Magid v. Waldman

Background

Yosef Magid and Jacob Rottenberg petitioned to confirm an arbitration award entered in their favor against Ari Waldman. The award required Waldman to pay Petitioners $350,135 and stated that a court should award Petitioners attorney’s fees and costs for proceedings needed to confirm or enforce the award or any resulting judgment.

Waldman opposed confirmation and cross-petitioned to vacate the award. He argued that the arbitrator was partial because Rabbi Gavriel Stern communicated privately with the arbitrator, appeared to act for multiple sides, had a family relationship connected to one of the Petitioners, received fees from both Waldman and Petitioners, and was connected to the arbitrator through an alleged debt. Waldman also argued that the arbitrator exceeded his authority by awarding attorney’s fees for the proceedings in court.

Legal standard

The parties disputed whether the Federal Arbitration Act or New York’s arbitration law applied. The court did not decide that issue because Waldman’s request to vacate the award in its entirety failed under either law, while his challenge to the attorney-fee provision succeeded under both.

Both laws require courts to confirm an arbitration award unless a statutory basis for vacating or changing it is shown. Grounds for vacatur include arbitrator partiality, fraud or corruption, misconduct, and an arbitrator exceeding the arbitrator’s authority. A party seeking vacatur bears a heavy burden.

Under the Federal Arbitration Act, vacatur for partiality requires proof of “evident partiality,” meaning that a reasonable person would have to conclude that the arbitrator favored one side. Under New York law, nondisclosure of facts that could reasonably support an inference of bias may justify vacatur, subject to the applicable requirements.

Partiality and waiver

The court stated that the arbitration proceedings were troubling and that the arbitrator’s conduct might not have satisfied the standards applicable to judges. But the court did not decide whether the relationships and conduct showed legally sufficient partiality. Instead, it held that Waldman had waived the objection by continuing with the arbitration after learning the relevant facts.

Waldman acknowledged that he knew all relevant facts no later than August 27, 2019. He nevertheless submitted a summation statement to the arbitrator on September 2, followed up about that submission, and continued pressing for a decision. Although Waldman complained to the arbitrator about Stern and asked that Stern no longer participate, the court found that he did not object to the arbitrator’s own partiality, ask that the arbitration stop, or object to continuing the proceedings. The court therefore rejected Waldman’s request to vacate the entire award.

Attorney’s fees

The court applied the general rule that each side ordinarily pays its own attorney’s fees unless a statute, court rule, or agreement provides otherwise. The court found that no statute or rule authorized fees for the court proceedings.

The court also rejected Petitioners’ arguments that the parties’ agreement or Waldman’s own request for fees supported the award. The agreement did not expressly authorize attorney’s fees for these proceedings, and the arbitrator had made no finding of bad faith. The record did not show that Waldman’s request for fees concerned the court proceedings rather than the arbitration itself. The court concluded that the arbitrator exceeded his authority by awarding Petitioners attorney’s fees for the proceedings in court.

Disposition

Judge Jesse M. Furman granted in part and denied in part Petitioners’ petition to confirm the arbitration award and granted in part and denied in part Waldman’s cross-petition to vacate it. The award was confirmed except to the extent that it provided for attorney’s fees to Petitioners. The Clerk of Court was directed to close the case.