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An arbitration award entered in a dispute between two parties over the alleged issuance of shares in a financing transaction was vacated by a court because of the arbitrator’s failure to issue the written award on time.
In the Matter of the Application to Confirm an Arbitration Award of Theodore Papakonstadinou and AKTOR CORPORATION, Petitioners, against Nikolaos Sparakis, LIZBETH GOZZER and GOZZER CORPORATION, Respondents.
Petitioner Theodore Papakonstadinou is a director and owner of 95% of the voting shares of respondent Gozzer Corporation (“Gozzer Corp.” or “Corporation”), a domestic corporation with its principal place of business at 1043 Broadway, Albany, New York. The remaining 5% of the shares are owned by respondent Lizbeth Gozzer (“Gozzer”).
In 2009, respondent Nikolaos Sparakis sought assistance concerning Gozzer Corp. from Papakonstadinou, his then-friend. Sparakis had formed the Corporation to operate a construction business, but the Corporation’s stock had been put in the name of Gozzer, with whom Sparakis was in a personal relationship, for various reasons. However, Gozzer lacked experience in the construction industry, which left the Corporation unable to obtain bid bonds.
In January 2012, Papakonstadinou agreed to assist Sparakis by providing capital to Gozzer Corp. and by assisting in preparing bids and obtaining bonds. In exchange, Gozzer transferred 95% of the Corporation’s shares to Papakonstadinou. The parties apparently agreed that Papakonstadinou’s investment would be repaid, and profits from the venture would be shared in some manner (see Cross Petition, ¶ 4; NYSCEF Doc No. 46, ¶ 4). A dispute thereafter arose between Papakonstadinou and Sparakis regarding their agreement (see Cross Petition, ¶ 5; NYSCEF Doc No. 46, ¶ 1).
In 2015, Sparakis and Gozzer commenced an action in Queens County against Papakonstadinou, Gozzer Corp. and Aktor Corporation (“Aktor”), a construction company owned by Papakonstadinou (see Sparakis v Gozzer Corp., Queens County Index No. 712508-15 [“Queens Action”]). Sparakis and Gozzer alleged, among other things: (i) failure to repay Sparakis for loans made to the Corporation; (ii) failure to pay Sparakis an annual salary; (iii) [*2]breach of the duty to properly operate and manage Gozzer Corp.; (iv) fraud, predicated on allegations that Papakonstadinou misrepresented that the assets of Gozzer Corp. would be split and its shares would be transferred to Sparakis and/or Gozzer; and (v) breaches of fiduciary duties owed to the Corporation, including diversion of corporate funds and assets. In an answer with counterclaims, Papakonstadinou and Gozzer Corp. alleged similar wrongdoing by Sparakis and Gozzer. […]
On the scheduled trial date of the Queens Action, the parties agreed to arbitrate their claims and counterclaims, and they executed a Stipulation for Binding Arbitration to that effect, which was so-ordered by the Court (see NYSCEF Doc No. 15 [“Arbitration Stipulation”]). As part of the stipulation, Papakonstadinou agreed to request a stay of the Dissolution Proceeding, which this Court granted. […]
The parties then proceeded to arbitrate under the Arbitration Stipulation, which provided that: (1) the arbitration shall be conducted in New York City; (2) the arbitration “shall be subject to the Strike Order,” unless reversed by the Appellate Division during the pendency of the arbitration; and (3) the parties agree to “request of the arbitrator a full opinion explaining the reasoning for any award” (id., ¶¶ 1, 4, 11). […]
Respondents argue that the Arbitrator’s Decision “is void and should be declared a legal nullity because the parties mutually agreed to terminate the arbitration before the Decision was issued” (NYSCEF Doc No. 12 [“Cooke Aff.”], p. 6; see Cross Petition, ¶ 18).
Petitioners disagree, arguing that: (1) the Arbitration Stipulation sets no time limit; (2) the Arbitrator properly could have concluded that the November 15, 2020 deadline was extended via the November 6, 2020 letter from petitioners’ counsel; and (3) respondents have identified no prejudice from the 17-day delay between the November 15, 2020 deadline and the transmittal of the Decision on December 2, 2020.
(see NYSCEF Doc No. 15). But the Joint Letter, signed by each side’s attorney and appearing on their letterheads, constituted a conditional modification of the parties’ agreement to select Judge Conrad to arbitrate their dispute based on his delay in issuing an award.
Thus, the Joint Letter provided that if an award was not rendered by the November 15, 2020 deadline, the matter would be withdrawn from the Arbitrator’s consideration and the parties would proceed to “re-arbitrate” the case before a “new arbitrator” (NYSCEF Doc No. 18; accord Petition, ¶ 3). Thus, the Joint Letter conditionally withdrew the matter from the Arbitrator, and after the November 15, 2020 deadline passed without issuance of an award, the withdrawal of jurisdiction from the Arbitrator became fully effective.
Because the Joint Letter constituted a mutual modification of the parties’ agreement to arbitrate before Judge Conrad, the Court rejects petitioners’ reliance on the unilateral letter of their counsel, dated November 6, 2020, wherein counsel expressed to the Arbitrator his clients’ willingness to extend the November 15, 2020 deadline to December 6, 2020 if the Arbitrator “[felt] that still more time [was] needed” to prepare a reasoned decision (NYSCEF Doc No. 21).
Nor is there merit to petitioners’ contention that respondents waived the November 15, 2020 deadline by failing to respond to their November 6, 2020 letter. The unilateral letter of petitioners’ counsel expressed petitioners’ willingness to agree to an extension if the Arbitrator felt he needed more time, but the Arbitrator did not respond to the letter or ask for more time. And once the parties’ jointly established deadline of November 15, 2020 passed without issuance of the award and the parties’ conditional agreement to divest the Arbitrator of jurisdiction became fully operative, respondents’ counsel immediately advised the Arbitrator that his clients considered the arbitration to have been terminated via the Joint Letter and requested the Arbitrator to stop working on the decision (see NYSCEF Doc No. 22). Respondents restated this position again on November 17, 2020 (see NYSCEF Doc No. 23). There was no waiver.
Yhe issue, however, is not the Arbitrator’s mere lateness in rendering an award. Rather, based on the Arbitrator’s persistent and unexplained delays in rendering an award, the parties lost confidence in whether the Arbitrator could provide them a “full opinion explaining the reasoning for any award” within an acceptable timeframe (Arbitration Stipulation, ¶ 11). For that reason, the parties jointly agreed to divest the Arbitrator of the power to decide their dispute unless he issued the award by November 15, 2020 (see Rosario v Carrasquillo, 88 AD2d 874, 874 [1st Dept 1982]). After that deadline came and went without issuance of an award and respondents notified the Arbitrator and petitioners that they considered the arbitration to have been terminated in accordance with the Joint Letter, the Arbitrator “exceeded his power” by purporting to render a decision (CPLR 7511 [b] [1] [iii]; see Rosario, 88 AD2d at 874).
The Court therefore concludes that the Arbitrator’s decision must be vacated (see id.), and the matter must be remanded for hearing before another arbitrator (see CPLR 7511 [d]; Rosario, 88 AD2d at 874).[FN7]