Transparent Value, L.L.C. v. Johnson

• Decision Date: 29 March 2012
• Citation: 93 A.D.3d 599,2012 N.Y. Slip Op. 02388,941 N.Y.S.2d 96
• Parties: TRANSPARENT VALUE, L.L.C., etc., Petitioner–Appellant, v. Wade Emory JOHNSON, Respondent–Respondent.
• Court: New York Supreme Court — Appellate Division

2012 N.Y. Slip Op. 02388

93 A.D.3d 599

941 N.Y.S.2d 96

TRANSPARENT VALUE, L.L.C., etc., Petitioner–Appellant,

v.Wade Emory JOHNSON, Respondent–Respondent.

Supreme Court, Appellate Division, First Department, New York.

March 29, 2012.

Augustine & Eberle LLP, New York (Joseph P. Augustine of counsel), for appellant.

Susman Godfrey L.L.P., New York (Arun Subramanian of counsel), for respondent.

MAZZARELLI, J.P., ANDRIAS, MOSKOWITZ, ACOSTA, ABDUS–SALAAM, JJ.

Judgment, Supreme Court, New York County (Jeffrey K. Oing, J.), entered September 22, 2011, confirming an arbitral award in respondent's favor, unanimously affirmed, with costs.

Contrary to petitioner's claim, the award does not violate public policy. When a court is asked to vacate an arbitral award on public policy grounds, “[t]he focus of inquiry is on the result, the award itself” ( Matter of New York State Correctional Officers & Police Benevolent Assn. v. State of New York, 94 N.Y.2d 321, 327, 726 N.E.2d 462 [1999] [emphasis in original] ). “[W]here the final result creates an explicit conflict with other laws and their attendant policy concerns,” a court will vacate the award ( id. [emphasis in original] ). In the case at bar, as in Correctional Officers ( see id. at 327–328, 704 N.Y.S.2d 910, 726 N.E.2d 462), the award does not violate a law. Petitioner will not violate any laws by paying respondent x dollars or transferring y units to him. Petitioner's reliance on a letter from ALPS Distributors, Inc., the distributor of petitioner's mutual funds, is unavailing; ALPS has no obligation to pay respondent anything.

“An arbitration award may be vacated on public policy grounds only where it is clear on its face that public policy precludes its enforcement” ( Matter of Jaidan Indus. v. M.A. Angeliades, Inc., 97 N.Y.2d 659, 661, 738 N.Y.S.2d 1, 763 N.E.2d 1142 [2001]; see also Matter of Metrobuild Assoc., Inc. v. Nahoum, 51 A.D.3d 555, 556–557, 857 N.Y.S.2d 564 [2008], lv. denied 11 N.Y.3d 704, 864 N.Y.S.2d 808, 894 N.E.2d 1199 [2008] ). That is not the case here.

It is true that “a court will not enforce a contract that violates public policy” ( Correctional Officers, 94 N.Y.2d at 327, 704 N.Y.S.2d 910, 726 N.E.2d 462). However, “the courts must be able to examine an arbitration agreement ... on its face, without engaging in extended factfinding or legal analysis, and conclude that public policy precludes its enforcement” ( Matter of Sprinzen [Nomberg], 46 N.Y.2d 623, 631, 415 N.Y.S.2d 974, 389 N.E.2d 456 [1979] ). On its face, the agreement between the parties does not require respondent to perform brokerage services ( see Foundation Ventures, LLC v. F2G, Ltd., 2010 WL 3187294, *1, *7, 2010 U.S. Dist. LEXIS 81293, *3, *21 [S.D.N.Y, Aug. 11, 2010] ¹).

Whether someone is a broker obliged to register with the SEC is a factual determination requiring consideration of various factors ( see e.g. Torsiello Capital Partners LLC v. Sunshine State Holding Corp., 2008 N.Y. Slip Op. 30979[U], *8–9 [Sup Ct, N.Y. County 2008] ). It was for the arbitrators—not the IAS court or this Court—to make that determination ( see Metrobuild, 51 A.D.3d at 557, 857 N.Y.S.2d 564; Matter of Wertlieb [Greystone Partnerships Group], 165 A.D.2d 644, 647, 569 N.Y.S.2d 61 [1991] ).

Petitioner's contention that the arbitrators manifestly disregarded the law is unavailing. “[M]anifest disregard of the law means more than an error or misunderstanding of the applicable law” ( Matter of Roffler v. Spear, Leeds & Kellogg, 13 A.D.3d 308, 310, 788 N.Y.S.2d 326 [2004] ). Rather, “[t]o modify or vacate an award on the ground of manifest disregard of the law, a court must find both 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” ( Wien & Malkin LLP v. Helmsley–Spear, Inc., 6 N.Y.3d 471, 480, 813 N.Y.S.2d 691, 846 N.E.2d 1201 [2006] [internal quotation marks omitted], cert. dismissed 548 U.S. 940, 127 S.Ct. 34, 165 L.Ed.2d 1012 [2006] ). Neither of these requirements is present in this case.

One of the grounds for vacating an arbitral award is that the arbitrators exceeded their powers ( see CPLR 7511[b][1][iii] ). “[A]rbitrators may be said to have done so only if they gave a completely irrational construction to the provisions in dispute and, in effect, made a new contract for the parties” ( Matter of Natl. Cash Register Co. [Wilson], 8 N.Y.2d 377, 383, 208 N.Y.S.2d 951, 171 N.E.2d 302 [1960] ). The arbitrators in the instant case did not do so. They had the right to fashion equitable relief ( see Sprinzen, 46 N.Y.2d at 629, 415 N.Y.S.2d 974, 389 N.E.2d 456 [“An arbitrator's paramount responsibility is to reach an equitable result ...”] ). “[I]t is not for the courts to interpret the substantive conditions of the contract or to determine the merits of the dispute” ( Matter of United Fedn. of Teachers, Local 2, AFT, AFL–CIO v. Board of Educ. of City School Dist. of City of N.Y., 1 N.Y.3d 72, 82–83, 769 N.Y.S.2d 451, 801 N.E.2d 827 [2003] [internal quotation marks omitted] ). “This is true even where...