Matter of Kalikow

[*1] Matter of Kalikow 2006 NY Slip Op 52389(U) [14 Misc 3d 1203(A)] Decided on December 13, 2006 Sur Ct, Nassau County Riordan, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 13, 2006
Sur Ct, Nassau County

In the Matter of the Arbitration between the Preliminary Co-Executors of the Estate of Pearl B. Kalikow and Laurie Platt and Edward M. Kalikow.



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Meltzer, Lippe, Goldstein & Breitstone

190 Willis Avenue

Mineola, NY 11501

(Attorneys for respondents,

Edward M. Kalikow and Laurie Platt)

Morris, Downing & Sherred

One Main Street

P.O. Box 67

Newton, NJ 07860

(Attorneys for preliminary co-executor, James DeVita)

Holland & Knight LLP

195 Broadway

New York, NY 10007-3189

(Attorneys for preliminary co-executor, Eugene Shalik)

Dennis A. Konner, Esq.

c/o Thelen Reid Brown Raysman & Steiner

900 Third Avenue

New York, NY 10022-4728

(Pro Se respondent)

Amy C. Karp

Assistant Attorney General

c/o The Charities Bureau

120 Broadway

New York, NY 10271

(Ultimate Charitable Beneficiaries)

Ohn B. Riordan, J.

Before the court is a motion for an order disqualifying an arbitrator.

Decedent, Pearl B. Kalikow, died on January 4, 2006, survived by two children, Edward Kalikow and Laurie Platt (respondents). A purported will dated July 16, 2003 and codicils dated September 29, 2004 and April 5, 2005 have been offered for probate. By order dated April 5, 2006, preliminary letters testamentary issued to Eugene Shalik (petitioner) and James DeVita.

The instrument offered for probate bequeaths the residuary estate to the Sunshine Foundation. Article "NINTH" provides in part:

"If at the time of my death I own either a general partnership

interest in Hewlett Associates or stock of Kalikow Management Inc.,

I give said interest and/or stock to THE SUNSHINE FOUNDATION."

The value of decedent's 1% general partnership interest and 50% limited partnership interest in Hewlett Associates is estimated to exceed twenty million dollars ($20,000,000).

The Hewlett Associates Partnership Agreement ("Partnership Agreement"), dated January 3, 1980 provides in part:

"Except as otherwise expressly provided herein, each Partner covenants

and agrees that he will not, without the prior written consent of all

other Partners, pledge, encumber, sell, mortgage, hypothecate or assign

the whole or any part of his interest in the Partnership, including,

without limitation, his interest in any distributions to be made by

the Partnership."

The agreement further provides:

"Any controversy or claim arising out of or relating to this Agreement

or to the interpretation, breach or enforcement thereof shall be

submitted to [the named arbitrator], or if he shall be

unwilling or unable to serve, then to three (3) arbitrators and settled

by arbitration in the City of New York in accordance with the rules,

then obtaining, of the American Arbitration Association provided,

however, and notwithstanding any other provision of such rules, if

the matter submitted to arbitration shall involve a dispute as to the [*2]

fair market value of the interest of any Partner herein and if

[the named arbitrator], shall be unwilling or unable to decide

such dispute, then such arbitration shall be held before three (3)

arbitrators, one of whom shall be a certified public accountant and

the other two (2) of whom shall be licensed real estate appraisers.

Any award made by a majority of such arbitrators shall be final,

binding and conclusive on all parties hereto for all purposes and

judgment may be entered thereon in any court having jurisdiction

thereof."

In June 2006, respondent served upon Eugene Shalik and James DeVita a demand for arbitration and notice of intention to arbitrate pursuant to the rules of the American Arbitration Association. The subject of the dispute is the bequest of decedent's interest in Hewlett Associates to the Sunshine Foundation.

Eugene Shalik then petitioned this court for an order determining that the dispute between the parties is not subject to arbitration as it involves the distribution of a decedent's estate. By decision dated October 13, 2006, the court determined that the parties were bound by the agreement to arbitrate. A decree dated November 22, 2006 directed the parties to proceed to arbitration.

In a letter dated November 2, 2006, the arbitrator notified the parties of his intention to proceed with arbitration and conduct the arbitration under the Rules of the American Arbitration Association. An arbitration hearing was scheduled for November 30, 2006.

By letter dated November 14, 2006, counsel for Eugene Shalik requested that the American Arbitration Association disqualify the arbitrator for bias. The American Arbitration Association responded that it did not have authority to make an administrative decision in an independent arbitration, absent an order of the court or consent of the parties.

The arbitrator, in a letter dated November 22, 2006 adjourned the hearing "without date pending further direction from an appropriate court." He thereafter rescinded the adjournment and rescheduled the hearing for December 8, 2006.

Petitioner brought on this motion returnable December 7, 2006 for an order seeking to disqualify the arbitrator on the grounds that he is aligned with the respondents. The court issued a temporary restraining order staying the arbitration and a hearing was held on the issue of disqualification. James DeVita joined in the application.

The arbitrator did not attend the hearing. The arbitrator made no submissions until after the motion was submitted, at which time he submitted an affidavit to the court. At the hearing, respondents objected to any testimony by Eugene Shalik concerning the business and personal relationship between the arbitrator and Edward Kalikow, on the grounds of hearsay and surprise. Based on these objections, no testimony was taken from Eugene Shalik regarding those issues. Respondents did not call any witnesses.

The arbitrator, an attorney, drafted the Partnership Agreement. His affidavit reveals that since 1996 he has represented Eugene Shalik and Edward Kalikow, partners in "K & S," in connection with real estate development transactions valued at approximately nine hundred [*3]million dollars ($900,000,000). The arbitrator and his wife have invested in approximately sixteen of the K & S ventures. In addition, they are personal friends of Edward Kalikow.

Respondents argue that Eugene Shalik was aware of the business and personal relationship between the arbitrator and Edward Kalikow and the arbitrator therefore had no obligation to furnish a statement concerning these relationships. However, James DeVita, also a preliminary executor, had no independent knowledge of these connections. On November 28, 2006, counsel for James DeVita requested the arbitrator to make full disclosure of his associations with respondents which were subsequent to the Partnership Agreement. The arbitrator does not dispute that he failed to respond to the letter and states in his affidavit that he "planned on disclosing [his] relationship with the Kalikow family at commencement of the arbitration."

Arbitration is favored as a matter of public policy (Hackett v Milbank, Tweed, Hadley & McCloy, 86 NY2d 146 [1995]). The courts are reluctant to disqualify an arbitrator selected by the parties. Therefore, arbitrators are not automatically disqualified because of a business relationship with one of the parties before them if all parties are informed of the relationship in advance (Commonwealth Corp v Casualty Co., 393 U.S. 145 [1968] [ J. White, concurring, joined by J. Marshall]).

The proper standard for review for disqualification is whether the arbitration process is free of the appearance of bias (Matter of Excelsior, 57th Corp. [Kern], 218 AD2d 528 [1995]; Rabinowitz v Olewski, 100 AD2d 539 [1984]).

The Rules of the American Arbitration Association require an arbitrator to disclose any circumstances likely to create a presumption of bias which he believes might be grounds for disqualification. The same disclosure is required of all arbitrators prior to assuming their duties, in proceedings conducted pursuant to CPLR Article 75 (J.P. Stevens & Co., Inc. v Rytex Corp., 34 NY2d 123 [1974]).

The failure of an arbitrator to disclose relevant information is a basis for vacating an award under CPLR 7511 (J.P. Stevens Co., Inc. v Rytex Corp., 34 NY2d 123 [1974]; Kern v 303 East 57th Street Corp., 204 AD2d 152 [1994]). The court can also disqualify an arbitrator before an award has been rendered (Rabinowitz v Olewski, 100 AD2d 539 [1984]).

The arbitrator states in his affidavit that he has "never had an argument or harsh words with [Eugene Shalik] other than regarding the wording in a transaction document." The issue on this motion, however, is not whether the arbitrator is hostile to the preliminary executor but whether the arbitrator can be fair to the respondents and the estate.

The Court finds that the conduct of the arbitrator in failing to disclose to the preliminary executors in advance his business and personal relationships with respondents creates an appearance of bias in favor of the respondents. Fundamental principles of justice require complete impartiality on the part of an arbitrator (Uniformed Firefighters Ass'n v City of Long Beach, 307 AD2d 315 [2003]; Matter of Fischer, 106 AD2d 365 [1984]).

The motion for an order disqualifying the arbitrator designated in the Partnership Agreement is granted. The Partnership Agreement confers jurisdiction upon the American Arbitration Association to fill the vacancy created by the disqualification.

Settle decree.

Dated: December 13, 2006 [*4]

JOHN B. RIORDAN

Judge of the

Surrogate's Court

The appearances of counsel are as follows: