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Absent consent or waiver of the parties, New York arbitration law requires that an arbitrator conduct a hearing during arbitration, and failing to do so requires vacatur of the award upon the motion of a complaining party contesting confirmation, according to a New Jersey appellate court.
In Air Pegasus of New York, Inc. v. Liberty Helicopter Tours, Inc., Nos. A-3656-05T5, A-3703-05T5, 2007 WL 2188250 (N.J. App. Div. Aug. 1, 2007), a dispute arose between Pegasus, Liberty, and third-party defendant Trenk regarding the operation of a heliport in Manhattan. The parties agreed to arbitrate the dispute. Without a hearing, the arbitrator issued an award in favor of Liberty.
Trenk moved to vacate the award, arguing that the arbitrator never conducted a valid arbitration because he failed to hold a statutorily required hearing. After briefing, the trial court confirmed the award, ruling that Trenk’s motion to vacate the award was not timely, that Trenk had waived its right to a hearing by its conduct. Trenk appealed the award’s confirmation, specifically claiming that the arbitrator exceeded his authority by modifying the agreement between the parties, and that the court erred in finding it waived its right to the required hearing.
On appeal, the Court found that Trenk had not waived its right to a hearing during arbitration, and ordered the confirmation reversed. According to the Court, the failure to hold the statutorily required hearing left the procedure “fundamentally flawed” and warranted reversal.
The Court observed that the controlling New York arbitration statutes required compliance with certain minimal due process standards, including a hearing during arbitration. Furthermore, the Court noted that New York law required vacatur of an award rendered in violation of the procedural requirements in the statutes, unless the parties had consented to foregoing a hearing or waived their right to a hearing.
The Court agreed with the trial judge that Trenk was entitled to a hearing under New York statutes, but disagreed that Trenk had waived its right to the hearing through its conduct during arbitration.
The Court rejected Liberty’s contention that Trenk had waived its right to a hearing when they signed an arbitration agreement giving the arbitrator “unlimited discretion” regarding the procedural decisions during arbitration, finding that the express language of the agreement specifically contemplated hearings as part of the arbitration process.
The Court rejected Liberty’s claim that Trenk had waived its right to a hearing by failing to object to the arbitration procedure prior to the issuance of the award, finding that New York law specifically allowed a party to raise its objection to the award when the victor later moves to confirm the award.
Finally, the Court rejected Liberty’s argument that Trenk had waived the right to the required hearing by continuing to engage in the arbitration process after objecting to the arbitration procedure. The Court stated that a waiver through subsequent conduct could only be effective if a party continues with the arbitration, and fails to object after notice of the defect; it found that Trenk had timely objected to the procedural problems in communications with the arbitrator, preserving its right to challenge any resulting award.
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