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CROW CONSTRUCTION v. JEFFREY M. BROWN ASSOC. INC.

May 9, 2003

CROW CONSTRUCTION COMPANY Petitioner
v.
JEFFREY M. BROWN ASSOC. INC. Respondent



The opinion of the court was delivered by: CLARENCE NEWCOMER, Senior District Judge.

OPINION

Presently before the Court is Petitioner Crow Construction Company's Petition to Vacate an Arbitration Award, Respondent, Jeffrey M. Brown Associate Inc.'s Response, as well as the parties' various supplemental briefs.

  BACKGROUND

  On August 17, 1994, Petitioner, Crow Construction Company ("Crow") was hired by the Respondent, general contractor Jeffrey M. Brown Associates, Inc. ("JMB"), to assist in completing a construction project located in Brooklyn, New York. When disputes arose between the two in 1995, pursuant to the parties' contractual agreement, JMB filed a Demand for Arbitration against Crow in Philadelphia seeking $1,319,880 in damages. Crow asserted a counterclaim for $1,883,074.

  After settlement efforts proved unsuccessful, the arbitration became active in 1997. The American Arbitration Association ("AAA") three-arbitrator tribunal was seated after the parties had completed the arbitrator selection process. During this selection process the parties were given a

[264 F. Supp.2d 219]

      list of eligible arbitrators and were asked to rank the arbitrators proposed by the AAA in their order of preference. The AAA utilized those rankings in selecting the arbitrators ultimately seated on the panel. The three arbitrators chosen were Judith P. Meyer, Esquire, Peter A. Galante, Esquire, and William Argeros, III.*fn1 A Preliminary Hearing was held on November 3, 1997, and the hearings officially began in January of 1998. On November 16, 2000, during a short break from that day's hearings, Crow's lead attorney, Howard Rosen, overheard Arbitrators Meyer and Galante discussing the scheduling of another arbitration with JMB's lead attorney, Roy Cohen. It was at this time that the arbitrators disclosed to Crow, for the first time, that they had been selected to arbitrate another case in which JMB was a party, the JMB/Greenfield matter.

  Crow immediately objected to the arbitrators' failure to disclose their other case involving Cohen and JMB. On November 20, 2000, pursuant to Crow's objections, the AAA sent a letter to Crow confirming that arbitrators Meyer and Galante were serving as arbitrators in another case involving JMB. In addition, the AAA disclosed for the first time that Cohen or his firm, Cohen, Seglias, Pallas & Furman, P.C. (Cohen Seglias), had selected Ms. Meyer through the AAA to mediate two cases involving one of Cohen Seglias' other clients. Crow subsequently requested further information from the AAA regarding these disclosures. Ms. Meyer then amended her disclosure to indicate that she was engaged by Cohen Seglias in two additional mediations (a total of four), one of which involved JMB, at the same time the arbitration hearings between JMB and Crow were taking place. Based on this new information, on November 30, 2000, and again on December 7, 2000, Crow formally objected to arbitrators Galante and Meyer's involvement in the JMB/Crow arbitration.

  On April 13, 2001, the arbitrators published their findings in which they awarded JMB every dollar sought, exclusive of attorneys' fees and damages in a late claim JMB brought against Crow in the closing days of the arbitration. On September 10, 2001, this Court received Crow's Motion to Vacate the Arbitration Award which was originally filed in the Southern District of New York. This Court afforded the parties an opportunity to take discovery. In its post-discovery brief, Crow reported uncovering multiple instances before, during and after the JMB/Crow arbitration in which arbitrators Galante and Meyer served on an arbitration panel where Cohen Seglias represented one of the parties. Some of the information uncovered during the discovery period concerning arbitrators Galante and Meyer had never been disclosed previously.

  In an attempt to clarify the facts of the case and the claims at issue, this Court held an evidentiary hearing. In order to clarify and address Petitioner's claims, the following summarizes the relevant facts which serve as the basis for Petitioner's Motion to Vacate. Both arbitrators Meyer and Galante served as arbitrators in the JMB/Greenfield matter while at the same time as serving as arbitrators in the JMB/ Crow matter. The Respondent points out that the JMB/Crow matter was nearly complete when the JMB/Greenfield matter commenced. At the same time or before the JMB/Crow matter started Mr. Galante served as an arbitrator and/or mediator, under AAA auspices, in eight additional matters in which Cohen Seglias represented one of the parties involved. Notably, in

[264 F. Supp.2d 220]

      one of these matters, Mr. Galante was hired and paid directly by Cohen Seglias (not under AAA auspices) to serve as an arbitrator. Mr. Galante did not testify at this Court's hearing. Ms. Meyer testified before this Court to serving as a mediator in four matters in which Cohen Seglias represented one of the parties involved. In addition, in 1997, Ms. Meyer was selected to mediate a case involving JMB. Ms. Meyer's involvement in this case was limited to approximately two hours of preliminary review. During the hearing in this matter Ms. Meyer testified to spending that time reviewing preliminary information contained in the case file. None of the involvement in the arbitrations or mediations discussed above were disclosed to Crow during the arbitrator selection process in the JMB/Crow arbitration or anytime thereafter. However, arbitrators Galante and Meyer's involvement in the JMB/Crow arbitration was disclosed to the parties in the JMB/Greenfield arbitration.

  DISCUSSION

 I. Legal Standard

  Congress vested the federal courts with power to vacate an arbitration award "[w]here there was evident partiality . . . in the arbitrators. . . ." 9 U.S.C.A. § 10(a)(2). While this statutory provision appears to be straightforward in both meaning and application, the parties here have proven otherwise. In support of their positions, the parties rely on seemingly contradictory interpretations of Congress' intent behind the use of the term "evident partiality" in setting the vacatur standard. The Petitioner relies on a United States Supreme Court holding that "evident partiality" is established when arbitrators fail to disclose "any dealings that might create an impression of possible bias." Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 149, 89 S.Ct. 337, 21 L.Ed.2d 301 (1968). On the other hand, the Respondent relies on Third Circuit caselaw holding that evident partiality is present only when "`a reasonable person would have to conclude that the arbitrator was partial' to the other party to the arbitration." Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 1523 n. 30 (3d Cir. 1994) (quoting Apperson v. Fleet Carrier Corp., 879 F.2d 1344, 1358 (6th Cir. 1989)). The use of these seemingly contradictory interpretations illustrates what appears to be a fundamental misunderstanding concerning the complicated caselaw in this area. The following analysis sifts through this enigmatic area of law in an attempt to clarify these legal principles and determine which of these standards is appropriate for application here.

  A close examination of this area of law reveals two separate standards meant for application under significantly different circumstances. In the interest of simplicity, the Court will refer to these standards as the "appearance of bias standard" and the "actual bias standard". The key to understanding ...


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