Arbitration Decision Denying Broker a Commission Overturned

A broker was hired to find a tenant for a residential apartment in Manhattan. The parties agreed that the broker would receive a six percent commission if the tenant purchased the apartment within six of months after the lease expired, or any extension thereof. The broker found a tenant, and a lease was executed on July 15, 2012, with an expiration of July 14, 2013. With a verbal agreement, the tenants remained until July 10, 2014, when they purchased the apartment for $3.05 million. The owner refused to pay the six percent commission. The parties went to arbitration, where the arbitrator found against the broker.

The broker filed a petition to vacate the award, arguing that the arbitrator’s decision in denying the commission was based on the immaterial allegation that the broker lacked an active role in the sale, and violated public policy. The owner argued that (i) the agreement was signed with the owner’s wife, (ii) the broker did not procure the buyer as the tenants reached out to the owner directly, and (iii) the sale took place a year after the lease expired.

After outlining the limited grounds for overturning an arbitration award, and discussing the basis for this arbitrator’s award—that the owner’s wife signed the brokerage agreement without focusing on the sales commission and without the consent of the husband—the court vacated the award as being irrational and violative of a strong public policy. The court refused to find that the wife’s failure to focus on the commission as a valid reason to ignore the parties’ executed agreement. The court noted that the arbitrator did not base his decision on the wife’s alleged inability to bind her husband or any defect in the agreement. (The court did not address the outcome of this case had the wife’s authority been challenged.) The arbitrator’s emphasis on what the owner’s wife understood could not be a basis for a decision.

As to the owner’s lease extension argument, given that the arbitrator provided no explanation on that issue and finding no reason not to enforce the agreement, the court refused to entertain that issue a basis for the decision.

One wonders why the court did not discuss another element that can support vacatur under the public policy theory, that the outcome contradicted settled law. It may be what the court meant in vacating as irrational, but it did not make the distinction. While a party must specifically argue that issue in challenging the award, and establish that the law was brought to the arbitrator’s attention during the arbitration, that too could have supported vacatur.

While challenging an arbitration award is difficult, it is not impossible, so long as the groundwork is set in advance.

NRT New York LLC v. Spell

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