LJL 33rd Street Associates, LLC v. Pitcairn Properties Inc.
725 F.3d 184
2d Cir.2013Background
- LJL (50.01%) and Pitcairn (49.99%) co-own an LLC that holds a Manhattan luxury residential building; their Operating Agreement defines "Stated Value" (fair market value) and "Purchase Price" (Stated Value minus liabilities) and contains a narrow arbitration clause (Section 11.19) covering Stated Value via an appraiser.
- LJL had a contractual option (Section 8.8) to buy Pitcairn’s interest if Pitcairn’s employee Mekkawy ceased employment; after Mekkawy’s termination, LJL exercised the option in November 2010.
- Pitcairn and LJL disagreed on value (LJL ≈ $50–52M; Pitcairn ≈ $62–72M); they submitted valuation dispute to expedited arbitration; Pitcairn also sought to exclude arbitrating Purchase Price.
- At arbitration the arbitrator excluded four Pitcairn exhibits (third‑party valuations and a nonbinding LOI) as hearsay; the arbitrator appointed an appraiser, set Stated Value at $56.5M, and declined to determine Purchase Price.
- The district court vacated the Stated Value award under 9 U.S.C. § 10(a)(3) (arbitrator refused to hear material evidence) but upheld the arbitrator’s refusal to decide Purchase Price; both parties appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Pitcairn waived objection to arbitrating Purchase Price by failing to seek a stay under NY CPLR §7503(c) | Pitcairn failed to move to stay within 20 days and thus forfeited its right to object to arbitration of Purchase Price | §7503(c) does not apply; objection is that arbitration clause is limited and Purchase Price is not an arbitrable issue | Held: No waiver — §7503(c) inapplicable to this dispute about the scope of a narrow arbitration clause |
| Whether the arbitrator was required to determine Purchase Price | LJL: Purchase Price necessarily follows from Stated Value and arbitrator should decide both | Pitcairn: Agreement only allows arbitration of Stated Value; Section 11.19 forbids expanding arbitrator's scope | Held: Arbitrator properly declined; Purchase Price not within the narrow arbitration clause |
| Whether exclusion of four hearsay exhibits was FAA misconduct warranting vacatur under 9 U.S.C. §10(a)(3) | Pitcairn: Excluded exhibits were material corroborative valuations; exclusion denied meaningful opportunity to present case | LJL: Arbitrator properly exercised discretion to exclude hearsay; Pitcairn could have called makers for testimony | Held: No misconduct; arbitrator acted within discretion to exclude hearsay, and exclusion did not make proceedings fundamentally unfair |
| Whether Pitcairn stated claims for breach of fiduciary duty or breach of implied covenant of good faith and fair dealing | Pitcairn: LJL misled Pitcairn about exercising the option, induced termination, refused to market property, and acted in bad faith | LJL: Exercise of contractual buyout right and refusal to stage an auction were lawful; no false representation or concerted scheme; contract provides arbitration for value disputes | Held: Claims dismissed — no breach of fiduciary duties or implied covenant as alleged; exercising contract rights absent bad faith is permitted |
Key Cases Cited
- Applied Indus. Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132 (2d Cir.) (standard of review for vacatur of arbitration award)
- Coppinger v. Metro-N. Commuter R.R., 861 F.2d 33 (2d Cir.) (arbitrators not strictly bound by evidentiary rules)
- Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367 (1st Cir.) (favoring arbitration under broad clauses)
- McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d 519 (2d Cir.) (disputes "arguably" within arbitration clause should be resolved in favor of arbitration)
- United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574 (U.S. Supreme Court) (arbitration is a matter of contract; cannot compel arbitration beyond parties' agreement)
- Hoteles Condado Beach, La Concha & Convention Ctr. v. Union De Tronquistas Local 901, 763 F.2d 34 (1st Cir.) (refusal to consider central evidence can warrant vacatur when no alternative evidence exists)
- Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16 (2d Cir.) (fundamental unfairness standard in arbitration review)
- Bank of China v. Chan, 937 F.2d 780 (2d Cir.) (scope of implied covenant of good faith in contract disputes)