Goldfinger v. Lisker, 68 N.Y.2d 225 (1986)

Private communication between an arbitrator and one party-litigant, concerning the credibility of the party and the validity of the disputed amount, without the other party’s knowledge or consent, constitutes misconduct sufficient to vacate the arbitration award.

Summary

This case concerns a dispute between two diamond dealers, Goldfinger and Lisker, arbitrated within the Diamond Dealers Club (DDC). After the arbitrators awarded Goldfinger $162,976, Lisker sought to vacate the award, alleging arbitrator misconduct due to private communications between the chairman of the arbitration panel and Goldfinger regarding settlement offers and credibility. The New York Court of Appeals reversed the lower courts, holding that such ex parte communication constituted misconduct warranting vacatur of the award, emphasizing the need to safeguard the integrity of the arbitration process.

Facts

Goldfinger and Lisker, both members of the DDC, had a dispute over diamond transactions. Goldfinger claimed Lisker owed him $500,000 from a joint venture. Lisker denied any obligation. During arbitration, Goldfinger told Horowitz, one of Lisker’s business associates, that Lisker could have settled for $70,000 but would now pay more. Horowitz told Weinman, the arbitration panel chairman, about this conversation. Weinman then initiated a private conversation with Goldfinger to assess Goldfinger’s credibility and the validity of his claim, without Lisker’s knowledge or consent.

Procedural History

Goldfinger initiated a proceeding in Supreme Court to confirm the arbitration award. Lisker cross-moved to vacate, alleging arbitrator misconduct. Special Term referred the matter to a Referee, who recommended confirming the award and denying the cross-motion. Special Term adopted the Referee’s findings. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.

Issue(s)

Whether private communications between an arbitrator and one party-litigant, regarding the credibility of the party and the validity of the amount in dispute, without the knowledge or consent of the other party-litigant, constitutes misconduct sufficient to warrant vacating the arbitration award?

Holding

Yes, because such private communication creates an appearance of impropriety and denies the other party the opportunity to respond, thus prejudicing their rights and undermining the integrity of the arbitration process.

Court’s Reasoning

The Court of Appeals emphasized that while arbitration provides a less formal alternative to litigation, the integrity of the process must be zealously safeguarded. Arbitrators must act fairly and impartially, affording parties the opportunity to present evidence and cross-examine witnesses. The court distinguished this case from permissible independent investigations, noting that Weinman’s private communication with Goldfinger was not about “facts of trifling importance.” The court stated: “Weinman’s communication with Goldfinger following the conversation with Horowitz was deliberate in nature and designed clearly to enable Weinman to resolve in his own mind any doubt he may have had as to Goldfinger’s credibility or the validity of the claim itself. In so contacting Goldfinger, Weinman denied Lisker the opportunity to respond and created the appearance of impropriety if not actual partiality. Such actions amounted to misconduct which prejudiced Lisker’s rights under CPLR 7506 (a), (b) and (c).” The court rejected the argument that the DDC bylaws authorized such communications, finding that the bylaws did not sanction private, credibility-testing conversations. The Court emphasized the importance of safeguarding the arbitration process, reversing the lower court decisions and vacating the award.