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Two parties in a multimillion dollar construction contract made the mistake of assuming they could designate a federal judge to arbitrate their dispute. Now, a second federal judge has ruled that the arbitration agreement between a physicians group and the construction company that allegedly botched the renovation of a medical services building in Manhattan is not enforceable. Southern District Judge Lewis A. Kaplan found that Canon 5E of the Code of Conduct for United States Judges bars Eastern District Judge David G. Trager from arbitrating the dispute in Diagnostic Radiology Associates v. Brown, 00 Civ. 1074. And Kaplan’s decision, as well as court papers filed in the case, show that both parties never even sought the consent of Trager before including him in the arbitration clause of their contract. Kaplan then transferred the case to the Eastern District, where, ironically, it may end up before Trager. Diagnostic Radiology reached an agreement in 1997 with contractor Jeffrey M. Brown Associates to renovate a medical building on West 17th Street. Both parties to the suit knew Trager and agreed, without his knowledge, to have the judge arbitrate any dispute that might arise from the contract. When the renovations ran into steep cost overruns in 1999, counsel for Brown wrote the judge, asking whether he was free and available to mediate the dispute or would designate a mediator in his stead. But Brown’s lawyers later took the position that ethical rules barred the judge from serving as an arbitrator. The attorneys for Diagnostic Radiology Associates, however, had a different reading of the rules and they pressed for Trager to arbitrate the matter, ultimately moving before Kaplan to compel arbitration. Kaplan, while not identifying his fellow jurist by name, made it clear that the parties did not consult Trager before entering into the agreement. And the complaint, answer and a subsequent memorandum of law filed in the case show that Trager never responded to the requests of the plaintiff to arbitrate the matter. But the record does contain a letter to the judge from Roy S. Cohen, an attorney for Brown, in which Cohen cites the ethical rules and apologizes to the judge for even assuming he could be designated to arbitrate the matter. “Since the federal courts do not allow for ‘private judges,’ the idea of including you as the ultimate arbiter in this matter was ill-conceived from the get-go,” Cohen wrote. Kaplan’s opinion yesterday echoed that sentiment. “The Code of Conduct permits a federal judge to serve as an arbitrator or otherwise perform judicial functions in a private capacity only where expressly authorized by law,” Kaplan said. “There is no express authority for doing so here.” He went on to say that it was a “distinct question” whether it is proper for a judge to select a replacement arbitrator, and he turned to �5 of the Federal Arbitration Act (FAA) for the answer. Where there is a “lapse” in the naming of an arbitrator or no method is provided for naming a substitute, he said, �5 allows that, upon application of either party, “the court shall designate and appoint an arbitrator.” “Thus, at first blush, this might appear to authorize the judge now to appoint an arbitrator to serve in his stead,” Kaplan said. “The difficulty with that view, however, is that the judge designated in the agreement is neither the undersigned nor even a member of this court. In consequence, the appointment by him of a replacement would be a private act rather than a judicial function in a case properly before him” — and therefore run afoul of Canon 5E. But Kaplan said resolution of that question did not end the analysis, and he pondered whether the case should be sent to the Eastern District. He said the issue “is whether the petitioners’ choice of this forum (the Southern District) is substantially outweighed by the interest of justice that would be served by moving this case to a court in which the judge chosen by the parties to select a replacement arbitrator, but who is disabled from doing so as a private act, properly might do so if the case were before him.” “The answer in this court’s view is plainly affirmative,” he said and he transferred the case to the Eastern District, where it will be heard by Trager or one of his colleagues. Benjamin J. Golub, of New York’s Rogovin Golub Bernstein & Wexler, represented Diagnostic Radiology Associates. Joseph C. Amann, of Cohen, Seglias, Pallas & Greenhall in New Jersey, represented Jeffrey M. Brown Associates.

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