IN RE: 57TH & 6TH GROUND LLC (2026)

Judgment (denominated an order), Supreme Court, New York County (Nicholas W. Moyne, J.), entered January 7, 2026, which granted the petition of 57th & 6th Ground LLC (the landlord) pursuant to CPLR 7510 to confirm an arbitration award dated July 18, 2025, and denied the cross-motion of respondent Carnegie House Tenants Corporation (the cooperative) pursuant to CPLR 7511(b)(1)(i) and (ii) to vacate the award, unanimously reversed, on the law and the facts, without costs, the petition denied, the cross-motion to vacate the award granted, and the matter remanded to a new arbitration panel.

This article 75 proceeding concerns a rent reset dispute in connection with a property located at 100 West 57th Street in Manhattan.  The landlord is the owner of the property, which contains a 324–unit cooperative building.  The cooperative is the owner of these residential units, and respondent Georgetown 57, LLC (together with the cooperative, the tenants) is the owner and operator of the retail space in the building.

The building sits on leased land that the tenants rent from the landlord pursuant to a long-term ground lease (the lease).  The initial lease term ran through 2004 and included three optional 21–year extension terms.  At the beginning of each extension term, the rent would be recalculated pursuant to the terms of the lease.  If and when a party renewed the term of the lease, the parties were to reset the annual net rent at 8.1667% of the fair market value of the land as of the valuation date.  To determine the land's valuation, the parties were required to attempt negotiations for a new ground rent.  If negotiations failed, the parties would then arbitrate their dispute.

On March 1, 2024, the tenants exercised their second extension option under the lease, with the renewed term beginning on March 15, 2025.  The parties attempted to negotiate a new annual net rent, but upon reaching an impasse, they proceeded to arbitration before the American Arbitration Association (the AAA).  That arbitration concluded with a one-week hearing that resulted in a final award largely in the landlord's favor.

After issuance of the final award, the landlord commenced this proceeding to confirm the award.  The cooperative opposed the petition and cross-moved to vacate the award based on party misconduct and the umpire's partiality.  The conduct relevant to the cooperative's application is summarized below.

Prior to the commencement of the arbitration, the landlord and the tenants each appointed their respective arbitrators.  The parties were unable to agree on a neutral arbitrator and applied to the AAA for the appointment.  On February 28, 2025, the AAA appointed a neutral umpire, thereby creating the three-person panel.  The AAA's Notice of Appointment instructed the umpire that:  “It is most important that the parties have complete confidence in the arbitrator's impartiality.  Therefore, please disclose any past or present relationship with the parties, their counsel, or potential witnesses, direct or indirect, whether financial, professional, social or of any other kind.  This is a continuing obligation throughout your service on the case.”

After discussions between the panel and the parties about the nature of the dispute and procedural issues, the panel issued a final order dated March 26, 2025 (the procedural order).  The procedural order provided, in relevant part, that (1) arbitration hearings would be held on July 7–11, 2025, and August 4–6, 2025, for a total of eight anticipated hearing days;  (2) prehearing briefs by counsel would be “unnecessary”;  and (3) there would be no oral or written ex parte communications between the Umpire and any of the parties or their respective counsel.

As relevant here, the landlord's counsel in this action represented a different landlord in a separate arbitration (the Durst matter).  At some point after the umpire was appointed here, but prior to the commencement of the hearing, the landlord's counsel was approached by opposing counsel in the Durst matter, who suggested the umpire as a potential neutral umpire for that proceeding.  Shortly thereafter, they jointly approached the umpire to offer him the position.  Although the umpire expressed interest, he indicated that he needed to raise the subject with the tenants' counsel in this proceeding.  Accordingly, on May 19, 2025, the umpire sent an email to the parties that disclosed the offer but omitted any reference to his direct contact with the landlord's counsel.  Moreover, the umpire's email affirmatively stated that “I have not had, nor will I have or be permitted to have, any ex parte communications with counsel in the appraisal proceeding.”  Three days later, following further inquiry from the cooperative, the landlord's counsel disclosed his role in approaching the umpire to offer him a position as a neutral arbitrator on the Durst matter.

On May 23, 2025, the cooperative's counsel asked the AAA to remove the umpire.  However, because the AAA lacked authority to rule on the cooperative's objections, the cooperative's counsel, in a letter dated May 28, 2025, asked the umpire to recuse himself.  Upon receiving the landlord's opposition to this request, the umpire asked if the cooperative would rescind its recusal demand if he declined the offer to be a neutral umpire in the Durst matter.  The cooperative rejected this offer, whereupon the umpire denied the request for his recusal and also indicated that he was not accepting the Durst matter offer.

Following the denial of the cooperative's recusal request, and shortly before the scheduled hearing dates, the tenants served multiple appraisal reports, including an appraisal based on condominium use and an alternative appraisal based on cooperative use.  In response, on June 20, 2025, the landlord filed a prehearing motion to strike two of the tenants' expert reports in their entirety and portions of a third report.  The landlord also sought to preclude the tenants from arguing their position as to the appropriate application of the lease's valuation clause.

The cooperative objected to the propriety of the motion under the terms of the procedural order.  However, in a communication dated June 23, 2025, the umpire permitted the motion to proceed over the cooperative's objection and provided only two days for opposition papers.  The umpire then announced on June 26, 2025, only one day after receiving the opposition papers, that the panel would grant the motion and issued its written order the following day.  Notably, the tenants' appointed arbitrator dissented from the panel's determination.

On July 2, 2025, after the cooperative informed the umpire that it would seek his removal in court, he indicated that the hearing would now be completed within a week, concluding on July 11, rather than adhering to the original eight-day hearing schedule contemplated by the procedural order.  The panel further revised the schedule so that the hearing days would last an extra hour each day, with lunch breaks cut to 30 or 45 minutes and other breaks minimized.  The hearing then proceeded under this revised expedited schedule.

Following the hearings, on July 18, 2025, the panel issued a final award designating the fair market value of the land under the lease as $301,250,000.00.  Thus, the award increased the tenants' annual rent from $4,360,587 to $24,602,184.  Although the award was unanimous, the tenants' appointed arbitrator indicated that “[n]othing herein is intended to imply a change of my dissent from the panel's Order Granting Landlord's Motion to Strike Documents and to Preclude Related Testimony dated June 27, 2025.”

Based on this record, Supreme Court erred in granting the petition to confirm the arbitration award and denying the cooperative's cross-motion to vacate the award.  While Supreme Court held that the umpire's conduct “clearly compromised the integrity of the arbitral process and mandates strict scrutiny,” it still declined to vacate the award based on the Court of Appeals decision in U.S. Elecs., Inc. v Sirius Satellite Radio, Inc. (17 NY3d 912 [2011] ).  Supreme Court's reliance on U.S. Elecs., Inc. was misplaced because the decision not to vacate the arbitration award in that case was governed by the FAA and does not establish the standard for vacating an arbitration award under CPLR 7511.

Under CPLR 7511, a party may move to vacate or modify an award if it demonstrates by clear and convincing proof that its “rights ․ were prejudiced” by the “partiality of an arbitrator appointed by a neutral” (CPLR 7511[b][1][ii];  see also Matter of Department of Educ. of the City of N.Y. v Canick, 188 AD3d 607, 607 [1st Dept 2020], lv dismissed 39 NY3d 1069 [2023] ).  Partiality can be established by proof of “actual bias” or “the appearance of bias from which a conflict of interest may be inferred” (New York Rests.  Exch. v Chase Manhattan Bank, 226 AD2d 312, 315 [1st Dept 1996], lv dismissed 89 NY2d 861 [1996] ).  Such partiality, if sufficiently demonstrated, can serve as the basis for establishing the requisite prejudice necessary to vacate an award (see Matter of Kern [303 E. 57th St. Corp.-Excelsior 57th St.], 204 AD2d 152, 153 [1st Dept 1994], lv denied 84 NY2d 810 [1994], citing Matter of Catalyst Waste–to–Energy Corp. [City of Long Beach], 164 AD2d 817, 820 [1st Dept 1990], appeal dismissed 76 NY2d 1017 [1990] [“[i]t is only necessary to demonstrate the potential for bias to find misconduct”] ).

Applying this standard, the umpire created an appearance of impropriety when he directly communicated with the landlord's counsel about a paid offer to serve as a neutral umpire in the Durst matter and did so without including the tenants in the conversation.  Further, the umpire's subsequent attempt to remedy this issue with a disclosure to the tenants failed to cure his misconduct.  Indeed, the disclosure was incomplete as it was the landlord's counsel, not the umpire, who informed the tenants of the direct communication with the landlord's counsel.  To compound matters, the umpire then attempted to bargain with the tenants – offering to trade his rejection of the offer in exchange for the cooperative withdrawing its recusal application.  Ultimately, although he did eventually decline the offer, the umpire's actions irreversibly and improperly implicated the “integrity of the process” (Kern, 204 AD2d at 153;  see Catalyst Waste–to–Energy Corp., 164 AD2d at 820).

Contrary to the landlord's assertions, the conduct identified by the tenants does not establish a “mere inference or suggestion of partiality” (cf.  Matter of Infosafe Sys. [International Dev. Partners], 228 AD2d 272, 273 [1st Dept 1996];  Rose v Lowrey & Co., 181 AD2d 418, 418 [1st Dept 1992] ).  Rather, the tenants have identified conduct that, at a minimum, created an appearance of impropriety and partiality.  That appearance of partiality, in turn, undermined the subsequent decisions made in connection with the arbitration and thus the final award.

For example, despite the procedural order explicitly prohibiting pretrial briefing, the umpire nevertheless permitted the landlord to file, over objection on the eve of the hearing, a prehearing motion to strike several of the tenants' expert reports and precluded the tenants from submitting their own valuation information.  The umpire thereafter gave the tenants only a very short period of time to respond before quickly granting the motion over the dissent of the tenants' appointed arbitrator.  Then, once the cooperative's counsel indicated its intent to seek his removal in court, the umpire expedited the hearing schedule in a manner that deviated from the agreed-upon arbitration parameters.

“[P]recisely because arbitration awards are subject to ․ judicial deference, it is imperative that the integrity of the process, as opposed to the correctness of the individual decision, be zealously safeguarded” (Kern, 204 AD2d at 153, quoting Matter of Goldfinger v Lisker, 68 NY2d 225, 230 [1986] ).  Here, notwithstanding the due deference courts may normally accord to such decisions, the umpire's disputed prehearing determinations cannot be divorced from the taint that arose from his undisclosed communications with the landlord's counsel (cf.  Matter of Cuomo v JAMS, Inc., 242 AD3d 448, 448 [1st Dept 2025] ).  As a result, given the tenants' showing by clear and convincing evidence of partiality and bias prejudicing their rights, they have met the heavy burden needed for vacatur of the award under CPLR 7511 (see Matter of J.P. Stevens & Co. [Rytex Corp.], 34 NY2d 123, 125 [1974] ).

That the final award was unanimous does not alter this conclusion.  While it is true that the tenants' appointed arbitrator signed on to the award, he explicitly did so without waiver of his previous dissent to the panel's order striking and precluding material portions of the tenants' case.  As he later explained in support of the cooperative's cross-motion, he viewed the valuation as flawed and incomplete, but nonetheless signed the award to prevent an even higher valuation.  Accordingly, based on these particular circumstances, the unanimity of the final award is not sufficient to overcome the appearance of impropriety created by the umpire's conduct (see Kern, 204 AD2d at 153–154).

We have considered the landlord's remaining arguments and find them unavailing.