Nemo Tile Co., Inc. v 260 Park Ave. S., LLC

[*1] Nemo Tile Co., Inc. v 260 Park Ave. S., LLC 2007 NY Slip Op 52195(U) [17 Misc 3d 1130(A)] Decided on October 17, 2007 Supreme Court, New York County Figueroa, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 17, 2007
Supreme Court, New York County

Nemo Tile Company, Inc., Petitioner,

against

260 Park Avenue South, LLC, Respondent.



100231/07



The appearances of counsel were as follows:

M. William Scherer, Esq., Siller Wilk LLP, attorneys for Petitioner; and Zane & Rudofsky, attorneys for Respondent.

Nicholas Figueroa, J.

Motion sequences 1, 3 and 4 are consolidated for disposition in the following decision, order and judgment.

In motion sequence 001, petitioner seeks a judgment vacating a February 15, 2007 arbitration award that determined the fair market value of a condominium; disqualifying Cushman and Wakefield from acting as respondent's appraisers; otherwise permitting petitioner's appraiser and the new appraiser "to select a neutral, or to have a neutral appointed by the court"; and giving it a "renewed opportunity to purchase" the property upon issuance of a new award. By "neutral" petitioner refers to a neutral arbitrator.The arbitration award determined the fair market value of the commercial condominium property that petitioner had the option to buy at $7,000,000. The award was signed by Ruth A. Agnese and Brian R. Corcoran, the arbitrators, who received evaluations from appraisers appointed by each party and a neutral appraiser.

Petitioner alleges that the award should be vacated because its rights were prejudiced by respondents "misconduct in submitting an appraisal that was manipulated to substantiate a pre-determined valuation established before the appraisal was completed"; the failure of the neutral arbitrator to disclose that she was "partial" to the appraiser appointed by respondent; and, "the neutral appraiser's refusal to consider an appraisal report prepared by a nationally recognized real estate appraisal company which so contradicted the appraisal submitted by [respondent], that, if considered, should have led her to conclude that [respondent's] appraisal was manipulated and should have been disregarded.

The arbitration stems from a dispute between the parties concerning an option for the sale of property. As part of their agreement, respondent gave petitioner the option to purchase two condominium units at fair market value. The fair market value was to be determined by the [*2]parties; however, the parties did not agree and so appointed appraisers. Petitioner refers to these appraisers as arbitrators. Petitioner appointed Wilrook Appraisal and Consulting, Inc., and respondent appointed Cushman & Wakefield, Inc.

According to petitioner, respondent's appraiser based its figures on incorrect assumptions: that the square footage was thirty-five percent greater than it actually was, and, that if the property were to be rented, it would generate $151,000 more a year than correct figures would yield.

Petitioner argues that even after respondent's appraiser adjusted his figures. According to petitioner, the correct value should have been $6,408,571.43; nevertheless, respondent's appraiser maintained that the property value was $9.3 million dollars.

After several meetings, the two appraisers did not resolve their differences. The parties then appointed Agnese as a neutral appraiser.

Petitioner alleges, on information and belief, that respondent's appraiser "manipulated the projected rental values for each of the elements of [petitioner's] premises so that the projected gross rental would equal $635,860, the amount required to support the predetermined valuation of $9.3 million. Petitioner also alleged, on information and belief, respondent's appraiser also manipulated the rental figures for the portions of the property.

Petitioner urges that the award should be vacated because petitioner was prejudiced by respondent's appraiser's appraisal that was "manipulated to arrive at a pre-determined value...".

Petitioner notes that on December 19, 2006, it submitted an order to show cause to Judicial Hearing Officer Gammerman of this court; however, he refused to sign it. Petitioner alleged that respondent's appraiser earned substantial real estate brokerage commissions from respondent's two principals. Petitioner, in the rejected order to show cause, argued that the neutral appraises did not "insulate [it] from injury" because the neutral appraiser "will not decide alone" and, "the three appraisers travel in the same circles." This affinity, according to petitioner, "necessarily will distort the process." However, petitioner does not demonstrate how the rejected papers have any relevance to this proceeding.

Petitioner alleges that an unbiased neutral appraiser would have questioned respondent's appraiser's credibility because its appraisal projected the property's "fair market value on the basis of comparable sales, [and] relied solely on patently incomparable sales of condominium units located on Madison Avenue, Lexington Avenue, Sixth Avenue and fifth Avenue, even though the [property was] located on quiet side streets in the Flatiron District."

Petitioner alleges, on information and belief, that although the neutral appraiser agreed that the comparable properties upon which respondent's appraiser relied on were inappropriate, "the neutral treated [respondent's] appraisal with great deference." Petitioner alleged, again on information and belief, that the neutral appraiser gave respondent's appraisal this deference "because she had an undisclosed bias in favor of [respondent's] appraiser's credibility.

Petitioner asserts that the neutral appraiser had publicly expressed a favorable view of respondent's appraiser. Petitioner argues that although it was aware that respondent and the neutral appraiser were acquainted because of "their professions and the nature of the interaction between persons in their profession, [it] was unaware of the publicly stated, high regard that [respondent's] appraiser was held in the neutral which, necessarily, would make it unlikely, if not impossible, for her to give great deference to his opinions, valid or otherwise."

In support of its argument that the neutral appraiser was biased, petitioner submits two [*3]articles from a publication, Real Estate Weekly. One article is dated August 7, 2002 and the other is dated October 2, 2002.

The neutral appraiser, Anganese, wrote the first article in which she stated that she was recently

"...at the Appraisal Institutes National Conference. There I was honored to accept the prestigious Louis Lum Award, presented to the most outstanding Appraisal Institute member in our nation, on behalf of Brian R. Corcoran, M.M., executive managing director, Cushman & Wakefield, Inc."

In the second article, Anganese is quoted as saying that Corcoran's "leadership and business acumen has been critical to the success of the Appraisal Institute."

Petitioner argues that the neutral appraiser should have "disclosed...her public declarations regarding how honored she felt to receive an award..." on Corcoran's behalf. It asserts, also on information and belief, that "had the neutral disclosed her public declarations regarding the competence and character of the [respondent's] appraiser, then [petitioner] would have insisted upon her recusal given [petitioner's] belief that the appraiser had not submitted an objective award."

Petitioner's next challenges the propriety of the award, by arguing that no formal hearing was held and that, the arbitration was conducted informally under the supervision of the neutral."

Petitioner argues that it was not permitted to submit an appraisal that had been prepared a year earlier by Grubb & Ellis consulting services that appraised the property at $2.8 million dollars.

Petitioner alleges that neither it nor its attorney has had any relationship with Grubb & Ellis and that its appraiser, Robert Van Acken, "is one of the most well-known and respected real estate appraisers in the country." Petitioner contends that the Grubb & Ellis appraisal "was strong circumstantial evidence of the gross inaccuracy of the [respondent's] appraisal and further evidence as to why it should have been given little or no weight."

Petitioner notes that the neutral advised both sides, on December 21, 2005, that she would not accept any previous appraisals. Petitioner asserts that "the neutral's further refusal to consider an arms length appraisal constituted misconduct because the conclusions certified therein were highly relevant and seriously undercut the credibility of the [respondent's appraisal that...was the product of pre-determination and manipulation."

Petitioner also seeks discovery (motion sequences 003 and 004).

In motion sequence 003, it seeks an order, pursuant to CPLR 048, permitting it to subpoena John A. Katinos and Antonio Benjamin to an examination before trial, and to compel Cushman & Wakefield to that examination before trial and produce its entire appraisal file. These three non-parties do not appear to have been served with the notice of motion. The affidavit of service recites that the papers were served at "the office of one of the members of respondents, 260 Park Avenue South, New York, New York."

Katinos and Benjamin signed the appraisal that petitioner challenges. Cushman & Wakefield, Inc., as noted, is the appraisal entity.

In support of the motion to examine these non-parties, petitioner's attorney alleges that petitioner "has objective evidence from which it can be inferred that the appraiser for [respondent] submitted a dishonest appraisal in which the various components of a fair market [*4]value determination were manipulated to arrive at a preset value. Petitioner argues that "If the inferences that [it] is drawing are bourne out by the appraisal file and the depositions, this Court will have no alternative but to vacate the arbitration award as being the product of misconduct."

In motion sequence 004, petitioner seeks additional discovery. It asks the court to issue an order directing respondent to produce "all drafts of any parts or whole" of the appraisal report Cushman & Wakefield prepared. The documents petitioner demands "includ[e], but [are] not limited to e-mails sent by [petitioner], or anyone acting on its behalf, discussing the value of the [property]."

Petitioner contends that the documents "will support Petitioner's specific factual allegations. Petitioner asserts that the documents are "readily available" to petitioner;' and, that Cushman & Wakefield is under petitioner's control as "evidenced" by the fact that respondent's answer contained an affidavit from the Cushman and Wakefield appraiser.

Decision

Petitioner has not demonstrated that there is a basis for vacating the award. Nor has it provided a basis for the court to grant leave for discovery. Moreover, as respondent correctly argues, the proceeding is moot. Therefore, the petition and the motions for discovery are all denied.

The proceeding is moot because petitioner exercised its one-time option to purchase

the property, but then rescinded its offer. All of petitioner's rights stem from the option to purchase. As petitioner has declined to exercise its option, it has waived its right to challenge the award because it no longer had contractual rights to enforce. This court cannot adjudicate the rights of a party when that party has relinquished its rights (cf. Matter of Arbitration Between Utica Mutual Insurance Company and Selective Insurance Company of America, 27 AD3d 990, 992).

Moreover, even if the proceeding were not moot, petitioner has failed to prove facts sufficient to vacate the award.

As this is an appraisal arbitration, the standard of review is whether appraisal "estimates are so enormously disproportioned to the case proved as to strike everyone that there must have been corruption or partiality" (Viele v. The Troy and Boston Railroad Company, 21 Barb. 381). The arbitrator's determination, $7,000,000, was approximately at the mid-point between petitioner's appraisal of $3,375,000 and the respondent's appraisal of $9,300,000. The award was not "enormously disproportioned" and does not lead to the conclusion that it was the product of corruption or partiality by the arbitrators.

Nor are the neutral arbitrator's statements and articles about the Cushman & Wakefield arbitrator evidence of partiality. The arbitrator merely made her congratulatory remarks and made favorable statements several years prior to the arbitration. Petitioner had ample opportunity to learn of the alleged impartiality and raise it at the proceeding. Its failure to do so precludes it from raising the objection now (see Matter of Cross Properties, Inc., v. Gimbel Brothers, Inc., 15 AD2d 913).

In any event, a "mere occasional association "between an arbitrator and a party or a witness will not warrant disqualification of the arbitrator on the ground of appearance of bias or partiality" (Matter of Quentzel Plumbing Supply Co., Inc., v. Quentzel, 193 AD2d 678, 679). The arbitrator and the appraisers are all members of the same profession. A laudatory remark by one of those persons about the other, particularly in a professional context, does not raise even [*5]the inference of partiality.

Nor has petitioner established any other grounds for vacatur under CPLR 7511(b). A court may not vacate an award unless, it is clearly violative of some strong public policy, is totally irrational or manifestly exceeds a specifically enumerated limitation on the arbitrator's power (see Matter of Board of Education of Arlington Central School District v. Arlington Teachers Association, 78 NY2d 33, 37).

Petitioner has not proven a public policy violation or demonstrated that the arbitrators exceeded their powers. Nor has the petitioner proven that the award is completely irrational as it failed to prove there was "no proof whatever to justify the award" (Peckerman v. D & D Associates, 165 AD2d 289, 296). The fact that there was competing proof of the property's value does not mean that the arbitrators acted irrationally because they disagreed with petitioner's, and respondent's, figures and arrived at their own determination based on the conflicting proof (see Matter of Rockland County Board of Cooperative Educational Services v. BOCES Staff Association, 308 AD2d 452, 453-454).

The arbitrator's refusal to accept the Grubb & Ellis appraisal is not a basis to vacate the award. An arbitrator is not bound by rules of evidence and this court may not substitute its judgment for the arbitrator's (see Matter of Mays-Carr [State Farm Insurance Company]), ____AD____, 2007 WL 2812855). This court will not impose its judgment on the underlying material the arbitrator should, or should not, have considered. Moreover, the parties agreed to arbitrate using current, not past, appraisal findings. Therefore, there is no basis to conclude that there was misconduct by the arbitrators in refusing to hear relevant and material evidence; moreover, an arbitrator's error in declining to admit evidence is not a basis for vacatur (see Matter of Raisler Corporation [New York City Housing Authority]), 32 NY2d 274, 282-283).

There is no merit to petitioner's argument that there was no formal hearing. Petitioner provides no factual basis for its conclusion that the proceeding was somehow defective in this regard. It fails to demonstrate that the hearing did not confirm to the terms of CPLR §7506.

There is no basis to grant leave to permit discovery and to depose non-parties. This is a summary proceeding in which there will be no trial, as the factual issues have been resolved by the arbitrators. This court cannot order discovery and later use it to second-guess the arbitrator's finding.

Petitioner had the opportunity to request pre-arbitration disclosure (CPLR 3120 (c)) and could have asked the panel to permit discovery. The court will not, at this late stage, permit disclosure, particularly the extremely broad disclosure petitioner seeks from non-parties, who, despite petitioner's conclusory allegation, are not under respondent's control and have not been given notice of the motions.

Accordingly, it is

ADJUDGED that the petition is denied and the proceeding dismissed; and it is further

ADJUDGED that pursuant to CPLR §7511(e) the award dated February 15, 2007 is confirmed, and it is further

ORDERED that the motions for disclosure and subpoenas are denied.

This constitutes the decision, order and judgment of the court.

Dated:October 17, 2007

E N T E R [*6]

_________________

J.S.C.