ARBITRATION TO PROCEED DESPITE
This action was commenced in the Supreme Court of the State of New York, New York County concerning the arbitration of a real estate construction dispute. The parties owned interest in the development company. The parties planned to demolish a building and develop a condominium with retail space and entered into a retail unit construction and exchange agreement which reflected the parties’ obligations, rights, interest and costs associated with the real property located at 281 Broadway, New York, New York. This agreement contained the section entitled “Arbitration” which authorized either party to elect to “have any dispute determinable by arbitration pursuant to the provisions of the agreement submitted to arbitration.” Under the agreement, each party was to choose an arbitrator and that two arbitrators would then meet to discuss the substantive issues in the case. If the arbitrators did not “agree upon the question and dispute” then they were to jointly select a third competent and impartial person. If at that time an agreement was still not reached, “then either party, on behalf of both, could request such appointment by the Real Estate Board of New York (REBNY) in accordance with its rules then prevailing.” The plaintiffs filed a Demand for Arbitration with REBNY asserting that the defendants breached their obligations under the agreement. REBNY refused to arbitrate the matter because the process contemplated by the parties’ agreement conflicted with its own procedures. Members of its arbitration roster did not have the requisite professional background to make a determination and the parties were not REBNY members. REBNY’s arbitration secretary offered the names of several REBNY members who were engaged in real estate development so that the parties could make arrangements to select a neutral arbitrator. The plaintiffs commenced this action against the defendants alleging, among other things, breach of the agreement and sought damages as well as injunctive and declaratory relief. The defendants responded by requesting an explanation “as to why the plaintiffs would bring this matter to court in as much as a dispute is clearly supposed to be resolved through arbitration.” The moving party made this application for an order staying the action and compelling plaintiffs to arbitrate their dispute pursuant to the terms of the agreement. In opposition, the plaintiffs believed that the agreement only required arbitration provided that it proceeded under the auspices of REBNY in support of its position that the matter should be litigated and not arbitrated. The plaintiffs attached the redlined draft of the agreement indicating that initially the American Arbitration Association was the entity listed in the agreement instead of REBNY and that the REBNY change was made at the request of the moving party. The moving party emphasized that it was the parties’ intention to arbitrate “any and all disputes” related to or arising out of the agreement. The court determined that arbitration agreements are contracts and their meaning is “to be determined from the language employed by the parties under accepted rules of contract law.” Clearly, the parties intended to “resolve any and all disputes” related to the agreement through arbitration. The procedure that was to be followed, however, was much less clear because the agreement contained inconsistencies. Since the parties chose an elaborate mechanism for arbitrator selection that in no way conformed with REBNY’s procedures, the parties could not have intended for REBNY to be their exclusive arbitration forum. The court did not give credibility to the plaintiff’s insistence that both parties always intended for REBNY to be the exclusive forum for arbitration and that they only agreed to be governed by REBNY’s rules and procedures. The plaintiffs were obviously “unaware of REBNY’s procedures and… if they wanted to have disputes arbitrated only by REBNY, they should have been careful to make that plain in the agreement and should not have consented to an elaborate arbitrator selection process that was inconsistent with REBNY’s rules.” Requiring the parties to arbitrate their dispute would be consistent with the mandatory terms of the agreement. It was no basis for concluding that REBNY’s refusal to preside rendered the arbitration agreement meaningless. New York Law establishes that when the parties’ intention to arbitrate is unmistakable, “arbitration can proceed even if there cannot be compliance with all of the stipulated procedures.” As a result, the motion by the movants to compel arbitration and to stay litigation was granted and the plaintiffs were directed to arbitrate their claims in accordance with the terms of the agreement and in conformity with the agreement’s arbitrator selection provision. Lesrey Co. v. 281 Broadway Holdings LLC, Supreme Court, New York County (NYLJ 10/6/2008). Courtesy of Alfred M. Fazio, Esq., Capuder Fazio Giacoia LLP, 90 Broad Street, New York, New York 10004 (212) 509-9595
Visit our website at CFGNY.com for copies of recent articles as well as other areas of interest to the real estate community. |
||||