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Euromarket Designs, Inc. v. McGovern & Company

September 3, 2009

EUROMARKET DESIGNS, INC., D/B/A CRATE & BARREL, PETITIONER,
v.
MCGOVERN & COMPANY, LLC, RESPONDENT.



MEMORANDUM OPINION AND ORDER

Euromarket Designs, Inc. ("Euromarket" or "Petitioner") petitions the Court, pursuant to the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 9, to confirm a July 30, 2008, arbitration award against Respondent McGovern and Company, LLC ("McGovern LLC" or "Respondent") that was rendered in connection with a dispute arising from a construction contract between the parties. Respondent has cross-petitioned to vacate the award and requests that a new arbitration hearing be ordered. The Court has jurisdiction of this action pursuant to 28 U.S.C. § 1332. The Court has reviewed thoroughly and considered carefully all of the parties' submissions in this action. For the following reasons, Petitioner's motion to confirm the arbitration award is granted and Respondent's cross-petition to vacate the arbitration award is denied.

BACKGROUND

The following facts are undisputed unless otherwise noted. In or about May 2002, the parties entered into a construction contract (the "Agreement") for a construction project at one of Petitioner's stores. (November 20, 2008, Daniel McGovern Affidavit in Opposition ("McGovern Opp. Aff.") at ¶ 9; December 1, 2008, Andrew Stephenson Aff. ("Stephenson Aff.") at ¶ 3.) The Agreement provides that "[a]ny controversy or Claim arising out of or related to [the Agreement], or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association." (Petition, Ex. A; McGovern Opp. Aff. at ¶ 10.)

A dispute arose involving work performed under the Agreement. ("McGovern Opp. Aff. at ¶ 10; Stephenson Aff. at ¶ 4.) Petitioner retained counsel to represent it in the matter. (Stephenson Aff. at ¶ 4.) Michael P. Goldsmith, who apparently initially represented McGovern LLC as outside counsel in connection with the dispute, was hired by McGovern LLC as General Counsel and Vice President in May 2006 and handled all communications concerning the dispute and other legal matters. (McGovern Opp. Aff at ¶¶ 4, 7, 12; see also (Reply Affirmation of Deborah C. Roth ("Roth Aff."), Ex. 2 (correspondence from Euromarket's counsel to Goldsmith).) At the time he was hired, Goldsmith was an attorney admitted to practice in New York State. (McGovern Opp. Aff. at ¶4.) He was disbarred in June 2007, but McGovern LLC did not become aware of that fact until October 2008, at which time Daniel McGovern ("McGovern"), McGovern LLC's Managing Member, terminated Goldsmith's employment. (Id. at ¶ 6.) Euromarket asserts that its counsel sought to communicate directly with McGovern prior to May 2008 in an effort to resolve the dispute after efforts directed to Goldsmith failed, but that McGovern was unresponsive. McGovern alleges that Goldsmith told him and McGovern LLC that the dispute with Euromarket had been resolved. (Id. at ¶11.)

On or about May 29, 2007, Petitioner submitted a Demand for Arbitration (the "Demand") against McGovern LLC to the American Arbitration Association (the "AAA"). (Petition, Ex. B; McGovern Opp. Aff. at ¶ 10.) In a June 11, 2007, letter to the AAA, Goldmsith acknowledged his receipt of the Demand and of correspondence from the AAA. (Roth Aff., Ex. 2.)

The parties participated in administrative conference calls in August and October of 2007. (Roth Aff., Ex. 4 ("August 16, 2007, letter from the AAA") ("October 30, 2007, letter from the AAA").) A preliminary hearing was held via teleconference on March 17, 2008. (Stephenson Aff. at ¶ 14; see also id., Ex. 13 (March 18, 2008, letter from the AAA to counsel).) An arbitration hearing was scheduled for June 4 and 5, 2008. (Id.) According to Petitioner, Goldsmith was unresponsive to requests from Euromarket's counsel after the preliminary hearing and failed to provide Euromarket with McGovern LLC's exhibits for the scheduled June hearing. (Stephenson Aff. at ¶ 15.) On June 2, 2008, Goldsmith, by e-mail sent to the AAA, requested an adjournment of the June 4-5, 2008, hearing, due to a back injury allegedly suffered the week before. (Reply Affirmation of Deborah C. Roth ("Roth Aff.") at ¶ 4; see also id., Ex. 6 (June 3, 2008, AAA email forwarding Goldsmith's email request).) Goldsmith's request did not include an explanation of his delay in requesting the adjournment beyond asserting that his pain had caused him to lose track of the date of the hearing. (Id.) Petitioner submitted opposition to the request, highlighting Goldsmith's prior dilatory conduct, including delays and communications regarding possible settlement meetings that delayed the filing of the Demand, Respondent's failure to file a response to the Demand, Respondent's failure to respond to the AAA, the Arbitrator and Claimant's counsel, Respondent's failure to pay its administrative fee, Goldsmith's failure to participate in a conference call scheduled with the Arbitrator and Petitioner's counsel, and Respondent's failure to exchange documents in accordance with the schedule set by the Arbitrator. (Roth Aff. at ¶ 7; McGovern Opp. Aff., Ex. 4.) Petitioner also noted that a search on the New York State Bar website revealed that someone with the same name as Respondent's counsel was listed as being disbarred. (McGovern Opp. Aff., Ex 4.) On June 3, 2008, the Arbitrator denied the adjournment request. (Roth Aff. at ¶ 7; McGovern Opp. Aff., Ex. 5.)

Neither Goldsmith nor any other representative of McGovern LLC appeared at the June 4, 2008, hearing. (Roth Aff. at ¶ 10; McGovern Opp. Aff. at ¶ 22.) Petitioner presented documentary evidence and called three witnesses to testify on its behalf. (Roth Aff. at ¶ 12; see also id., Ex. 11 (the "Transcript").) At the conclusion of the hearing, the Arbitrator requested that Petitioner submit an additional memorandum of law with regard to a warranty issue so as to allow the Arbitrator to determine "in good conscience" whether Respondent had any valid defense precluding an award in Petitioner's favor. (Transcript at pp. 99-103.) In addition to the memorandum, Petitioner submitted a request to amend its damages and an affidavit concerning Petitioner's entitlement to attorney fees under the Agreement. (Roth Aff. at ¶ 14.) Petitioner's submissions were copied to Goldsmith via email. (Roth Aff. at ¶ 14, Ex. 12.) A July 2, 2008, letter from the AAA acknowledging receipt of Euromarket's submissions and advising that Respondent had not filed any evidence or documents on its behalf was sent to counsel for Euromarket and to Goldsmith. (Roth Aff. at ¶ 15, Ex 9; see also McGovern Opp. Aff., Ex. 3.) An award dated July 30, 2008 (the "Award"), was issued, granting Petitioner the amount sought in its Demand for Arbitration and interest running from the date of the Demand, and denying Petitioner's motion to amend its damages and Petitioner's request for attorneys fees. (Roth Aff. at ¶ 17; see also Petition, Ex. C.)

According to McGovern, McGovern LLC had no independent knowledge of the arbitration hearing, the Award or the petition to confirm the Award because Goldsmith handled all aspects of the underlying arbitration between the parties, Goldsmith kept the arbitration proceeding a secret, and Goldsmith never informed McGovern that an arbitration hearing had been scheduled. (McGovern Opp. Aff. at ¶¶ 3, 7, 8.) McGovern claims that he was unaware of the Demand, and that his understanding of the dispute between the parties was based on Goldsmith's representations that it was a dispute that had been resolved by Goldsmith, a subcontractor and counsel for Euromarket. (McGovern Opp. Aff. at ¶ 11.) According to Respondent, McGovern did not learn of Goldsmith's disbarrment until October 2008, at which time Goldsmith's employment was terminated. (Id. at ¶ 6.)

Euromarket filed its petition to confirm the Award on September 10, 2008, (the "Petition"), and filed, and served personally on Goldsmith, a motion to confirm the Petition on September 22, 2008. (Docket Entry Nos. 1, 4; Roth Aff. at ¶24.) Other attempts to serve copies of this Court's orders and Petitioner's submissions by first class mail were returned as undeliverable. (Roth Aff. at ¶¶ 19-20.) Those documents were subsequently sent again via certified mail return receipt requested, and were signed for by someone at that address. (Id. at ¶ 21.) By letter dated October 30, 2008, Respondent, through newly-retained counsel, informed the Court that it had only recently learned of the arbitration hearing, the Award and the Petition, and requested an extension of time to oppose the Petition, and a briefing schedule. (Docket Entry No. 10.) According to Respondent, its lack of knowledge stemmed from Goldsmith's failure to inform McGovern LLC of the scheduled arbitration hearing and his failure to inform anyone of his disbarrment. (Id.) Goldsmith had also allegedly defaulted on a number of other matters on Respondent's behalf. (Id.) The Court granted the requested extension. (Id.) On November 20, 2008, Respondent filed its answer to the Petition and also cross-petitioned to vacate the Award. (Docket Entry Nos. 15, 12.)*fn1

DISCUSSION

Arbitration awards are entitled to great deference. Porzig v. Dresdner, Kleinwort, Benson, North America LLC, 497 F.3d 133, 138 (2d Cir. 2007) ("This Court has repeatedly recognized the strong deference appropriately due arbitral awards and the arbitral process, and has limited its review of arbitration awards in obeisance to that process."). The Second Circuit has "often explained that 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." DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 821(2d Cir. 1997) (internal quotation marks and citation omitted).

"A party moving to vacate an arbitration award has the burden of proof, and the showing required to avoid confirmation is very high." D.H. Blair, 462 at 110; see also Goldman v. Architectural Iron Co., 306 F.3d 1214, 1216 (2d Cir. 2002) (it is not enough, to vacate an arbitration award, that the arbitrator made a mistake of law or clear error in fact finding). The FAA provides four statutory grounds for vacating an arbitration award, generally relating to arbitrator misconduct, providing 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 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.A. § 10(a)(3) (West 2009). N.Y. C.P.L.R. § 7511(b) also sets forth four, similar, grounds for vacating an arbitration award under New York law, providing for vacatur if the court finds that the rights of that party were prejudiced by: (i) corruption, fraud or misconduct in procuring the award; or (ii) partiality of an arbitrator appointed as a neutral, except where the award was by confession; or (iii) an arbitrator, or agency or person making the award exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made; or (iv) failure to ...


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