Concierge Auctions, LLC v. A-M 2018 Homes, LLC

Background

Concierge Auctions, LLC, suing as Sotheby’s Concierge Auctions, petitioned to confirm an arbitration award against A-M 2018 Homes, LLC. A-M cross-moved to vacate the award. The dispute arose from an Auction Agreement under which A-M agreed to pay Concierge a premium of 12% of the highest bid, or an equivalent amount if the sale failed to close because of A-M or its agents.

Ahmad Khreshi, A-M’s principal owner and sole manager, signed the Auction Agreement for A-M after representing that he had unilateral authority to bind the company. Concierge and Khreshi then proceeded with preparations for an auction. Khreshi and Riyad Hajjaj attended the auction, and Hajjaj did not object to the auction process. The property was sold to the highest bidder, but A-M later refused to complete the sale, asserting that Hajjaj, whom A-M identified as another member, also had to sign.

The arbitrator ordered A-M to pay Concierge $408,000 in the unpaid premium. The arbitrator later issued a final award reaffirming that amount and requiring A-M to pay $185,100.61 in attorneys’ fees and costs. The arbitrator concluded that Khreshi had at least apparent authority—and possibly actual authority—to bind A-M. The court noted that the arbitrator had not clearly decided the actual-authority issue, so the court reviewed only apparent authority.

Legal standard

Under the Federal Arbitration Act, a court generally must confirm an arbitration award when the parties agreed that a court judgment could be entered on it, unless a statutory ground for vacating, modifying, or correcting the award applies. The party seeking vacatur has the burden of proof, and judicial review is highly limited.

One recognized ground for vacatur is “manifest disregard of the law.” This requires showing that the arbitrator knew a clearly established and applicable legal rule but deliberately refused to apply it or ignored it. An award must be upheld if the arbitrator provided even a barely reasonable justification for the result.

Apparent authority

The court applied New York law. Apparent authority exists when a principal’s words or conduct reasonably cause a third party to believe that an agent has authority to act for the principal. For a limited liability company, New York law generally treats a manager’s acts as binding when the manager appears to be conducting the company’s ordinary business, unless the manager actually lacked authority and the other party knew of that lack of authority.

The court concluded that the arbitrator accurately stated and applied this law. The arbitration record supported findings that Khreshi had day-to-day management authority over A-M’s business, worked with Concierge on marketing and auction documents, repeatedly represented that he could sign for A-M, and acted as the person making the final decision about the auction. A-M’s broker also deferred to Khreshi and had previously relied on him alone to sign another agreement for A-M.

The court further noted that neither Khreshi nor Hajjaj testified at the arbitration, and A-M offered no document, email, or sworn statement showing that Concierge had been told before the auction that Hajjaj’s signature was required. Hajjaj’s attendance at the auction and failure to object also supported the arbitrator’s conclusion that Concierge reasonably believed Khreshi had authority.

The court rejected A-M’s argument that Concierge had a duty to discover and review A-M’s operating agreement. When an LLC manager appears to be conducting the company’s ordinary business, New York law does not require the other party to review the operating agreement before reasonably relying on the manager’s authority. The court stated that Concierge had no reason to know the operating agreement existed or imposed a signature requirement.

Disposition

The court held that the arbitrator did not disregard controlling law and that the award had more than a barely reasonable justification. Concierge’s petition to confirm the arbitration award was GRANTED, and A-M’s cross-motion to vacate the award was DENIED. The Clerk was directed to close the open motion and terminate the case.