Urban Commons 2 West LLC v. New York Hotel & Motel Trades Council, AFL-CIO

Background

Urban Commons 2 West LLC, Urban Commons 2 West II LLC, and Urban Commons 2 West III LLC, together called Urban Commons, bought the Wagner Place Hotel in 2018 and agreed to be bound by an Industry Wide Agreement (IWA) between the Union and the Hotel Association of New York City, Inc. Urban Commons retained Highgate Hotels, LP to operate the hotel. BPC Lender, LLC financed the purchase and received a lien on Urban Commons’ and Highgate’s rights in the hotel.

Article 59(B) of the IWA required an employer to make it a written material condition of any transaction transferring majority ownership, management, or operational control that the party taking that control agree in writing to be bound by the IWA. The mortgage agreements allowed the lender, if Urban Commons defaulted, to take possession of and operate, manage, or control the hotel. The lender did not sign an agreement requiring it to follow the IWA.

The Union began arbitration in 2020, arguing that Urban Commons violated Article 59 by entering into the mortgage agreements without requiring the lender to assume the IWA’s obligations if a default occurred. After hearings, the Impartial Chairperson—the arbitrator—issued an award for the Union on March 10, 2021. He found that the mortgage agreements contemplated a contingent future change in ownership, management, or control and therefore fell within Article 59. The award called the violation technical, gave Urban Commons a reasonable period to correct it, and retained jurisdiction if Urban Commons could not do so.

Urban Commons petitioned the court to vacate, or set aside, the award. The Union cross-petitioned to confirm it. Urban Commons argued that the lender was a required party under Federal Rule of Civil Procedure 19 and that the award should be vacated under the Federal Arbitration Act and the Labor Management Relations Act (LMRA).

Joinder of the Lender

The court held that the lender did not have to be joined. The Union sought confirmation of the award, which required Urban Commons to correct its own violation; it did not ask the court to bind the lender to the IWA. Because the award did not require the lender to do anything, the court could provide complete relief without the lender.

The court also found that Urban Commons had not shown that the lender’s absence would impair the lender’s ability to protect its interests or expose Urban Commons to inconsistent obligations. Although the lender had filed a brief with the arbitrator and therefore appeared to have claimed an interest in the dispute, confirmation would not invalidate the mortgage agreements or force the lender to sign the IWA.

Review of the Arbitration Award

The court described judicial review of labor arbitration awards as highly deferential. Under the LMRA, an award may be vacated in the relevant circumstances if the arbitrator acted outside the authority granted by the labor agreement, showed a manifest disregard of clearly applicable law, or issued an award that violated an explicit public policy. A court may not simply reconsider the arbitrator’s interpretation or replace it with its own view of the agreement’s merits.

The court rejected Urban Commons’s argument that the award could be vacated under the Federal Arbitration Act, explaining that the Federal Arbitration Act does not apply to arbitrations conducted under the LMRA. The court also rejected the argument that the arbitrator disregarded New York law by treating the mortgage agreements as involving a transfer of ownership, management, or control. The arbitrator recognized that the lender currently held only a security interest but concluded that the agreements created a contingent transfer if Urban Commons defaulted. The court found that this interpretation was supported by Article 59’s broad language.

The court further held that the arbitrator did not improperly treat the lender as an IWA “transferee” or “employer.” The award was based on the arbitrator’s conclusion that the lender was a transferee in a contingent transaction, not on a finding that the lender was an employer. The court also declined to vacate the award based on alleged departures from past practice, particularly because the dispute presented a first-time issue for the arbitrator.

Finally, the court held that it could not vacate the award merely because Urban Commons viewed it as commercially unreasonable. The court found no public-policy violation because the award did not force the lender to assume the IWA or do anything else; instead, it found that Urban Commons had violated the IWA and gave Urban Commons time to correct that violation.

Disposition

The Union’s petition to confirm the arbitration award was GRANTED. Urban Commons’s petition to vacate the award was DENIED. The court also directed the Clerk of Court to terminate the motions pending at ECF Nos. 5 and 22.