Neshgold LP v. The New York Hotel & Motel Trades Council, AFL-CIO
Filing
43
OPINION AND ORDER re: 21 Motion to Confirm Arbitration; 27 Motion to Vacate Arbitration. Petitioner's motion to vacate the arbitration awards is DENIED. Respondent's motion to confirm the arbitration awards is GRANTED. The arbitral award is confirmed. The Clerk of Court is respectfully directed to close the case. (Signed by Judge Katherine Polk Failla on 9/18/2013) (mro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
NESHGOLD LP, d/b/a JFK Plaza Hotel,
:
:
Petitioner,
:
:
v.
:
:
THE NEW YORK HOTEL & MOTEL TRADES
:
COUNCIL, AFL-CIO,
:
:
Respondent.
:
:
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13 Civ. 2399 (KPF)
OPINION AND ORDER
KATHERINE POLK FAILLA, District Judge:
Pending before the Court are competing motions to vacate (Dkt. #27),
and to confirm (Dkt. #21), two labor arbitration awards. For the reasons set
forth in the remainder of this Opinion, Petitioner’s motion to vacate is denied
and Respondent’s motion to confirm is granted.
FACTUAL BACKGROUND 1
A.
Petitioner’s Acquisition of the Hotel
Petitioner Neshgold LP, d/b/a JFK Plaza Hotel (“Petitioner” or
“Neshgold”), is the operator of a hotel located at 151-20 Baisley Boulevard,
Jamaica, New York, 11434 (the “Hotel”). (Petition to Vacate at ¶ 2). The Hotel,
under different management, entered Chapter 11 bankruptcy at the end of
1
The facts are drawn from Petitioner’s Amended Petition to Vacate Two Arbitration
Awards (the “Petition to Vacate”) (Dkt. #15); its Memorandum of Law in Support of the
Motion to Vacate (“Pet. Br.”) (Dkt. #27); Respondent’s Memorandum of Law in Support
of the Motion to Confirm Two Arbitration Awards (“Resp. Br.”) (Dkt. #22); exhibits
attached to the Petition to Vacate (“Exhs.”); Arbitration Award #2012-66 (the “Liability
Award,” included as Exhibit A to Respondent’s Amended Answer (Dkt. #13)); and
Arbitration Award #2013-18 (the “Relief Award,” included as Exhibit B to Respondent’s
Amended Answer).
2010, in the course of which a court-appointed trustee assumed operations.
(Liability Award at 10). Petitioner received approval from the bankruptcy court
to acquire the Hotel in March 2011. (Id.).
Respondent New York Hotel & Motel Trades Council, AFL-CIO
(“Respondent” or “Union”), is a labor organization that represents the Hotel’s
employees. (Petition to Vacate at ¶ 3). Respondent had longstanding labor
disputes with the Hotel’s prior management, and agreed to support Petitioner
Neshgold’s acquisition of the Hotel subject to an agreement to resolve these
outstanding disputes. (Liability Award at 10).
On March 28, 2011, the parties entered into a Memorandum of
Agreement (the “MOA”) outlining the concessions made by both sides to enable
Petitioner to resume normal hotel operations. (Petition to Vacate at ¶ 6). As
pertinent to the instant litigation, Petitioner agreed in the MOA to be bound by
the Industry Wide Agreement (the “IWA”), the collective bargaining agreement
that had been in place prior to Petitioner’s acquisition of the Hotel. (Id. ¶ 7;
MOA at ¶ 1). 2 Among other things, the IWA required binding arbitration of
“[a]ll complaints, disputes or grievances arising between the parties hereto
involving questions or interpretation or application of any clause of this
agreement, or any acts, conducts, or relations between the parties, directly or
indirectly,” to be conducted before the Office of the Impartial Chairperson, a
standing arbitration entity. (IWA at 20).
2
The IWA is included as Exhibit D to Respondent’s Amended Answer.
2
Specific provisions in the MOA addressed Petitioner’s expressed intention
of closing the Hotel for renovations. The parties agreed, for instance, that “the
Hotel may close for renovations necessary to attain a chain flag 3 for a period
not to exceed four (4) months,” and that “the [wage rate provided for elsewhere
in the MOA would] be tolled for the shorter of the renovation period an
employee is not actually working or three months.” (Exh. A at ¶ 4). The MOA
also provided that, “[o]ther than for accrued benefits ... no wages nor Funds
contributions are due for hours not worked by an Employee during the above
renovation period.” (Id.; see also Petition to Vacate at ¶ 9). Presumably in
exchange for these Union concessions, Petitioner agreed elsewhere in the MOA
that “[f]or its initial workforce, [Petitioner would] offer employment ... to all
Employees represented by [Respondent] ... by seniority, for which the Hotel will
have positions upon or after acquisition by Neshgold.” (Exh. A at ¶ 3).
The Hotel closed for renovations on March 31, 2011. (Liability Award at
11). The ensuing renovations period proved challenging, due both to the
disrepair of the property — including numerous active building violations —
and multiple water-damage events. (Petition to Vacate at ¶¶ 11-12, 16-22).
The Hotel did not resume operations until March 22, 2012, almost a year after
its initial closure. (Id. at ¶ 23).
B.
The Arbitration
Respondent Union initiated an arbitration pursuant to the IWA in
November 2011 (Petition to Vacate at ¶ 24), complaining that Petitioner had:
3
The arbitrator noted in the Liability Award that a “chain flag” refers to “a license from
one of the major hotel groups.” (Liability Award at 25).
3
(i) failed to reopen at the end of the four-month renovation period; (ii) failed to
comply with the MOA recall procedures upon eventual reopening; and (iii) failed
to make appropriate severance and benefits payments. (Id. at ¶¶ 24-25;
Liability Award at 12-19).
Petitioner argued in response that MOA paragraph 4 would only have
compelled reopening within four months had the Hotel closed to obtain a chain
flag. The Hotel’s closure was not designed to acquire a chain flag, Petitioner
maintained, but only to restore the Hotel to service condition. As such, the
reopening provision never came into effect. In the alternative, Petitioner argued
that, irrespective of the effect of the reopening provision, the intervening waterdamage events had made it legally impossible for the Hotel to reopen in that
period. (Petition to Vacate at ¶ 27; Liability Award at 19-24).
The arbitrator held a liability hearing on October 22, 2012, and issued
the Liability Award on December 18, 2012, holding for Respondent. In the
Liability Award, the arbitrator concluded that “the purpose of the closing was
to make renovations needed to obtain a chain flag and that, by the express
terms of the MOA, the Hotel was obliged to reopen within four months from the
date it closed for renovation.” (Liability Award at 25). The arbitrator also
rejected Petitioner’s impossibility defense. (Id. at 25-26). Finally, the arbitrator
agreed that Petitioner had failed to recall former employees in accordance with
the MOA. (Id. at 26).
On February 14, 2013, the arbitrator conducted a hearing to determine
damages. (Relief Award at 2). Respondent calculated damages by observing
4
that Petitioner employed 17 individuals on its eventual reopening. With respect
to its failure to reopen claim, Respondent sought back wages and benefit
payments equal to the amount Petitioner would have paid had it reopened on
schedule at the same staffing level. (Petition to Vacate at ¶ 36). With respect
to its failure to recall claim, Respondent sought back wages and benefit
payments equal to the payments actually made to those individuals who were
employed by Petitioner after the Hotel reopened on March 21, 2012, but who
were not recalled in accordance with the MOA. (Relief Award at 6; see also
Petition to Vacate at ¶ 34). Respondent also sought appropriate severance
payments for any employee who did not accept a recall offer (Relief Award at 47; Petition to Vacate at ¶ 33), and an additional 15% surcharge for Petitioner’s
allegedly willful violation of the MOA (Relief Award at 6-7).
Petitioner argued that Respondent’s failure to identify specific employees
who should have been recalled deprived the recall damages of the requisite
evidentiary foundation. (Relief Award at 8-9). With respect to damages for
failure to reopen, Petitioner submitted that any award would be impermissibly
speculative; the Hotel’s disrepair prevented Petitioner from employing anyone
at all before the Hotel eventually reopened. (Id. at 10-11).
The arbitrator issued the Relief Award on March 28, 2013, accepting
Respondent’s calculations for both categories of damages with minor
modifications and ordering severance payments, but rejecting the 15%
willfulness surcharge. (Relief Award at 14-17). The arbitrator awarded total
damages of $1,382.254.24. (Resp. Br. at 6).
5
C.
The Instant Litigation
Petitioner filed a petition on March 26, 2013, in the New York State
Supreme Court for New York County, seeking to vacate the Liability Award.
Respondent timely removed the state action to this Court on April 10, 2013
(Dkt. #1), and filed on May 2, 2013, an answer as well as counterclaims
seeking confirmation of both arbitration awards (Dkt. #7). On May 22, 2013,
Petitioner answered these counterclaims. (Dkt. #10). Petitioner filed an
amended petition seeking vacatur of both awards on May 23, 2013. (Dkt. #15).
Respondent answered on May 28, 2013, again pressing counterclaims seeking
confirmation of both arbitration awards. (Dkt. #13). Petitioner answered these
counterclaims on June 3, 2013. (Dkt. #16).
The parties filed the pending motions for vacatur (Dkt. #27) and
confirmation (Dkt. #21) on June 17, 2013.
DISCUSSION
A.
Applicable Law
1.
Judicial Review of Arbitration Awards
Federal law provides for vacatur of arbitration awards “only in very
unusual circumstances.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,
942 (1995). 4 As the United States Supreme Court recently held, “[b]ecause the
4
The parties’ submissions are not clear regarding what body of law each believes should
apply. Petitioner’s opening brief relies almost exclusively on New York State law for
authority to vacate arbitration awards. (Pet. Br. at 7). Respondent contends that
federal law should control under § 301 of the Labor Management Relations Act, Pub. L.
80-101, 61 Stat. 136, codified at 29 U.S.C. §§ 141 et seq. (the “LMRA”), but notes that
New York law also supports confirmation. (Resp. Br. at 3 n.2).
6
parties ‘bargained for the arbitrator’s construction of their agreement,’ an
arbitral decision ‘even arguably construing or applying the contract’ must
stand, regardless of a court’s view of its (de)merits.” Oxford Health Plans LLC v.
Sutter, 133 S. Ct. 2064, 2068 (2013) (quoting Eastern Assoc. Coal Corp. v. Mine
Workers, 531 U.S. 57, 62 (2000)). The Second Circuit underscores this point in
holding that courts should exercise an “extremely deferential standard” when
reviewing arbitration awards. Porzig v. Dresdner, Kleinwort, Benson, N. Am.
LLC, 497 F.3d 133, 139 (2d Cir. 2007).
Deference to arbitrators is especially important in the labor context, as
“[t]he federal policy of settling labor disputes by arbitration would be
undermined if courts had the final say on the merits of the awards.” United
Steelworkers of Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593, 596 (1960).
Under the LMRA, an arbitrator’s award arising from a collective bargaining
agreement “is legitimate and enforceable as long as it ‘draws its essence from
the collective bargaining agreement’ and is not merely an exercise of the
arbitrator’s ‘own brand of industrial justice.’” Int’l Bhd. of Elec. Workers, Local
The outcome here would remain the same under state or federal law because, as set
forth below, the arbitrator did not exceed his authority, violate public policy, or
manifestly disregard the law. See Tivo, Inc. v. Goldwasser, No. 12 Civ. 7142 (LLS), 2013
WL 586856, at *2 n.1 (S.D.N.Y. Feb. 14, 2013). Nonetheless, the Court will apply
federal law. Section 301 of the LMRA extends federal court subject-matter jurisdiction
to all “[s]uits for violation of contracts between an employer and a labor organization
representing employees in an industry affecting commerce....” 29 U.S.C. § 185(a). This
jurisdiction includes actions to vacate or confirm arbitration awards under collective
bargaining agreements. See Burns Int’l Sec. Servs., Inc. v. Int’l Union, United Plant
Guard Workers of Am., 47 F.3d 14, 16 (2d Cir. 1995). The Supreme Court has held that
Section 301 is “a congressional mandate to the federal courts to fashion a body of
federal common law to be used to address disputes arising out of labor contracts.”
Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 209 (1985) (citing Textile Workers Union of
Am. v. Lincoln Mills, 353 U.S. 448 (1957)). Since the Court has jurisdiction here under
the LMRA (see Petition to Vacate at ¶ 4), federal law should apply. Lincoln Mills, 353
U.S. at 456 (1957).
7
97 v. Niagara Mohawk Power Corp., 143 F.3d 704, 714 (2d Cir. 1998) (quoting
Enterprise Wheel, 363 U.S at 597). Even when an arbitrator has “committed
serious error,” the award should still be confirmed as long as the arbitrator was
“even arguably construing or applying the contract and acting within the scope
of his authority.” United Paperworkers Int’l Union, AFL-CIO v. Misco, Inc., 484
U.S. 29, 38 (1987).
Though the Federal Arbitration Act (the “FAA”), 9 U.S.C. §§ 1 et seq.,
does not apply of its own force to “‘contracts of employment of ... workers
engaged in foreign or interstate commerce,’” courts have often consulted the
FAA “for guidance in labor arbitration cases,” especially given the grant of
authority under the LMRA to “fashion rules of federal common law to govern”
suits for violations of collective bargaining agreements. Misco, 484 U.S. at 40
n.9 (quoting 9 U.S.C. § 1). The FAA creates “mechanisms for enforcing
arbitration awards: a judicial decree confirming an award, an order vacating it,
or an order modifying or correcting it.” Hall St. Assocs., L.L.C. v. Mattel, Inc.,
552 U.S. 576, 582 (2008) (citing 9 U.S.C. §§ 9-11). A court must grant a
motion to confirm an arbitration award unless the award “is vacated, modified,
or corrected” under § 10 or § 11. Id. There are four statutory grounds for
vacatur:
(1) where the award was procured by corruption,
fraud, or undue means;
(2) where there was evident partiality or corruption in
the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in
refusing to postpone the hearing, upon sufficient
8
cause shown, or in refusing to hear evidence
pertinent and material to the controversy; or of any
other misbehavior by which the rights of any party
have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and
definite award upon the subject matter submitted
was not made.
9 U.S.C. § 10(a).
According to the Supreme Court, the only question under § 10(a)(4) “is
whether the arbitrator (even arguably) interpreted the parties’ contract, not
whether he got its meaning right or wrong.” Oxford Health, 133 S. Ct. at 2068.
The Second Circuit has similarly “‘consistently accorded the narrowest of
readings’ to section 10(a)(4).” Jock v. Sterling Jewelers Inc., 646 F.3d 113, 122
(2d Cir. 2011), cert. denied, 132 S. Ct. 1742 (2012) (quoting ReliaStar Life Ins.
Co. of N.Y. v. EMC Nat. Life Co., 564 F.3d 81, 85 (2d Cir. 2009)).
2.
Questions of Arbitrability
The only categorical exception to the profound deference arbitrators
usually enjoy from the courts is with respect to “questions of arbitrability.”
Oxford Health, 133 S. Ct. at 2068 n.2. These questions include “certain
gateway matters, such as whether the parties have a valid arbitration
agreement at all or whether a concededly binding arbitration clause applies to
a certain type of controversy.” Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444,
452 (2003) (plurality opinion). Questions of arbitrability also include “who
should have the primary power to decide” whether a given dispute is arbitrable
under the arbitration clause at issue. First Options of Chicago, Inc. v. Kaplan,
9
514 U.S. 938, 942 (1995) (emphasis omitted). Questions of arbitrability are
“undeniably an issue for judicial determination.” AT & T Technologies, Inc. v.
Commc’ns Workers of Am., 475 U.S. 643, 649 (1986).
Courts should “apply ordinary state-law principles” of contract law to
make this threshold determination of arbitrability and “should not assume that
the parties agreed to arbitrate arbitrability” without clear and unmistakable
evidence of intent to do so. First Options, 514 U.S. at 944. However, if the
question is “whether a particular merits-related dispute is arbitrable because it
is within the scope of a valid arbitration agreement ... the law reverses the
presumption.” Id. at 944-45 (emphasis in original) (internal quotation marks
omitted). When one party to an agreement containing an admittedly valid
arbitration clause contends that a specific issue falls outside an arbitrator’s
authority under that clause, “there is a presumption of arbitrability in the
sense that ‘[a]n order to arbitrate the particular grievance should not be denied
unless it may be said with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted dispute. Doubts
should be resolved in favor of coverage.’” AT & T Technologies, 475 U.S. at 650
(quoting United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574,
582-83 (1960)). Especially when dealing with broad arbitration clauses, “‘[i]n
the absence of any express provision excluding a particular grievance from
arbitration ... only the most forceful evidence of a purpose to exclude the claim
from arbitration can prevail.’” Id. (alteration in original).
10
B.
Application
Petitioner seeks vacatur of both arbitration awards: the Liability Award
because the arbitrator exceeded his authority and issued an award that
violated public policy; and the Relief Award because the arbitrator manifestly
disregarded the law by awarding speculative damages and by failing to
calculate lost wages with reasonable certainty. None of these arguments can
prevail in the face of the Court’s duty to confirm arbitration awards in all but
the narrowest circumstances.
1.
Confirming the Liability Award
i.
The Arbitrator Did Not Exceed His Authority
Petitioner advances two distinct arguments that the arbitrator exceeded
his authority in finding liability for failure to reopen the Hotel. Neither
succeeds. First, Petitioner argues that the MOA clause at issue, providing that
“the Hotel may close for renovations necessary to attain a chain flag for a
period not to exceed four (4) months” (Exh. A at ¶ 4), did not apply to the
Hotel’s closure at all. Petitioner maintains that paragraph 4 never had effect
because “the Hotel never closed to make repairs to obtain a chain flag,” and
that “the record is devoid of any evidence that a single repair was done at the
Hotel” in pursuit of a chain flag. (Pet. Br. at 9). From this, Petitioner reasons
that only by relying on his “personal opinion and facts that were never
presented and not subject to any type of cross examination” was the arbitrator
able to conclude that the Hotel’s closure was designed to receive a chain flag.
(Id. at 9-10). By basing the Liability Award on a body of thought outside the
11
agreement itself, Petitioner concludes, the arbitrator failed to draw the award
from the essence of the agreement and exceeded his authority. (Id. at 10).
Petitioner’s arguments impermissibly attack the arbitrator’s reasoning,
not the scope of his authority. Instructed by § 10(a)(4) of the FAA, a court
must focus on whether the arbitrator “had the power, based on the parties’
submissions or the arbitration agreement, to reach a certain issue, not whether
the arbitrators correctly decided that issue.” DiRussa v. Dean Witter Reynolds
Inc., 121 F.3d 818, 824 (2d Cir. 1997). The court may find that an arbitrator
exceeded his authority when it is “‘clear that the arbitrator must have based his
award on some body of thought, or feeling, or policy, or law that is outside the
contract (and not incorporated in it by reference).’” Pathmark Stores, Inc. v.
Local 1199, Nat’l Health and Human Serv. Emp. Union, SEIU, AFL-CIO, No. 98
Civ. 5230 (DLC), 1999 WL 20896, at *2 (S.D.N.Y. Jan. 19, 1999) (quoting Harry
Hoffman Printing, Inc. v. Graphic Commc’ns Int’l Union, Local 261, 950 F.2d 95,
98 (2d Cir. 1991)) (emphasis in Harry Hoffman). Significantly, however, an
arbitrator may rely on more than the bare terms of a collective bargaining
agreement to enforce it: he or she may “properly consider, for example ...
industry custom and practice.” Id.
Thus, the arbitrator was free to acknowledge, and to rely on, industry
practice as context for his construction of the MOA and the Court cannot
vacate the award on that basis. Here, however, the arbitrator did not rely
solely on his experience, but rather explicitly identified and relied on evidence
in the record supporting his conclusion, including Petitioner’s May 9, 2011
12
letter to the Union and Petitioner’s own timeline, which identified the end of the
four-month renovation period as the date on which the MOA “call[ed] for the
Hotel to reopen.” (Liability Award at 25). The award both evinces “colorable
justification” for its conclusion, Jock, 646 F.3d at 124, and “draws its essence
from” the MOA, Niagara Mohawk, 143 F.3d at 714 (quoting Enterprise Wheel,
363 U.S. at 597).
Petitioner, in its reply brief, makes a different argument. (See Dkt. #40
(“Pet. Reply Br.”)). 5 Here, Petitioner argues that neither the MOA nor the IWA
contains any provision requiring the Hotel to reopen at any specific time. (Pet.
Reply Br. at 5-7). Absent some indication of a contractual “set reopening date,”
Petitioner contends that the parties only agreed that employees had a right to
be recalled when the Hotel eventually reopened, and not a “right to wages and
benefits” during the Hotel’s closure, which Petitioner claims the arbitrator
“impl[ied]” out of the IWA. (Id. at 5-6). That is, as the agreements are silent
with respect to failure to reopen, the parties did not agree to arbitrate such
claims, and the arbitrator exceeded his authority by imposing an award
governing issues not properly before him. (Id. at 7).
This alternative argument questions the arbitrability of the Hotel’s failure
to reopen. Unlike the merits of the Awards themselves, the merits of the
arbitrability issue are properly before this Court. 6 The result, however, is the
5
A version of this second argument is also set out in pages 5 though 7 of Petitioner’s
Memorandum of Law in Opposition to Respondent’s Motion to Confirm Two Labor
Arbitration Awards. (Dkt. #35).
6
The January 26, 2012 Memorandum of Understanding modifying and extending the
IWA expressly accords arbitrators authority over “questions regarding arbitrability,
13
same. Whether a given dispute is arbitrable, especially when a broad
arbitration agreement is implicated, is subject to the reverse presumption set
out in AT & T Technologies and First Options: “‘Doubts should be resolved in
favor of coverage’ ... [and] ‘only the most forceful evidence of a purpose to
exclude the claim from arbitration can prevail.’” AT & T Technologies, 475 U.S.
at 650 (quoting Warrior & Gulf, 363 U.S. at 582-85). No such evidence exists.
The IWA provides that “[a]ll complaints, disputes or grievances arising between
the parties hereto involving ... any acts, conduct or relations between the
parties” are subject to binding arbitration. (IWA at 20). As Respondent points
out (see Resp. Br. at 10) — and Petitioner does not contest — the Second
Circuit construed this very arbitration clause to be all-encompassing: “[n]o
grievance — either specific or general — is excluded from [the IWA’s] broad
coverage.” Pitta v. Hotel Ass’n of New York City, Inc., 806 F.2d 419, 422 (2d
Cir. 1986).
Petitioner’s arguments to the contrary are, on closer examination, merely
additional assaults on the arbitrator’s reasoning. Petitioner argues, for
example, that (i) neither the MOA nor the IWA require the Hotel to reopen by a
specific date, impose a penalty for failure to do so, or create a right to preopening employment; (ii) during the Hotel’s closure, Petitioner had no positions
for Union members and so could not legally have paid any employees; and
(iii) paragraph 3 of the MOA requires Petitioner to follow Union recall
substantive, procedural, or otherwise, or regarding the Impartial Chairperson’s
jurisdiction or authority.” (IWA at 35). This provision was not operative at the time of
these events, however, and so sheds no light on the question of arbitrability Petitioner
presents.
14
procedures for employees “for which the Hotel will have positions,” implying
that such positions would only exist when the Hotel reopened. (Pet. Reply
Br. at 5-11). Yet none of these claims, even if true, would provide the “most
forceful evidence” necessary to overcome the presumption of arbitrability under
the broad arbitration clause.
Petitioner offers no plausible reading of the IWA’s expansive language
that explains why it should not cover a dispute over whether, and when, the
Hotel should have hired Union employees. Given the breadth of the IWA
arbitration clause and the absence of evidence to the contrary, the Court must
conclude that the dispute over the Hotel’s failure to reopen was arbitrable.
See, e.g., New York Hotel & Motel Trades Council, AFL-CIO v. Alphonse Hotel
Corp., No. 01 Civ. 0712 (RCC), 2001 WL 959005, at *3-4 (S.D.N.Y. Aug. 21,
2001) (interpreting the “broad” IWA arbitration clause to require arbitration of
disputes involving any “relations between the parties”).
As this dispute was properly submitted to the arbitrator, his
determination must be confirmed unless he failed to offer “‘a barely colorable
justification for the outcome reached.’” Jock, 646 F.3d at 122 (quoting
ReliaStar, 564 F.3d at 86). And the Court has already concluded that the
arbitrator found more than sufficient support for his conclusion that the MOA
bound the Hotel to reopen at an appointed time. The Court may not consider
the correctness of the arbitrator’s decision that Petitioner is liable for failure to
reopen, only whether that decision “even arguably” construes or applies the
underlying agreements. It plainly does.
15
Petitioner apparently does not contest Respondent’s motion to confirm
the arbitrator’s conclusion that Petitioner is liable for failure to recall. Courts
in the Second Circuit treat an unopposed petition for confirmation of an
arbitration award “as akin to a motion for summary judgment based on the
movant’s submissions,” and the court “‘may not grant the motion without first
examining the moving party’s submission to determine’” that it satisfactorily
demonstrates the absence of material issues of fact. D.H. Blair & Co., Inc. v.
Gottdiener, 462 F.3d 95, 109-10 (2d Cir. 2006) (quoting Vermont Teddy Bear
Co., Inc. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir. 2004)). In the
context of petitions to confirm arbitration awards, that burden “is not an
onerous one,” so long as the court can find a “‘barely colorable justification’” for
the arbitrator’s conclusion. New York City Dist. Council of Carpenters Pension
Fund v. Angel Const. Grp., LLC, No. 08 Civ. 9061 (RJS), 2009 WL 256009, at *1
(S.D.N.Y. Feb. 3, 2009) (quoting Landy Michaels Realty Corp. v. Local 32B-32J,
Serv. Emp. Int’l Union, AFL-CIO, 954 F.2d 794, 797 (2d Cir. 1992)). The
arbitrator here construed MOA paragraph 3 as providing a “very clear
obligation” for Petitioner to offer employment to individuals who had worked at
the Hotel before Petitioner acquired it, and interpreted the documentary
evidence to show that Petitioner had failed to satisfy that obligation. (Liability
Award at 26). The arbitrator’s decision imposing liability on Petitioner for
failure to recall more than satisfies the minimal standard for confirmation.
16
ii.
The Liability Award Does Not Violate Public Policy
Petitioner submits that the Liability Award should be vacated as violative
of public policy. Because the arbitrator merely awarded damages for
contractual breach without compelling action that might conflict with a public
policy, this argument is also unavailing.
Courts may vacate an arbitration award on the grounds that it “is
contrary to public policy.” W.R. Grace and Co. v. Local Union 759, Int’l Union of
United Rubber, Cork, Linoleum & Plastic Workers of Am., 461 U.S. 757, 766
(1983). The public policy in question must “be well defined and dominant,” as
determined by reference to statutory and decisional law. Id. The Supreme
Court has elsewhere cautioned that this analysis must focus only on whether
the award ‘created any explicit conflict with other ‘laws and legal
precedents’” — that is, whether the award itself, if put into effect, “would
actually violate” a specific, dominant public policy. Misco, 484 U.S. at 43-44
(quoting W.R. Grace, 461 U.S. at 766). The Second Circuit has likewise
emphasized that the public policy exception must focus on “result, as opposed
to the arbitrator’s reasoning,” and may only be invoked in the face of an
explicit, not a speculative, conflict. Niagara Mohawk, 143 F.3d at 716.
Petitioner argues that the Liability Award violated the policy enshrined in
the New York City Building Code and the New York State Public Health Law.
Stated summarily, the argument is that the Hotel at its acquisition was so
derelict that had Petitioner opened it, as the arbitrator construed the MOA to
require, the health of the public would have been imperiled. (Pet. Br. at 10-11).
17
Fatal to Petitioner’s argument, however, is the fact that the Liability Award
does not order any action that might run afoul of public policy. The arbitrator
did not — as might have made Petitioner’s argument colorable — order the
Hotel to reopen before coming into compliance with building and health
regulations. The arbitrator ruled only that Petitioner faced liability for
breaching its agreement with Respondent. The result of the Liability Award
does not violate any identifiable public policy, and this challenge is
correspondingly futile. See, e.g., Beth Israel Med. Ctr. v. 1199/S.E.I.U. United
Healthcare Workers E., 530 F. Supp. 2d 610, 616 (S.D.N.Y. 2008) (rejecting a
public policy challenge when “nothing about the arbitration award itself”
violated an identifiable public policy).
2.
Confirming the Relief Award
Petitioner urges the Court to vacate the Relief Award on the grounds that
the arbitrator manifestly disregarded controlling legal rules. (Pet. Br. at 10-13).
This argument is equally futile for the simple reason that the arbitrator
explicitly acknowledged and applied the principles Petitioner identifies.
As “‘judicial gloss’” on the “‘specific grounds for vacatur’” provided in the
statute, the Second Circuit has held that a court “may set aside an arbitration
award if it was rendered in ‘manifest disregard of the law.’” Schwartz v. Merrill
Lynch & Co., Inc., 665 F.3d 444, 451 (2d Cir. 2011) (quoting T.Co Metals, LLC v.
Dempsey Pipe & Supply, Inc., 592 F.3d 329, 340 (2d Cir. 2010)). 7 The manifest
7
The “manifest disregard” standard, first announced in Wilko v. Swan, 346 U.S. 427,
436-37 (1953), was later called into question in Hall Street, 552 U.S. at 585 (“Maybe the
term ‘manifest disregard’ was meant to name a new ground for review, but maybe it
merely referred to the § 10 grounds collectively, rather than adding to them.”).
18
disregard exception, much narrower than “‘mere error in the law or failure ... to
understand or apply the law,’” requires courts to “consider, first, ‘whether the
governing law alleged to have been ignored by the arbitrators was well defined,
explicit, and clearly applicable,’ and, second, whether the arbitrator knew
about ‘the existence of a clearly governing legal principle but decided to ignore
it or pay no attention to it.’” Jock, 646 F.3d at 121 n.1 (quoting Westerbeke
Corp. v. Daihatsu Motor Co., Ltd., 304 F.3d 200, 208-09 (2d Cir. 2002)). In
short, the manifest disregard standard requires confirmation of an arbitration
award “if there is a ‘barely colorable justification for the outcome reached.’”
Banco de Seguros del Estado v. Mutual Marine Office, Inc., 344 F.3d 255, 260
(2d Cir. 2003) (quoting Landy Michaels, 954 F.2d at 797).
The arbitrator ordered Petitioner to pay three distinct forms of relief:
back wages and benefit payments for Petitioner’s failure to reopen the Hotel;
back wages and benefit payments for Petitioner’s failure properly to recall
employees after reopening; and severance payments to employees who declined
recall offers. Petitioner raises distinct manifest-disregard arguments with
respect to the first two categories of damages. Failure to reopen damages
should be vacated, Petitioner submits, because the arbitrator ignored the legal
principle that lost wages must be calculated with “reasonable certainty.” (Pet.
Br. at 12 (quoting Wang v. Yum! Brands, Inc., No. 05 Civ. 1783 (JFB) (MDG),
2007 WL 1521496, at *5 (E.D.N.Y. May 22, 2007)). Failure to recall damages
However, after the Supreme Court expressly declined to consider the vitality of the
manifest disregard standard in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S.
662, 672 n.3 (2010), the Second Circuit has “continued to recognize that standard as a
valid ground” for vacatur of an arbitration award. Schwartz, 665 F.3d at 452.
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should be vacated based on the arbitrator’s neglect of the rule that damages
cannot be based on speculation. (Pet. Br. at 13 (citing Kenford Co., Inc. v. Erie
Cnty, 108 A.D.2d 132, 135-36 (1985), aff’d, 67 N.Y.2d 257 (1986), rev’d on
other grounds sub nom. Kenford Co., Inc. v. Cnty. of Erie, 73 N.Y.2d 312
(1989))). Neither of these contentions is correct.
The arbitrator was well aware not just of the legal principles Petitioner
identifies, but even of Petitioner’s precise argument regarding their application.
After all, the manifest disregard section of Petitioner’s brief here is drawn
almost word-for-word from its brief on damages to the arbitrator. (Compare Pet.
Br. at 11-14 with Relief Award at 8-11). But Petitioner cannot meet the “very
stringent burden” with respect to either of its manifest-disregard claims
because the arbitrator did not “refuse[] to apply” or “ignore” the principles of
law Petitioner identifies. Greenberg v. Bear, Stearns & Co., 220 F.3d 22, 28 (2d
Cir. 2000). On the contrary, obedient to his understanding of what he termed
these “essentially irrefutable” rules (Relief Award at 13), the arbitrator relied on
Petitioner’s “actual staffing level” to craft an award that he judged to be
“anything but hypothetical and speculative” (id. at 15). The Court may not
vacate the award simply because the arbitrator did not ratify Petitioner’s
favored legal interpretation.
Petitioner apparently does not contest the arbitrator’s award of severance
damages. Respondent’s unopposed motion for confirmation thus is again
evaluated “as akin to a motion for summary judgment,” D.H. Blair, 462 F.3d at
109, and will be granted if the Court can find a “‘barely colorable justification’”
20
for the arbitrator’s conclusion, Angel Const. Grp., 2009 WL 256009, at *1
(quoting Landy Michaels, 954 F.2d at 797). The arbitrator concluded that
Petitioner had an “obligation to pay severance pay” that was memorialized in
the MOA. The MOA indeed provides that employees whom Petitioner did not
rehire, for whatever reason, “will receive severance.” (Exh. A at ¶ 3). The
arbitrator’s severance damages award has adequate justification.
CONCLUSION
Petitioner’s motion to vacate the arbitration awards is DENIED.
Respondent’s motion to confirm the arbitration awards is GRANTED. The
arbitral award is confirmed. The Clerk of Court is respectfully directed to close
the case.
SO ORDERED.
Dated:
September 18, 2013
New York, New York
__________________________________
KATHERINE POLK FAILLA
United States District Judge
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