Matter of National Union Fire Ins. Co. of Pittsburgh, P.A. v Dyneer Corp.

[*1] Matter of National Union Fire Ins. Co. of Pittsburgh, P.A. v Dyneer Corp. 2004 NY Slip Op 51024(U) Decided on July 22, 2004 Supreme Court, New York County 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 22, 2004
Supreme Court, New York County

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, P.A., on behalf of itself and each of the related insurers that provided coverage to Respondent, Petitioner,

against

DYNEER CORPORATION, Respondent.



120192/02



For the Petitioners: Zeichner Ellman & Krause LLP

575 Lexington Avenue

New York, New York 10022

By: Michael S. Davis, Esq.

Shima Imoto, Esq. Of Counsel

For the Respondent: Seeger Weiss LLP

One William Street

10th Floor

New York, New York 10004

By: David R. Buchanan, Esq. Of Counsel

For the Arbitrator: Lord, Bissell & Brook LLP

885 Third Avenue

26th Floor

New York, New York 10022

By: Gregory T. Casamento Of Counsel

William A. Wetzel, J.

Respondent Dyneer Corporation ("Dyneer") seeks (1) an order pursuant to CPLR §5015 to vacate the Order dated July 22, 2003 that designated Donald T. DeCarlo, Esq. as the court-appointed umpire in the arbitration pending between Dyneer and Petitioner National Union Fire Insurance Company of Pittsburgh, P.A., on behalf of itself and each of the related insurers that provided coverage to Dyneer ("National Union"); and (2) an order appointing a new umpire pursuant to CPLR §7504.

Background

National Union provided workers' compensation, commercial automobile, general and property liability coverage pursuant to Policies and an Indemnity Agreement to Dyneer during the periods 1991-1992 and 1992-1993. Each Indemnity Agreement included an arbitration clause.[FN1]

National Union served Dyneer with a Demand for Arbitration dated July 11, 2002 alleging that Dyneer failed to make payments under the Policies and the Indemnity Agreement. The Demand required that Dyneer name a qualified arbitrator by August 15, 2002. Dyneer allegedly failed to appoint an arbitrator or respond to the Demand.

National Union sought an order to compel Dyneer to proceed with the arbitration. On or about October 11, 2002, counsel for Dyneer consented to the arbitration and stated that Dyneer would appoint an arbitrator. Thereafter, National Union and Dyneer appointed their respective party-appointed arbitrators but the party-appointed arbitrators were unable to agree upon a neutral umpire.

National Union applied to this Court to appoint an Umpire. This Court, consistent with the Indemnity Agreement, reviewed candidates in the Directory of Certified Arbitrators maintained by ARIAS*US, a society that trains and certifies arbitrators for insurance and reinsurance arbitrations. In its July 22, 2003 Order, this Court appointed Donald T. DeCarlo, Esq. as Umpire. This Court was satisfied that Mr. DeCarlo met all the necessary requirements and qualifications. See Nat'l Union Fire Ins. Co. v. Dyneer Corp., No. 120192/02 (N.Y. Sup. Ct. July 22, 2003).

On or about May 6, 2004, Dyneer served the within Order to Show Cause seeking an order vacating the July 22nd Order and appointing a new umpire. Dyneer's principal contention is that Mr. DeCarlo has a conflict of interest that prevents him from serving as a neutral umpire in the underlying arbitration proceeding. (Buchanan Aff. ¶ 14.)

[*2]Discussion

A threshold question for this Court is whether it has the power to disqualify an arbitrator in advance of the arbitration proceedings. See Santana v. Country-Wide Ins. Co., 177 Misc. 2d 1, 3 (N.Y. Civ. Ct. 1998), aff'd, 184 Misc. 2d 294 (2d Dept. 2000). This Court concludes that it has "the inherent power to disqualify an arbitrator before an award has been rendered where there is a real possibility that injustice will result." Id. at 3; see also Matter of Astoria Med. Group (Health Ins. Plan), 11 N.Y.2d 128, 132 (1962); Matter of Grendi (LNL Constr. Mgmt. Corp.), 175 A.D.2d 775, 776 (1st Dept. 1991).

Respondent, as the movant on a CPLR §5015 motion, must demonstrate the genuineness and materiality of the newly discovered evidence, and that, despite due diligence, the evidence could not have been discovered prior to the Respondent's petition. See CPLR §5015(a)(2); see also Jackson v. Kessner, 206 A.D.2d 123, 130 (1st Dept. 1994).

Here, Respondent alleges that Mr. DeCarlo did not reveal that his law firm, Lord, Bissell & Brook LLP, was presently representing Travelers against Dyneer in a separate action styled Albany International Corp., et al. v. American National Fire Insurance Company, et al., Cause No. CV98-11695, pending in the Superior Court of the State of Arizona, Maricopa County (the "Arizona Action")[FN2]. Respondent further contends that the Arizona action shares similar factual and legal bases as the Respondent's claims against Petitioner in the underlying arbitration proceeding. (Buchanan Aff. ¶ 10.) Due to the similarity of the claims, Respondent argues that it would be impossible for Mr. DeCarlo to find for Dyneer because he would have to reach adverse conclusions to those advanced by his firm in its representation of Travelers. (Buchanan Aff. ¶ 14.) Moreover, Respondent maintains that Mr. DeCarlo would be unlikely to concede that his firm's position in the Arizona action, where the claims are similar to those of Dyneer here, is without merit. (Buchanan Aff. ¶ 16.)

There is little precedent as to whether an arbitrator whose firm serves as adversarial counsel against one of the parties in a pending matter should be disqualified in the instant arbitration because of the appearance of partiality. Santana, 177 Misc. 2d at 7. However, courts generally reject challenges where there was a waiver by the party contesting the appointment of the arbitrator. See id. at 7-8; see also Matter of Baar & Beards, Inc. (Oleg Cassini, Inc.), 30 N.Y.2d 649, 651 (1972); Matter of Labenski (Kraizberg), 234 A.D.2d 296, 297 (2d Dept. 1996); Palmieri v. Ins. Co., 67 A.D.2d 967, 967 (2d Dept. 1979).

Petitioner here argues that Respondent has in fact waived its right to object to the appointment of Mr. DeCarlo. A fundamental requirement before one can waive a challenge to an arbitrator is that the arbitrator must have disclosed any facts or information which might disqualify him as an impartial arbitrator. Matter of J.P. Stevens & Co. (Rytex Corp.), 41 A.D.2d 15, 16 (1st Dept. 1973), aff'd, 34 N.Y.2d 123 (1974); see also Matter of Colony Liquor Distribs., Inc. (Local 669, International Brotherhood of Teamsters), 34 A.D.2d 1060, 1060 (3rd Dept. 1970), aff'd, 28 N.Y.2d 596 (1971). In the November 17, 2003 organizational meeting between the arbitration panel and the parties, Mr. DeCarlo disclosed his employment history at Travelers, NCCI and his current law firm, Lord, Bissell & Brook LLP. Since the disclosure contained facts sufficient to put Respondent on inquiry notice of Mr. DeCarlo's prior and present work relationships, Respondent may not now claim bias based on the failure to disclose such a [*3]relationship. See Matter of Canajoharie Cent. School Dist. (Canajoharie United School Employees), 108 A.D.2d 1087, 1088 (3rd Dept. 1985).

Furthermore, Respondent may not sit idly back and rely exclusively upon Mr. DeCarlo's disclosure. See Matter of Stevens & Co., 34 N.Y.2d at 129. Mr. Dodge, whose law firm is counsel for Respondent in both the underlying arbitration proceeding and the Arizona action, may not have had actual notice of the claims between Dyneer and Travelers in the Arizona action but he should be held to have constructive notice.[FN3] Since Respondent had knowledge of facts that reasonably should have prompted further, limited inquiry, Respondent had the responsibility to ascertain the potentially disqualifying facts. See id. For that reason, this Court finds that Respondent's "new" evidence could have been discovered with due diligence.

In the final analysis, this Court concludes from the record that Respondent effectively waived its objection to the umpire. Mr. Dodge first lodged his challenge to Mr. DeCarlo's appointment at the November 17, 2003 organizational meeting. Then at the December 2, 2003 organizational meeting, Mr. Dodge explicitly consented to Mr. DeCarlo's appointment.[FN4] Respondent was possessed of sufficient information and time for it to make an informed decision for a waiver. See Matter of Baar & Beards, Inc., 30 N.Y.2d at 651; cf. Matter of Milliken Woolens, Inc. (Weber Knit Sportswear, Inc.), 11 A.D.2d 166, 169 (1st Dept. 1960), aff'd, 9 N.Y.2d 878 (1961); Matter of Seligman (Allstate Ins. Co.), 195 Misc. 2d 553, 556 (N.Y. Sup. Ct. 2003). This Court therefore finds that this petition for disqualification is untimely. Since Respondent has waived the right to challenge the designation of Mr. DeCarlo as the umpire, there is no "new" evidence that Mr. DeCarlo would conduct the arbitration in anything less than a "faithful and fair" manner. See CPLR §7506, subd.(a).

For the foregoing reasons, Respondent's petition is in all respects denied. This opinion constitutes the Decision and Order of this Court.

Dated: New York, New York September 21, 2004[*4]

________________________

JSC Footnotes

Footnote 1: Article V ("the Arbitration Clause") of the Indemnity Agreement states the following: "All disputes or differences arising out of the interpretation of this Agreement shall be submitted to the decision of two (2) Arbitrators, one to be chosen by each party, and in the event the Arbitrators fail to agree, to the decision of an Umpire to be chosen by the Arbitrators. The Arbitrators and Umpire shall be active or retired Risk Management Officials in the same or similar industries or active or retired executive officials of Insurance Brokers or Insurance Agents. If either of the parties fails to appoint an Arbitrator within one (1) month after being required by the other party in writing to do so, or if the Arbitrators fail to appoint an Umpire within one (1) month of a request in writing by either of them to do so, such Arbitrator or Umpire, as the case may be, shall at the request of either party be appointed by a Justice of the Supreme Court of the State of New York." (Buchanan Aff. Ex. B; Davis Aff. Ex. A.)

Footnote 2: The Arizona action has been pending prior to September 30, 1998. See Selling Defendants' Motion to Dismiss at 15, Albany Int'l Corp. v. American Nat'l Fire Ins. Co., No. CV98-11695 (Ariz. Super. Ct. 1998).

Footnote 3: At the March 9, 2004 organizational meeting, Mr. DeCarlo explained that when he conducted his conflicts check at Lord, Bissell & Brook, the name "Dyneer Corporation" did not show up because in the Arizona action, it is listed as "Titan International, Inc. and subsidiary, Dyneer Corporation." (Transcript of March 9, 2004 organizational meeting held via conference phone before Donald T. DeCarlo, Umpire, Mary Ellen Burns, Arbitrator, Edward J. Priz, Arbitrator with Michael S. Davis, Esq. and David W. Dodge, Esq. (Mar. 9, 2004).) Lord, Bissell & Brook consists of 325 attorneys with offices in Chicago, IL, Los Angeles, CA, Atlanta, GA, New York, NY and London, England. (Davis Aff. Ex. 3.) While Mr. DeCarlo is partner at Lord, Bissell & Brook, his partnership is at the New York office and not at the Chicago office where the Arizona matter is being handled. On the other hand, Mr. Dodge's firm, Dodge, Anderson, Jones, Bezney & Gillman, P.C. has nine attorneys and 15 support staff in Dallas, TX. (Davis Aff. Ex. 4.) Mr. Dodge's conflicts check must proportionally be less cumbersome.

Footnote 4: Mr. DeCarlo asks: "This is the continuation of the organizational meeting which we adjourned; and the way we left off was there were some concerns or issues related to my conflicts, and I appreciate it if either counsel would kind of report on that. Mr. Dodge answers: "We had adjourned the last meeting in order for us to confer with our client, and we have done so and are happy to report that to announce to Mr. DeCarlo any challenge that we had has been dropped." (Transcript of December 2, 2003 organizational meeting held via conference phone before Donald T. DeCarlo, Umpire, Mary Ellen Burns, Arbitrator, Edward J. Priz, Arbitrator with Michael S. Davis, Esq. and David W. Dodge, Esq. (Dec. 2, 2003).)