Mosco Holding, LLC v. Danco Holding, LLC

Background

Mosco Holding, LLC and 48th Street Holding, LLC (the petitioners) and Danco Holding, LLC and Amco Holding, LLC (the respondents) formerly owned a thirty-unit residential apartment building on West 48th Street in Manhattan as tenants-in-common. Their agreement required disputes between the owners to be resolved through binding arbitration.

The petitioners began arbitration in February 2022, alleging that the respondents had failed to make required capital contributions and seeking partition and sale of the building. The arbitrator authorized the sale, and the building was sold on April 25, 2023. After deductions for the mortgage balance and various fees, the net proceeds were $3,678,510.00.

After hearings on the allocation of the proceeds, the arbitrator issued a Final Award on September 12, 2023. The award determined that the respondents were entitled to $508,860.00, subject to deductions for arbitration fees and the petitioners’ attorneys’ fees. It also directed that $602,786.00 be delivered to a pooled bank account for certain operating expenses and awarded the petitioners 9% statutory interest beginning on the date of the Final Award, with accrued interest deducted from the respondents’ share.

The parties’ motions

The petitioners sought judicial confirmation of the Final Award under the Federal Arbitration Act (FAA). The respondents cross-moved to vacate, or cancel, the award. They argued that the petitioners had failed to produce electronic and physical documents concerning the building’s expenses. According to the respondents, they discovered this alleged failure at the arbitration hearing, but the arbitrator improperly refused to reopen discovery or impose sanctions.

The respondents argued that the arbitrator’s handling of the discovery dispute amounted to misconduct under FAA § 10(a)(3), which permits vacatur when an arbitrator refuses to hear material evidence or otherwise engages in prejudicial misbehavior. They also argued under FAA § 10(a)(2) that the arbitrator’s rulings showed evident partiality, meaning that a reasonable person would have to conclude that the arbitrator was biased toward one party.

Court’s analysis

The court explained that review of arbitration awards is highly deferential. Under the FAA, an award generally must be confirmed unless one of the statute’s narrow grounds for vacatur, modification, or correction applies.

The court rejected the respondents’ misconduct argument. The arbitrator had substantial discretion over evidence, and the respondents did not show that their ability to present evidence and arguments had been fundamentally or completely blocked. The Final Award stated that the respondents had constructive notice of the alleged discovery deficiencies and had raised their objections too late, after multiple conferences and pre-hearing orders concerning discovery.

The court also noted that the respondents questioned three witnesses about the property’s expenses. Two witnesses identified the property manager as the person with relevant knowledge, but the respondents did not call him as a witness even though he appeared during the hearing. They also did not submit expert testimony about the expenses. The court concluded that the respondents could not claim that they had been prevented from presenting evidence on the issue.

The court separately rejected the evident-partiality argument. It held that the arbitrator’s decision not to require additional document production or impose sanctions did not support an inference of bias. The court concluded that the arbitrator acted within her discretion and that the respondents had not established evident partiality.

Disposition

The court granted the petitioners’ petition to confirm the Final Award, denied the respondents’ cross-motion to vacate the Final Award, and confirmed the Final Award. The clerk was directed to close the motion at ECF No. 9 and terminate the case.