Opinion
No. 120641–11.
2012-10-5
Gary COTUGNO, individually and as an Officer, Director and Shareholder of Hi–Tech Business Systems, Ltd, Plaintiff, v. Anthony BARTKOWSKI, individually and as an Officer, Director and Shareholder of Hi–Tech Business Systems, Ltd and Hi–Tech Business Systems, Ltd., Defendants.
Certilman Balin Adler & Hyman, LLP, East Meadow, Attorneys for Plaintiff. Lazer, Aptheker, Rosella & Yedid, P.C., Melville, Attorneys for Defendants.
Certilman Balin Adler & Hyman, LLP, East Meadow, Attorneys for Plaintiff. Lazer, Aptheker, Rosella & Yedid, P.C., Melville, Attorneys for Defendants.
ELIZABETH H. EMERSON, J.
ORDERED that the branch of the motion by the plaintiff which is for an order confirming two arbitrations awards in his favor in the principal amounts of $138,434.29 and $164,020.99, respectively, and for leave to enter judgment thereon is granted; and it is further
ORDERED that the branch of the motion which is for attorney's fees is denied; and it is further
ORDERED that the remaining issue is referred to oral argument, which shall be held on November 1, 2012, at 11:00 a.m., Supreme Court, Courtroom 7, Arthur M. Cromarty Criminal Court Building, 210 Center Drive, Riverhead, New York 11901.
In 2002, the plaintiff, Gary Cotugno, and the defendant Anthony Bartkowski entered into a shareholders agreement, which established the parties' respective shareholder interests in the defendant Hi–Tech Business Systems, Ltd. (“Hi–Tech”), and a separate compensation agreement. The shareholders agreement provided that any disputes between the parties regarding the agreement or any aspect of the operation of Hi–Tech would be resolved by binding arbitration before an arbitrator appointed by the American Arbitration Association. In October 2010, Cotugno filed an arbitration demand alleging that he had been frozen out of Hi–Tech by Bartowski, that Bartowski had wrongfully misappropriated and diverted corporate assets to himself, and that he had failed to pay Cotugno pursuant to the parties' compensation agreement. Bartowski counterclaimed alleging that Cotugno was totally disabled within the meaning of the shareholders agreement, which triggered an automatic buy-out of Cotugno's shareholder interest in High–Tech. The parties stipulated to bifurcate the arbitration. The issues to be resolved in Phase I were whether Cotugno was totally disabled within the meaning of the shareholders agreement, whether Cotugno was improperly removed from Hi–Tech by Bartowski, and whether Cotogno was owed any salary. The remaining issues, including Bartowski's alleged misappropriation and diversion corporate assets, were to be determined in Phase II.
On March 15, 2012, the arbitrator issued an interim award on the issue of liability in Phase I in favor of Cotugno. The arbitrator found that the parties had agreed that, during the first five years of their association, the total compensation to be paid to Cotugno would be half the compensation paid to Bartowski and that, as of August 2007, they were to be paid equally. The arbitrator also found that Cogugno was not totally disabled within the meaning of the shareholders agreement and that it was error for Bartowski to reduce Cotugno's salary, first by half and then to zero, on that basis. Since Cotugno was underpaid and Bartowski was overpaid during the period in question (2004–2011), the arbitrator directed Bartowski to disgorge to Cotugno the excessive salary that he had paid to himself and his wife. The arbitrator directed the parties to submit their proposed awards regarding the amounts to be disgorged by Bartowski within 14 days of service of the interim award. The arbitrator also directed Cotugno, as the prevailing party, to submit an application for his reasonable attorney's fees, costs, and disbursements.
The shareholders agreement provides that the prevailing party, as determined by the arbitrator, shall be entitled to reasonable reimbursement of costs, disbursements, and attorney's fees in connection with any dispute submitted to arbitration.
On April 18, 2012, the arbitrator issued an interim award on the issue of Cotugno's compensation, which directed Bartowski to disgorge to Cotugno $138,434.29 plus interest. On June 12, 2012, the arbitrator issued a separate interim award on the issue of Cotugno's attorney's fees, which directed Bartowski and Hi–Tech to pay Cotugno $164,020.99 plus interest. Cogugno moves to confirm the April 18 and June 12, 2012, awards and to enter judgment thereon. The defendants, Bartowski and Hi–Tech, oppose the motion, inter alia, on the ground that the awards are not final.
CPLR 7510 provides that the court shall confirm an arbitration award upon application of a party made within one year after its delivery to him, unless the award is vacated or modified upon a ground specified in CPLR 7511. Before a court may intervene or even entertain a suit for court intervention, there must be an award within the meaning of the statute (Mobil Oil Indonesia v. Asamera Oil [Indonesia], 43 N.Y.2d 276, 281). The awards of arbitrators that are subject to judicial examination are the final determinations made at the conclusion of the arbitration proceedings ( Id.). Generally, the award is the arbitrators' decision and final determination upon the matters submitted and must be coextensive with the submission ( Id.). Thus, when the award sought to be reviewed is interlocutory, it does not constitute a final determination on the matters submitted and there is no authority for judicial intervention ( Id.).
An award is deemed final, and may be confirmed, when it finally and conclusively disposes of a separate and independent claim, although it does not dispose of all of the claims that were submitted to arbitration ( Universitas Educ., LLC v. Nova Group, Inc., U.S. Dist Ct [SDNY], June 5, 2012 [Swain, J], 2012 WL 2045942, * 2;Alcatel Space, S.A. v. Loral Space & Communications Ltd., [SDNY], June 25, 2002, [Scheindlin, J.], 2002 WL 1391819, *5). Moreover, conclusive awards as to fewer than all claims rendered pursuant to voluntary bifurcation agreements are final for purposes of enforcement ( Universitas Educ., LLC v. Nova Group, Inc., supra ).
Contrary to the defendants' contentions, the Phase I awards conclusively resolved the claims related to Cotugno's compensation. The defendants, who agreed to bifurcate the arbitration, have failed to identify any claim in the Phase I awards that is not severable from claims that will be addressed in Phase II ( see, Alcatel Space, S.A. v. Loral Space & Communications Ltd., supra ). Additionally, the court notes that, during the pendency of the arbitration, Bartowski has been receiving his salary and his attorney's fees have been paid by Hi–Tech. Cotugno, on the other hand, has not received any salary and he has had to pay his own attorney's fees. Under these circumstances, it would be inequitable to require Cotugno to wait until Phase II of the arbitration is completed before receiving the compensation and attorney's fees to which he is entitled.
Although the defendants do not cross move to vacate or modify the two Phase I awards that Cotugno seeks to confirm, the defendants argue that the arbitrator exceeded her power by directing Bartowski, rather than Hi–Tech, to pay Cotugno's salary ( see,CPLR 7511[b][1][iii] ). The defendants argue that the obligation to pay Cogugno's salary was a corporate obligation, not the personal obligation of a co-shareholder. The defendants also argue, for the same reason, that the compensation award was miscalculated ( see,CPLR 7511 [c][1] ), that it was awarded on a matter not submitted to the arbitrator ( see,CPLR 7511[c][2] ), or that it was imperfect in manner or form ( see,CPLR 7511[c][3] ).
While CPLR 7511(a) states than an application to vacate or modify an award shall be made by a party within 90 days after its delivery to him, the party may wait and make his arguments for vacating or modifying the award in opposition to a motion to confirm the award (Matter of Brentnall v. Nationwide Mut. Ins. Co., 194 A.D.2d 537, 538). Accordingly, the court will consider the defendants' arguments.
Unless the parties' agreement provides otherwise, an arbitrator need not apply the rules of evidence and is not bound by principles of substantive law (Alexander, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, C7511:5, citing Silverman v. Benmor Coats Inc., 61 N.Y.2d 299, 308). She may do justice as she sees it, applying her own sense of law and equity to the facts as she finds them to be. The remedy that the arbitrator fashions lies in her discretion. It may exceed that which was requested by the parties, and it need not conform to the traditional relief that a court would grant ( Id.). An arbitrator's award will not be set aside based on an error of law or fact ( Id.) When, as here, the arbitration is conducted under a broadly worded arbitration agreement, the resulting award will not be vacated unless it is violative of a strong public policy, totally irrational, or exceeds a specifically enumerated limitation on the arbitrator's power ( Id.; Matter of Windsor Cent. School Dist. [Windsor Teachers Assn.], 306 A.D.2d 669, 670).
Any limitation on the remedial power of the arbitrator or the substantive issues that she may decide must be explicitly enumerated or incorporated by reference in the arbitration clause itself (Alexander, Practice Commentaries, supra at 779 [and cases cited therein] ). The defendants have failed to identify any explicit limitation on the arbitrator's power, and the court's examination of the arbitration clause contained in the parties' shareholders agreement reveals no such limitation. Accordingly, the court finds that the arbitrator did not exceed her power.
The defendants contend that the compensation award has no foundation in law or logic because it requires Bartowski to pay Cotugno's salary, which is a corporate obligation. Given that Bartowski breached his fiduciary duty to his co-shareholder by paying himself and his wife excess compensation in violation of the parties' compensation agreement, it was not totally irrational for the arbitrator to fashion the remedy that she did and require Bartowski to disgorge himself of his wrongfully gained compensation.
In view of the foregoing, the court finds that there was no miscalculation of figures ( see,CPLR 7511[c][1] ), no determination on a matter not submitted to the arbitrator ( see,CPLR 7511[c][2] ), an no imperfection in the manner or form of the compensation award ( see,CPLR 7511 [c][3] ). Accordingly, the awards are confirmed.
The arbitrator has already determined that the parties' litigation expenses are not reimbursable under the arbitration clause of the shareholders agreement. That determination is the law of the case. Accordingly, the court declines to award Cotugno attorney's fees and expenses in connection with this motion.
Finally, Bartowski argues that no interest should be awarded to Cotugno on the compensation award after June 20, 2012, the date on which Bartowski offered to pay the award through Hi–Tech. Cotugno acknowledges Bartowski's offer, but contends that the payment was required to come directly from Bartowski because, if Bartowski paid the compensation award through Hi–Tech, the taxes would effectively be paid twice. This issue is referred to oral argument, which shall be held on November 1, 2011, the parties' next conference with the court. The parties shall appear on that date with counsel, and only counsel fully familiar with and authorized to settle, stipulate, or dispose of this action shall appear.