Court Upholds Arbitrator's Sanctions Award

On July 21, 2020, Justice Scarpulla of the New York County Commercial Division issued a decision in Vitra, Inc. v. Ninety-Five Madison Co., L.P., 2020 NY Slip Op. 32389(U), confirming an arbitrator's award of sanctions, explaining:

In motion sequence six, Ninety-Five Madison moves to vacate the Second Partial Final Award and August 2019 Order. Leading up to the rendering of the Second Partial Final Award, the parties disagreed about the filing of an online permit application on the Department of Buildings ("DOB") website for a sidewalk shed. Vitra maintained that Ninety-Five Madison was required to file this application so that Vitra could proceed with its renovations. After Ninety-Five Madison failed to file the application, Vitra applied to the Arbitrator to require Ninety-Five Madison to file the application by a certain date or face monetary sanctions. The Arbitrator then issued the August 2019 Order, directing Ninety-Five Madison to file the application by September 3, 2019 or face a monetary sanction of $25,000 per day.

Ninety-Five Madison did not file the application until September 24, 2019, twenty-one days after the deadline. Pursuant to the August 2019 Order, Vitra moved for a monetary award against Ninety-Five Madison for the delay and Ninety-Five Madison filed its own motion to reconsider the August 2019 Order. On January 7, 2020, the Arbitrator issued the Second Partial Final Award, wherein he granted Vitra's application for monetary sanctions of $525,000 and denied Ninety-Five Madison's application to reconsider the August 2019 Order.

Now, Ninety-Five Madison moves to vacate the Second Partial Final Award, arguing that the imposition of sanctions is punitive rather than compensatory and therefore, violates New York public policy and exceeds the Arbitrator's powers. In support of its argument, Ninety-Five Madison cites to the Court of Appeals decision in Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354 (1976), wherein the Court held that an arbitrator does not have the power to award punitive damages, even if agreed upon by the parties.

In opposition, Vitra argues that Ninety-Five Madison misinterprets New York law. It argues that there is a distinction between punitive damages and monetary sanctions for failure to comply with an order, and that the court in Garrity only addressed punitive damages. According to Vitra, punitive damages are not at issue here. Rather, what is at issue are monetary sanctions and, pursuant to JAMS Rules, an arbitrator may order appropriate monetary sanctions.

A court may vacate an arbitral award where strong and well-defined policy considerations embodied in constitutional, statutory or common law prohibit a particular matter from being decided or certain relief from being granted by an arbitrator. Additionally, a court, however, may not vacate an award on public policy grounds when vague or attenuated considerations of a general public interest are at stake. Courts shed their cloak of noninterfrence where specific terms of the arbitration agreement violate a defined and discernible public policy; where an arbitrator exceeds his or her legal authority; or where the final result creates an explicit conflict with other laws and their attendant policy concerns.

I agree with Vitra that punitive damages are not at issue here. The Arbitrator conditionally awarded delay, monetary sanctions to give teeth to his directive that Ninety-Five Madison comply with the August 2019 Order. The term punitive damages itself is not used anywhere in the Arbitrator's award. For this reason, I find that there is no public policy basis for vacating the Second Partial A ward.

Moreover, the Arbitrator did not exceed his authority in issuing the Second Partial Final Award. The Settlement Agreement provides that JAMS Rules govern the arbitration. Pursuant to JAMS Rule 29, the Arbitrator may order appropriate sanctions for failure of a Party to comply with its obligations under any of these Rules or with an order of the Arbitrator. Thus, the Arbitrator had the authority, under JAMs rules, to issue the Second Partial Final Award.

Finally, the Arbitrator's proffered reasons for the decision to award monetary sanctions have a sound basis. An arbitration award is deemed irrational when there is no proof whatever to justify the award. Leading up to the rendering of the Second Partial Final Award, the Arbitrator considered multiple sets of motion papers submitted by the parties on the issue of sanctions and had a hearing on the parties' motions on December 19, 2019.

The Arbitrator considered all the arguments presented by Ninety-Five Madison as to why sanctions should be denied. In his decision on the Second Partial Final Award, the Arbitrator explained that, the Order was intended to be coercive. The Respondent's history of obstruction was strong motivation to put teeth into the order in view, especially, of its flaunting of prior orders and directives, and the disruption it caused in the construction schedule. These are more than enough to justify the $25,000 per day sanction. Because the Arbitrator considered all the arguments presented and thoroughly explained his decision, I find that the Second Partial Final Award and the August 2019 Order were reasonable and rational.

(Internal quotations and citations omitted).

Commercial litigation involves more than courts. Disputes often are--by agreement--decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.