Opinion
01 CIV. 8875 (DLC)
January 15, 2002
For Petitioner: Kevin Schlosser, Ruskin Moscou Evans Faltischek, P.C., Mineola, NY.
For Respondent: David J. McCarthy, Butler, Fitzgerald Potter, New York, NY.
OPINION AND ORDER
Petitioner Vira Goldman ("Goldman") brings this petition to vacate an arbitration award pursuant to the Federal Arbitration Act, 9 U.S.C. § 10 ("FAA"), on the ground that an arbitrator acted in manifest disregard of New York's Home Improvement Business Law, New York Admin. Code § 20-385, et seq. ("Home Improvement Law"), when he found that she was required to pay for a greenhouse she had commissioned the respondent to build and install at her New York City home. Respondent Architectural Iron Company ("AIC") has moved to dismiss the petition on the ground that it is premature because the arbitrator, although issuing an award in its favor, had not yet determined the amount he should award in attorney's fees. For the reasons stated below, Goldman's petition to vacate the arbitration award and AIC's motion to dismiss are each denied.
BACKGROUND
In or about 1994, the petitioner began major renovations of her home located at 4 Sutton Square in New York City and hired several contractors to perform those renovations. On March 2, 1995, Goldman entered into a contract with the respondent, pursuant to which AIC was to fabricate and install a "cast iron wrought iron and glass greenhouse" on the roof of Ms. Goldman's home for a price of $158,000. AIC developed and submitted shop drawings to the petitioner for her approval and review, which were based upon plans developed by architect Geoffrey Paine. During the fabrication phase of the contract, a number of disputes arose between the parties concerning, inter alia, invoices for revised shop drawings, selection of materials appropriate for fabrication of greenhouse components, the quality and timeliness of the work being done by AIC, and difficulty in obtaining necessary approvals for requested change orders.
Ms. Goldman describes the contract as calling for the construction of an orangerie, to be modeled off of the "magnificent conservatory at the Essex House Hotel in New York City." In testimony she gave at the hearings before the Arbitrator, Ms. Goldman explained that the structure she requested was not a greenhouse. "A greenhouse is a working glass structure where you start to plant seeds from seedlings. It's a working greenhouse. An orangerie is a glass room that you sit in and it's part of a lifestyle of such as a house, you attach to the house, away from the house, whatever, and it's called conservatory or an orangerie. Orangerie is French. Conservatory is English."
Ms. Goldman authorized three separate change orders, which added a total of $9,406 to the cost of the project, thereby increasing the contract price to $167,406. AIC claims in addition that Ms. Goldman owes $8,320.60 for its work in preparing a second set of shop drawings. This charge is disputed by Ms. Goldman.
In August of 1996, as it was nearing the completion of the fabrication, AIC refused to proceed further unless a past due invoice was paid and some additional outstanding issues were resolved. As of that time, AIC had received $102,700 from Goldman. On September 13, 1996, AIC was informed that no additional monies would be forthcoming. Ms. Goldman has never received the greenhouse.
Estimating that 90% of the work required under the contract was complete at the time of stoppage, AIC contends that the value of the work performed to that point was $159,926.60.
AIC filed its demand for arbitration against Ms. Goldman on May 23, 1997, seeking $57,462 plus interest at a rate of 18% for the period August 7, 1996 through August 7, 2001, for a total award of $108,730.55. On July 21, 1997, Ms. Goldman asserted a counterclaim in the amount of $213,500. After settlement attempts failed, Ms. Goldman discovered that AIC was not licensed in the City of New York to perform home improvement contracts.
Goldman then moved in the Supreme Court of the State of New York on May 6, 1998, to stay the arbitration proceedings, arguing that the agreement to arbitrate was not enforceable as a matter of public policy and that no award could be rendered in favor of AIC because the Home Improvement Law mandates that no person may solicit, perform, or obtain a home improvement contract from an owner without a license. New York Admin. Code § 20-387(a). AIC argued in response that Goldman was acting as a general contractor in the context of the greenhouse contract and as such was not protected by the Home Improvement Law. On September 30, 1998, the Supreme Court of the State of New York issued a decision and order finding that because Ms. Goldman had participated in the arbitration and had served a counterclaim, the dispute must be resolved in arbitration.
The parties extensively briefed the issues relating to the Home Improvement Law during the arbitration which followed the dismissal of the state lawsuit. AIC argued that it is an institutional and/or commercial contractor that is not in the business of performing home improvement work, that Ms. Goldman was a professional general contractor as well as the owner of the property at issue, and that the work performed under the contract was performed exclusively in Pennsylvania. To establish that Ms. Goldman was in fact the general contractor of the greenhouse project, AIC offered evidence that Ms. Goldman hired numerous tradespeople in connection with the renovations at 4 Sutton Square and coordinated their activities, that she was president of Hladun Goldman, Ltd., a company engaged in the business of renovations and building/design and having its offices at 4 Sutton Square, that she used the resale tax exempt number of that company and the title president (company unspecified) on a tax form connected with the greenhouse project, and that the court decision in Ms. Goldman's divorce proceedings labeled her the general contractor of the renovations at all of the marital properties, including 4 Sutton Square. To support her status as a homeowner, Ms. Goldman offered the deed to the property, the fact that she was consistently referred to as the "owner" in the contract and other documents signed over the course of the project, and her payments to AIC through personal checks. The Arbitrator, a non-lawyer architect, held evidentiary hearings over seven days during a nineteen month period beginning in November 1999. At the conclusion of the hearings, the parties agreed, with the consent of the Arbitrator, to defer a hearing on the amount of AIC's alleged attorney's fees, if any, to be awarded in the event of an award in favor of AIC.
In an award rendered on September 4, 2001, the Arbitrator ordered Ms. Goldman to pay AIC (a) the sum of $108,730.55 with interest thereon at the rate of 9% from January 10, 1996 (date of AIC's letter detailing outstanding invoices for an installment payment and the second set of shop drawings), until the date of payment, and (b) all legal fees incurred by AIC for the arbitration. The Arbitrator denied Ms. Goldman's counterclaim in full. Thereafter, AIC suggested a procedure to resolve the issue of attorney's fees. AIC noted that the Arbitrator's award appeared to include duplicative interest.
The Arbitrator not only awarded the full amount requested by AIC, $108,730.55, which included 18% interest from August 7, 1996 through August 7, 2001, but also interest on that total amount at 9% from January 10, 1996, until the date of payment.
DISCUSSION
It is well-settled that "the FAA does not confer subject matter jurisdiction on the federal courts even though it creates federal substantive law." Greenberg v. Bear Stearns Co., 220 F.3d 22, 25 (2d Cir. 2000), cert. denied, 121 S.Ct. 770 (2001). Rather, "[t]here must be an independent basis of jurisdiction before a district court may entertain petitions under the [FAA]." Harry Hoffman Printing, Inc. v. Graphic Communications, Int'l Union, Local 261, 912 F.2d 608, 611 (2d Cir. 1990); see also Greenberg, 220 F.3d at 25. There is jurisdiction over this petition pursuant to Section 1332 of Title 28, United States Code.The FAA governs arbitration in the United States and "reflects a legislative recognition of the desirability of arbitration as an alternative to the complications of litigation." Genesco, Inc. v. T. Kakiuchi Co., 815 F.2d 840, 844 (2d Cir. 1987) (citation omitted). "`Arbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation.'" Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997) (citation omitted). Arbitration awards are not reviewed for errors made in law or fact. Id. at 13.
The FAA provides that an award may be vacated or modified if: (1) the award was procured by corruption, fraud, or undue means; (2) the arbitrator exhibited "evident partiality" or "corruption"; (3) the arbitrator was guilty of misconduct; or (4) the arbitrator exceeded his powers. 9 U.S.C. § 10(a); see Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 201 n. 3 (2d Cir. 1998). In addition to these statutory grounds, an award may be vacated where the arbitrator acts in manifest disregard of the law. See id. at 202. The doctrine of manifest disregard is severely limited, however, and means more than an error or misunderstanding of law. It requires that "(1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case." New York Telephone Co. v. Communications Workers of America Local 1100, AFL-CIO District One, 256 F.3d 89, 91 (2d Cir. 2001) (citation omitted); see also DiRussa v. Dean Witter Reynolds, Inc., 121 F.3d 818, 821 (2d Cir. 1997) ("The error must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator."). So long as there exists "`a barely colorable justification'" for the arbitration award, it should be enforced. Willemijn, 103 F.3d at 13 (citation omitted).
A. Finality of the Award
Respondent contends that the petition to vacate the award must be dismissed because the award is not yet final. Specifically, because the parties agreed to bifurcate the claim for attorney's fees and the determination on the merits, and because the award grants attorney's fees to AIC without specifying the relevant dollar amount, AIC argues that the award is not final and thus not ripe for review.
Under the FAA, "a district court does not have the power to review an interlocutory ruling by an arbitration panel." Michaels v. Mariforum Shipping, S.A., 624 F.2d 411, 414 (2d Cir. 1980). "Generally, in order for a claim to be completely determined, the arbitrators must have decided not only the issue of liability of a party on the claim, but also the issue of damages." Id. at 413-14. Essentially, to be final, an arbitration award "must resolve all the issues submitted to arbitration," and resolve them "definitively enough so that the rights and obligations of the two parties, with respect to the issues submitted, do not stand in need of further adjudication." Rocket Jewelry Box, Inc. v. Noble Gift Packaging, Inc., 157 F.3d 174, 176 (2d Cir. 1998) (citation omitted) (emphasis in original). Nonetheless, where a series of claims are submitted to an arbitrator, "[a]n award that finally and conclusively disposes of a `separate and independent claim' may be [reviewed] even though the award does not dispose of all the claims that were submitted to arbitration." Advest, Inc. v. Asseoff, No. 92 Civ. 2269 (KMW), 1993 WL 119690, at *5 (S.D.N.Y. April 14, 1993) (citing Metallgesellschaft A.G. v. M/V Capitan Constante, 790 F.2d 280, 283 (2d Cir. 1986)). The parties' submissions to the arbitrator determine the scope of the arbitrator's authority. Trade Transport, Inc. v. Natural Petroleum Charters, Inc., 931 F.2d 191, 195 (2d Cir. 1991). In Michaels, the Second Circuit held that the petition should have been dismissed as premature where the arbitrator's award did not "purport to be final," but was simply a first step in deciding all claims submitted to arbitration. Michaels, 624 F.2d at 413 (citation omitted). The award did not decide any of one entity's claims, did not determine damages on any of the counterclaims pressed, and reserved judgment on one counterclaim. Id. at 412-413.
The award in this case states that it "is in full settlement of all claims and counterclaims submitted to this Arbitration. All claims not expressly granted herein are hereby, denied."
Because the parties agreed to bifurcate the determination of AIC's attorney's fees, the Arbitrator has finally decided the substantive claims presented to him. See, e.g., Corporate Printing Co. v. New York Typographical Union No. 6, No. 93 Civ. 6796 (SS), 1994 WL 376093, at *4-5 (S.D.N.Y. July 18, 1994); Advest, 1993 WL 119690, at *6 (finding the issue of attorneys' fees to be sufficiently separate); Private Sanitation Union Local 813, International Brotherhood of Teamsters v. VJ Rubbish Removal, No. 89 Civ. 5945 (SWK), 1990 WL 144207, at *2 (S.D.N Y Sept. 26, 1990) (collecting cases). Since the arbitration award is final, this petition is not premature.
B. Manifest Disregard
Petitioner's claim that the Arbitrator manifestly disregarded the requirements and the public policy of the Home Improvement Law as well as the evidence presented in relation to that law, fails principally because the petitioner has not shown that that law is "clearly applicable" to the facts of this case. Halligan, 148 F.3d at 202. The Home Improvement Law mandates that
Petitioner also argues that the award should be vacated because of the Arbitrator's misconduct. Petitioner contends: (1) the Arbitrator slept during the hearings, frequently for long periods of time; (2) the Arbitrator was unavailable without explanation for scheduled telephone conferences on several occasions; and (3) the Arbitrator lost several original exhibits entrusted to his custody by the parties.
AIC has submitted the affidavits of its president and its counsel, each of whom attended each session in the arbitration. These individuals swear that they never saw the Arbitrator sleeping. There is no indication in the transcript of the hearings that the Arbitrator was less than attentive during the proceedings. He frequently interjected comments and asked his own questions of witnesses.
Similarly, AIC's affiants explain the loss of certain exhibits during the course of the arbitration. Apparently, there was a misunderstanding among counsel as to whether the case manager would retain the exhibits, and there was confusion when a new case manager was assigned midway through the proceedings.
Finally, when the Arbitrator failed to participate in one or two telephone calls, the calls were rescheduled promptly "and held at a convenient time for all counsel."
No person shall solicit, canvass, sell, perform or obtain a home improvement contract as a contractor or salesperson from an owner without a license therefor.
New York Admin. Code § 20-387(a) (emphasis supplied). Under the law presented to the Arbitrator, the installation of a greenhouse qualifies as a home improvement and requires a license. Chosen Constr. Corp. v. Syz, 525 N.Y.S.2d 848, 850 (1st Dep't 1988). The licensing requirement was imposed to safeguard and protect consumers against fraudulent practices and inferior work by home contractors. B F Bldg. Corp. v. Liebig, 76 N.Y.2d 689, 692 (1990). Thus, the cases cited to the Arbitrator stand for the related principles that (1) an unlicensed contractor may not recover either in contract or in quantum meruit from an owner or tenant under a home improvement contract, see, e.g., Blake Electric Contracting Co. v. Paschall, 635 N.Y.S.2d 205, 207 (1st Dep't 1995); Hughes Hughes Contracting Corp. v. Coughlan, 609 N.Y.S.2d 43 (2d Dep't 1994); Chosen, 525 N.Y.S.2d at 849; Mortise v. 55 Liberty Owners Corp., 477 N.Y.S.2d 2, 3 (1st Dep't 1984); Millington v. Rapoport, 469 N.Y.S.2d 787, 788 (2d Dep't 1983), but an unlicensed contractor may recover from another contractor under a home improvement contract. See, e.g., Blake, 635 N.Y.S.2d at 208; Jack A. Corcoran Marble Co. v. Clark Constr. Corp., 597 N.Y.S.2d 259, 260 (1st Dep't 1993); Parker v. Vista Constr. Concepts, Inc., 511 N.Y.S.2d 458 (2d 11th Districts 1986).
The manifest disregard standard permits a court to vacate an arbitration award where an arbitrator ignored or refused to apply a clearly applicable legal principle. Because the "term `disregard' implies that the arbitrator appreciates the existence of a clearly governing legal principle but decides to ignore or pay no attention to it," this Court's analysis of the governing law is appropriately limited to the law presented to the Arbitrator by the parties. Merrill Lynch, Pierce, Fenner Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986). Unless a party informed the Arbitrator of the relevant law or there is other evidence that the Arbitrator was aware of the law, there is no basis from which to infer conscious disregard of the law. Dirussa, 121 F.3d at 823.
The law cited to the Arbitrator by the parties also established that in construing the Home Improvement Law regulatory scheme, courts should examine the circumstances presented in light of the statutory scheme, and decide how best to further the statutory purposes in a manner that is fair. See Charlebois v. J.M. Weller Associates, Inc., 72 N.Y.2d 587, 593 (1988). None of the law cited to the Arbitrator by the parties addressed the proper application of the licensing regulation where a contracting individual is a homeowner who runs a design business and acts in the capacity of a general contractor on the project at issue.
The hearing transcript demonstrates that there was sufficient evidence to support a conclusion that Ms. Goldman acted as a general contractor under the contract with AIC. The president of AIC testified that Ms. Goldman represented herself as a general contractor in connection with the greenhouse project; a principal of WMA Construction, a subcontractor engaged by AIC on the greenhouse project saw Ms. Goldman functioning as a general contractor, both in hiring the necessary tradespeople and in coordinating their efforts. Although the record contains evidence that Ms. Goldman owned the property and signed numerous documents in that capacity, see O'Mara Org., Inc. v. Plehn, 579 N.Y.S.2d 48, 49 (1st Dep't 1992), there was sufficient evidence that she was acting as a general contractor, including her use of the taxpayer identification number for her business on a Certificate of Capital Improvement.
The Code defines "owner" as follows:
"Owner" means any homeowner . . . tenant, or any other person who orders, contracts for or purchases the home improvement services of a contractor or the person entitled to the performance of the work of a contractor pursuant to a home improvement contract.
New York Admin. Code § 20-386(4).
This Court may not usurp the Arbitrator's discretion to give to the testimony he heard the weight he deemed appropriate. Where "a ground for the arbitrators' decision can be inferred from the facts of the case," the Court cannot vacate the award, "even if the ground for [his] decision is based on an error of fact or an error of law." Willemijn, 103 F.3d at 13 (citation omitted). In sum, there is no indication from the record that the Arbitrator acted in manifest disregard of well-defined and clearly applicable law.
Petitioner argues that the Arbitrator's lack of explanation for the award counsels in favor of finding manifest disregard of the law. It is well settled that arbitrators have no obligation to explain the basis of their awards. See Halligan, 148 F.3d at 204. Only where "an explanation, if given, would have strained credulity," does the absence of explanation support the conclusion that there was manifest disregard. Id. at 204.
CONCLUSION
Respondent's motion to dismiss the petition as premature is denied. The petition to vacate the arbitration award is denied. The Clerk of Court shall close the case.
SO ORDERED: