Securities & Inv. Planning Co. v J.P.C. Contr. Co.
Annotate this CaseDecided on October 7, 2004
Supreme Court, Nassau County
SECURITIES & INVESTMENT PLANNING COMPANY and DARYL HERSCH, Petitioners,
against
J.P.C. CONTRACTING COMPANY, STEPHEN A. PAOLINO and LEE R. PAOLINO, , Respondents.
2310/04
William R. LaMarca, J.
The Court, sua sponte, recalls its Short Form Order in the above captioned action, dated September 1, 2004, and substitutes the instant order in its place, nunc pro tunc. Upon review of the proposed Judgment herein and the submissions of counsel, it is apparent that modification is necessary to correct the Court's erroneous conclusion that the arbitration panel had awarded respondents pre-judgment interest when in fact it did not.
Requested Relief[*2]
Petitioners, SECURITIES & INVESTMENT PLANNING COMPANY and DARYL S. HERSCH, (hereinafter collectively referred to as "SIPCO/HERSCH") move pursuant to CPLR § 75 to vacate an arbitration award, dated January 21, 2004. Respondents, J.P.C. CONTRACTING COMPANY, STEPHEN A. PAOLINO and LEE R. PAOLINO (hereinafter collectively referred to as "JPC/ PAOLINO"), oppose the motion and cross-move to confirm the arbitrators' award and for an award of pre-judgment interest from January 21,1999 to June 21,2004. The motion and cross-motion are determined as follows:
Background
In the underlying arbitration dispute, it is conceded that the only remaining claim presented to the arbitration panel was the failure of SIPCO/HERSCH to execute an alleged order to purchase up to 15,000 shares of "F-Web" stock, also known as penny stock, for the account of JPC/PAOLINO. After three (3) days of hearings, September 22 and December 17 and 18, 2003, the panel of three arbitrators, well experienced in the field of securities law, awarded $230,000.00 in compensatory damages and assessed fees against the parties. The hearings, in essence, established, through the sworn testimony of the parties, including, STEPHEN PAOLINO, the President of J.P.C. CONTRACTING, that on July 22, 1998, DARYL HERSCH, an employee of SIPCO and PAOLINO's investment broker, telephoned him and solicited a stock purchase. Allegedly, on that day, STEPHEN PAOLINO placed an oral order with HERSCH to purchase 10,000 shares of "F-Web" at approximately $1.50 per share. Two (2) days later, on July 24, 2003, SIPCO faxed an "Unsolicited Lower Priced Security Purchase Letter" and a "Client Suitability Form" for the purchase of "penny stock" to STEPHEN PAOLINO, who immediately filled out and returned said forms to SIPCO. It is PAOLINO's position that he and HERSCH had a longstanding business relationship and that he had never been required to fill out such forms as a pre-condition to any of his prior "penny stock" transactions because said transactions were "exempt" under Rule 15-g-9(c)(3) of the Securities and Exchange Act of 1934 because he was an "established customer" of the broker. Indeed, he states that the Purchase Letter was specifically left blank in certain areas because JPC/PAOLINO had previously executed a discretionary trading form in favor of SIPCO, dated May 6, 1998, and because HERSCH had, in fact, solicited the purchase during the July 22, 1998 phone call.
In September,1998, when STEPHEN PAOLINO reviewed his SIPCO account statement and the purchase of the "F-Web" stock was not listed, he telephoned SIPCO and was assured by SIPCO broker, CHARLES HARVEY, that everything was being taken care of and that HERSCH was "working on it". On September 17, 1998,when PAOLINO spoke directly to HERSCH, PAOLINO claims he was advised for the first time that the forms he had returned on July 24, 1998 were inadequate. PAOLINO testified that the forms were completed to SIPCO's satisfaction on September 21,1998, and he was assured that the "F-Web" shares would appear on his account statement at the July purchase price.
Thereafter, by January 21, 1999, when " F-Web" stock had risen to approximately $23.00 per share, STEPHEN PAOLINO directed HERSCH to sell the stock at no less than $20.00 per share. It was at this point, allegedly for the first time, that HERSCH advised STEPHEN PAOLINO that the shares were not in the JPC/PAOLINO account and that the original purchase order was never executed because the requisite forms were not completely filled out. The underlying arbitration claim commenced shortly thereafter.
[*3]The Law
CPLR § 7511(b) sets forth the four narrow grounds upon which an arbitration award may be vacated. These four grounds are 1) corruption, fraud, or misconduct in procuring the award; 2) partiality of an arbitrator appointed as a neutral; 3) an arbitrator or agency making the award exceeded his power or so imperfectly executed it that a final definite award was not made; and 4) and procedural defects, unless the party failed to notice the defect and failed to object to same. See also, Matra Building Corp v. Alan Kucker, et al., 2 AD3d 732, 770 NYS2d 367 (2nd Dept. 2002). An arbitration award cannot be vacated even if the Court concludes that the arbitrators interpretation of an agreement misconstrues or disregards its plain meaning or misapplies substantive law unless the award is violative of a strong public policy, is totally irrational, or exceeds enumerated limitations of the arbitrators powers. Matra Building Corp. V. Alan Kucker, et al., supra . The scope of review is extremely limited, as the goal of arbitration is to reach a final and definite resolution of the parties' dispute without resorting to the judicial process, and the party commencing the action bears a heavy burden of proof. Indeed, an arbitration award will be confirmed if there is even a barely colorable justification for the outcome. Huntington Hospital v. Huntington Hospital Nurses Association, 302 F. Supp. 2d 34 (EDNY, 2004)
. . . [I]n order to achieve arbitration's dual purpose of an equitable result and expediency, the arbitrator's award should be given great deference. Finality is the key. Accordingly, CPLR 7501 expressly forbids judicial review of the parties' disputes. Therefore, failure to establish a statutory ground for vacatur under CPLR 7511 requires confirmation of the award (Matter of Granite Worsted Mills[Cowen] 25 NY2d 451, 255 NE2d 168, 306 NYS2d 934). Moreover, in New York there is a strong public policy favoring arbitration, consequently an award is not subject to vacatur "unless the court concludes that it is totally irrational or violative of a strong public policy" and thus in excess of the arbitrators powers (Hacket v. Milbank, Tweed, Hadley & McCloy, 86 NY2d 146, 630 NYS2d 274, 654 NE2d 95; Maross Constr. V. Central NY Regional Transp. Auth. 66 NY2d 341, 497 NYS2d 321, 488 NE2d 67).
Brown and Williamson Tobacco Corp. v. Chesley, 194 Misc2d 540, 749 NYS2d 842(NY County, 2002).
Discussion
Petitioners raise five grounds upon which they claim the arbitration award should be vacated. They allege the award is arbitrary and capricious; that it is totally irrational; that no proof was presented to justify the award as rendered; that the award to J.P.C. is invalid because J.P.C. does not exist as a corporate entity; and that the arbitrators exceeded their authority by rendering an award on claims not before them.
Initially, the court notes the parties entered into a binding, written Arbitration Agreement on November 3, 1997. Thus the threshold question of whether the parties agreed to arbitration is [*4]settled. The parties stipulated to language that the findings of the arbitrators would be "final and binding" and voluntarily agreed that resolution of any disputes that arose between them would be determined by arbitration. The terms of a voluntary agreement are not limited except for rare matters which are contrary to public policy. Antinore v. State of New York, 49 AD2d 6, 371 NYS2d 213 (4th Dept. 1975).
The Court of Appeals has held that arbitrators have exceeded their powers within the meaning of CPLR §7511 only if they gave a completely irrational construction to the provisions of the agreement in dispute and, in effect made a new contract for the parties in the rendering of the award. Cf., National Cash Register Co. v. Wilson, 8 NY2d 377, 208 NYS2d 951, 171 NE2d 302 ( C.A. 1960 ); Brown & Williamson Tobacco Company v. Chelsey, supra . Protracted judicial litigation with respect to the matter is to be discouraged lest legislative policy and the parties' initial intentions be frustrated. See, Nationwide General Insurance Co v. Investors Insurance Co. of America, 37 NY2d 91, 371 NYS2d 463, 332 NE2d 333(C.A. 1975). Courts are to be guided by "the fundamental principle that the resolution of disputes by arbitration is grounded in agreement of the parties." County of Sullivan v. Edward L. Nezelek, Inc. 42 NY2d 123, 397 NYS2d 371, 366 NE2d 72 (C.A. 1977). Furthermore, the Court rejects SIP/HERSCH's challenge to the corporate status of JPC. Evidence was presented to the arbitrators of JPC's corporate proprietorship along with corporate tax returns and proof substantiating prior business dealings. Based on the totality of the evidence presented, the Court finds that there clearly was a rational basis for the arbitral decision and the arbitrators acted within their power. Accordingly, the award is unassailable and must be obeyed. See, National Cash Register Co. v. Wilson, supra .
Conclusion
Based on the foregoing, it is hereby
ORDERED, that SIP/HERSCH's motion to vacate the arbitration award, dated January 21, 2004, is denied. SIP/HERSCH has failed to satisfy any of the statutory grounds for vacating the arbitral award and, therefore, this court must confirm it; and it is further
ORDERED, that JPC/PAOLINO's cross-motion to confirm the arbitration award is granted to the extent that SIP/HERSCH is liable for and shall pay to JPC/PAOLINO compensatory damages in the amount of $230,000 and the parties shall pay the assessed fees. CPLR § 7511(e) directs that once the Court denies a motion to vacate an award it shall confirm the arbitration award. However, that portion of the cross-motion that requests pre-judgment interest is denied. When hearing a motion to confirm an arbitration award, the award of pre-judgment interest is considered a substantive part of an arbitrator's award and the Court is "powerless" to award pre-judgment interest unless the award specifically provides for such interest. See, State Farm Mutual Automobile Insurance Company v. Cordes, 242 AD2d 635, 662 NYS2d 140 (2nd Dept.1997); Aetna Casualty and Surety Company v. Rosen, 233 AD2d 499, 650 NYS2d 29 (2nd Dept. 1989); see also, Gruberg v. The Cortell Group, Inc., 143 AD2d 39, 531 NYS2d 557 (1st Dept. 1988). Upon confirmation of the arbitrators award, interest is to be calculated from the date of the award. Board of Education of Central School District No.1 v. Niagara-Wheatfield Teachers Association, 46 NY2d 553, 415 NYS2d 790, 389 NE2d 104 (C.A. 1979);Aetna Casualty and Surety Company v. Rosen, supra ; CPLR §5002. In the case at bar, interest shall run from March 8, 2004, the date the last arbitrator signed the arbitration award. The parties agreed that the award could be executed in counterpart [*5]copies and although two (2) of the arbitrators signed on January 21, 2004, it was not fully signed until March 8, 2004. See, CPLR §7507. JPC/PAOLINO is directed to settle judgment on notice.
All further requested relief not specifically granted is denied.
This constitutes the decision and order of the Court.
Dated: October 7, 2004
______________________________
WILLIAM R. LaMARCA, J.S.C.
TO:Schrader & Schoenberg, LLP
Attorneys for Petitioners
420 Lexington Avenue, Suite 628
New York, NY 10170
David J. Sutton, PC
Attorney for Respondents
1205 Franklin Avenue, Suite 320
Garden City, NY 11530
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