties, and (iii) an order requiring Respondent to deposit sufficient capital so that the property owned and controlled by Valentine Associates, LLC can be remediated. Petitioner also requests interest, costs and disbursements of this proceeding provided in the Award. In response, Respondent submitted a "cross petition" seeking to vacate the Award pursuant to CPLR 7510 [FN1] [sic] on various grounds. Papers were submitted by the parties and arguments held. After reviewing all the arguments this court now makes the following determination.

Finding of Facts


In 2008, the parties purchased three buildings in the Bronx, at: (i) 2155 Mohegan Avenue, held by Pond Realty, LLC, (ii) 2369 Valentine Avenue, held by Regency Associates, LLC and (iii) 265 East 182nd Street, held by Valentine Associates, LLC (the "Partnership Properties"). In addition to managing these three properties, Petitioner also managed three of Respondents [*2]properties. Initially, Petitioner was paid a management fee for the management of all six properties. In October 2009, the parties formed Affordable Management, Inc ("Affordable"), to manage the Partnership Properties, now free of charge, and Respondent's three properties at a discounted fee (Schwimmer Aff in Further Support of the Petition ¶¶ 7, 10, 12).

In March 2011, a dispute arose between the parties regarding management fees Petitioner believed Respondent owed him. On March 31, 2011, the parties agreed to go before a Beth Din to hear their dispute. Before presenting their dispute, the parties signed two arbitration agreements, one in English and one in Hebrew, confirming that they understood the terms of the agreement and that they agreed to the terms. The Beth Din found that Respondent owed Petitioner the sum of $40, 358.50 for managing the partnership properties (March Decision) and later found Petitioner was owed an additional $5,000 for managing a motel owned exclusively by Respondent (Id. ¶¶ 13-21).

In May 2011, Respondent began removing money from the accounts used to pay the expenses incurred by the Partnership Properties, forcing Petitioner to pay the bills for the Partnership Properties at his own expense. Respondent also instructed Petitioner to close their office Petitioner had been using to manage the properties through Affordable. Petitioner complied with the request and removed Affordable's computers to an office in Petitioner's basement, the original location of the Affordable office. In response to the parties' deteriorating business relationship, Respondent retained a Rabbi Epstein as his rabbinical advisor and contacted the Beth Din for a second hearing (Id. ¶¶ 24-32).

In June 2011, prior to presenting their cases before the Beth Din, the parties signed a second pair of arbitration [*3]agreements, one in English [FN2] and one in Hebrew [FN3] and confirmed that they understood the terms of the agreement and that they agreed to the terms. At the second proceeding, Petitioner demanded he be paid the monies owed to him from the March Decision and that the properties be sold to the highest bidder as between himself and Respondent. Respondent countered that the Petitioner was mismanaging the buildings and should be removed from his position immediately (Id. ¶¶ 33-40).

The Beth Din issued a partial decision, dated August 15, 2011 (the "August Decision"), that awarded petitioner the monies owed from the March Decision, found no evidence of Petitioner's mismanagement of the buildings and refused to grant Respondent's request to bar petitioner from continuing to manage the properties. The Beth Din also granted the parties two weeks to auction the properties between them. Before conducting the [*4]auction, Beth Din permitted Respondent to inspect the books and records of the Partnership Properties and directed that the parties were to return if the issues were not resolved (Id. ¶¶ 41-42).

After becoming unavailable for further Beth Din hearings and failing to comply with the August Decision, in November 2011, the Beth Din informed Respondent that if he continued his delay it would issue a decision in his absence. At this time, Respondent retained the services of Rabbi Savitsky to serve as his new rabbinical counsel. Rabbi Savitsky requested Beth Din provide him with copies of the second set of arbitration agreements signed by the parties, to which the Beth Din refused in accord with its internal policies. However, the Beth Din offered Rabbi Savitsky the option to come down to the Beth Din itself to view copies of the agreements, to which Rabbi Savitsky declined. Later, Rabbi Savitsky was provided with a copy of the Hebrew but not the English version of the agreement. As per Respondent's request, Petitioner provided him with income and expenses and the rent roll information for the Partnership Properties (Id. ¶¶ 45-56).

In addition to these, Respondent requested he be provided with a copy of the hard drive of the computer used by Petitioner to manage the Partnership Properties (the "Hard Drive"). Petitioner refused this request, fearing that Respondent could use this information to redirect the rent payments from the LLCs to his own private accounts and otherwise frustrate Petitioner's ability to manage the properties. The Beth Din credited Petitioner's concern as valid and instead permitted Respondent unlimited access to view these files at Petitioner's home office, which on four separate occasions he or an employee of his took advantage of this offer. In addition, Beth Din offered to hold a copy of the Hard Drive in escrow and provide Respondent with copies of any specific files he could name were of relevance to his case. Yet, Respondent declined to take advantage of this offer (Id. ¶¶ 57-62).

By a decision dated March 7, 2012 (the "Final Decision") of his twelve claims, the Beth Din awarded Petitioner judgment on four, found in his favor on two others, but under Jewish law could not compel Respondent to pay for them and denied Petitioner's remaining six claims (the "Award"). In total, the Final Decision awarded Petitioner $91,578.10 and further provided that the three Partnership Properties were to be divided evenly with Regency and Pond awarded to Petitioner and Valentine to Respondent. Because the properties awarded to Petitioner were worth more than the one awarded to Respondent, Petitioner was [*5]obligated to pay Respondent the difference, less the amount of money Respondent was required to pay Petitioner as a result of the Final Decision and contribute 50% of the costs required to repair the Valentine property. To date, Respondent has not paid Petitioner the money owed from the March Award, which Petitioner is now seeking to enforce (Id. ¶¶ 76-79).

Respondent argues that the Award should be vacated on several grounds. First, Respondent argues that since one of the principal allegations against Petitioner, is that Petitioner looted their partnership venture of hundreds of thousands of dollars by diverting money collected from the buildings for Petitioner's own personal purposes, it was essential that he have the opportunity to copy the actual computer records contained on the computer Hard Drive used by Petitioner in his management of the Partnership Properties in order to search for deleted files. Respondent argued that it was especially essential to receive a full copy of the hard drive as Rabbi Savitsky related that he had witnessed Petitioner deleting and attempting to delete partnership records. Respondent further argues that Beth Din's decision to prevent him from reviewing the documents was based on illegitimate considerations, such as maintaining "leverage" over respondent to induce him to pay Petitioner the money owed from the March Decision and the Award. Respondent also claims that the Beth Din denied his request to have the Hard Drive copied because it contained evidence of Petitioner's illegal activities, which if ultimately turned over to law enforcement agents could lead to his arrest (Notice of Cross Motion and Cross Petition ¶¶ 14-30).

Second, Respondent argues that he was denied an opportunity to have Petitioner cross-examined with regard to his alleged misuse and conversion of the monies generated from the Partnership Properties (Id. ¶¶ 33-35). Third, Respondent argues that he was prejudiced by the discrepancies in the Hebrew and English versions of the arbitration agreements (see, footnotes 2, 3 supra). Although the Beth Din provided Rabbi Savitsky with a copy of the Hebrew agreement, it refused to furnish him with a copy of the English agreement. This discrepancy prejudiced Respondent in that it prevented his rabbinical counsel from according more emphasis to Respondents rights under the strict applicable Halachic principles, the exclusive choice of law set forth in the English version of the agreement (Id. ¶¶ 36-40). Finally, Respondent argues that the award itself was irrational as it did not provide an equal distribution of the properties. Further, it gives Respondent a property which had fallen into disrepair under Petitioner's management. Respondent also voices [*6]his concern that an appraisal will not sufficiently take into account the problems created by the AEP [FN4] imposition on the Valentine property, in order to ensure that Petitioner pays his fair share of the required repairs to the property (Id. ¶¶ 41-44).

In response to these claims, on behalf of the Beth Din, Rabbi Kohn, Dean and chief Rabbi of the Beth Din, stated that the Panel determined that Respondent was able to obtain all the necessary information he needed from the hard copies of the income and expense information of the properties, in addition to the many hours Respondents team sat in Petitioner's office, examining every aspect of the computer files. Moreover, Beth Din did not see any concern of deleted files, as the only files it believed Petitioner had deleted were icons from the desktop and therefore Respondent did not require a copy of the Hard Drive in order to adequately present his case before the Panel. Upon determining that Respondent's character was suspect in light of the many times he seemed to change his story, the Beth Din found Petitioner's concern that Respondent would use the hard drive to "take over the buildings and cut Petitioner out completely" to be credible (Kohn Aff ¶¶ 18-35).

The Panel was also satisfied with Petitioner's explanation for his removal of funds from one LLC for the use of another, as a verified, legitimate purpose. As a result of Respondent draining funds from accounts used to pay the expenses for the Shared Properties, Petitioner was forced to withdraw funds from the account of one LLC to pay the expenses of another. Based on its satisfaction with Petitioner's answer to these questions, the Beth Din refused to allow Rabbi Savitsky to cross-examine him on these points again. Finally, after determining that it was due to Respondent's wrongful withdrawal of the Valentine funds which caused the property to fall into disrepair in the first instance, it was appropriate for him to receive that property and share in the costs of restoring the property to meet general AEP standards (Id. ¶¶ 36-40).

Conclusions of Law


"It is firmly established that the public policy of New York State favors and encourages arbitration and alternative dispute resolutions" (Westinghouse Elec. Corp. v. New York City Tr. Auth., 82 NY2d 47 [1993], citing, Nationwide Gen. Ins. Co. v. Investors Ins. Co. of Am., 37 NY2d 91 [1975]). Arbitration has [*7]long been shown to be an effective "means of conserving the time and resources of the courts and the contracting parties" (Nationwide Gen. Ins. Co, supra); see, also, Westinghouse Elec. Corp., supra,["These mechanisms are well recognized as an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process'"], quoting, Maross Constr. v. Central NY Regional Transp. Auth., 66 NY2d 341 [1985]). In Nationwide Gen. Ins. Co., the Court of Appeals noted that "[o]ne way to encourage the use of the arbitration forum ... would be to prevent parties to such agreements from using the courts as a vehicle to protract litigation," as such conduct "has the effect of frustrating both the initial intent of the parties as well as legislative policy" (supra)(internal quotations and citation omitted). "Therefore, New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to arbitration" (Smith Barney Shearson Inc. v. Sacharow, 91 NY2d 39 [1997], quoting, Matter of 166 Mamaroneck Ave. Corp. v. 151 E. Post Rd. Corp., 78 NY2d 88 [1991]).

CPLR Article 75 establishes mechanisms for court confirmation, vacatur, modification, and enforcement of arbitration awards. The Article states that a "court shall confirm an award upon application of a party ... unless the award is vacated or modified upon a ground specified in section 7511"(CPLR 7510).[FN5] Where no such grounds exist, a "judgment shall be entered upon the confirmation of an award" (CPLR 7514[a]).

As particularly relevant here, New York courts have confirmed that an agreement to proceed before a Beth Din is treated as an agreement to arbitrate (see, Spilman v. Spilman, 273 AD2d 316 [2000], Weisenberg v. Sass, 209 AD2d 424 [1994][an "arbitration before a Beth Din is a valid form of alternate dispute resolution and therefore a Beth Din, by voluntary [*8]agreement of the parties, can resolve contractual disputes"]). Therefore, arbitration agreements giving religious tribunal power to resolve disputes over disposition of partnership assets either by judgment or by settlement according to Jewish law gives a tribunal broad authority in settling such disputes (Meisels v. Uhr, 79 NY2d 526 [1992]).

Inconsistency between the Hebrew and English Versions of the Arbitration Agreement:

Respondent argues that the Award should be vacated because the English and Hebrew versions of the agreement to arbitrate before the Beth Din, both of which Respondent signed (although Respondent now claims he did not understand [FN6] the Hebrew version of the agreement), had "conflicting provisions" as to the applicable law. In the English version of the agreement (which was not made available to Rabbi Savitsky before the March 2012 arbitration hearing) the provision stated that the dispute would be resolved by "Orthodox Jewish Law." In contrast, the Hebrew version provided that the Panel could make their decision "according to Din Torah, a compromise close to Din or a compromise according to justice and fairness" (see, nn 2,3, supra). Respondent argues, that he was prejudiced by this variation of applicable law between the Hebrew and English [*9]versions of the agreement and that had Rabbi Savitsky been given a copy of the English version of the agreement he would have prepared for the case differently, according greater emphasis on strict applicable Halachic principals.

This argument is without merit. The sole criteria for deciding the case, "Orthodox Jewish Law", set forth in the English version of the agreement was subsumed under the broader Hebrew version of the agreement. Therefore, Rabbi Savitsky was required to prepare for all three options of law, including "Orthodox Jewish Law", as set forth in the Hebrew version of the agreement. Furthermore, Rabbi Kohn states in his affidavit, that both compromise close to Din or a compromise according to justice and fairness fall under the broad category of Jewish Orthodox Law and in fact there was no actual discrepancy between the Hebrew and English versions of the agreement (Kohn Aff., ¶ 57; see, also, Yona Reiss, Jewish Law, Civil Procedure: A Comparative Study, 1 J. Beth Din of Am. 18 [2012]["(I)t c(an) be argued that a submission to din actually subsumes pshara ("compromise")," citing, Shulchan Aruch, Choshen Mishpat, 12:20 (recording as normative law that a judge should refrain from deciding cases according to strict din)]).

Finally, Respondent bears the burden of proof, to provide "clear and convincing evidence", that had Rabbi Savitsky been furnished with the English version of the agreement, prior to arguing in front of the Panel, the outcome of the arbitration would have been different (Berg v. Berg, 85 AD3d 950 [2011]). There is no rational foundation supporting such a conclusion. Indeed, there is nothing in the record that indicates that the Beth Din in fact made their decision in accordance with "Jewish Orthodox Law" to the exclusion of "compromise close to Din" or "compromise according to justice and fairness".

Moreover, in Lentine v. Fundaro, 29 NY2d 382 [1972] the Court of Appeals held that in "the absence of provisions to the contrary in the arbitration agreement, arbitrators are not bound by principles of substantive law or rules of evidence" (id). On the contrary, an arbitrator "may do justice as he sees it, applying his own sense of law and equity to the facts as he finds them to be and making an award reflecting the spirit rather than the letter of the agreement" (Silverman v. Benmor Coats, Inc., 61 NY2d 299, 308-09 [1984], citing, Matter of Sprinzen, 46 NY2d 623, 631 [1979]; see, also, Dicker v. Jodi-Lynn Washomatic, Inc., 149 AD2d 649 [1989] ["Arbitrators have great discretion in fashioning remedies for aggrieved parties and are not bound by substantive rules of law in fixing awards. The arbitrator is empowered to do justice as he sees it, applying his own sense of law and equity [*10]to the facts as he finds them"], Matter of J.M. Weller Assoc., Inc., [Charlebois], 169 AD2d 958 [1991][holding the language of an arbitration agreement is "beyond the scope of judicial review absent an explicit limitation of the arbitrator's powers"]).

In addition to his prejudice claim, Respondent argues that "the discrepancy between the Hebrew and English agreements renders impossible a determination as to what body of law the Panel actually applied in reaching its Award, and for that reason the Award cannot be confirmed" (Cross Petition ¶ 40). There is no requirement that an arbitration panel specify what law it has applied in reaching its decision in order for the award to be confirmed under CPLR §7510. On the contrary, courts have repeatedly affirmed that arbiters are under no obligation to explain their conclusions or how such conclusions were reached (Berg v. Berg, 20 Misc 3d 1142(A) [Sup Ct 2008] affd as mod 85 AD3d 950 [2011][" an arbitrator is not required to justify his or her award. It must merely appear that there exists a rational basis for the award'"], quoting, Howard v. Cigna Ins. Co., 193 AD2d 745 [1993]; see, also, Spear, Leeds & Kellogg v. Bullseye Sec., Inc., 291 AD2d 255 [2002]["arbitrators have no obligation to explain their awards"]; Matter of Andros Cia. Maritima, S.A. [Marc Rich & Co., A.G.], 579 F2d 691 [2d Cir. 1978], Sobel v. Hertz, Warner & Co., 469 F2d 1211 [2d Cir. 1972]).

Evidentiary Decisions:

Respondent argues that the Bet Din deprived him of critical documentary evidence in the possession of Petitioner and as a result undermined Respondent's ability to develop and argue his case. Respondent proposes two theories of law explaining why the Bet Din's decision not to allow him to copy the Hard Drive requires the court to vacate the Award. First, Respondent argues that Beth Din violated CPLR §7511(b)(1) by depriving him of his right to obtain a fundamentally fair hearing by not following the procedures set forth in Article 75 of the CPLR. Specifically, Respondent cites Kaminsky v. Segura, 26 AD3d 188 [2006], along with a host of other cases, to support the proposition that preventing a party from obtaining relevant evidence or failing to consider relevant evidence constitutes "misconduct" warranting vacatur of the resulting award. Second, Respondent argues that the Beth Din's decision not to compel Petitioner to furnish Respondent with a copy of the Hard Drive was based on inappropriate considerations that are in direct contravention to important public policies.

As a preliminary matter, this court notes that there is no [*11]right to discovery of the documents under Petitioner's control in an arbitration such as this without first seeking and obtaining court intervention. It "is firmly established that [u]nder the CPLR, arbiters do not have the power to direct the parties to engage in disclosure proceedings" (Berg, supra, citing, De Sapio v. Kohlmeyer, 35 NY2d 402 1974]["[a]rbitrators do not have the power to direct disclosure]; see, also, Sherrill v. Grayco Builders, Inc., 64 NY2d 261 [1985], N. Am. Foreign Trading Corp. v. Rosen, 58 AD2d 527 [1977]["The panel did, however, exceed its authority by directing pre-arbitration disclosure. Under the CPLR, arbitrators do not have the power to direct the parties to engage in disclosure proceedings"). Instead it is "incumbent upon the petitioner to seek an order directing disclosure in the Supreme Court based upon a showing of extraordinary circumstances" (Berg, supra, citing De Sapio, supra ["courts will not order disclosure in arbitration except under extraordinary circumstances"]; see, §CPLR 3102[c][" Before an action is commenced, disclosure ... to aid in arbitration, may be obtained, but only by court order"]; see, also, Hendler & Murray v. Lambert, 147 AD2d 442 [1989], Katz v. State Dept. of Correctional Services, 64 AD2d 900 [1978]).

There is no indication anywhere in the record that Respondent sought judicial intervention to enable the Beth Din to order evidentiary discovery. It would appear that the Beth Din did not even have the power to order Petitioner to turn over the Hard Drive, let alone commit an error warranting vacatur for failing to make such an order. However, even if it can be shown that the Beth Din had been vested with the power to order such discovery, Respondent still fails to show how Beth Din's decision constituted such a grave error that the Award must be vacated.

Essentially, Respondent is arguing that the Panel committed a wrong by not allowing him to obtain "relevant evidence" and by not considering the relevant evidence, which Respondent potentially could have submitted if given a copy of the Hard Drive, in reaching its final decision.

However, the Respondent has failed to present any evidence to support the proposition that preventing a party from obtaining relevant documentary evidence "constitutes prejudicial misconduct within the meaning of CPLR §7511" (see, Professional Staff Congress/City Univ. of New York v. Bd. of Higher Ed. of City of New York, 39 NY2d 319 [1976]). Obtaining evidence, relates to an arbitrator's powers and decisions over discovery which should not be entwined with the misconduct an arbitrator performs when he or she "refuses to hear relevant and material testimony" (Id). Even [*12]in the case cited by Respondent, Kaminsky v. Segura, the First Department merely considered whether the "arbitrators' refusal to hear the rebuttal expert witness constituted misconduct by preventing them from eliciting pertinent and material testimony" (supra). However, in none of the cases cited by Respondent did the court contemplate whether an arbitrator committed reversible error by not granting a party the ability to perform documentary discovery.

It is has been firmly established that "[o]nce a case is referred to arbitration, all questions of fact and of law are within the judicially unreviewable purview of the arbitrator'" (Raisler Corp. v. New York City Hous. Auth., 32 NY2d 274 [1973], quoting, Matter of S & W Fine Foods [Office Employees Int. Union], 8 AD2d 130 [1959]). It is true that a court may review the evidentiary record but only in order "to discern whether a colorable basis exists for the award" (Roffler v. Spear, Leeds & Kellogg, 13 AD3d 308 [2004], citing, Wallace v. Buttar, 378 F3d 182 [2d Cir. 2004]). "[W]here the arbitrator refuses to hear or consider relevant evidence only because of his mistaken, but judicially unreviewable, interpretation of a rule of law which makes the evidence irrelevant, the award will not be set aside" (Raisler Corp., supra). Furthermore, New York courts have held that "[t]here is no review for manifest disregard of the evidence and the award must be confirmed if there is such a colorable justification even if it is based upon an error of fact or law" (Roffler, supra).

There is no question that the Beth Din in this case considered all of the evidence presented by Respondent. On this particular issue, the only evidence that Respondent has presented relating to this point was that the Beth Din refused to order Respondent be provided with a complete copy of the Hard Drive. Evidence, which the Beth Din clearly stated it did not consider significant. Indeed, the Beth Din credited Petitioner's concern that Respondent could use the information on the Hard Drive to redirect the rent payments from the LLCs to his own private accounts and otherwise frustrate Petitioner's ability to manage the properties.

This court will not consider the credibility findings presented by the Panel. It is well settled that a "court may not re-weigh the evidence or question the credibility findings of the arbitrator" (Beth Israel Med. Ctr. v. Local 814, Intern. Broth. of Teamsters, 165 LRRM (BNA) 2715 [SDNY Sept. 20, 2000], citing, Campbell v. Cantor Fitzgerald & Co., 21 F.Supp2d 341 [SDNY 1998], affd, 205 F.3d 1321 [2d Cir. 1999]; see, also, McDaniel v. Bear Stearns & Co., Inc., 196 F.Supp2d 343 [SDNY 2002]["Nor may [*13]a court question the credibility findings of the arbitrator"], Greenberg v. Bear Stearns & Co., Inc., Fed Sec L Rep P 90696 [SDNY Aug. 23, 1999] affd, sub nom, 220 F3d 22 [2d Cir. 2000]["The Court will not second-guess the credibility findings of the arbitral panel"]).

Thus, in light of the Beth Din's concern regarding Respondent's credibility, it was appropriate for the Panel to deny his request for a complete copy of the hard drive. Its decision to allow Respondent unfettered access to view these files at Petitioner's home office, which Respondent availed himself on four separate occasions was adequate. The Beth Din asked Respondent numerous times to specify or at least describe which specific documents would support his allegations against Petitioner and he would be provided with electronic copies of those files. However, Respondent repeatedly failed to do so.

Furthermore, even if it was determined that the Beth Din in fact failed to consider this particular evidence, the court would still be unable to vacate its decision. It is well settled that an arbitrator's refusal to consider pertinent evidence will only require vacatur where the evidence is determined to be relevant based on the findings of an independent entity using an objective standard (see, e.g. In re State of New York Off. of Mental Health [New York State Correctional Officers and Police Benev. Ass'n, Inc.], 46 AD3d 1269 [2007]["the arbitrator acted irrationally and committed arbitral misconduct by not admitting proof of Neznanyj's criminal convictions which directly related to the charged employee misconduct and conclusively resolved the question of whether he committed that misconduct"], Intercontinental Packaging Co. v. China Nat. Cereals, Oils & Foodstuff Import & Export Corp., Shanghai Foodstuffs Branch, 172 AD2d 224 [1991]["nevertheless the arbitrator's refusal to consider what was later determined to have been pertinent and material evidence, was prejudicial to China National, and justifies vacatur of the award"]). In contrast, Respondent presents no independent finding showing that the evidence withheld by Petitioner was actually "pertinent and material evidence". Instead, Respondent merely surmises that because Petitioner refused to allow him to copy all of the documents regarding the parties' mutual business ventures that the computer files must have contained relevant evidence to support his case (cf. Raisler Corp., supra)["where the arbitrator refuses to hear or consider relevant evidence only because of his mistaken, but judicially unreviewable, interpretation of a rule of law which makes the evidence irrelevant, the award will not be set aside"]). [*14]

Unless, Respondent can actually point to specific documents that show Petitioner's misconduct, which he admittedly was not able to do in spite of the Beth Din's numerous requests for him to submit such evidence, Respondent "fail[s] to meet [his] burden of showing, with clear and convincing proof, that the arbitrators' refusal" to consider the fact that Petitioner withheld evidence from Respondent constituted misconduct requiring vacatur" (Kaminsky, supra).[FN7]

After failing to establish as a matter of law that the Beth Din committed reversible error by not compelling Petitioner to furnish Respondent with a complete copy of the Hard Drive, Respondent resorts to equally unpersuasive public policy arguments. Respondent asserts that Beth Din's decision to prevent him from receiving a copy of the Hard Drive were based on illegitimate considerations, such as maintaining "leverage" over Respondent to induce him to pay Petitioner the money owed from the August Decision. Although it is contested whether the Panel's use of the term "leverage" had the connotations claimed by Respondent, ultimately, it is of no consequence. Even if the Beth Din also included the issue of leverage in making its decision denying Respondent's request for a copy of the hard drive, Respondent fails to provide any legal basis why this motive would justify vacatur. Respondent's reliance on CPLR §7506(c) is unfounded. CPLR §7506(c) merely states that "parties are entitled to be heard, to present evidence and to cross-examine witnesses." It does not however provide a party with any right to demand discovery of documentary evidence. Indeed, as stated above, it is unclear from the record whether the Beth Din even had the ability to order Petitioner to produce such evidence.

Respondent also claims that the Beth Din denied his request to be provided with a copy of the Hard Drive because it contained [*15]evidence of Petitioner's illegal activities, which if ultimately turned over to law enforcement agents could lead to his arrest. Respondent further argues that preventing him from contacting law enforcement agents is contrary to public policy and therefore mandates vacatur. This argument must fail, in that it purports facts that are not supported by anything in the record save for several self-serving emails sent by Rabbi Savitsky to the Beth Din. However, even if Respondent's allegations are true and potential criminal charges against Petitioner did play a role in Beth Din's decision not to have a copy of the Hard Drive provided to Respondent, this court would still be unable to use this as grounds for vacating the Panel's decision.

In order for a court to "vacate an arbitral award" the moving party must present " strong and well-defined policy considerations embodied in constitutional, statutory or common law prohibit...certain relief from being granted by an arbitrator'" (County of Nassau v. Sheriff's Officers Ass'n, Inc., 294 AD2d 31, [2002], quoting, New York State Correctional Officers and Police Benev. Ass'n, Inc. v. State, 94 NY2d 321 [1999]). A "court cannot vacate an arbitration award on public policy grounds when vague or attenuated considerations of a general public interest are at stake" (id.; W.R. Grace and Co. v. Local Union 759, Intern. Union of United Rubber, Cork, Linoleum and Plastic Workers of Am., 461 US 757, 766 [1983][alleged policies that are merely "general considerations of supposed public interests" are not sufficient grounds for vacatur]). Instead, a court must "direct the focus of their inquiry to the result, that is, the award itself" (County of Nassau, supra). Specifically, the court "must be able to examine an arbitration agreement or an award on its face, without engaging in extended fact finding or legal analysis, and conclude that public policy precludes its enforcement" (New York City Tr. Auth. v. Transp. Workers Union of Am., Local 100, AFL-CIO, 99 NY2d 1 [2002], quoting, Matter of Sprinzen, 46 NY2d 623, [1979]).

Hence, the only question before this court is "whether the Panel's decision not to provide Respondent with a copy of the hard drive did violence to an express public policy which would require vacating the award" (County of Nassau, supra). Respondent fails to identify any applicable laws and legal precedents which describe an explicit public policy with which the Panel's decision regarding the copying of the Hard Drive conflicts (id., citing, E. Associated Coal Corp. v. United Mine Workers of Am., Dist., 17, 531 US 57 [2000]). Moreover, vacating an arbitration award for public policy reasons is limited to an arbitrator's final award and not a mere evidentiary decision [*16]during arbitration proceedings (New York City Tr. Auth., supra, New York State Correctional Officers and Police Benev. Ass'n, Inc., supra, County of Nassau, supra,; see, e.g. Rakoszyski v. Rakoszyski, 175 Misc 2d 509 [Sup Ct, Rockland County 1997][direction in award to withdraw order of protection contrary to public policy]).[FN8]

Manifest Disregard of the Law:

Respondent cites New York Partnership Law §41, concerning partnership books that "every partner shall at all times have access to and may inspect and copy any of them." A similar right is granted to members of a limited liability company under New York Limited Liability Company Law §1102.[FN9] Respondent argues that by refusing to compel Petitioner to allow Respondent to obtain a digital copy of the Hard Drive, the Panel violated his statutory rights as a member of a partnership, thus acting in "manifest disregard of the law" (DeRaffele Mfg. Co., Inc. v. Kaloakas Mgt. Corp., 48 AD3d 807 [2008]["An award made by an arbitration panel will not be vacated for errors of law or fact committed by the arbitrators unless the award exhibits a manifest disregard of the law"], quoting, WBP Cent. Assoc., LLC v. Deco Const. Corp., 44 AD3d 781 [2007]).

In Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d 471 [2006] the Court of Appeals cited the Second Circuit that "manifest disregard of law is a severely limited doctrine ... of last resort limited to the rare occurrences of apparent egregious impropriety' on the part of the arbitrators" quoting, Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S, 333 F3d [*17]383 [2d Cir., 2000]). Furthermore, "the doctrine requires more than a simple error in law or a failure by the arbitrators to understand or apply it; and, it is more than an erroneous interpretation of the law" (Id)(internal quotations omitted). In order to "modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case'" (Id, quoting, Wallace, supra). Finally, the court must also find that the laws misapplication led "to an erroneous outcome" (Duferco Intern. Steel Trading, supra)["We will, of course, not vacate an arbitral award for an erroneous application of the law if a proper application of law would have yielded the same result." Similarly, "where an arbitral award contains more than one plausible reading, manifest disregard cannot be found if at least one of the readings yields a legally correct justification for the outcome"]).

"In order to intentionally disregard the law, the arbitrator must have known of its existence, and its applicability to the problem before him" (Id, citing, Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F2d 930 [2d Cir., 1986]). Generally, in "determining an arbitrator's awareness of the law," courts will "impute only knowledge of governing law identified by the parties to the arbitration" (Id). Absent this, courts "will infer knowledge and intentionality on the part of the arbitrator only [where they] find an error that is so obvious that it would be instantly perceived as such by the average person qualified to serve as an arbitrator" (Id).

Even if Respondent is correct that New York's Partnership Law §41 and Limited Liability Company Law §1102(b) are "well defined, explicit, and clearly applicable to the case" at bar and that the Panel disregarded them, Respondent has still failed to show that the Beth Din was in fact both aware of this legal principal and that its application was required in this case. In addition, this court does not find that any erroneous application of Partnership Law §41 or Limited Liability Company Law §1102(b) on the part of the Beth Din constituted "error that [was] so obvious that it [should have been] instantly perceived as such by the average person qualified to serve as an arbitrator" (Id). In Duferco, (supra) the Second Circuit stated that when determining a question of manifest disregard of the law, courts should take a more "lenient subjective inquiry in recognition of the reality that arbitrators often are chosen for reasons other than their knowledge of applicable law, and that it is often more important [*18]to the parties to have trustworthy arbitrators with expertise regarding" Jewish Orthodox Law as it pertains to the dispute before them (supra, citing, Goldman v. Architectural Iron Co., 306 F3d 1214 [2d Cir., 2002]).

Respondent's Statutory Right to Cross-Examine Petitioner:

Respondent argues that in violation of CPLR §7506(c), Beth Din denied his representative from cross-examining a witness during the arbitration proceedings and therefore the court is required to vacate the Panel's decision (see, e.g. Mikel v. Scharf, 85 AD2d 604 [1981][confirming decision to vacate arbitration award where arbitrator refused to permit attorney to introduce evidence or to cross-examine witnesses]).

An arbitration award will be vacated if the court finds that the rights of that party were prejudiced by a failure to follow the procedures of CPLR Article 75, "unless the party applying to vacate the award continued with the arbitration with notice of the defect and without objection," in which case such party will be deemed to have waived its claim (CPLR §7511(b)(1)(iv); see, e.g. Beals v. New York City Tr., 94 AD3d 543 [2012]["Petitioner waived his claim that the arbitrator should have enforced his witness subpoenas by failing to seek a stay of the arbitration and a court ruling compelling compliance and by continuing with the arbitration"], Brezski v. Rockville Centre Union Free School Dist., 2012 NY Slip Op. 31184[U] [Sup Ct, Nassau County 2012]["a defect in procedure is waived where the party applying to vacate the award based thereon continues with the arbitration with notice of the defect and without interposing an objection to it"], citing, Block v. St. Paul Fire & Mar. Ins. Co., 137 AD2d 475 [1988]).

It is clear from Rabbi Savitsky's numerous emails protesting the Panel's refusal to allow him to cross-examine petitioner regarding his alleged misuse and conversion of the monies generated from the Partnership Properties, that Respondent was aware of this alleged "defect". Yet, he continued with the arbitration proceedings without seeking a stay of the arbitration and obtaining a court ruling compelling compliance with the procedures set forth in Article 75. Thus, any claims Respondent may have had with regard to procedural errors committed by the Beth Din have been deemed waived. However, even if Respondent had not waived this claim, his contention is still without merit.

The purpose of the rule set forth in CPLR §7506(c), permitting parties to cross-examine witnesses, is to effectuate the specific function of extracting relevant evidence. Where an arbitrator has concluded that the information sought has already [*19]been provided, a party has no right to insist on continuing to question a witness simply to prolong the arbitration process (see, In re Engel [Refco, Inc.], 193 Misc 2d 91 [Sup Ct 2002] ["Arbitrators have broad discretion to decide what evidence should be presented"], citing GFI Securities, LLC v. Labandeira, 2002 WL 460059, at *6 [SDNY Mar 26, 2002]). In the case at bar, the Panel specifically addressed the issue of Petitioner's withdrawal of the $2,600 and determined that there was nothing wrong with this act. This court will not second guess factual findings determined by the Panel (Liberty Mut. Ins. Co. v. Sedgewick of New York, 43 AD3d 1062 [2007]["a reviewing court may not second-guess the fact-findings of the arbitrator"]). Thus, Respondent "fail[s] to meet [his] burden of showing, with clear and convincing proof, that the arbitrators' refusal to cross-examine Petitioner constituted misconduct by preventing him from eliciting pertinent and material testimony" (Kaminsky, supra).

Finally, even if Respondent could show that pertinent evidence could still have been obtained through cross-examining Petitioner on this point, the court would still be required to deny his claim. It is well settled that "every failure to admit relevant evidence does not constitute misconduct warranting vacatur" (In re Engel [Refco, Inc.], supra, quoting, Flender Corp. v. Techna—Quip Co., 953 F2d 273 [7th Cir.,1992]). To warrant vacatur of an arbitration award, a ruling must be so egregious as to deny a party fundamental fairness (GFI Securities, LLC, supra). There is nothing in the record which indicates that the Panel's refusal to permit Petitioner to be cross-examined on the aforementioned point prejudiced the Respondent in any way. On the contrary, it is clear from the record that the issue that Respondent wished to question Petitioner regarding had already been settled and in the Petitioner's favor.

Rationality of the Award:

The final argument made by the Respondent is that the Award itself is irrational. To support this claim Respondent raises two arguments: (i) the Panel was charged with the task of equally dividing the partnership properties between the parties, which it failed to do when it awarded Petitioner two of the three Partnership Properties, both more valuable than the one awarded to Respondent and (ii) the AEP issues preclude a fair split because, in the words of Respondent, "it is far from clear that an appraisal will take sufficient account of the problems created by the AEP imposition on Valentine."

It is well settled that an "arbitration award must be upheld [*20]when the arbitrator " offer[s] even a barely colorable justification for the outcome reached'" (Wien, supra, quoting, Matter of Andros Cia. Maritima, S.A. [Marc Rich & Co., A.G.], supra, see, also, Roffler, supra, [an "award should be enforced even if a court is convinced that the arbitration panel made the wrong call on the law,' as long as there is a barely colorable basis for the decision"], quoting, Wallace, supra). Indeed, it is well settled that even where an arbitrator's award "contains errors of law and fact committed by the arbitrator," the decision will not necessarily be vacated and that "the courts should not assume the role of overseers to mold the award to conform to their sense of justice" (Wien, supra, citing, Matter of Sprinzen [Nomberg], 46 NY2d 623 [1979], see, also, Matter of New York State Correctional Officers & Police Benevolent Assn. v. State of New York, 94 NY2d 321 [1999] ["A court cannot examine the merits of an arbitration award and substitute its judgment for that of the arbitrator simply because it believes its interpretation would be the better one"]).

However, in this case, the court finds that there is no merit to Respondent's contentions that the division of the properties designated in the award was irrational. "An award is irrational if there is no proof whatever to justify the award'" (Brisman v. Hebrew Academy of Five Towns & Rockaway, 70 AD3d 935, [2010], quoting, Matter of NFB, supra). In the case at bar, "there is nothing in the award which would render it irrational as a matter of law" (Binghamton, supra). On the contrary,"there was sufficient evidence in the record to rationally support the arbitrator's award" (Patel v. Ahmad, 82 AD3d 1104 [2011]).

Respondent's contention that the division of the properties was unequal and that Petitioner was awarded greater than fifty percent (50%) of the value of the partnership properties does not withstand factual analysis. While the Beth Din did award Petitioner more of the physical properties, it offset this discrepancy by requiring Petitioner to pay Respondent a sum of money in an amount equal to the difference between their respective shares.[FN10] [*21]

In conclusion, Respondent has "failed to demonstrate the existence of any of the recognized grounds for vacating the award of the arbitration panel pursuant to CPLR 7511(b)" (Susan D. Settenbrino, P.C. v. Barroga-Hayes, 89 AD3d 1094 [2011]. There is evidentiary support for the award in the record, and it was not irrational. "Moreover, under the circumstances, the arbitration panel effected justice and properly applied its own sense of law and equity to the facts as [it found] them to be'" (Id. at 1095-96, quoting, Erin Const. and Dev. Co., Inc. v. Meltzer, 58 AD3d 729 [2009]).

Attorney Fees and Expenses:

On page 7 of the Final Decision, the Beth Din ordered that "[a]ny party that chooses to challenge this decision in court shall bear the responsibility to cover all legal expenses of all parties to enforce the judgment" (Verified Petition, Exhibit E ). Nevertheless, this court cannot confirm this aspect of the Award. "In a voluntary arbitration attorneys' fees may not be recovered unless they are expressly provided for in the arbitration agreement or by statute" (Myron Assoc., Inc. v. Obstfeld, 224 AD2d 504 [1996]; see, also, Bryan v. Neuman, 1996 WL 34573225 [NY Sup, January 19, 1996][ "New York's statutory law, CPLR 7513, precludes the award of attorneys' fees in arbitration, unless they are expressly provided for in the agreement to arbitrate, which, contrary to respondent's argument, is not the case here"],[FN11] citing, MKC Dev. Corp. v. Weiss, 203 AD2d 573 [1994]). Accordingly, because the arbitration agreement failed to provide for attorneys' fees and other legal expenses, "the arbitrators exceeded the scope of their powers by" directing that in the future if either party challenges the Award, that party will be required to pay the other party's legal costs (id, citing CPLR [*22]§7511[c][2]["Grounds for modifying. The court shall modify the award if: ... 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]").

Accordingly, the cross-petition to vacate the arbitration award is denied and the petition to confirm the award is granted except with respect Respondent's obligation to pay Petitioner's legal expenses incurred during these arbitration confirmation hearings, which is denied.

So ordered.

ENTER:

DATED: January 30, 2013_________________________________

Brooklyn NYHon. Leon Ruchelsman

JSC

Footnotes


Footnote 1: Should have been sought pursuant to CPLR 7511

Footnote 2: The English agreement state that "We the undersigned hereby consent to the appointment of Rabbi(s) Chaim Kohn, Moshe Y Bochner, and Bentzion Meisels, as arbitrator(s) of the dispute concerning all disputes between Issac [sic] Schwimmer and Johanathan [sic] Malins including (but not limited to) Blue Mountain LLC, Renaissance Realty LLC, Pond Realty LLC, Regency Realty, LLC, Valentine Realty LLC, [and] Affordable Urban Management, and hereby consent to the application by said arbitrators of Orthodox Jewish Law to the resolution of such dispute. Any arbitration award made by the arbitrators shall be conclusive determination of the matter, and shall be binding upon the undersigned and shall not be contested by any of them. Judgment upon and such award may be entered in any court having Jurisdiction over the parties on the subject matter of the dispute. Dated June 14, 2011, Brooklyn, NY (Verified Petition [Exhibit C]) (emphasis added).

Footnote 3: The Hebrew agreement, as translated and set forth in the Respondent's Cross Petition (Exhibit Q), "We the undersigned litigants acknowledge with our signature below and she [sic] shall testify for us as if it is one hundred credible witnesses that we accepted upon ourselves the judges Rabbi Chaim Kohn, Rabbi Moshe Yeshaya Bochner, [and] Rabbi Benzion Meisels to adjudicate between us on all the disputes that are between Isaac Schwimmer and Jonathan Malinas including (but not limited to) Blue Mountain LLC, Renaissance Realty LLC, Pond Realty LLC, Regency Realty, LLC, Valentine Realty LLC, [and] Affordable Urban Management[.] And that they will decide between us on the above disputes as they see fit either according to Din Torah, a compromise close to Din or a compromise according to justice and fairness. The decision can be based on a majority opinion even if one will say that he does not know. We also accepted upon ourselves to adhere to any decision that shall be rendered by said rabbis without the ability of appeal, [sic] If one of us will refuse to appear and finish his arguments before the Beth Din so the Beth Din is authorized to finish the decision. We accepted all the [sic] with a complete Kinyan in the best possible way and everything is valid.

We hereby affix our signatures here in Brooklyn, NY on 12 Sivan, 5771 (June 14th 2011)

Isaac Schwimmer and in the name of te [sic] above companies

Jonathan David Malinas and in the name of the above companies

Footnote 4: New York City's Alternative Enforcement Program

Footnote 5: As is relevant herein, CPLR 7511(b)(1) provides that:

"1. The award shall be vacated on the application of a party who either participated in the arbitration or was served with a notice of intention to arbitrate if the court finds that the rights of that party 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."

Footnote 6: Although Respondent does not explicitly make the argument that his inability to understand the Hebrew arbitration agreement negated the validity of the agreement, Petitioner correctly asserts that a failure to understand an agreement signed by a willing party to an agreement does not serve to negate the binding nature of the agreement (see Golden Stone Trading, Inc. v. Wayne Electro Sys., Inc., 67 AD3d 731, 732-33 [2d Dept 2009] [Holding that "the plaintiff [could] not rely on its president's inability to speak English to invalidate the contracts," even where plaintiff's president "averred, in an affidavit, that he was unable to read or speak English, or understand the contracts," because he failed to make "any reasonable effort to have the contracts read to him, nor demonstrated that [the defendant], misrepresented the contents of the contracts to him."], Holcomb v. TWR Express, Inc., 11 AD3d 513, 514 [2d Dept 2004] ["A party who executes a contract is presumed to know its contents and to assent to them," and an inability to understand the language of the agreement, "without more, is insufficient to avoid this general rule"]).

Moreover, even if the court were to find that Respondent's failure to understand the Agreement did prevent the formation of a valid arbitration agreement, the court would still be unable to vacate the Panel's decision. The ground that "a valid agreement to arbitrate was not made" is only available where the party seeking vacatur "neither participated in the arbitration nor was served with a notice of intention to arbitrate" (see CPLR 7511[b][2][ii]; see also CPLR 7503[b][Application to stay arbitration]).

Footnote 7: Respondent cites Minerals & Chemicals Philipp Corp. v. Panamerican Commodities, S.A., 15 AD2d 432 [1st Dept 1962] to support its contention that fundamental fairness requires that a party have an opportunity to obtain relevant documentation even from non-parties, a fortiori it should be entitled to discovery from the adverse party. Respondent's a fortiori argument is unpersuasive. In Minerals & Chemicals Philipp Corp., the First Department held that an arbitrator has the power to subpoena non-parties to obtain evidence, not that it must subpoena non-parties to obtain such evidence. Therefore, a more accurate a fortiori argument, based on this case would be, since an arbitrator has the power to subpoena evidence from a non-party a fortiori it should also have the power to subpoena evidence from an adverse party. In the present case it is not even clear that the Beth Din had the power to subpoena evidence from Petitioner, however, it is incontrovertibly clear that it was not required to do so.

Footnote 8: The case cited by Respondent to support his public policy argument, Hirsch v. Hirsch, 4 AD3d 451 [2d Dept 2004], is distinguishable from the present case. In Hirsch, the Beth Din directed the wife to withdraw a pending criminal complaint against her husband which the court noted deprived the wife her "constitutional right to seek redress or protection in a civil or criminal matter" (Id.). In contrast to the case at bar, in Hirsch, the Beth Din had ordered the withdrawal of a previously submitted charge, while in this case no such criminal complaint is currently pending which Respondent has been directed to withdraw (emphasis added). In addition, the directive to withdraw the criminal complaint was part of the Beth Din's final award, while in this case the disputed discovery decision was obviously not.

Footnote 9: Limited Liability Company Law § 1102(b) "Any member may, subject to reasonable standards as may be set forth in, or pursuant to, the operating agreement, inspect and copy at his or her own expense, for any purpose reasonably related to the member's interest as a member ... any financial statements maintained by the limited liability company for the three most recent fiscal years and other information regarding the affairs of the limited liability company as is just and reasonable."

Footnote 10: The cases cited by the Respondent in support of its claim that the award is irrational, bear little resemblance to the case at bar. In Sawtelle v Waddell & Reed, Inc., 304 AD2d 103 [1st Dept 2003], the First Department found that the "punitive damages award[ed]" by the arbitrator were "grossly disproportionate to the compensatory damages award, and the arbitration panel completely ignored applicable law with regard to proportionality, thereby providing a separate basis for vacating the punitive damages award." Similarly, in Loiacono v Nassau Community Coll., 262 AD2d 485, 486 [2d Dept 1999], the court noted that "the record [was] patently clear that all parties understood that after the college's March 11, 1993, letter, [employee] was no longer employed by the college in any capacity." ... "Thus, the arbitrators' finding that [said employee] was still employed by the college as an adjunct professor as of the 1995-96 [] and entitled to the benefits of the contract, [was] totally irrational." In contrast, the award in this case neither conflicted with any applicable law nor did it conflict with Beth Din's factual findings.

Footnote 11: CPLR §7513 provides, "[u]nless otherwise provided in the agreement to arbitrate, the arbitrators' expenses and fees, together with other expenses, not including attorney's fees, incurred in the conduct of the arbitration, shall be paid as provided in the award. The court, on application, may reduce or disallow any fee or expense it finds excessive or allocate it as justice requires" (emphasis added).