AIR PEGASUS OF NEW YORK, INC., et al. v. LIBERTY HELICOPTER TOURS, INC., et al.Annotate this Case
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
DOCKET NO. A-3656-05T53656-05T5
AIR PEGASUS OF NEW YORK, INC.,
a Delaware corporation and
AIR PEGASUS HELIPORT, INC., a
LIBERTY HELICOPTER TOURS, INC.,
a New York corporation,
ALVIN S. TRENK and ABIGAIL TRENK,
AIR PEGASUS OF NEW YORK, INC.,
a Delaware corporation and
AIR PEGASUS HELIPORT, INC. a
LIBERTY HELICOPTER TOURS, INC.,
a New York corporation,
ALVIN S. TRENK and ABIGAIL TRENK,
Argued March 7, 2007 - Decided
Before Judges Wefing, C.S. Fisher and Messano.
On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-2713-03.
Leon Friedman, of the New York bar, admitted pro hac vice, argued the cause for appellants in A-3656-05T5 (Lentz & Gengaro, attorneys; Mr. Friedman, of counsel and on the brief; Christopher P. Gengaro, Jay D. Fisher, of the New York bar, admitted pro hac vice, of counsel and on the brief).
Jennifer A. Leighton argued the cause for respondents in A-3656-05T5, Elizabeth Koniers Brown argued the cause for respondents in A-3703-05T5 (Robertson, Freilich, Bruno & Cohen, attorneys; Ms. Leighton, William W. Robertson, Elizabeth Koniers Brown and Peter M. Jaensch, of counsel and on the brief).
Thomas A. Cunniff argued the cause for appellant Jeff Ellentuck in A-3703-05T5 (Fox Rothchild, attorneys; Mr. Cunniff, of counsel and on the brief).
Kenneth M. Labbate, of the New York Bar, admitted pro hac vice argued the cause for respondent Lawlor, O'Brien & Chervenak in A-3703-05T5 (Mound Cotton Wollan & Greengrass, attorneys; Mr. Labbate and Frank J. DeAngelis, on the brief).
We address in a single opinion the issues raised by these two appeals argued back-to-back since they involve common procedural histories and factual backgrounds. In A-3656-05T5, plaintiffs Air Pegasus of New York, Inc. (APNY) and Air Pegasus Heliport, Inc. (APH), third-party defendants Alvin S. Trenk and Abigail Trenk, and non-party Trenk Partners, L.P., (collectively, the Trenk parties) initially appealed from two orders. The first, dated September 8, 2005, confirmed an earlier arbitrator's award of December 8, 2004, that dismissed their claims against defendant Lawlor, O'Brien & Chervenak, LLC (LOC); the second, dated February 8, 2006, denied their motion to vacate the arbitrator's award of April 8, 2005, and confirmed that award. In A-3703-05T5, non-party Jeff Ellentuck appeals from these orders as well as a third, interim order, dated October 3, 2005, that similarly denied his motion to vacate the arbitrator's December 8, 2004, determination.
We have carefully considered the arguments raised in light of the record and applicable legal standards. Because the arbitral proceedings employed here were so fundamentally flawed, we reverse all three orders entered by the motion judge that confirmed the arbitrator's two awards. As a result, in A-3656-05T5, we reinstate the pleadings of the various parties, and remand the matter for further proceedings consistent with this opinion. The appeal filed in A-3703-05T5, therefore, is dismissed as moot.
In an effort to identify the parties and provide some context for the arbitral proceedings that are at the core of these appeals, we briefly summarize the facts as alleged in the underlying litigation, which was subsequently dismissed with prejudice and referred to binding arbitration by agreement of the litigants.
In 1996, APH entered into a written agreement with the Hudson River Park Trust to exclusively operate the West 30th Street heliport located at the Hudson River on Manhattan's west side. When the written agreement lapsed, APH continued to operate the heliport on a month-to-month basis.
Alvin S. Trenk is the chairman of APH, the president of APNY, a corporation separate and distinct from APH, and the general partner of Trenk Partners, L.P. Abigail Trenk is his daughter and maintains an interest in the partnership. Trenk, through APNY, had acquired a shareholder interest in defendant Liberty Helicopters, Inc. (Liberty) which conducted business and sightseeing helicopter excursions from the heliport.
Together with defendant Drew E. Schaefer, Trenk founded Sightseeing Tours of America, Inc. (STA). In 1996, Liberty became a subsidiary of STA which promoted, marketed and operated sightseeing helicopter tours around the New York City metropolitan area. Trenk Partners became a significant shareholder of STA and Trenk served as president, chief executive officer, and chairman of STA's board of directors until May of 2003. Despite these titles, Trenk apparently exercised little day-to-day control over STA/Liberty's helicopter operations.
In 1997, Schaefer transferred his interest in STA, approximately 38.9% of the outstanding shares, to his ex-wife Pamela. The various other individuals identified in pleadings in the underlying litigation included Schaefer's brother, Darryl, a member of STA's board of directors, and Thomas J. Yessman, STA's chief operating officer since 2001, and subsequently its chief executive officer and chairman of its board of directors. Ellentuck, who was never a party in the underlying litigation, owns one percent of the shares in STA.
On May 19, 2003, the first salvo in the litigation battle was fired. Trenk filed a lawsuit on behalf of himself and STA in the Chancery Division, Docket No. UNN-C-67-03, alleging that Schaefer, with the conspiratorial assistance of LOC, STA's accountants, had diverted corporate assets for his personal use or other non-corporate purposes. He sought an accounting and control of STA's finances, the imposition of a constructive trust on the wrongfully diverted funds, and other legal and equitable relief.
At a special board of directors meeting held on May 29, 2003, controlling shareholders of STA struck back by approving a resolution removing Trenk from his positions as STA president, chief executive officer and chairman, but allowing him to retain his seat on the board. On July 9, STA successfully moved to have the complaint re-captioned, removing the corporation as a plaintiff and leaving Trenk as the sole plaintiff. In a series of amended complaints filed thereafter, Trenk, individually, and Trenk Partners, "[i]ndividually and [d]erivatively on behalf of [STA]," reiterated these claims and requested similar relief against defendants.
On July 21, 2003, a second action was filed; Trenk filed this complaint in the Law Division, Docket No. UNN-L-2713-03. The plaintiffs in that complaint, APNY and APH, alleged that Liberty had violated a 1996 consulting agreement with APNY by failing to pay monthly commissions based upon Liberty's operations at the heliport. The complaint further alleged that as a result of that default, Liberty was also in default of its agreement with APH which granted Liberty exclusive use of the West 30th Street heliport for sightseeing tours. Plaintiffs APNY and APH sought to terminate the agreements, as well as consequential and compensatory damages, attorneys' fees, and other relief.
On August 5, 2003, the parties negotiated a written consent agreement that was incorporated into an order entered that day. The terms of the agreement are relatively unimportant to our resolution of the issues presented. It suffices to say that the consent order effectively stayed the litigation, continued the contractual relationship between APNY and Liberty, and provided for Liberty to pay its contractual obligations to APH under protest and without prejudice to its ability to contest all issues at trial. The order also provided that any late payment to either APNY or APH would result in an immediate default requiring Liberty to "vacate the  30th Street Heliport." In addition, under the consent order, Liberty agreed to forego its "exclusive right to conduct sightseeing tours out of the  30th Street Heliport."
On September 29, 2003, Liberty filed its answer and asserted a counterclaim against APH and APNY alleging breach of contract, breach of the implied covenant of good faith and fair dealing, fraud and negligent misrepresentation. It also filed a third-party complaint against Trenk and his daughter alleging breach of fiduciary obligations, waste of corporate assets, and tortious interference with Liberty's business. These allegations in the counterclaim and third-party complaint also arose, in large part, out of disputes regarding the two agreements with APH and APNY.
In early 2004, the Trenk parties, represented by Trenk's son Steve, and STA, represented by its general counsel, Elliot H. Vernon, and Yessman, began to negotiate a possible global settlement of the litigation. After a series of communications between the parties, on May 10, 2004, Vernon wrote to Steve Trenk indicating that "Liberty  and its affiliates are prepared to execute a binding arbitration agreement," appointing James Ortenzio "as arbitrator/monitor to decide all issues including, but not limited to, those [previously] discussed." Ortenzio, an attorney, was the former chairman of the Hudson River Park Trust and possessed significant knowledge of the heliport's operations; moreover, he was a mutually agreeable choice to serve as arbitrator.
After further negotiations and the exchange of various proposals, a written "Arbitration and Monitor Agreement" (the Agreement) was executed by APNY, APH, Trenk Partners, Trenk, individually, and Abigail Trenk. Drew Schaeffer, his ex-wife Pamela, and his brother Darryl also executed the Agreement, as did Yessman, Liberty and the various Schaeffer corporate entities. STA, LOC and Ellentuck were not signatories to the Agreement.
Pursuant to Agreement's terms, the two lawsuits were dismissed with prejudice, except the parties agreed that the Law Division would retain jurisdiction "solely for the purposes of summarily enforcing any and all determinations that have been made by the Arbitrator." The Agreement further provided that Ortenzio would
not be bound by any particular set of rules or procedures for the conduct of any and all arbitration proceedings, meetings, hearings, activities, and determinations, but rather [he shall] have full and complete authority to determine what rules of procedure, proof requirements, and the like will be implemented by him on an issue-by-issue basis in his sole and exclusive discretion in order to expeditiously resolve the issue, which will be presented to him by the Parties hereto promptly following the execution of this Agreement.
The Agreement also gave Ortenzio the right to "make all determinations regarding the admissibility, relevance and materiality of evidence offered in order to achieve a just, equitable, speedy and cost-effective resolution of all issues presented by the parties."
The Agreement also appointed Ortenzio as the "[m]onitor of STA." In this capacity, he had "full power and authority" to access all corporate information, and "to oversee, review, and inquire into any and all operational and financial aspects of [STA] and any and all of its wholly owned subsidiaries including . . . Liberty . . . ." Among his "prerogatives" as monitor, Ortenzio could "refer any issue identified by him during the course of his activities to binding arbitration before him as [a]rbitrator pursuant to the  provisions of th[e] Agreement . . . ." The parties agreed that any decision made by Ortenzio
shall be made with consideration of the following: (1) the laws of New York State, (2) that shareholder decisions are and will continue to be based on the majority vote of shareholders, (3) that the minority shareholders of STA/Liberty are and will continue to be afforded common law and statutory rights, and customary and reasonable contractual rights as minority shareholders, and (4) the best interests of STA/Liberty.
On July 8, 2004, an order was entered dismissing the Chancery Division lawsuit with prejudice, and on July 9, 2004, a similar order dismissed the Law Division litigation with prejudice, subject only to the court "summarily enforcing any and all final determinations" made by the arbitrator.
The issues raised by the Trenk parties on appeal arise out of what transpired thereafter. During the next few months, it is undisputed that Ortenzio met privately with representatives of both sides in an attempt to crystallize the issues in dispute. However, on December 1, 2004, Trenk's counsel, representing all the Trenk parties, e-mailed Ortenzio requesting that he "convene a meeting of all parties and their counsel to address the outstanding issues as soon as possible." He noted "[w]e have numerous documents and reports . . . to present . . . and explain their significance to the issues."
After further exchanges, Trenk's counsel e-mailed Ortenzio on December 9, 2004, noting his receipt of and objection to a proposed arbitrator decision, authored by opposing counsel, which released LOC from any and all claims. He noted that "there has yet to be a single hearing or witness presented on any issue," and he requested that Ortenzio not execute the document.
In an e-mail to Trenk's counsel also on December 9, Ortenzio urged the attorney to "speak to [opposing counsel]" to resolve any disputed language because "Liberty [was] unable to receive its financial reports," presumably from LOC, and was "unable to refinance." After the exchange of revisions to the proposed arbitral determination, several days later Trenk's counsel e-mailed Ortenzio urging him again not to execute the document "because you have not conducted a hearing, you have not been presented with any of the facts underlying LOC's malpractice, no fact or expert witnesses have testified, and we have not presented the supporting documentation including our CPA's report." Despite these protestations, Ortenzio executed the arbitral decision which "dismissed and terminated" all claims against LOC, and served the decision on all parties on December 20, 2005.
On December 14, 2005, Trenk's counsel forwarded another e-mail to Ortenzio attaching a "list of issues and documents that [he] prepared in anticipation of the meeting between all parties and their counsel." The attachment set forth forty-five separate items that the Trenk parties requested Ortenzio resolve at the arbitration. It also included a list of more than twenty proposed witnesses.
On January 4, 2005, opposing counsel forwarded to Trenk's counsel a proposed "arbitrator determination" regarding two critical issues in the underlying litigation, the so-called "equalization" and "overpayment" issues, which we discuss below. On January 6, Trenk's counsel responded directly to Ortenzio. He urged the arbitrator not to accept the proposal and noted,
[Y]ou [have] never conducted anything that even resembles an arbitration hearing on any issue, with presentation of witnesses and documents . . . . [W]e have no idea with whom you met, or how often, or what was discussed. While the  Agreement did not bind you to any specific rules or procedures, it nevertheless clearly contemplates that you will conduct an arbitration. You have not done so. Meetings without counsel, and often ex parte, are not tantamount to an arbitration hearing. We have absolutely no idea what the defendants told you, or what "evidence" you reviewed that they submitted, and have had no opportunity to respond and provide relevant evidence supporting our position. The parties must be afforded some basic procedural due process rights.
He noted that Ortenzio refused to allow him to participate directly in any meetings held with the Trenk parties, yet allowed Vernon to attend meetings on behalf of STA, and listed numerous other instances of alleged bias by the arbitrator. In closing, he urged Ortenzio to resign and requested that he not execute the proposed determination.
In a rather cryptic January 10, 2005, e-mail, Ortenzio responded that Trenk's counsel's "astounding and creative invective" "betray[ed] little evidence of an understanding of the scope of the [Agreement]." He noted the Agreement "[did] not bind [him] to a particular set of rules or procedures," but provided for him to "take such action as is deemed necessary."
Despite these exchanges, Trenk's counsel participated in a series of meetings with Ortenzio over the next several weeks in which the remaining issues in dispute were discussed. In a February 2, 2005, e-mail to Ortenzio, the attorney noted that he remained optimistic that settlement on all issues could still be reached. He then set forth in detail Ortenzio's settlement proposals, and indicated that he was "meeting with his clients later [that day] and [would] let [Ortenzio] know [their] thoughts."
The record does not reveal any further meetings took place and the parties did not agree to settle their claims. On April 8, 2005, Ortenzio issued another determination. It modified the existing consultant's agreement between APNY and STA/Liberty and the heliport use agreement between APH and STA/Liberty in a manner that significantly benefited STA/Liberty. With respect to the claims of both sides that each had been guilty of improper financial practices toward the other or toward STA, Ortenzio concluded "that all transactions were properly disclosed in [STA's] financial statements" and found "no evidence of wrongdoing." Nevertheless, he ordered APH to pay more than $600,000 to STA, ordered STA to "deem [as] satisfied" all loans currently on its books, including an outstanding amount of $525,000 then on STA's balance sheet, and dismissed all claims by both sides regarding "equalization" and "overpayments."
The Trenk parties moved to vacate the award and have the two lawsuits reinstated, or, alternatively have the court appoint a new arbitrator to decide the dispute. They argued, among other things, that Ortenzio never actually conducted an arbitration, that he had exceeded his authority by essentially rewriting the terms of the parties' agreements, that he was biased against them, and that Trenk was under duress when he executed the Agreement. Defendants opposed the application, cross-moved to confirm the award, and argued, among other things, that the Trenk parties waived or were estopped from raising any claims of bias, that Ortenzio was not biased, that the terms of the parties' prior agreements were at issue and therefore proper subjects before the arbitrator, and that Ortenzio was not required to conduct any hearing in order to arbitrate the dispute. LOC cross-moved to confirm the December 8, 2004 award dismissing all claims against it.
After oral arguments, the judge reserved decision and requested further briefing on some of the issues. She did, however, decide the motion and cross-motions as they related to the December 8, 2004 arbitral determination that dismissed all claims against LOC. In an oral decision on August 26, 2005, she determined that neither the Trenk parties, nor Ellentuck, had moved to vacate the decision in a timely fashion and that LOC had moved for confirmation of the award in a timely fashion. She entered one order, dated September 8, 2005, confirming the award, and a second "amended order" dated October 3, 2005, denying Ellentuck's application to vacate the award
On October 20, 2005, the judge entertained further oral argument and on December 22, 2005, she issued her written opinion. She determined that New York law applied to the issues presented. She then noted that the Trenk parties continued to participate in exchanges and meetings with Ortenzio between his initial determination in December of 2004 and his final determination in April of 2005. These took place after Trenk's counsel's "first objection to the failure [by the arbitrator] to hold a hearing." She concluded, therefore, that the Trenk parties had "waived their rights to a hearing by their conduct."
The judge then ruled that the underlying agreements between the parties were issues within the scope of the arbitrator's authority. She determined that Trenk first raised the duress argument after he began to participate in the arbitration proceedings and therefore could not now argue the Agreement was invalid. Lastly, she concluded that the Trenk parties had failed to demonstrate Ortenzio was biased.
The motion judge entered an order on February 8, 2006, that denied the Trenk parties' motion to vacate the arbitral decisions, confirmed the arbitral decisions, disqualified Ortenzio from further participation in the arbitral process and certified the order as final. This appeal followed.
At oral argument before us, the parties agreed that New York law applied to the issues raised. The Trenk parties have limited their appeal to two specific arguments. First, they contend that the arbitrator exceeded his authority by essentially modifying the underlying agreements between the parties. Second, they argue that they never waived their right to an arbitral hearing, and, since none ever occurred, they were denied the minimal due process rights required by New York law.
Defendants contend that the motion judge correctly determined that the arbitrator acted within the scope of the authority the parties granted to him in the Agreement and which New York law permits. They further argue that the motion judge correctly concluded that the Trenk parties had, through their acts and omissions, waived their right to a hearing as part of the arbitral process.
Because we conclude that the Trenk parties never consented to or waived their rights under New York law to certain procedural guarantees regarding the arbitration, we reverse and reinstate the pleadings of the parties. We therefore need not consider the Trenk parties' other argument.
We begin by noting that while factual findings of the motion judge should not be disturbed if they are supported by substantial, credible evidence in the record, Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84 (1974), the judge's "interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. of Manalapan, 140 N.J. 366, 378 (1995). We review those issues de novo. Kramer v. Ciba-Geigy Corp., 371 N.J. Super. 580, 597 (App. Div. 2004).
New York law anticipates that any arbitration will include certain minimal due process standards. N.Y.C.P.L.R. 7506, entitled "Hearing," provides
(a) Oath of arbitrator. Before hearing any testimony, an arbitrator shall be sworn to hear and decide the controversy faithfully and fairly by an officer authorized to administer an oath.
(b) Time and place. The arbitrator shall appoint a time and place for the hearing and notify the parties in writing personally or by registered or certified mail not less than eight days before the hearing. The arbitrator may adjourn or postpone the hearing. The court, upon application of any party, may direct the arbitrator to proceed promptly with the hearing and determination of the controversy.
(c) Evidence. The parties are entitled to be heard, to present evidence and to cross-examine witnesses. Notwithstanding the failure of a party duly notified to appear, the arbitrator may hear and determine the controversy upon the evidence produced.
(d) Representation by attorney. A party has the right to be represented by an attorney and may claim such right at any time as to any part of the arbitration or hearings which have not taken place. This right may not be waived. If a party is represented by an attorney, papers to be served on the party shall be served upon his attorney.
. . . .
(f) Waiver. Except as provided in subdivision (d), a requirement of this section may be waived by written consent of the parties and it is waived if the parties continue with the arbitration without objection.
Under New York law, an arbitrator's award "shall be vacated" "if the court finds that the rights of that party were prejudiced" by "failure to follow the procedure of this [statute], unless the party applying to vacate the award continued with the arbitration with notice of the defect and without objection." N.Y.C.P.L.R. 7511(b)1(iv)(emphasis added).
Our review of New York's decisional law confirms that violations of the procedures set forth in N.Y.C.P.L.R. 7506 without consent or waiver will result in the vacatur of an arbitrator's award. See In Re 21 Lizensk Corp. v. Spillman, 787 N.Y.S.2d 890 (App. Div. 2005)(holding failure to prove timely written notice of time and place of the arbitration hearing violated 7506(b) and required vacatur of the award); In Re Travelers Prop. Cas. Co. v. Place Transp. Inc., 706 N.Y.S.2d 877, 878 (App. Div. 2000)(holding failure to allow inspection of insurance company's file was a violation of 7506(c) and due process rights requiring vacatur of award); In Re Stein v. Stein, 707 N.Y.S.2d 754, 759 (1999)(holding "[a]dherence to all statutory procedural safeguards" of 7506 is "condition precedent to the confirmation of any award"). We agree the motion judge correctly found that the Trenk parties "were entitled to a hearing."
It is undisputed that no hearing ever took place. Rather, defendants argued, and the motion judge found, that the Trenk parties waived their right to a hearing "by their conduct," their "continued  participat[ion] in the process." We disagree.
Defendants argue that the Trenk parties waived their procedural rights when they signed the Agreement because it allowed Ortenzio unlimited discretion regarding the procedural aspects of the arbitration. They emphasize that prior drafts of the agreement, which significantly limited Ortenzio's discretion, were modified by the Trenk parties themselves during negotiations over the Agreement's final form.
All this ignores, however, the express language of the Agreement in which both parties agreed that Ortenzio would not be bound to any particular rules of procedure in conducting "any and all arbitration proceedings, meeting, hearings, activities and determinations." (Emphasis added). We conclude, therefore, from the plain language of the agreement that the parties themselves anticipated a hearing would be held, though they conceded the broad parameters of its conduct to Ortenzio's discretion.
Defendants next argue that the Trenk parties waived their right to a hearing through their conduct, specifically, by failing to object to the manner in which Ortenzio conducted the arbitration prior to the first written arbitral determination of December 8, 2004, and by failing to move to vacate that award within ninety days. See N.Y.C.P.L.R. 7511(a)(a party may move to vacate or modify an award within ninety days of service).
We dispatch with this last point rather quickly. Under New York law, "[a]lthough an aggrieved party has only ninety days in which to move to vacate or modify an award, [that] party may choose not to make a motion and raise the objection when the victor moves to confirm the award." State Farm Mut. Auto Ins. Co. v. Fireman's Fund Ins. Co., 504 N.Y.S.2d 24, 25 (App. Div. 1986). Therefore, the Trenk parties' failure to move to vacate the December 8, 2004, award cannot be evidence of any waiver.
Defendants point to a September 30, 2004, initial meeting of the parties and some initial determinations Ortenzio made regarding the timing of interim payments between the parties while the arbitration was ongoing as evidence of the Trenk parties' continuing participation in the arbitration without protest. None of these resulted in any written award by Ortenzio. See N.Y.C.P.L.R. 7507 (requiring award to be in writing, signed and affirmed by the arbitrator). In short, at best, these events were preliminary to the arbitration itself and do not evidence a waiver by the Trenk parties of their rights under the Agreement and the statute.
More importantly, nothing in the record indicates Ortenzio ever indicated that he intended to proceed without any hearing during this time period. In fact, as late as December of 2004, he responded to the Trenk parties' requests for a meeting and production of documents by asking for a summary of the issues to be discussed and the documentation they wished to supply.
Defendants lastly argue that the conduct of the Trenk parties after the issuance of the December 8, 2004, determination was a waiver of their right to an arbitral hearing. The motion judge agreed and concluded that by participating in meetings that took place thereafter the Trenk parties had waived any objection to Ortenzio's procedures.
Initially we note that New York's statute explicitly requires that absent an express written waiver of the procedural requirements contained in 7506, there can only be a waiver if the party 1) continues with the arbitration, and 2) fails to object after notice of the procedural defect. As early as December 9, 2004, before he even received Ortenzio's initial determination as to LOC, Trenk's counsel's e-mail noted, "[T]here has yet to be a single hearing or witness presented on any issue . . . . Simple notions of fairness and due process require that the parties be allowed to present all their evidence to you in an organized fashion before a decision is made." He urged Ortenzio not to execute the proposed arbitral decision. Therefore, we conclude that the Trenk parties objected to the procedural infirmities very early, even before the first arbitral determination was made, and that evidences a clear intention on their part not to waive any of the procedural safeguards of the statute.
Lastly, the motion judge agreed with defendants that the Trenk parties conduct after their protests effectively waived any objection they had to the proceedings. The judge found that "even after the December 8 arbitral decision was handed down without a formal hearing taking place, [the Trenk parties] continued to meet with  Ortenzio and the other parties until the arbitrator issued the . . . April 8, 2005 [decision]." She concluded this was a waiver of any procedural infirmities.
We disagree. First, the Trenk parties never affirmatively withdrew their requests for a hearing, the production of evidence, the production of documents and the ability to present their case. Second, it is undisputed that any meetings that took place were in the nature of settlement discussions, not arbitral proceedings. This is evidenced by Trenk's counsel's e-mail exchanges during this period as well as Ortenzio's own certification in opposition to the motion to vacate in which he admits the purpose of one of the meetings was "to attempt to further narrow the issues and, if possible, to explore the possibility of reaching a consensual agreement to resolve as many issues as possible, if not all of them." He further acknowledged that during the "two  plus months" after he put forth a comprehensive settlement proposal, in February of 2005, "and after it became clear that a consensus resolution would not be forthcoming from the parties," he issued the April 8, 2005, determination. The inescapable conclusion is that although Ortenzio may have been actively mediating the parties' dispute, no arbitral proceeding took place during this time.
These facts serve to distinguish this matter from those New York decisions in which a party's continued participation in the arbitration, without protest, was deemed to be a waiver of any procedural irregularities. For example, in Railworks Corp. v. Villafane Elec. Corp., 788 N.Y.S.2d 834 (2004), the parties agreed to arbitrate their dispute before a sitting federal judge. Id. at 835. They executed a detailed arbitration agreement that set forth the procedures to be employed. Ibid. After the actual hearing took place, defendant objected to confirmation of the award, noting that no cross-examination of the witnesses had been permitted. Id. at 838. The court held that defendant's full participation in the arbitration without objection was a waiver. Ibid. See also, In Re Squire v. Henschel, 768 N.Y.S.2d 664 (App. Div. 2003)(participation in arbitration hearing was waiver of objection to arbitrator's failure to take oath); In Re Torres v. Nat'l Union Fire Ins. Co., 667 N.Y.S.2d 356, 357 (App. Div. 1998)(party waived any objection to single arbitrator instead of tripartite panel by actual participation in the hearing without objection).
We conclude, therefore, that a waiver of New York's statutory due process standards can only occur by consent, or if there is actual participation in the arbitral proceedings without protest. In this case, the Trenk parties protested the procedure repeatedly, and never actually participated in an arbitral proceeding thereafter. We therefore reverse the February 8, 2006, order confirming the April 8, 2005 arbitral determination.
Because the proceedings were so fundamentally flawed, we vacate all three orders entered by the motion judge that confirmed Ortenzio's two determinations. In addition to all the reasons set forth above, we add the following. The arbitral decisions involved entities that were not parties to the Agreement. LOC never executed the Agreement, nor did STA. The motion judge noted the interrelationships of the entities and surmised everyone acted as if LOC and STA were parties to the Agreement. Nevertheless, as the events that transpired clearly demonstrate, the parties, even though affiliated, had particularized interests which did not always coincide with the interests of others.
In light of this determination, we must consider whether the matter should be remanded for appointment of another arbitrator, or whether the pleadings of the various parties ought to simply be reinstated. It is clear that the decision to arbitrate and dismiss the pleadings with prejudice was made with anticipation of Ortenzio's specific service as arbitrator and monitor. While we reserve judgment upon whether it was appropriate to have one person serve in these two capacities, particularly since the corporate interests of STA/Liberty were potentially dissimilar to the interests of the Trenk parties, the parties made that choice. In light of what has transpired, we have no basis to conclude that a similar choice -- to submit to binding arbitration -- would still be made if Ortenzio was not available.
Therefore, we believe the better alternative is to reinstate the pleadings in the case and vacate those prior orders that dismissed the two lawsuits with prejudice. This is the only effective way to return the litigants to "square one," from where they may, nonetheless, choose again to arbitrate their claims.
As a result of this decision, the appropriate resolution of A-3703-05T5 requires only brief discussion. We note that Ellentuck never sought to intervene in either lawsuit, nor did he ever seek to intervene in the Trenk parties' appeal. Instead, when the Trenk parties moved to vacate the final arbitration award, he joined in the request. We fail to see why the motion judge permitted this.
At oral argument before the motion judge, Ellentuck's counsel clarified that his objection was to the December 8, 2004, award that dismissed all claims against LOC. He argued that Ellentuck was never provided with notice of Trenk's complaint, which he characterized as a derivative shareholder action, and was never notified of the dismissal of the litigation or the agreement to arbitrate. He noted that STA was never a party to the Agreement and urged the judge to set aside the decision.
Defendants objected and noted that Ellentuck was neither a party to the litigation nor a party to the Agreement. They also claimed that Trenk's action was not a derivative shareholder suit but rather was a claim he brought as an individual plaintiff. They argued that Ellentuck was free to pursue whatever shareholder action he deemed appropriate, but that he had no standing regarding the motions before the court.
In denying Ellentuck's application, the motion judge determined that neither the Trenk parties nor Ellentuck challenged the arbitral decision within "the appropriate time frame." And, even though LOC was not a party to the Agreement, it had moved to confirm the arbitration within "the appropriate time frame." However, as we noted above, under New York law the Trenk parties or Ellentuck need not have moved to vacate the award at all and instead could have appropriately waited for someone to move for confirmation. State Farm Mut. Auto Ins. Co., supra, 504 N.Y.S.2d at 25.
Whether non-parties to the Agreement like Ellentuck or LOC have standing to confirm or vacate any arbitration award under New York law is an issue we need not decide. In opposition to Ellentuck's appeal, both LOC and defendants concede that even if the motion judge's orders are not vacated, Ellentuck is free to pursue any derivative shareholder claims he may possess. These concessions, particularly in light of our decision in the companion appeal, convinces us this appeal is moot.
In reaching this conclusion, we do not express any opinion whatsoever about the merits of Ellentuck's claims, nor do we prescribe the procedural mechanism by which he may bring them. Additionally, we do not foreclose any argument, procedural or substantive, that defendants, LOC, or even the Trenk parties may marshal in opposition to those claims. Rather, we are convinced that the interests of justice require a result that returns all participants, whether parties to the Agreement or not, to a place free from the fundamental flaws of the arbitral proceeding.
Appeal A-3703-05T5 is therefore dismissed as moot.
In conclusion, we reverse the motion judge's orders of September 8, 2005, October 3, 2005, and February 8, 2006, vacate the orders of July 8, 2004 and July 9, 2004, and reinstate the pleadings. In doing so, we do not disturb the settlement reached between the Trenk parties and LOC and those claims remain dismissed with prejudice.
Appeal A-3656-05T5, reversed and remanded.
Appeal A-3703-05T5 is dismissed as moot.
Subsequent to filing this appeal, the Trenk parties settled their claim against LOC and by our order of June 15, 2006, their appeal was dismissed against LOC only. In their brief filed after this settlement, the Trenk parties only request that we reverse the February 8, 2006 order.
For the balance of this opinion, we refer to STA, Liberty, the Schaefers, Yessman, LOC and a group of corporations allegedly controlled by Schaefer, collectively as "defendants." We need not discuss at length the allegations against these other corporate entities because they are unimportant to the issues at hand.
Although the complaint named only Liberty as a defendant, the consent order was entered by "STA/Liberty."
As noted, LOC, STA and Ellentuck were not signatories to the Agreement. In his e-mails, Trenk's counsel noted that the claims against LOC were "potentially valuable to the shareholders of Liberty, not all of whom are parties hereto."
These two disputed items were at the heart of the litigation. The Trenk parties alleged that Schaeffer with the assistance of LOC and others had systematically raided the corporate coffers and reflected these amounts as "advances" or "loans" on STA's financial statements. They sought to obtain equal compensation from STA based upon Trenk's relative shareholder percentage. Liberty and its affiliated entities claimed APH had systematically overcharged it under the agreement that provided for its exclusive use of the heliport. During the arbitration and settlement proceedings, these became known as the equalization and overpayment issues. The payments Ortenzio ordered APH to make to STA were actually made prior to the entry of the decision.
The October 3, 2005 order also vacated an earlier order of September 13, 2005. We have not been supplied with that order.
Although the judge found inadequate proof of Ortenzio's bias at the time she authored her written decision, she entered this order disqualifying him from further participation. She apparently concluded disqualification was now appropriate because Ortenzio had filed a certification in support of Liberty's opposition to the Trenk parties' motion to vacate.
Liberty's cross-appeal of Ortenzio's disqualification was withdrawn.
August 1, 2007