Malkin v. Shasha

Background

Peter L. Malkin, Anthony E. Malkin, Thomas N. Keltner, Jr., and ESRT MH Holdings L.L.C. petitioned under the Federal Arbitration Act to partially vacate and otherwise confirm an arbitration award. The dispute involved Empire State Building Associates, LLC, interests held by participants, and “Overrides”—payments that the petitioners claimed were triggered by a transaction involving a publicly traded real estate investment trust.

Respondents had brought arbitration claims for breach of contract, breach of fiduciary duty, securities fraud, and common-law fraud. They challenged the petitioners’ entitlement to the Overrides, arguing that the agreements authorizing them were invalid because the petitioners had provided no consideration. The petitioners also brought a defamation counterclaim against the Edelman Family Decedent’s Trust based on statements allegedly made by Richard Edelman.

After a two-year evidentiary hearing, the arbitration panel found that the Supervisor had not provided consideration for the Overrides and awarded damages to respondents. The panel also found that the Edelman Trust was not liable for Richard Edelman’s alleged statements because he lacked actual or apparent authority to make them for the trust.

The petition was previously dismissed as to the MTD Respondents because of insufficient service of process. Danielle P. Barger was the only remaining respondent in this proceeding.

Petitioners’ Arguments

The petitioners argued that the panel acted in “manifest disregard of the law,” a highly limited basis for setting aside an arbitration award. They asserted that the panel improperly examined whether the consideration for the Overrides was adequate, ignored the petitioners’ alleged surrender of fees and provision of expanded supervisory services, and disregarded agency law in rejecting liability for the alleged defamation.

Court’s Analysis

The court held that the panel had examined whether any consideration existed, not whether the consideration was adequate. Contract law may prohibit courts from evaluating the adequacy or fairness of consideration, but it still requires an exchange of something having legal value. The petitioners did not identify a clearly applicable legal rule that the panel knowingly ignored.

The court also concluded that the panel’s factual findings were not subject to independent reexamination. The panel had relied in part on the petitioners’ public regulatory filing, which stated that the Supervisor had not paid consideration for the Overrides, and had concluded that the expanded supervisory services were not consideration because all participants received those services, including those who did not consent to the Overrides. Disagreement with the panel’s legal or factual conclusions was not enough to establish manifest disregard.

Regarding the defamation counterclaim, the court found no evidence that the panel ignored agency law. The panel had determined as a factual matter that Richard Edelman did not act with apparent authority for the Edelman Trust. It had considered and rejected the evidence and cases cited by the petitioners, providing a legally supportable basis for its conclusion.

Disposition

The court denied the portion of the petition seeking partial vacatur of the arbitration award. It granted the portion seeking confirmation of the award and confirmed the award in full. The Clerk was directed to enter judgment against the petitioners, jointly and severally, for $1,165,160.50 as allocated by the award, plus 9% annual post-award, pre-judgment interest from October 2, 2020, to the date of judgment, and post-judgment interest calculated from the date of the order. The court did not award attorneys’ fees and costs requested by Barger. The case was closed.