Davison v Ratner

[*1] Davison v Ratner 2006 NY Slip Op 50340(U) [11 Misc 3d 1062(A)] Decided on March 13, 2006 Supreme Court, Nassau County Phelan, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 13, 2006
Supreme Court, Nassau County

Edward T. Davison, Petitioner, For a judgment pursuant to Articles 4, 75 and 76 of the Civil Practice Law and Rules,

against

Scott J. Ratner and EDWARD T. DAVISON, M.D. and SCOTT J. RATNER, M.D., P.C., , Respondents.



006500/05



Meyer, Suozzi, English & Klein, P.C.

Attorneys for Petitioner Edward T. Davison

1505 Kellum Place

P. O. Box 803

Mineola, NY 11501-0803

Russ & Russ, P.C.

Attorneys for Respondent Scott J. Ratner

543 Broadway

P. O. Box 149

Massapequa, NY 11758

Thomas P. Phelan, J.

Upon the foregoing papers it is ordered that the petitioner's application [motion sequence #1] pursuant to CPLR 7511(b)(1)(i)(ii) and (iii) for an order vacating and/or modifying an arbitration award dated February 10, 2005 as modified on March 10, 2005, and as re-issued with a determination as to counsel fees on June 30, 2005, and modified by the arbitrator on August 9, 2005, is denied. Petitioner's application [motion sequence #2] to stay further proceedings before the arbitrator is likewise denied. The portion of respondents' cross-petition [motion sequence #3] which seeks an order confirming the award is granted. That portion of respondents' cross-petition which seeks reasonable counsel fees together with costs and disbursements in connection with [*2]this proceeding shall be set down for a hearing. That portion of the cross-petition which seeks release of funds presently held in escrow is deferred to the hearing court.

This matter arises out of the termination by petitioner of a highly profitable medical practice belonging to Scott J. Ratner, M.D. and Edward T. Davison, M.D., which specialized in cardiology. Davison had been in practice since the 1960's when, in approximately 1989, at age 55, he hired Ratner, then 34 years of age. In 1992, Davison made Ratner a 50 percent partner. The relationship was apparently somewhat stormy and they entered into a formal written stockholder's agreement with accompanying employment agreements in 1996. Four important issues which have arisen were covered by these agreements. They are Ratner's obligation to fund Davison's retirement, the valuation and distribution of the P.C.'s assets in the event of a termination, the arbitration of disputes, and the award of counsel fees to the prevailing party.

The agreements obligated Ratner to fund Davison's retirement based upon a formula which utilized, in part, the dollar amount of the practice's revenue. They also provided, in the event of a termination of the practice, for a valuation of the practice's assets which were to be divided between the parties, with certain adjustments depending upon who sought the termination. Each party was to select an appraiser, and if the two appraisers did not agree the appraisers were to select a third appraiser whose conclusions were to be binding on the parties. Finally, the parties agreed that any disputes arising under the agreements were to be resolved through arbitration with the prevailing party entitled to recover counsel fees.

Unfortunately, as noted by the arbitrator, these agreements set the parties on a collision course with each other. Davison was provided with an incentive to increase revenue and further grow his practice by the addition of other physicians, while Ratner was provided with an incentive to keep the practice revenues down while increasing his income through outside employment. When Davison sought to bring additional physicians into the practice, with promises of a partnership within a certain period of time, Ratner, as a 50 percent owner, objected. Rather than seek to arbitrate this and other disputes which arose, on September 5, 1997 Davison wrote to Ratner terminating the practice as of December 8, 1997. A few days later Ratner commenced a dissolution action in this Court. In December 1997 Ratner commenced arbitration proceedings and on May 20, 1998 this court, Carter, J., issued an order in the dissolution proceeding, pursuant to the parties stipulation, referring all issues to arbitration.

The parties' arbitration proceeded for seven years with over fifty hearing dates. While Davison prevailed on some issues, the arbitrator's final decision awarded Ratner $983,979.84, representing his share of the practice, including good will, plus $250,000 in additional severance as a result of Davison's termination of the practice, and $1,024,452.18 in counsel fees. As just stated, this award was in part premised upon the arbitrator's finding that despite certain provocations by Ratner, it was Davison who sought to terminate the practice. Davison's motion to vacate these awards argues primarily that it was in reality Ratner who forced a termination of the practice, that the appraisal of the practice was flawed, both with respect to its valuation of good will and as to its methodology, that the arbitrator erred in making the final selection of the appraisers utilized to do the valuations, and that the arbitrator erred in refusing to permit a [*3]valuation of good will for Nassau Cardiac Imaging, a "department" of the practice. He argues that because the parties' agreements provided for both arbitration and a method for valuation, the arbitrator exceeded his powers in making certain rulings regarding these areas, citing Dimson v. Elghanayan, 19 NY2d 316.

The Court disagrees for several reasons. In the first place, the arbitrator did not contravene the parties' agreement regarding valuation procedures. Each party selected an appraiser whose appraisals differed widely. The appraisers were asked to select a third appraiser for a binding determination, but they could not agree on a third appraiser. Hence, in this Court's view, it was not improper for the arbitrator to make a selection of a third appraiser. When the appraisal was received, the arbitrator treated it as binding upon himself and the parties, as provided in the stockholders' agreement. Furthermore, if, as Davison now argues, the arbitrator was without authority to make this selection, or to rule regarding a lack of good will attaching to Nassau Cardiac imaging, he should have sought to stay the arbitration. (Rochester City School Dist. v. Rochester Teachers Ass'n, 41 NY2d 578) In failing to do so, an objection to the arbitrators authority may have been waived. (United Federation of Teachers, Local 2, AFT, AFL-CIO v. Board of Educ. of City School Dist. of City of NY, 1 NY3d 72; Board of Ed. of Norwood-Norfolk Cent. School Dist. v. Frank F. Hess, as President of the Norwood-Norfolk Central Teachers Association, et. al., 49 NY2d 145) It must also be noted that the parties stipulated before another Justice of this Court that all issues presented to that Court be referred to the arbitrator.

Finally, and most importantly, the Court finds that Davison is judicially estopped from raising any issue regarding the arbitrators power to make rulings regarding the appraisal process. On June 14, 2002, Davison's then counsel, Steven L. Levitt, Esq., submitted to the arbitrator his "FURTHER SUBMITTAL ON THE ISSUE OF GOOD WILL PURSUANT TO THE ORDER OF THE ARBITRATOR OF JUNE 4, 2002." In that memorandum of law, at Point II, Davison's counsel argued to the arbitrator that the parties' arbitration clause gave the arbitrator the authority to determine what the assets were which were to be valued, and that the dispute as to whether good will was to be treated as an asset subject to distribution could and should be resolved by the arbitrator. Now that Davison has won the day on that issue, and then received a ruling from the arbitrator with which he does not agree, he is judicially estopped and can not be heard to complain that the arbitrator was without authority to make the ruling which counsel for Davison sought to have the arbitrator make in the first place. (Maas v. Cornell University, 94 NY2d 87; Ford Motor Credit Co. v. Colonial Funding Corp., 215 AD2d 435; Prudential Home Mortg. Co., Inc. v. Neildan Const. Corp., 209 AD2d 394)

Arbitration is a much favored method of dispute resolution. (Matter of Smith Barney Shearson v Sacharow, 91 NY2d 39; Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Benjamin, 1 AD3d 39) An arbitrator is not required to explain or justify an award. (Ross v. Riviera Trading Corp., 204 AD2d 120) Neither is he bound by substantive law or traditional court rules regarding evidence. (Silverman v. Benmor Coats, Inc., 61 NY2d 299; Dahan v. Luchs, 92 AD2d 537) So strong is the State's interest in arbitration as a means of resolving disputes, that errors of law or [*4]fact are insufficient to warrant vacating an award. (Matter of Sprinzen, 46 NY2d 623; Motor Vehicle Acc. Indemnification Corp. v. Aetna Cas. & Sur. Co., 89 NY2d 214) Even where an arbitrator has misapplied the law, the award may not be vacated. (Schine Enterprises, Inc. v. Real Estate Portfolio of New York, Inc., 26 NY2d 799) Absent language to the contrary in an arbitration agreement, the arbitrator "may do justice as he sees it, applying his own sense of law and equity to the facts as he finds them to be." (Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Benjamin, supra.) Nevertheless, in the instant matter the arbitrator issued a decision in excess of 100 pages in length in which he carefully reviewed the evidence before him and fully explained his conclusions. That the Court may or may not agree with his conclusions is beside the point and the Court may not vacate an award on that basis. (United Federation of Teachers, Local 2, AFT, AFL-CIO v. Board of Education of the City School District of the City of New York, 1 NY3d 72)

It is well settled that CPLR 7511(b) sets forth the exclusive bases for vacating an arbitration award. (Boggin v. Wilson, 14 AD3d 523) Petitioner now moves pursuant to CPLR 7511 §(b)(1)(i)(ii) and (iii)to vacate the award and stay its enforcement. CPLR 7511 §(b)(1) provides: The award shall be vacated on the application of a party who either participated in the arbitration or was served with a notice of intention to arbitrate 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.

There has been no showing whatsoever that the arbitrator's award was the result of corruption, fraud or misconduct, that the arbitrator was partial to either side, or, for the reasons set forth above, that the arbitrator exceeded his power.

It may be established that an arbitrator has exceeded his power where the award is one which is violative of a strong public policy (Matter of Sprinzen, supra.), totally irrational (Rockland County Bd. of Co-op. Educational Services v. BOCES Staff Ass'n, 308 AD2d 452; Peckerman v. D & D Associates, 165 AD2d 289), or in excess of a specifically enumerated limitation upon arbitral authority. (Matter of Board of Educ. of Dover Union Free School Dist. v Dover-Wingdale Teachers' Assn, 61 NY2d 913; Matter of Sprinzen, supra.) As observed by the Court of Appeals in Matter of Sprinzen, [*5] These illustrations of instances where courts will intervene in the arbitration process are, without apparent exception, cases in which public policy considerations, embodied in statute or decisional law, prohibit, in an absolute sense, particular matters being decided or certain relief being granted by an arbitrator. Stated another way, the courts must be able to examine an arbitration agreement or an awardon its face, without engaging in extended factfinding or legal analysis, and conclude that public policy precludes its enforcement. This is so because, as has been previously noted, an arbitrator is free to apply his own sense of law and equity to the facts as he has found them to be in resolving a controversy.

Davison argues that the award should be set aside as against public policy in that it would require physicians who did not like or trust each other to remain in practice together to the detriment of their patients. This argument is unpersuasive and unsupported by any evidence or legal authority. Pursuant to the parties' agreement, either party was entitled to terminate the practice, as in fact Davison did, albeit not without certain agreed upon financial implications.

The Court also notes that the parties were not on the best of terms when they entered into their agreements. They clearly envisioned that the practice might terminate prior to Davison's retirement, and made extensive provisions as to who would be entitled to what in the event that either of the parties elected to terminate the agreement. To now argue that the financial repercussions bargained for regarding termination should not have been applied by the arbitrator as violative of public policy is, in reality, to ask the Court to rewrite the parties' agreement, something neither the arbitrator nor the Court may do. (Matter of National Cash Register Co. [Wilson], 8 NY2d 377; Rockland Community College Federation of Teachers Local 1871 v. Rockland Community College et. al., 207 AD2d 353; Slamow v. Del Col, 174 AD2d 725, aff'd 79 NY2d 1016)

Accordingly, the petition to vacate or modify or vacate and modify the award is denied. The cross-petition to confirm the award is granted. The cross-petitioner's application for counsel fees shall be set down for a hearing. Counsel are holding in escrow certain moneys collected during the winding up of the parties' former practice, which monies Ratner now seeks to have released to him in partial satisfaction of the award. This escrow issue is likewise deferred to the hearing Court. There is pending before the arbitrator an application by Ratner to compel Davison to disgorge certain payments made to himself. This decision is without prejudice to that application and petitioner's application to stay further proceedings before the arbitrator is denied.

As it is unclear whether or to what extent disclosure will be sought in advance of the hearing, a conference to either certify this action or schedule disclosure shall be held before the undersigned [*6]on April 10, 2006 at 9:30 A.M. Disclosure notices should be served in advance of said conference.

Upon certification, Rather, as the successful cross-petitioner, shall file and serve a Note of Issue, together with a copy of this Order, on all parties and shall serve copies of same, together with receipt of payment, upon the Calendar Clerk of this Court within twenty (20) days of the date of this Order. The hearing shall be scheduled within 60 days of filing the Note of Issue.

The failure to file a Note of Issue or appear as directed may be deemed an abandonment of the claims giving rise to the hearing. The directive with respect to a hearing is subject to the right of the Justice presiding in CCP II to refer the matter to a Justice, Judicial Hearing Officer [JHO], or a Court Attorney/Referee, as he or she deems appropriate. A JHO or Court Attorney/Referee shall not be used however unless said JHO or Court Attorney/Referee has the power to hear and determine and not merely hear and report (see CPLR Article 43).

This decision constitutes the order of the court.

Dated: MARCH 13, 2006 THOMAS P. PHELAN

J.S.C.