Underscoring an arbitrator’s decision-making authority, a state appeals court has reversed a lower court ruling that had vacated an arbitrator’s decision in a real estate commission dispute. In doing so, the court pointed out that New York law provides few grounds for undoing an arbitrator’s ruling.
A unanimous Appellate Division, First Department panel also wrote that, in the case before it, the arbitrator’s decision was “neither wholly irrational nor contrary to any strong public policy.”
The panel reversed a ruling made by Manhattan Supreme Court Justice Arlene Bluth, who had vacated an arbitrator’s decision that said Citi Habitats, a real estate agency, could not collect a sales commission after a condominium apartment changed hands.
In January 2018, Bluth granted Citi Habitats’ motion to vacate the arbitrator’s decision—referred to as an award—to deny the sales commission. She also ruled that Citi Habitats would collect $183,000, according to the panel’s opinion.
The real estate dispute centered on an “Exclusive Agency to Lease Agreement” that Suzy Spell, the wife of condominium apartment owner Charles Spell, had entered into with Citi Habitats, the panel wrote.
Under the agreement, Citi Habitats would get a 6 percent sales commission from the Spells if it sold the apartment to a tenant “procured by” Citi Habitats “within 6 months after expiration of the lease term or extension thereof,” the panel explained.
The Spells soon entered into a one-year lease, renting the apartment to a family named the Farhats. The Farhats had been introduced to the Spells by a broker not with Citi Habitats, though the Farhats nevertheless paid a commission to Citi Habitats after renting the unit, the panel said.
Almost two years later, however, the Farhats bought the apartment.
After that, Citi Habitats petitioned in arbitration to collect the 6 percent sales commission under the agreement, the panel wrote.
In arbitration, the arbitrator, who was unnamed in the decision, ruled that, upon expiration of the lease term, the Farhats continued to occupy the apartment on a month-to-month basis, and therefore no sales commission was due, the panel explained. And the arbitrator noted factors supporting his conclusion that denying Citi Habitats’ claim was equitable.
In its Nov. 13 opinion, the panel, comprised of Justices John Sweeny, Sallie Manzanet-Daniels, Judith Gische, Ellen Gesmer and Anil Singh, pointed out that CPLR 7511 provides “just four grounds for vacating an arbitration award, including that the arbitrator ‘exceeded his power’ (CPLR 7511[b][iii]), which ‘occurs only where the arbitrator’s award violates a strong public policy, is irrational or clearly exceeds a specifically enumerated limitation on the arbitrator’s power,’” while citing Matter of New York City Tr. Auth. v Transport Workers’ Union of Am., Local 100, AFL-CIO, 6 NY3d 332.
The justices also wrote that “mere errors of fact or law are insufficient to vacate an arbitral award,” citing Matter of Kowaleski, 16 NY3d 85. Moreover, “courts are obligated to give deference to the decision of the arbitrator … even if the arbitrator misapplied the substantive law in the area of the contract,” they said, again citing Matter of Kowaleski.
The justices wrote that “the arbitrator’s conclusion that a sales commission was not due under the precise terms of the Agreement because the lease was not extended is neither wholly irrational nor contrary to any strong public policy.”
Errol Margolin of Margolin & Pierce, who represented NRT New York LLC, doing business as Citi Habitats, said: “I’m disappointed in the decision. I agree with Justice Bluth, because she interpreted an exclusive right-to-rent agreement according to its terms.”
Siddartha Rao, a lawyer at CKR Law in Manhattan, represented the Spells and declined to comment.