Siegel v. Lewis

• Decision Date: 23 November 1976
• Citation: 40 N.Y.2d 687,358 N.E.2d 484,389 N.Y.S.2d 800
• Parties: , 358 N.E.2d 484 In the Matter of the arbitration between Murray SIEGEL, Respondent, and Henry LEWIS, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 800

389 N.Y.S.2d 800

40 N.Y.2d 687, 358 N.E.2d 484

In the Matter of the arbitration between Murray SIEGEL, Respondent and Henry LEWIS, Appellant.

Court of Appeals of New York.

Nov. 23, 1976.

Edward L. Schiff, New York City, for appellant.

Stephen W. Schlissel, Brooklyn, and Charles S. Sherman, Glen Cove, for respondent.

FUCHSBERG, Judge.

This proceeding was brought by petitioner Murray Siegel to vacate Samuel Kooper's and Eugene Birnbaum's designation as arbitrators in advance of the commencement of an arbitration under a stock purchase agreement. The question is whether the two arbitrators' prior relationships as attorney and accountant, respectively, for respondent Henry Lewis as well as their personal knowledge of facts bearing both on the making of the agreement and on the subsequent dispute between the parties were sufficient to disqualify them at that early juncture. Special Term held that it was and entered judgment accordingly. By a divided court, the Appellate Division affirmed. For the reasons which follow, we believe its order should be reversed.

A re sume of the facts will be helpful.

By the terms of the stock purchase agreement, Lewis, then owner of all the stock of Henry Lewis Lamp Shade Corporation, sold one half of his interest to Siegel. The consideration for the sale was $55,000, of which $10,000 was to be paid in cash and the balance at the rate of $1,000 per month. Lewis also retained an option to rescind the sale anytime before final payment by returning to Siegel all moneys paid by him along with an amount equal to one half of any increase in the 'net worth' of the corporation.

The agreement named Kooper, who then had been Lewis' and the corporation's lawyer for about 15 years, and Birnbaum, who had served as their accountant for an equally long period, as sole arbitrators. Kooper represented Lewis in the making of the agreement; Birnbaum was named the escrowee. Both were familiar with the negotiations between the principals preceding the sale. Siegel was represented by his own counsel. Kooper and Birnbaum were continued as the corporation's attorney and accountant after Siegel became its half owner.

All these relationships remained unchanged for about three more years. At that time Lewis accused Siegel of having converted funds of the business. In rapidfire order, there then followed an attempt by Lewis to exercise his option, an attempt by Siegel to extinguish the option by tendering $7,200, the amount of the balance then still due, and a demand for the arbitration of both these claims, which, if the exercise of the option were upheld, would also require to arbitrators to determine the method of arriving at 'net worth' and the amount of any increase in it. These events were preceded by a meeting among Lewis, Siegel, Kooper and Birnbaum; it did not succeed in resolving the differences.

With these facts in mind, we note, at the very outset, that commercial arbitration is a creature of contract. Parties, by agreement, may substitute a different method for the adjudication of their disputes than those which would otherwise be available to them in public courts of law (Matter of Cross & Brown Co. (Nelson), 4 A.D.2d 501, 502, 167 N.Y.S.2d 573, 575). When they do so, they in effect select their own forum. Their quest is usually for a nonjudicial tribunal that will arrive at a private and practical determination with maximum dispatch and at minimum expense (Mandel, Preparation of Commercial Agreements (1973 ed.), p. 65). It has long been the policy of the law to interfere as little as possible with the freedom of consenting parties to achieve that objective.

Central to that freedom is the recognized right of the parties, subject to limited exceptions (e.g., N.Y.Const., art. VI, § 20, subd. p. par. (4); Labor Law, § 702, subd. 8), to name those who are to be the arbitrators, or, if the parties prefer not to name them directly, to choose the way in which they are to be selected. In fealty to that principle, we have made clear that "(t)he spirit of the aribtration law being the fuller effectuation of contractual rights, the method for selecting arbitrators and the composition of the arbitral tribunal have been left to the contract of the parties.' (Matter of Lipschutz (Gutwirth), 304 N.Y. 58, 61--62, 106 N.E.2d 8, * * *.)' (Matter of Astoria Med. Group (Health Ins. Plan of Greater N.Y.), 11 N.Y.2d 128, 133, 227 N.Y.S.2d 401, 404, 182 N.E.2d 85, 87.)

Significantly, our statutes, which provide specifically for the enforcement of private arbitration agreements and for the vacatur or modification of awards improperly made, are completely silent on any power to disqualify arbitrators in advance of arbitration proceedings (CPLR art. 75). It is only when an arbitrator cannot act for reasons of health or unavailability or other circumstances tantamount to the occurrence of a vacancy that there is statutory authorization for a court to appoint a replacement (CPLR 7504).

Arbitrators, though their office is not one established by law, are expected to 'faithfully and fairly' hear and decide the respective claims of the parties by whose consent they are chosen (CPLR 7506, subd. (a)), but their qualifications are not measured by the standards prescribed for Judges (Sturges, Arbitration--What is it?, 35 N.Y.U.L.Rev. 1030, 1045--1046). The parties' reasons for the selection of particular arbitrators may in fact be the very ones which would have disqualified Judges or jurors (see Matter of Amtorg Trading Corp. (Camden Fibre Mills), 277 App.Div. 531, 100 N.Y.S.2d 747, affd., 304 N.Y. 519, 109 N.E.2d 606; Matter of Perl (General Fire & Cas. Co.), 34 A.D.2d 748, 310 N.Y.S.2d 196). For example, a particular expertise in the general area of factual knowledge involved in the arbitration may be an especially desirable qualification to the parties (8 Weinstein-Korn-Miller, N.Y.Civ.Prac., par. 7506.18). Also, '(i)f the parties so agree, the relationship of an arbitrator to the party selecting him or to the matters in dispute will not disqualify him' (Eager, Arbitration Contract and Proceedings, § 96, subd. 1, p. 272; see, also, Arbitrators--Disqualification, Ann., 65 A.L.R.2d 755, esp. § 5, p. 764). Indeed, our court long ago held that parties may be bound by a determination by an arbitrator selected to decide the issues before him on the basis of his knowledge alone (Wiberly v. Matthews, 91 N.Y. 648; see, also, Arbitrators Acting on Own Knowledge, Ann., 154 A.L.R. 1210).

Therefore, strange as it may seem to those steeped in the proscriptions of legal and judicial ethics, a fully known relationship between an arbitrator and a party, including one as close as employer and employee (Matter of Astoria Med. Group (Health Ins. Plan of Greater N.Y.), supra, 11 N.Y.2d p. 136, 227 N.Y.S.2d p. 406, 182 N.E.2d p. 88) or attorney and client (Matter of Karpinecz (Marshall), 14 A.D.2d 569, 218 N.Y.S.2d 88), will not in and of itself disqualify the designee. Of course, if there has been a failure to disclose such an existing or past financial, business, family or social relationship between the arbitrator and a party as is likely to affect the arbitrator's impartiality, the situation would be different. The consensual basis for the choice then would be lacking. However, assent by a party to the choice of an arbitrator in the face of that party's knowledge of a...