Arbitration in Absentia: Part 2
December 04, 08During the present economic crisis, our collective (and journalistic) attention is so focused on the major issues that otherwise-also-important stories take a backseat. However, journalistic fairness requires us to follow up on a particular Diamond Dealers Club-related arbitration story we covered earlier this year.
We initially wrote about an arbitration proceeding in which a $641,736.23 judgment was handed down against an Israeli diamantaire who claimed profusely that he had not received proper notice and therefore was not aware of the date of the proceedings. In our reports, we delved into the issue of lack of uniformity in arbitration proceedings among bourses in different countries and regretfully stressed the perceived acrimony too often felt in cross-border bourse arbitrations.
Essentially, both sides in the arbitration petitioned the Supreme Court of the State of New York. The willing party, Lajb Blatman, sought a court confirmation of the arbitration award while the Israeli party, the brothers A. and U., petitioned to vacate the arbitration award. The arbitration involved a debt of New York’s Diaglobe Corporation owed to Blatman’s Australia Diamond Supply.
Given that considerable time has passed since our previous editorial, titled “Arbitration in Absentia,” we thought it useful to cite below the circumstances of the arbitration, as summarized by Supreme Court judge, the Honorable Paul G. Feinman:
The Circumstances around the Arbitration
“Lajb Blatman, President of Australia Diamond Supply Ltd., is a member of the New York Diamond Dealers Club (DDC). A. H. and U. H. are owners of the Delta Diamond Ltd. and are members of the Israel Diamond Exchange (IDE) in Israel. Both the DDC and the IDE are diamond bourses, and are members of the World Federation of Diamond Bourses (WFDB). Diamond bourses require all members worldwide to resolve all controversies against each other by arbitration pursuant to the by-laws and rules of the World Federation of Diamond Bourses.
“On or about January 8, 2008, Blatman commenced arbitration with the DDC against the Brothers [the court documents originally refer to the brothers by name. CEZ] and their affiliated companies, Delta Diamonds Ltd. in Israel, Hong Kong, and Shanghai, and Nili Jewelry Designs in New York to recover the sum of $588,530 plus other associated fees and charges. In his arbitration claim, Blatman alleges that, in August and July 2007, he sold diamonds on behalf of his corporation, Australia Diamond Supply, to Diaglobe Corporation in New York, a diamond dealer affiliated with Delta Diamonds Ltd., Israel. Diaglobe agreed to pay the sum of $580,090 for the sale and delivery of the diamonds, but to date, it has not made payment to Blatman.
“On January 16, 2008, following the filing of the Demand for Arbitration with the DDC, the brothers were notified, by Registered Mail, Return Receipt Requested, of an arbitration hearing scheduled for February 12, 2008, at 3:00 pm, before the DDC Arbitration Panel. The notice was sent to the brothers at their offices in Ramat Gan, Israel, Hong Kong and Shanghai, China and New York. A copy of the notice was also sent to Shoshy Koskowicz, Legal Advisor to the Israel Diamond Exchange.
“On or about January 28, 2008, after receiving the Demand for Arbitration, A.H. contacted Martin Hochbaum, Managing Director of the DDC, and requested an adjournment of the February 12, 2008 hearing. After being advised to make his application in writing, on January 29, 2008, A.H. sent Hochbaum a written request, via facsimile, seeking an adjournment until after Passover; sometime after April 28, 2008. In a letter to A. H. dated January 31, 2008, Hochbaum acknowledged receipt of Brothers letter, and informed him that the DDC’s policy is to ‘adjourn a matter only in special circumstances.’ Hochbaum also informed him that according to WFDB rules, a case ‘shall commence within 60 days of its filing date,’ and as such, the arbitration hearing was being rescheduled to March 4, 2008, the latest date possible under the rules. This response by Hochbaum was sent to H. via the same facsimile number from which H. sent his written request for an adjournment. Hochbaum also sent a facsimile copy of his response letter to the Brothers at their Hong Kong, Shanghai and New York offices, and also sent facsimile copies of the letter to both the WFDB and to Joskowicz at the IDE.
“On March 4, 2008, when the Brothers did not appear for the hearing, in accordance with the DDC’s bylaws and inner rules, the arbitration was held and the arbitrators proceeded to hear Blatman’s evidence. On March 6, 2008, the Arbitration Panel, finding the Brothers to be ‘principals of Diaglobe,’ rendered an award in favor of Blatman in the amount of $641,736.23 and provided for payment of legal expenses to Blatman calculated at 15 percent of the confirmed award (which amount to $96,260) for a grand total award of $737,996.66. On March 13, 2008, the DDC sent the Brothers the arbitration award and decision by certified mail to all of their office locations in New York, Israel, Hong Kong, and Shanghai.
“After receipt of the arbitration award in Blatman’s favor, on or about March 20, 2008, the Brothers, by their legal representatives, notified the DDC that their non-appearance was the result of their lack of knowledge of the rescheduled arbitration hearing date and requested that the arbitration award be vacated. By letter dated March 25, 2008, the DDC responded by informing the Brothers’ legal representative that his ‘letter does not accurately portray the situation including the circumstances surrounding the request for an adjournment,’ and informed him of his right to make an appeal under the DDC’s arbitration bylaws. In a letter dated March 26, 2008, the Brothers sought intervention by the WFDB. However, the WFDB informed the Brothers that ‘from the outset [it] had been copied correspondence by the DDC’ relating to the dispute, and pointed out that the DDC’s January 31, 2008, letter adjourning the arbitration was sent in reply to the Brothers ’ request for a delay in the arbitration. The WFDB further explained that given the arguments made, it would not be able to reschedule the arbitration and cancel the recent decision.”
The facts above, as cited by the judge, have been reported in our previous articles. The Israeli party did not avail itself of the opportunity to appeal, probably because of the requirement that the awarded amount needed to be deposited with the DDC in advance of the appeal.
What has happened since? Again, we quote the judge, the Honorable Paul G. Feinman:
The Parties Go to Court
“On May 1, 2008, Blatman filed a petition seeking to confirm the March 6, 2008, arbitration award. The Brothers oppose the petition to confirm. On May 14, 2008, they brought a separate proceeding to vacate the award on the ground that the arbitrators failed to adhere to the procedures set forth in New York Civil Practice Law & Rules (CPLR) Article 75, including the requirements of CPLR § 7506. First, they allege that the initial Demand for Arbitration, which included the date set for arbitration, was not properly served on them because the Demand was not personally delivered or sent by certified or registered mail.
“Rather, the Brothers contend that the Demand was sent via facsimile to the legal advisor to the IDE, in violation of statute, and as such was ‘fatally defective to the proceeding.’ The Brothers also insist that they are not principals of Diaglobe as the Arbitration Panel determined. The Brothers next allege that after the date for the arbitration was rescheduled by Hochbaum, the notice of this rescheduling was not properly served upon them, since it was sent by a facsimile that they did not receive. According to the Brothers, their lack of knowledge of the rescheduled date resulted in their non-appearance at the arbitration hearing. Finally, they assert that the arbitration award was not properly served on them, since they received only a facsimile copy of the award in clear violation of the requirements of CPLR § 7506.
“In further support of this petition to confirm, and in opposition to the petition to vacate, Blatman argues that the evidence clearly demonstrates that the Brothers received notice of the adjournment and thus, their contention that they lacked knowledge of the adjourned date is without merit. He also argues that the facsimile method used by the Administrators to respond to the Brothers’ request for an adjournment was ‘reasonably calculated, under all the circumstances to provide notice’ to the Brothers, especially since this was the very method (and facsimile number) A.H. himself used in making his written request for an adjournment. Blatman further argues that there is nothing in the CPLR that requires a response to a request for an adjournment be sent via certified or registered mail, therefore, the petition to vacate the arbitration award should be denied.”
The Position of the Court
In the U.S., as in many other countries, the courts encourage the use of arbitrations for dispute resolution in non-judicial forums and therefore tend to be reluctant to intervene. Indeed, the starting point of the judge was that “where the parties have agreed to submit their dispute to binding arbitration, an award [decided upon] should be given effect, unless it is in clear violation of public policy. Thus, the scope of judicial review of an arbitration proceeding is very limited.” In reviewing an arbitration award, “courts are obligated to give deference to the decision of the arbitrator,” said the judge.
Under the relevant law, there are four situations in which a court will intervene and void an arbitration decision: only if the rights of a party were prejudiced by (i) corruption, fraud, or misconduct in procuring the award; or (ii) because of partiality of an arbitrator; or (iii) if the arbitrator exceeded his power or failed to make a final and definite award; or (iv) if the arbitration did not follow the proper procedure. Thus, the party seeking to void the arbitration award is imposed with a heavy burden to prove that any of the aforementioned conditions apply.
In this specific arbitration instance, the issue before the Court is whether the arbitration award should be voided on the ground that the arbitration failed to follow notification procedures. New York law uses a different language than the WFDB rules, but the language is consistent with the DDC by-laws. The law provides, in the relevant part, that “arbitrator shall appoint a time and place for the hearing and notify the parties in writing personally or by registered or certified mail not less than eight days before the hearing. The arbitrator may adjourn or postpone the hearing.”
Says the judge: “Here, the Brothers’ assertion that they did not receive notice of the Demand to Arbitrate in accordance with the requirements of [the relevant law] is belied by the documentary evidence to the contrary. Copies of Certified Mail Receipts, dated January 16, 2008, from the U.S. Postal Service show that notice of the Demand for Arbitration was sent to the Brothers not only at Diaglobe Corporation and Nili Jewelry Designs in New York, but also at their offices of Delta Diamond in Ramat Gan, Israel, Hong Kong, and Shanghai, China. The Brothers’ bare contention that they only learned of the arbitration from Joskowicz at the IDE cannot overcome the post officer certifications. Further, a review of the Demand for Arbitration and the accompanying letter reveals that the [DDC] arbitrators complied with the requirements of [the relevant NY law] (b) by appointing a time and place for the hearing and notifying the parties in writing by certified mail prior to eight days before the hearing. Therefore, to the extent the petition to vacate (void) the arbitration award on the basis of the service of the original notification, it is devoid of merit.”
Another major point of contention between the parties is whether the arbitration award should be vacated because notice of the adjourned or rescheduled date was neither personally delivered to the Brothers nor sent via registered or certified mail. “The Brothers’ contention that, the facsimile notice of the adjourned date violated the relevant law, and that their non-receipt of the notice resulted in their non-appearance at the arbitration, deserve careful consideration,” says the judge.
In court, Brothers’ lawyers relied on a precedent, which the judge dismissed as being irrelevant to the case in question. It involved the question whether the new date which was set for the arbitration represented a “new hearing,” i.e. a new case, or merely as result of the initial hearing to be adjourned to be convened at a later date. This makes, apparently, a big difference in the required way for notifications.
Says the judge: “As previously addressed, this court is persuaded that the Brothers actually received the initial Demand for Arbitration, as indicated by the date-stamped certifications from the post office records, in compliance with the statutory requirements. Next, and perhaps most importantly, for purposes of this decision, the DDC did not provide the Brothers with a ‘new notice of hearing.’ Rather, the Brothers received an adjournment based on their very own request. In its response letter, the DDC informed A.H. that its policy is to ‘adjourn a matter only in special circumstances,’ explained the 60 day commencement rule, and rescheduled the arbitration to March 4, 2008. The contents of this letter clearly evidences an intent to attempt some accommodation of the Brothers by an adjournment of the arbitration, even if it was not for as long as the Brothers had requested.”
Ramification on Future Arbitrations
“[While the relevant law] requires that notice of the time and place for the hearing be made in writing, delivered personally or by registered or certified mail, there is nothing in the statute from which to conclude that responses to requests for adjournments adhere to those same specific requirements. Here, the record is devoid of any evidence tending to show that the DDC’s response to A.H.’s adjournment request was intended to serve as a new notice of hearing rendering the prior notice a nullity, which would otherwise require the arbitrator to give notice in accordance with the requirements of the aforementioned relevant laws. The notice of hearing, including all of the information contained therein, remained the same - the only change was the adjourned date at the Brothers’ request,” concludes the Judge.
“The law is well-settled that the means selected for providing notice must be ‘reasonably calculated, under all the circumstances to provide notice’. The Brothers’ request was sent via facsimile. Given the absence of statutory or contractual requirements to the contrary, the DDC’s facsimile response to the facsimile request for an adjournment was an appropriate means to provide notice to the Brothers. It should be noted that the Brothers’ claim that they did not receive the DDC’s facsimile response to the request for adjournment lacks candor. The facsimile confirmations submitted by DDC regarding the arbitration serve as persuasive proof that the facsimile was indeed sent to and received by the Brothers, the IDE and the WFDB. Both the IDE and the WFDB acknowledge receipt of the adjournment by facsimile. Ironically, the Brothers aver that they did not receive this facsimile, although it was sent to their many office locations, including Diaglobe in New York, Nili Jewelry Designs in New York, and Delta Diamond, Israel, Hong Kong, and Shanghai,” says the judge.
“Assuming, however, as the Brothers contend, they did not receive notice of the adjournment until after the March 4, 2008 hearing, it is nonetheless undisputed that they were at least aware of the February 12, 2008 originally scheduled arbitration hearing, for which they sought an adjournment. Had the Brothers made any effort to attend the hearing on February 12th they would have learned of the adjourned date well in advance of the March 4th. Their failure to appear at the arbitration amounts to nothing more than an obvious disregard and conscious decision to refrain from attending the arbitration,” concludes the judge.
The Brothers’ final argument is that the arbitration award should be vacated because the award was not served in accordance with the provision of CPLR § 7507. Instead, they allege that they received only a facsimile copy from the legal advisor to the IDE. CPLR § 7507 provides, in relevant part, that “the arbitrator shall deliver a copy of the award to each party in the manner provided in the agreement, or, if no provision is so made, personally or by registered or certified mail, return receipt requested.”
Here, evidence of postal record receipts showing a mail date of March 13, 2008, serves as ample proof that notice of the arbitration award was mailed to the Brothers at various office locations as required by the statute. Thus, their argument here, too, is patently without merit.
Some Final Thoughts
In his judgment confirming the validity of the arbitration, the judge notes specifically, “the evidence presented sufficiently demonstrates that the notice provisions of the arbitration agreement were satisfied. Thus, the Brothers’ claim that their rights were substantially prejudiced by the arbitrators’ actions in failing to adhere to the relevant law must be rejected.”
We don’t know whether the last word has been said and whether the Brothers will appeal. In our initial story, we quoted DDC Managing Director Martin Hochbaum, who is responsible for the administrative side of sending notices, who said he had adhered to all the proper procedures. The court confirms that contention. The court didn’t address the substantial issues raised in the arbitration.
Given the current economic crisis and the difficulties many parties will have today to make substantial payments, one can only observe that justice delayed is – indeed – justice denied. It makes more sense, in almost any situation, to exhaust the normal bourse arbitration appeals process, then to seek redress of the courts. As this judgment shows, the instances in which a court will void an arbitration decision are extremely limited.
Have a nice weekend.