On July 12, 2018, plaintiff Herman Goldberger (hereinafter Goldberger), commenced an action under index number 514214/2018 (hereinafter the original action) for, inter alia, breach of contract and fraud, against defendants Joel Wertzberger (hereinafter Wertzberger), Yehudis Minster a/k/a Judy Minster (hereinafter Minster) and Lxnbrg Gn Fund H Limited (hereinafter LXNBRG) by filing a summons and verified complaint with the Kings County Clerk's office.

By order to show cause filed on August 28, 2019, under motion sequence number four in the original action, Wertzberger sought an order pursuant to CPLR 7503 (a) staying the original action and compelling Goldberger to arbitration.

By notice of petition and verified petition filed on August 2, 2019, under index number 517047/2019, Goldberger commenced a special proceeding (hereinafter the special proceeding) seeking an order: (1) pursuant to CPLR 7503 (a) permanently staying the arbitration sought by Wertzberger; and (2) awarding Goldberger sanctions against Wertzberger pursuant to 22 NYCRR 130.1-1 (a) for engaging in frivolous conduct.

By order to show cause filed on August 28, 2019, under sequence number two in the special proceeding, Goldberger sought an order pursuant to CPLR 7503 (a) staying the arbitration between himself and Wertzberger before the purported arbitrator, Moshe Oratz, and further enjoining Wertzberger from commencing or proceeding with any other arbitration against Goldberger with respect to the same subject matter. Goldberger also sought an award of sanctions against Wertzberger for engaging in frivolous conduct.

The original action is premised on Wertzberger and his co-defendants' alleged theft of a life insurance policy and its death benefit proceeds, which represented an inheritance left for Goldberger by his grandmother, Reisl Goldberger. In the original action, Goldberger asserted causes of action against defendants Wertzberger, Minster and LXNBRG for fraud and conspiracy, breach of fiduciary duty, breach of contract, unjust enrichment, conversion, act of trustee in contravention of trust pursuant to EPTL § 7-2.4, fraudulent conveyances, rescission, constructive trust, and for an accounting, seeking compensatory damages of $13 million in addition to punitive damages, costs and attorneys' fees.

On July 19, 2019, Wertzberger filed a verified answer to the complaint in the original action.

On August 2, 2019, Goldberger commenced a special proceeding under index number 517047/2019 to stay an arbitration sought by Wertzberger by filing a notice of petition and petition (hereinafter the special proceeding) with the Kings County Clerk's office.

On September 20, 2019, Wertzberger filed a verified answer to the petition in the special proceeding.

On September 20, 2019, after hearing oral argument on the petition, motion sequence numbers one and two in the special proceeding, and motion sequence number four in the original action, the Court ordered an evidentiary hearing pursuant to CPLR 2218 and 7503 to resolve the factual disputes between the parties. The hearing was conducted on December 19, 2019, July 14, 2020 and September 8, 2020. Goldberger and Wertzberger testified and submitted [*2]documentary evidence. Their respective counsel submitted a request for findings of fact pursuant to CPLR 4213 (a) and written legal arguments and conclusions of law.

The original action relates to a $13 million life insurance policy on the life of Goldberger's grandmother Reisl Goldberger (hereinafter the subject policy), which was intended as an inheritance for Goldberger. The subject policy was held in a trust with respect to which Goldberger was initially both the sole trustee and sole beneficiary. In order to finance the payment of premiums due under the subject policy, Goldberger as trustee of the trust entered into an agreement with certain third parties (hereinafter "Third Parties"), whereby the Third Parties agreed to pay all the premiums due under the subject policy in return for a $10 million interest in the death benefit of the subject policy. Pursuant to said agreement, the trust and derivatively Goldberger as sole beneficiary of the trust, retained the remaining $3 million interest in the death benefit under the subject policy. Wertzberger subsequently acquired the interests and assumed the obligations of the Third Parties in connection with the subject policy. Thus, Wertzberger was obligated to pay the premiums on the subject policy in consideration for the $10 million interest in the subject policy's death benefit proceeds, while Goldberger retained a $3 million interest therein.

At some point Goldberger resigned as trustee of the trust and appointed in his place Wertzberger's assistant, defendant Minster. Upon becoming trustee, defendant Minster transferred ownership of the subject policy to defendant LXNBRG. Goldberger's grandmother passed away on October 14, 2014.

In March of 2017, Goldberger learned that Wertzberger had received the subject policy's $13 million death benefit. In March of 2017, Goldberger arranged to meet with Wertzberger at the latter's office to demand his share of the subject policy's $13 million death benefit proceeds. Goldberger believed that he was entitled to a $1.5 million ^[FN1] share of the subject policy's proceeds. Wertzberger, however, maintained that Goldberger was only entitled to a few hundred thousand dollars and refused to pay any portion thereof to Goldberger.

At the conclusion of the March 2017 meeting at Wertzberger's office, the parties agreed to submit their dispute to arbitration before a mutually acceptable third-party arbitrator. However, they did not select an arbitrator at that time. A third party recommended Oratz as arbitrator based on Oratz's alleged knowledge and experience regarding contracts relating to life insurance policies.

Goldberger testified that he contacted Wertzberger and inquired whether he had any business relationship with Oratz at that time, and whether Oratz was acceptable to Wertzberger as an arbitrator. Goldberger did not have Oratz's contact information. Wertzberber did have Oratz's contact information and set up a meeting for the three of them for March 31, 2017, at Oratz's office.

The Court credits Goldberger's testimony that at the March 31, 2017 meeting he asked Oratz and Wertzberger if they had any business relationship together and that both Oratz and Wertzberger denied having any business relationship. The Court does not credit Wertzberger's testimony that Oratz revealed to Goldberger that he had a business relationship with [*3]Wertzberger, and that Goldberger had no issue with that fact.

At the March 31, 2017 meeting, Goldberger also insisted, and both Wertzberger and Oratz agreed, that Oratz, and only Oratz, would hear their dispute and issue a final decision resolving the entire dispute. Wertzberger conceded that this condition was made part of the parties' arbitration agreement. After Goldberger received these assurances, Oratz prepared an arbitration agreement that was signed by Goldberger, Wertzberger and Oratz.

The entirety of the arbitration agreement reads as follows:

This agreement will be binding upon all parties below whereas Herman Goldberger and Joel Wertzberger have a dispute over monies related to Reizl Goldberger Lincoln life subject policy. The parties agree that Moshe Oratz will hear the case and will rule a binding final decision between the parties as sole arbitrator. The amount in question is $1,500,000 - (one million five hundred thousand) The parties waive any and all conflicts. We agree such decision [will be] according to [the arbitrator's] knowledge of Torah [law] [i.e., according to Jewish Law] and if needed enforceable in court.

By the aforementioned conduct, Goldberger and Wertzberger entered into a binding arbitration agreement (hereinafter the arbitration agreement). Pursuant to the arbitration agreement, Oratz was the chosen arbitrator and the scope of the arbitration covered the entire dispute over the proceeds of the subject policy. Wertzberger conceded that as set forth in the arbitration agreement, the parties had agreed to authorize Oratz, and only Oratz, to issue a final binding decision. Furthermore, Goldberger agreed to waive any, and all conflicts that Oratz had with the parties. Goldberger's testimony that he believed the waiver language in the arbitration agreement pertained to future conflict is neither logical nor persuasive. If Oratz and Wertzberger had done or were doing business together on or before March 31, 2017, Goldberger waived any potential conflict that that fact might have caused. Consequently, the Court rejects Goldberger's contention that the arbitration agreement was procured through fraud.

Defendants Minster and LXNBRG did not sign, and were not parties to, the arbitration agreement. After Goldberger and Wertzberger signed the arbitration agreement, they presented their cases to Oratz, who said that he would need time to think the matter over and would issue a decision within the next few days. However, over the next several months, Oratz did not issue a decision and instead, continued to communicate with Goldberger and Wertzberger concerning the details of their respective claims by phone, email and WhatsApp. On June 28, 2017 at 2:07 A.M., Oratz left Goldberger a voice mail message in which he described the ruling that he intended to issue the next day.

Specifically, Oratz stated his ruling would require Wertzberger to immediately pay Goldberger $700,000.00 and deposit an additional $800,000.00 in escrow, the disposition of which the parties would have to find another way to resolve. In that same voice mail message, Oratz stated that he had left a similar message with Wertzberger.

Hours later that same day, without any prior notice, at the request of Wertzberger, a rabbinical court issued an injunction, or "ikul," prohibiting Oratz from issuing any ruling that would impose a financial obligation on Wertzberger. The ikul stated, among other things, that Oratz had no authority to issue such a ruling because the dispute was entirely outside of Oratz's professional field. A claim that Wertzberger asserted to the rabbinical court.

Following receipt of the ikul, by voice message on June 30, 2017, Oratz stated that he would not defy the ikul and would not issue any award in the arbitration. In that same voice message, Oratz stated, with regard to continuing the arbitration, "I'm not doing it," and that the [*4]parties should go to the Tartikov Rabbinical Court (hereinafter Tartikov) to resolve their dispute. On July 26, 2017, Oratz further confirmed that he had "walked away" from the arbitration and again told the parties to proceed to Tartikov to resolve their dispute.

Following the ikul and Oratz's message, Goldberger concluded that the arbitration had terminated. Following the issuance of the ikul, Wertzberger suggested that they voluntarily submit their dispute for arbitration before the Tartikov. However, Wertzberger sought to have only a portion of his dispute with Goldberger submitted for resolution before the Tartikov. Goldberger, on the other hand, was only willing to submit the entire dispute to the Tartikov and not a mere portion thereof.

While the parties were discussing the possible arbitration before the Tartikov, Oratz sent Goldberger and Wertzberger a WhatsApp text message (hereinafter "Oct. 2 Text"). In the Oct. 2 Text, Oratz stated that he was setting the scope of the arbitration before a rabbinical court and purported to make findings of fact that he proposed to be binding upon the rabbinical court.

In November of 2017, Goldberger attended a session before the Tartikov with the issue of the scope of the dispute unresolved. From the perspective of the Tartikov, Wertzberger's participation was necessary for the proceeding to go forward. Because of Wertzberger's absence, the session before the Tartikov was adjourned. At the subsequent session before Tartikov, in January of 2018, Wertzberger's authorized representative did appear, but insisted that Tartikov was bound by the Oct. 2 Text and that the scope of the arbitration must be limited in accordance therewith. Goldberger disagreed and insisted that if it were to arbitrate the dispute, Tartikov had to hear and decide the entire dispute. The Tartikov first addressed the issue of the scope of the arbitration before it and ruled that Goldberger was correct: it would arbitrate the entire dispute and was not limited or bound by the Oct. 2 Text. Wertzberger refused to accept the Tartikov ruling and refused to submit to arbitration of the entire dispute before that rabbinical court.

On an application to stay arbitration, the court must determine three issues: whether the parties made a valid agreement to arbitrate, whether if such an agreement was made it has been complied with, and whether the claim sought to be arbitrated would be barred by the limitation of time had it been asserted in a court of the State (Matter of County of Rockland [Primiano Constr. Co.], 51 NY2d 1, 6-7 [1980]).

Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he or she has not agreed to submit (Matter of Monarch Consulting, Inc. v National Union Fire Ins. Co. of Pittsburgh, PA, 26 NY3d 659 [2016]). A party to an agreement may not be compelled to arbitrate its dispute with another unless the evidence establishes the parties' clear, explicit and unequivocal agreement to arbitrate (see Matter of Jalas v Halperin, 85 AD3d 1178, 1182 [2nd Dept 2011]). Goldberger, Wertzberger and Oratz did enter into a binding arbitration agreement. Pursuant to that arbitration agreement, Oratz was the chosen arbitrator and the scope of the arbitration covered the entire dispute over the proceeds of the subject policy.

Wertzberger conceded that as set forth in the arbitration agreement, the parties had agreed to authorize Oratz, and only Oratz, to issue a final binding decision. Furthermore, Goldberger agreed to waive any and all conflicts that Oratz had with the parties.

It is well-settled law that arbitration agreements are contracts and must be interpreted under the accepted rules of contract law (Salvano v Merrill Lynch, Pierce, Fenner & Smith, 85 NY2d 173 [1995], citing Cowen & Company, 76 NY2d 318, 321 [1990]). Thus, within all [*5]arbitration agreements, as within all contracts, there is an implicit and implied covenant of fair dealing and good faith (see Van Valkenburg, Nooger & Neville v Hayden Publ. Co., 30 NY2d 34, 45 [1972]). 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 [1995], quoting Kirke La Shelle Co. v Armstrong Co., 263 NY 79, 87 [1993]).

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 [2nd Dept 2005], quoting Callanan v Keeseville, Ausable Chasm & Lake Champlain R.R. Co., 199 NY 268, 284 [1910]).

The Court finds that Wertzberger's conduct in pursuing and obtaining an "ikul", or injunction, barred Oratz from fully deciding the dispute and thwarted the arbitration from going forward. The ikul stated that Oratz had no authority to issue such a ruling because, as asserted to that tribunal by Wertzberger, the dispute was entirely outside of Oratz's professional field.

Wertzberger's pursuit of the ikul on the basis that the subject dispute was outside of Oratz's professional field was in direct conflict with the terms of the arbitration agreement. In accordance with the arbitration agreement, Wertzberger agreed to accept Oratz decision in accordance with Oratz's knowledge of the Torah, whatever the extent of that knowledge might be. The Court further finds that Wertzberger's conduct was in bad faith and constituted a willful and material breach of the agreement. The conduct also injured Goldberger's rights to receive the fruits of the arbitration agreement, namely, a binding decision by Oratz covering their entire dispute.

Furthermore, the breach was of such a substantial and fundamental nature that it paralyzed the arbitration process, so that rescission of the arbitration agreement is an appropriate remedy available to Goldberger. Consequently, Goldberger was well within his rights to consider the arbitration agreement rescinded and no longer binding upon him (RR Chester, LLC, 22 AD3d at 654, quoting Callanan, 199 NY at 284).

The Oct. 2 Text messages that Oratz sent Goldberger and Wertzberger stated that he was setting the scope of the arbitration before a rabbinical court and purported to make findings of fact that he proposed to be binding upon the rabbinical court.

The scope of an arbitrator's authority depends on the intention of the parties to an arbitration and is determined by the agreement or submission (Synergy Gas Co. v Sasso, 853 F.2d 59, 63—64 [2d Cir.1988], quoting Ottley v Schwartzberg, 819 F.2d 373, 376 [2d Cir.1987], cert. denied, 488 U.S. 994, 109 S.Ct. 559, 102 L.Ed.2d 585 [1988]).

The Court finds that Goldberger did not authorize Oratz to set the scope of any arbitration before the Tartikov or any other rabbinical court, or issue anything less than a complete and final determination of the entire dispute.

In November of 2017, Goldberger voluntarily attended a session before the Tartikov with the issue of the scope of the dispute unresolved. By his attendance and participation, Goldberger demonstrated his willingness to arbitrate the dispute regarding the subject policy. Although a representative of defendant Minster did appear at the November 2017 session, it is unclear whether they were attempting to appear on behalf of Wertzberger. From the perspective of the Tartikov, Wertzberger's participation was necessary for the proceeding to go forward. Because of Wertzberger's absence, the session before the Tartikov was adjourned. At the subsequent [*6]session before the Tartikov, in January of 2018, Wertzberger's authorized representative did appear, but insisted that the Tartikov was bound by the Oct. 2 Text and that the scope of the arbitration must be limited in accordance therewith. Goldberger disagreed and insisted that if it were to arbitrate the dispute, the Tartikov had to hear and decide the entire dispute.

The Tartikov first addressed the issue of the scope of the arbitration before it and ruled that Goldberger was correct: it would arbitrate the entire dispute and was not limited or bound by the Oct. 2 Text. Wertzberger refused to accept the Tartikov ruling and refused to submit to arbitration of the entire dispute before that rabbinical court. Wertzberger contends, inter alia, that the arbitration agreement is still binding and enforceable, and that the court may merely appoint new arbitrators to replace Oratz. CPLR 7504 provides that if 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 [1976]).

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 [2nd Dept 1956], aff'd 3 NY2d 816 [1957]; see also Basil Castrovinci Associates, Inc. v District 65 Pension Plan, 16 AD3d 493 [2nd Dept 2005]).

In this case, however, Oratz's initial decision to walk away from the arbitration was precipitated by Wertzberger's pursuit of an ikul. As indicated, Wertzberger's pursuit of the ikul triggered Goldberger's right to obtain a rescission of the arbitration agreement.

Oratz's communication to the parties in the Oct. 2 Text revealed his willingness to resume his role as an arbitrator. However, the arbitration agreement was no longer in effect. The Oct. 2 Text was an attempt by Oratz to revive the arbitration agreement and to get the parties to agree to a referral of a part of the dispute to the Tartikov.

An attempt to create a new arbitration agreement may only succeed if both Goldberger and Wertzberger agreed to its terms. Goldberger and Wertzberger did not form a new arbitration agreement. Furthermore, Oratz's role as the arbitrator was not, as Wertzberger would claim, incidental to the arbitration agreements. Oratz's role was specific, exclusive and unequivocally made part of the arbitration agreement.

By participating before the Tartikov, however, Goldberger agreed to be bound by the Tartikov's ruling. If Wertzberger appeared before the Tartikov and participated, he too would have been bound by the ruling of the Tartikov. Wertzberger did appear but contested the scope of the Tartikov's authority. Wertzberger contended that he did not agree to have the Tartikov decide the entire dispute but only part of the dispute.

In the face of Wertzberger's continuing refusal to submit to arbitrate before the Tartikov, that rabbinical court found that Goldberger had satisfied his religious obligation to pursue a resolution of the dispute before a rabbinical court and authorized Goldberger to proceed in civil court.

In conclusion, the Court finds that the original arbitration agreement was no longer binding on Goldberger due to Wertzberger's obstructive conduct. The Court further finds that [*7]the parties by their respective conduct, thereafter, never formed a new agreement to arbitrate. There is, however, a bright line rule that once a party participates in an arbitration proceeding, without availing itself of all reasonable judicial remedies, it should not be allowed thereafter to upset the remedy emanating from that alternative dispute resolution forum (see Matter of Commerce & Indus. Ins. Co. v. Nester, 90 NY2d 255, 262 [1997]).

By Goldberger and Wertzberger's appearance and participation before the Tartikov, neither one would be able to vacate the award of the Tartikov based on a claim that there was no agreement to arbitrate before the Tartikov. The Tartikov found that Goldberger had satisfied his religious obligation to pursue a resolution of the dispute before a rabbinical court and authorized Goldberger to proceed in civil court. It is also noted that Wertzberger has not moved to vacate the Tartikov' s decision pursuant to CPLR 7511(b).

Consequently, Wertzberger's motion for and order compelling Goldberger to arbitrate the dispute regarding the subject policy must be denied. Also, Goldberger's notice of petition and petition, and his motion for an order permanently staying arbitration of the dispute regarding the subject policy must be granted. Goldberger's duplicate requests for sanctions pursuant to 22 NYCRR 130.1-1 (a) in his petition and in his motion are a matter of the Court's discretionary authority. In the exercise of that discretion, the Court declines to impose sanctions.

Herman Goldberger's order to show cause, filed on August 28, 2019, under sequence number two in the special proceeding, for an order pursuant to CPLR 7503 (a) staying the arbitration between himself and Joel Wertzberger from commencing or proceeding with any other arbitration against him with respect to the subject policy is granted.

Herman Goldberger's order to show cause, filed on August 28, 2019, under sequence number two in the special proceeding, for an order awarding him sanctions against Joel Wertzberger for engaging in frivolous conduct is denied.

Joel Wertzberger's order to show cause, filed on August 28, 2019, under motion sequence number four in the original action, for an order pursuant to CPLR 7503 (a) staying the instant action commenced by Herman Goldberger under index number 514214/2018 and compelling the plaintiff Herman Goldberger to arbitration is denied.

Herman Goldberger's notice of petition and verified petition seeking an order: (1) pursuant to CPLR 7503 (a) permanently staying the arbitration sought by respondent Wertzberger is granted.

Herman Goldberger's notice of petition and verified petition seeking an order awarding Goldberger sanctions against Wertzberger pursuant to 22 NYCRR 130.1-1 (a) for engaging in frivolous conduct is denied.

The foregoing constitutes the decision and order of this Court.