# Appendix — Jarnis United Properties Co. v. Lefkovitz > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_0757%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 2005 - **Citation:** 546 U.S. 812 ## Text Ae la APPENDIX A IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT Sigmund Lefkovitz, et al., Plaintiffs-Appellees, Cross-Appellants, V. Nathan Wagner, et al., Defendants-Appellants, and Jarnis United Properties Co., Proposed Intervenor- Appellant, and Grippo & Elden, et al., Cross-Appellees, and 29-31 Associates, Appellant. Nos. 03-4171, 03-4173, 03-4175, 03-4194. Argued Nov. 10, 2004. Decided Jan. 18, 2005. 2a Before POSNER, WOOD, and EVANS, Circuit Judges. POSNER, Circuit Judge. Before us is a multifaceted challenge to the confirma- tion of an arbitration award. We omit many details in the interest of simplicity. In 1990, six individuals who had been working together for many years in the real estate business created a partnership that they called “Jarnis.” Each took an equal share in the partnership, although each one-sixth share was divided in turn among the active member of the partnership, members of his family, and trusts for the benefit of the family members. The partners (by which we mean, unless otherwise indicated, the active members) later had a falling out. Four of them ganged up against the other two, the Lefkovitzes, who in 1997, joined by their family trusts, brought this suit against their four oppressors plus four companies controlled by the latter. The suit charges that the defendants, in violation of RICO, the Jarnis partnership agreement, and fiduciary obligations arising from the partnership, diverte.| to themselves part- nership income in which the plaintiffs as co-partners were entitled to share. The defendants had done this, the plain- tiffs alleged, by paying themselves inflated compensation for services that they had rendered or purported to have rendered to the partnership. Although Jarnis was not a party to the suit, the suit might seem to be really a derivative suit on the partner- ship’s behalf, charging that the defendants looted it. “When a corporation is injured by a wrongful act but the board of directors refuses to seek legal relief, a shareholder can sue the wrongdoer on behalf of the corporation. Such a suit is known as a derivative suit, and is an asset of the corporation.” Kennedy v. Venrock Associates, 348 F.3d 584, 589 (7th Cir. 2003). Although most derivative suits 3a are brought on behalf of corporations, a derivative suit can be brought on behalf of a partnership or other unincorpo- rated firm. Fed. R. Civ. P. 23.1. No party has sought to have this case litigated as a derivative suit; but if individ- ual partners sue to enforce rights belonging to a noncon- senting third party, namely the partnership, the court must dismiss the suit. See F; ieldturf, Inc. v. Southwest Recrea- tional Industries, Inc., 357 F.3d 1266, 1268 (Fed. Cir. 2004); Paradise Creations, Inc. v. UV Sales, Inc., 315 F.3d 1304, 1309 (Fed. Cir. 2003); Enzo APA & Son, Inc. v. Geapag A.G., 134 F.3d 1090, 1093-94 (Fed. Cir. 1998). One cannot sue, other than in a representative capacity, to enforce a right that belongs to someone else. Cf People Organized for Welfare & Employment Rights (P.O.W_E.R. ) v. Thompson, 727 F.2d 167, 173 (7th Cir. 1984). Thus—to bring the point closer to home—shareholders cannot main- tain a RICO suit for injury to their corporation. Sears y. Likens, 912 F.2d 889, 892 (7th Cir. 1990); Mid-State Fer- tilizer Co. vy. Exchange National Bank, 877 F.2d 1333,1335-37 (7th Cir. 1989); In re Sunrise Securities Litigation, 916 F.2d 874, 887-88 (3d Cir. 1990). But it is the law of the jurisdiction under which a part- nership is organized that determines who has a legally en- forceable right to sue to prevent or correct an improper diversion of partnership income. Kamen y. Kemper Fi- nancial Services, Inc., 500 U.S. 90 (1991); In re Abbott Laboratories Derivative Shareholders Litigation, 325 F.3d 795, 803-04 (7th Cir. 2003). Jarnis is a Florida general partnership, and under Florida law the partners in a general partnership owe fiduciary obligations to each other. Fla. Stat. Ann. § 620.8404; see id, § 620.8405; Hallock v. Holiday Isle Resort & Marina, Inc., 885 So.2d 459, 462-63 (Fla. App. 2004); Lundstrom Realty Advisors, Inc. v. Schickedanz Bros.-Riviera Lid., 856 So.2d 1117, 1121-22 (Fla. App. 2003). (This is the general rule, not anything 4a peculiar to Florida. See, e.g., Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 546 (1928) (Cardozo, J.); ARTRA Group, Inc. v. Salomon Bros. Holding Co., 288 Ill. App. 3d 467, 223 Ill. Dec. 819, 680 N.E.2d 769, 772 (1997); McSweeney v. Buti, 263 Ill. App. 3d 955, 201 Ill. Dec. 831, 637 N.E.2d 420, 424 (1994).) So the plaintiffs were not required to file this as a derivative, or any kind of repre- sentative, suit. The plaintiffs could sue, and are suing, on their own behalf rather than on behalf of the partnership. This point is fogged up by the fact that, as we shall see, Jarnis received an award from the arbitrator. This has no practical significance; the award was no different from awarding two-thirds of the amount of it to the defendants (and entities controlled by them to which they had trans- ferred fractions of their shares) and the other third to the plaintiffs. Similarly, although the corporation or other en- tity on whose behalf a suit is brought, being the owner of the claim sued upon, normally is an indispensable party, Koster v. (American) Lumbermens Mutual Casualty Co., 330 U.S. 518, 523 n.2 (1947); Bagdon v. Bridge- stone/Firestone, Inc., 916 F.2d 379, 382 (7th Cir. 1990); Fogade v. ENB Revocable Trust, 263 F.3d 1274, 1289 (11th Cir. 2001), this observation is inapplicable to a suit such as the present one in which the partner (or share- holder) is allowed to sue in an individual rather than repre- sentative capacity. The next step, which however we declined to take in Frank v. Hadesman & Frank, Inc., 83 F.3d 158, 161-62 (7th Cir. 1996), would be to allow a de- rivative suit to be brought instead as an individual suit whenever the corporation (the usual entity on behalf of which a derivative suit is brought) is closely held, at least where, as in this case (were Jarnis a corporation), all the shareholders are before the court, so that there are no merely represented shareholders. Sa But by virtue of the principles of partnership law, the plaintiffs in this case had and exercised an option to sue as individuals rather than on behalf of the partnership. The analogy is to a suit by a minority shareholder against the majority shareholder, claiming that the latter has violated the fiduciary duty that such a shareholder, especially in a closely held corporation, owes to minority shareholders. Kennedy v. Venrock Associates, supra, 348 F.3d at 589; Strougo v. Bassini, 282 F.3d 162, 173 (2d Cir. 2002); see also United States v. Byrum, 408 U.S. 125, 137-38 (1972); Lawton v. Nyman, 327 F.3d 30, 40-41 (1st Cir. 2003); Hollis v. Hill, 232 F.3d 460, 468 (5th Cir. 2000); but see Combs v. PriceWaterhouse Coopers LLP, 382 F.3d 1196, 1200 (10th Cir. 2004), So we can proceed to the merits of the appeal. The de- fendants demanded arbitration pursuant to the arbitration clause in the Jarnis partnership agreement. The plaintiffs resisted on the ground that some of the entities that they had joined as defendants along with the four active mem- bers of Jarnis that they were suing had not signed arbitra- tion agreements. But the four assured the court that they controlled those entities, together with Jarnis itself, be- cause they controlled two-thirds of the voting power in the partnership. They owned less than two-thirds, but that was only because they had transferred some of their partnership interests to relatives and family trusts; and both the rela- tives and the trusts were under their thumb. The court ordered arbitration. That was in 1998. The proceedings before the arbitrator—which swelled when the arbitration was consolidated with two other arbitrations between the parties—were protracted, but finally ended in 2003 with an award that among other things ordered the defendants to repay Jarnis more than $7 million and or- dered Jarnis to reimburse the plaintiffs for $1.8 million in 6a attorneys’ fees. The district court confirmed the award in its entirety, and the flurry of appeals here consolidated for decision followed. One of the appeals is by Jarnis itself, from the district court’s refusal to allow it to intervene in the confirmation proceeding on the ground that it should have sought inter- vention earlier. The civil rules authorize the grant of in- tervention only “upon timely application” for it. Fed. R. Civ. P. 24; NAACP v. New York, 413 U.S. 345, 365-66 (1973). The aim is “to prevent a tardy intervenor from de- railing a lawsuit within sight of the terminal;” and so “as soon as a prospective intervenor knows or has reason to know that his interests might be adversely affected by the outcome of the litigation he must move promptly to inter- vene.” United States v. South Bend Community School Corp., 710 F.2d 394, 396 (7th Cir. 1983); see also Reid L. v. Illinois State Board of Education, 289 F.3d 1009, 1017- 18 (7th Cir. 2002); Sokaogon Chippewa Community v. Babbitt, 214 F.3d 941, 949 (7th Cir. 2000). Jarnis argues that since it was not a party to the proceedings before the arbitrator it had no reason to intervene until the arbitrator unexpectedly ordered it to pay the plaintiffs’ attorneys’ fees. And it is certainly unusual—so unusual as to be un- foreseeable—for a nonparty to a litigation to be treated as Jarnis was, namely as a defendant (with respect to the at- torneys’ fees). It was not until the arbitrator made the award against Jarnis that it had a ground for intervention— unless it wanted more than the $7 million that it was awarded, but it did not. This discussion may seem to be leading ineluctably to the conclusion that Jarnis was entitled to intervene in the district court; more fundamentally, and without need to invoke Rule 24, because someone against whom a judg- ment is entered is entitled to the rights of a party. Mo- cbt, isto nelbeall ee Ne eR ee OR ne eee ee wa SGiatihiabicbars cite matics eins atric iced . iS inalicda Resa ON ins thaibdt ik 7a torola Credit Corp. v. Uzan, 388 F.3d 39, 61-62 (2d Cir. 2004); Alemite Mfg. Corp. v. Staff, 42 F.2d 832, 832-33 (2d Cir. 1930) (L. Hand, J.); cf. Devlin v. Scardelletti, 536 U.S. 1, 7-8 (2002); In re Bridgestone/Firestone, Inc., Tires Products Liability Litigation, 333 F.3d 763, 768 (7th Cir. 2003); Cordoza v. Pacific States Steel Corp., 320 F.3d 989, 995-96 (9th Cir. 2003). And ordinarily the award of relief against a nonparty would be just the kind of ultra vires act by an arbitrator that would justify judicial inter- vention. 9 U.S.C. § 10(a)(4); BEM I, L.L.C. v. Anthro- pologie, Inc., 301 F.3d 548, 554-55 (7th Cir. 2002); Lindland v. U.S. Wrestling Ass’n, Inc., 227 F.3d 1000, 1003 (7th Cir. 2000); Katz v. Feinberg, 290 F.3d 95, 97-98 (2d Cir. 2002); Coady v. Ashcraft & Gerel, 223 F.3d 1, 9 (1st Cir. 2000). But not here. The only plausible motiva- tion for Jarnis’s arguing against its being included in the award is that the defendants, who control Jarnis, are trying to derail the arbitration because they are dissatisfied with its outcome. Cf. Dighello v. Busconi, 673 F. Supp. 85, 88- 89 (D. Conn. 1987). As we noted earlier, a judgment that Jarnis pay the plaintiffs $1.8 million has exactly the same consequence as a judgment that the defendants pay them $1.2 million (two-thirds of $1.8 million), because the de- fendants and their dependents own two-thirds of Jarnis. Jarnis (which is to say the defendants, the puppeteers) argues that the defendants cannot adequately represent its interests because, not owning 100 percent of it, they have an incentive to shift costs from their shoulders to Jarnis. Indeed so. But then it is the minority owners, namely the plaintiffs, who shouid be arguing against the award’s hav- ing been directed against Jarnis rather than the defendants, who have managed to offload one-third of the award onto the plaintiffs—who are not complaining. The issue of the attorneys’ fee award is therefore moot. 8a The defendants argue that the arbitrator engaged in ex parte communications and also exhibited bias in favor of the plaintiffs, and either type of behavior could be a basis for refusing to confirm an arbitrator’s award. 9 U.S.C. § 10(a)(2)-(3); Sphere Drake Ins. Ltd. v. All American Life Ins. Co., 307 F.3d 617, 619-20 (7th Cir. 2002); Dow Corn- ing Corp. v. Safety Nat’l Casualty Corp., 335 F.3d 742, 749-52 (8th Cir. 2003). But not in the circumstances of this case. : One of the issues in the arbitration was whether the de- fendants had caused Jarnis to overpay them for their ser- vices—the motive being, as should be evident from our previous discussion, that one-third of the overpayment would be borne by the plaintiffs. The arbitrator hired an accounting firm to provide neutral expert evidence to assist him in analyzing that issue. The defendants complain that the arbitrator met with the firm in their absence. He did, though it is unclear whether he discussed the overpayment issue in those meetings. If he did discuss it, still there is no indication that the discussion had any effect on his rul- ings. The issue of bias arises from a hearing at which the ar- bitrator complained that his fee was in arrears. The plain- tiffs’ lawyer clucked his tongue sympathetically and said that the arbitrator “shouldn’t have to deal” with the issue of fees. The defendants’ lawyer was silent—because he was planning to challenge the arbitrator’s fee, and did so a few days later. Under the rules of the American Arbitra- tion Association, which governed this arbitration, fees and fee protests are lodged with the Association, which after resolving any protest remits the fees to the arbitrator. He is not supposed to learn of the protests. If he wants to complain about a party’s failure to pay his fee, he is sup- posed to complain to the Association rather than raise the Ae Ds RE Shihaa aS i ait ARS Defendants also state that Mr. Schwartzberg consents to have the Proceeding | portion of the award reviewed before this court even if diversity jurisdiction does not exist, and that he in fact would prefer such review. However, parties cannot create subject matter jurisdiction through their consent. See, e.g., Bates v. John- son, 901 F.2d 1424, 1428 (7th Cir. 1990) (“parties may not stipu- late to judicial power”). 19a provides that when a federal court has original jurisdiction over a claim, it may exercise jurisdiction over “all other claims that are so related ... that they form part of the same case or controversy under Article III of the United States Constitution.” 28 U.S.C. § 1367(a). As I have ju- risdiction over Proceeding 3, I may exercise jurisdiction over Proceedings 1 and 2 if they are part of the same case or controversy. “A loose factual connection between the claims is generally sufficient.” Ammerman v. Sween, 54 F.3d 423, 424 (7th Cir. 1995); see also Baltimore and Ohio v. Wisconsin Central, Ltd., No. 93-C3519, 1997 WL 51460, at *9 (N.D. Ill. Feb. 3, 1997) (Hart, J.). Defendants object to this court’s review of the portion of the award headed Proceeding 2, claiming that the parties in that proceeding are not parties to the original action, Proceeding 3. However, those parties, NRNH and 29-31 Assoc., voluntarily submitted their dispute before Mr. Grossman. The issues in the dispute are related to the is- sues in Proceedings 1 and 3. The case before this court is review of one arbitration award, resulting from hearings before one arbitrator. While the award does provide head- ings from the three proceedings that were consolidated, it also intertwines the awards under those headings.* While some of the claims underlying the award involve nomi- nally different parties, the parties include the six principals and the partnerships they formed (Jarnis, NRNH, 29-31 Assoc., etc.). This arbitration award is sufficiently one “case or controversy” to grant this court jurisdiction for review. * For example, after making awards under the heading Proceeding 2 and making provision for payment out of the assets of NRNH, the arbitrator placed a lien on those assets to secure payment of the judgment under Proceeding 3. 20a Hl. The FAA “establishes ‘a federal policy favoring arbi- tration’.” Moseley, Hallgarten, Estabrook & Weeden, Inc. v. Ellis, 849 F.2d 264, 267 (7th Cir. 1988) (citing Shear- son/American Express, Inc. v. McMahon, 483 U.S. 1056 (1987)). Review of arbitration awards is extremely narrow to “prevent arbitration from becoming merely an added preliminary step to judicial resolution rather than a true alternative.” Jd. Section 10 of the FAA provides the lim- ited grounds for review of an arbitration award, stating that an award may be vacated: (a) Where the award was procured by corruption, fraud, or undue means. (b) Where there was evident partiality or corruption in the arbitrators, or either of them. (c) Where the arbitrators were guilty of miscon- duct in refusing to postpone the hearing, upon suffi- cient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced. (d) Where the arbitrators ex- ceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upun the sub- ject matter submitted was not made. (e) Where an award is vacated and the time within which the agree- ment required the award to be made has not expired the court may, in its discretion, direct a rehearing by the arbitrators. 9 U.S.C. § 10. Defendants challenge the award on the grounds contained in (c) and (d). A. Defendants first allege that Mr. Grossman’s conversa- tion with the parties about compensation due to the AAA, along with a comment by plaintiffs’ counsel, constituted ne ee 2la misconduct. In a status hearing on August 26, 2002, Mr. Grossman notified the parties that fees were past due for the arbitration and needed to be paid. He further stated that the amounts were due by September 3, and that if the fees were not paid, proceedings would be suspended and only the award pertaining to a party who did pay would be entered. Mr. Grossman indicated that he did not want to have to deal with the issue of fees again. Plaintiffs’ coun- sel assured him that he should not have to. Defendants al- lege that this statement about fees from Mr. Grossman violated AAA Rule 50 and constituted misconduct on his part. AAA Rule 50 states that “[a]ny arrangement for the _ compensation of a neutral arbitrator shall be made through the AAA and not directly between the parties and the arbi- trator.” Mr. Grossman’s actions in dealing directly with the parties about compensation arguably violated this rule. See, e.g., In re Catalyst Waste-to-Energy Corp., 164 A.D.2d 817, 820, 560 N.Y.S.2d 22 (N.Y. App. Div. 1990); In re I. Jerry Fischer, 106 A.D.2d 314, 316, 482 N.Y.S.2d 761 (N.Y. App. Div. 1984). Even on a clear showing of misconduct, however, the party seeking to vacate an arbitrator’s order must show that it was deprived of a fair hearing. See, eg, M&A Electric Power Coop. v. Local Union No. 702, IBEW, 773 F. Supp. 1259, 1262 (E.D. Mo. 1991). Defendants allege that Mr. Grossman’s discussion of compensation with the parties was misconduct that prejudiced their position and prevented them from receiving a fair hearing. Conclusory statements about prejudice are not sufficient. Defendants fail to show that Mr. Grossman even knew of their alleged dispute about fees, let alone that the knowledge affected his final award. On the contrary, all payment of fees was handled through AAA and, when defendants refused to pay the invoice, plaintiffs advanced the total amount to AAA. Plaintiffs’ attorney’s statement was not sufficient to 22a alert Mr. Grossman as to any dispute over his compensa- tion. Defendants also allege that Mr. Grossman’s hiring of BDO Seidman (“Seidman”) as an “arbitration consultant” constituted ex parte communications that warrant vacation of the award. Ex parte acts by the arbitrator have been held to constitute misconduct. See, e.g., Hahn v. A.G. Becker Paribas, Inc., 164 Ill. App. 3d 660, 115 Ill. Dec. 693, 518 N.E.2d 218, 224 (1987) (collecting cases). Arbi- trators may not base their awards on independent investi- gations. In re Avraham, No. 91-C1238, 1991 WL 177633, at *3 (S.D.N.Y. Sept. 4, 1991). Mr. Grossman’s consulta- tion with Seidman regarding key issues in this arbitration could potentially support vacation of this award. Defendants are unable to show, however, that their po- sition was prejudiced by any communication between Mr. Grossman and Seidman. After the alleged communication took place, Mr. Grossman reopened the hearing to allow defendants to present additional testimony on the issue of executive level compensation. Further, after the alleged ex parte communication and the additional testimony from defendants, Mr. Grossman raised the level of compensa- tion to be granted defendants for the years 1996, 1997, 1998, and 1999. Defendants are unable to show that they were prevented from having a fair hearing by these com- munications. B. Defendants state that consolidating the various actions into one arbitration proceeding exceeded Mr. Grossman’s authority and warrants vacation of this award. 9 U.S.C. § 10(d). Courts, and by extension arbitrators, cannot con- solidate arbitration proceedings without the consent of the parties. See, e.g., Connecticut General Life Ins. Co. v. Sun -_ 23a Life Assurance Co., 210 F.3d 771, 774 (7th Cir. 2000). Consolidated arbitration proceedings are favored, how- ever, for reasons of judicial economy and consistency. Jd. at 774, 776. Here, Proceedings 1 and 2 were willingly submitted to the arbitrator, but defendants argue that Pro- ceeding 3 was consolidated without their consent. How- ever, Proceeding 3 was never a separate arbitration, but rather a counterclaim to Proceeding 1.° Defendants also claim that Mr. Grossman exceeded his authority by issuing an award affecting non-parties, spe- cifically Jarnis. However, the Agreement that forms the basis for this arbitration is broad, providing for resolution of “any dispute or controversy arising under, out of or in connection with or in relation to this Agreement.” Defen- dants admit that the agreement to arbitrate covers nonsig- natories as well as signatories, such as affiliates, agents, or intended beneficiaries. See Defendants’ Memorandum, at 6 (Jan. 12, 1998). As defined in the Agreement, the non- parties defendants complain about all fall into one of these categories. Further, defendants may not raise the rights of third parties, especially where, as here, those parties could have intervened in the underlying arbitration.° See, e.g., Bruscianelli v. Triemstra, No. 99-C6446, 2000 WL 1100439, at *4 (N.D. Ill. Aug. 4, 2000) (Nordberg, J.). Finally, Mr. Grossman found that this dispute was essen- tially “among the same six families who, with minor fi- nancial interests of third parties, own and control the assets * After a hearing, Mr. Grossman and the AAA decided that the claims by plaintiffs would best be handled by filing them as a counterclaim to Proceeding 1. ° As the arbitration proceedings lasted over 60 months, and the third parties are all owned at least in part by defendants, those par- ties clearly had notice of the ongoing arbitration and its potential ramifications. 24a which are the subject of this arbitration.” See March 6, 2003 Opinion of Arbitrator Grossman, at 1. “Neither er- rors in the arbitrator’s interpretation of law or findings of fact ... justify reversal of the arbitrator’s award.” Bargen- quast v. Nakano Foods, Inc., 243 F. Supp. 2d 772, 774 (N.D. Ill. 2002) (Bucklo, J.).’ Defendants allege that Mr. Grossman exceeded his au- thority by deciding issues not submitted to him. The scope of arbitration is determined by the arbitration agreement and the issues submitted by the parties. See, e.g., Amer. Postal Workers Union v. Runyon, 185 F.3d 832, 835 (7th Cir. 1999). The arbitration agreement in this case is very broad. See Defendants’ Motion, at 8 (Jan. 12, 1998). “The arbitrator’s interpretation of the scope of the issue [pre- sented to him] must be upheld so long as it is rationally derived from the parties’ submission.” Amer. Postal Workers Union, 185 F.3d at 835. Defendants object to four issues resolved by Mr. Grossman: the preparation of financial statements; the rate of compensation for services rendered by partners; the validity of 2001 and 2002 Jarnis Amendments; and the time period over which the fees paid would be examined. These issues are rationally derived from the submitted issues, which relate to breach of fiduci- ary duties and misappropriation of funds.* ’ Defendants rely on Fiat v. Ministry of Fin. and Planning, No. 88-C6639, 1989 WL 122891 (S.D.N.Y. Oct. 12, 1989). This reli- ance is misplaced. The present case is closer to Dighello v. Bus- coni, 673 F. Supp. 85 (D. Conn. 1987) (cited within Fiat). The parties and non-parties are significantly intertwined and are cov- ered by the arbitration agreement, unlike the entities in Fiat. * Defendants’ objection to Mr. Grossman’s ruling on the validity of the 2001 and 2002 Jarnis Amendments is strained, as defendants introduced those amendments into the proceedings in an attempt to PELE IES 27S — et 25a Defendants next allege that Mr. Grossman applied his own personal views, rather than the contract terms, in making the award. The arbitrator’s award must be based on a clear disregard of the contract language before this court can vacate that award. Anheuser-Busch, Inc. v. Beer et al., Local Union No. 744, 280 F.3d 1133, 1137 (7th Cir. 2002) (“the fact that a court is convinced [the arbitrator] committed serious error does not suffice to overturn his decision”). Defendants claim that the award regarding compensation for services provided demonstrates that the arbitrator disregarded the contract language. However, the contract at issue, the Agreement, contains two sections dealing with compensation to partners for services pro- vided. Defendants and plaintiffs submitted different inter- pretations for computing that compensation, demonstrating that the contract was not unambiguous on this issue. Even if Mr. Grossman looked outside of the contract in his in- terpretation efforts, that does not clearly show a disregard for the contract language, as the contract itself is not clear about the relationship between the two sections. An- heuser-Busch, 280 F.3d at 1139 (noting that looking be- yond the contract itself is appropriate when interpreting ambiguous terms). Defendants allege that the award must be vacated be- cause Mr. Grossman delegated his duties to Seidman by hiring them as “arbitration consultants.” It is true that ar- bitrators may not delegate their duties. See, e.g., 3 I. MacNeil, et al, FEDERAL ARBITRATION LAW § 37.2.1 (1999). However, there is no indication that Mr. Grossman did not decide the issues before him, or that Seidman did so instead. limit Mr. Grossman’s authority in an arbitration that had begun years earlier. 26a Defendants argue that the award, at least with respect to the portion under the heading Proceeding 2, paragraph D, must be vacated because placing a lien on the award under this heading exceeded the arbitrator’s authority. Af- ter holding NRNH liable to 29-31 Assoc. for various amounts, the arbitrator placed a lien on those assets pend- ing payment of the judgment under the heading Proceeding 3. Defendants argue that this lien is counter to a Stipula- tion entered into by the parties on June 26, 2000, and therefore must be vacated. However, nothing in the Stipu- lation states that a lien may not be placed on the amounts awarded. Nor does the lien change anything in the portion of the Stipulation that the parties agreed would not be changed. One award was issued, for one arbitration. Mr. Grossman was within his authority as an arbitrator to place the lien on one portion of the award to ensure a complete remedy for all parties. See, e.g., United Electrical Radio & Machine Workers of Am. v. Honeywell, Inc., 522 F.3d 1221, 1226 (7th Cir. 1975) (stating the need for flexibility when formulating remedies in arbitration). Defendants further argue that the portion of the award under Proceeding 2 that holds the Lefkovitzes not person- ally and individually liable must be vacated. Defendants argue that Mr. Grossman misapplied New York law and misinterpreted the contract, finding that the Lefkovitzes were still covered by the terms of the lease with 29-31 Assoc. However, this court may not vacate an award based on the arbitrator’s interpretation of law. Eljer Mfg., Inc. v. Kowin Development Corp., 14 F.3d 1250, 1254 (7th Cir. 1994). Finally, defendants seek to vacate the portion of the award, under the heading Proceeding 1, that awards puni- tive damages against Mr. Schwartzberg and orders pay- ment of those damages to various 501(c)(3) charitable bch GOt eel Dey ba aah 27a organizations. Defendants argue that Mr. Schwartzberg had no notice of the potential for an award of punitive damages, and was thereby deprived of a fair hearing. In Mr. Grossman’s November 1999 rulings, he found that Mr. Schwartzberg’s actions did not rise to a level warrant- ing damages, but specifically reversed the issue of punitive damages for a later phase of the proceedings. Mr. Grossman was also acting within his authority when he ordered that the punitive damages assessed against both the Lefkovitzes and Mr. Schwartzberg be paid to charities. IV. Defendants have presented no valid reason for this court to vacate the award. The arbitrator neither engaged in misconduct warranting vacation nor exceeded his au- thority. I therefore confirm the award, issued on March 5, 2003, in its entirety. Respondents. 28a APPENDIX C IN ARBITRATION BEFORE THE AMERICAN ARBITRATION ASSOCIATION CHICAGO, ILLINOIS ALBERT SCHWARTZ- ) BERG, ) ) Claimant, ) ) No. 51-180-00202 98 IRVING LEFKOVITZ and ) (Proceeding 1) SIGMUND LEFKOVITZ ) ) Respondents. _) ) 29-31 ASSOCIATES, ) ) Claimant, ) ) (Consolidated — NEW ROCHELLE ) Proceeding 2) NURSING HOME, ) IRVING LEFKOVITZ, and __) SIGMUND LEFKOVITZ, ) ) Respondents. _) ) SIGMUND LEFKOVITZ, ) et al., ) ) Claimants, ) ) (Consolidated — NATHAN WAGNER, etal. ) Proceeding 3) ) ) ) tevin Nella a ETT 29a FINAL AWARD ON ALL DISPUTES OTHER THAN CIVIL CONTEMPT I, THE UNDERSIGNED ARBITRATOR, having been designated in accordance with the arbitration agreement entered into between the parties in the Jarnis Agreement, section 13.11, dated December 20, 1990, the New Ro- chelle Partnership Agreement, section 15, dated September 4, 1968, and the agreement of the parties, and having been duly sworn and having duly heard the proofs and allega- tions of the parties in these consolidated proceedings, hereby AWARD as follows: * * * * * F. The Lefkovitz Family Interests are entitled to judg- ment jointly and severally against Nathan Wagner, Robert Goldman, Albert Schwartzberg, Jay Felner and Jarnis, as follows: Sigmund Lefkovitz $451,768 Arlene Lefkovitz $97,718 Glenn Paul Lefkovitz $2,832 Irving Lefkovitz $876,627 June Lefkovitz $135,955 Sigmund Lefkovitz Family Trust for the Family of Shelly A. Loyd, u/a/d/ July 31, 1973, Gayle R. Dough- erty, Trustee $24,075 30a Sigmund Lefkovitz Family Trust for the Family of Glenn Paul Lefkovitz, u/a/d/ July 31, 1973, Nina Mann, Trustee Sigmund Lefkovitz Family Trust for the Family of Nina Mann, u/a/d/ July 31, 1973, Shelly Loyd, Trustee Sigmund Lefkovitz Family Trust for the Family of Gayle R. Dougherty, u/a/d/ July 31, 1973, Glenn Paul Lefkovitz, Trustee Sigmund Lefkovitz Family Trust for the Family of Donna Jean Neshek, u/a/d/ July 31, 1973, Shelley Loyd, Trustee Lefkovitz 1987 Family Trust, Glenn Lefkovitz, Gayle Dougherty and Donna Ne- shek Trustees Irving D. Lefkovitz Halsted No. 2 Trust, u/a/d/ February 12, 1974, Sigmund Lefkovitz, Trustee $21,243 $25,491 $24,075 $21,243 $552,318 $26,908 T oe eanaies NOM. Dal. Te 3la Irving D. Lefkovitz Halsted No. 3 Trust, u/a/d/ February 12, 1974, Sigmund Lefkovitz, Trustee $26,908 Irving D. Lefkovitz Halsted No. 4 Trust, u/a/d/ February 12, 1974, Sigmund Lefkovitz, Trustee $26,908 Irving D. Lefkovitz Halsted No. 5 Trust, u/a/d/ February 12, 1974, Sigmund Lefkovitz, Trustee $26,908 Lefkovitz Numbered Family Trust #7, Sigmund Lefkovitz, Trustee $2,832 The judgment amounts set forth in this paragraph consti- tute the Lefkovitz family interest’s allocate distributable share of the restitution amounts identified in paragraphs B and C. Any amounts distributed to the Lefkovitz family interests pursuant to paragraph D, above, shall be credited against the respective judgment amount, and any recoveries by any of the Lefkovitz family interests on the judgments shall be credited toward the respective distributions pay- able to them from Jarnis under paragraph D, above. In ad- dition, any recoveries on the judgments paid from or recovered against the personal assets of Messrs. Wagner, Goldman, Schwartzberg or Felner shall be credited toward the restitution payable to Jarnis under paragraphs B and C above. However, no payments or distributions by Jarnis in 32a full or partial satisfaction of these judgments, and no re- coveries from the assets of Jarnis, whether by way of levy, execution or otherwise, shall in any way impair or offset Jarnis’ right to full restitution under paragraphs B and C above. Enforcement of the money judgments arising from the confirmation of this Award shall be stayed for 30 days from the date of said confirmation to give Phase 3 Re- spondents the opportunity to comply with paragraphs B, C, D, F and G. G. For the reasons set forth in the April 19, 2002 and December 2, 2002 rulings of the Arbitrator, Jarnis is or- dered to reimburse Claimants for approved legal fees and costs incurred in Proceeding 3, which total $1,857,186.20. H. The Arbitrator specifically finds that Respondents failed to comply with the terms of the Jarnis Agreement regarding financial reporting and disclosure, and, specifi- cally, that Respondents in their capacities as controlling partners failed to comply with the requirements of Para- graph 7.05(b) of the Jarnis Agreement, relating to disclo- sures regarding the payment of fees and _ other compensation to Partners and their affiliates. Accordingly, I hereby appoint the accounting firm of BDO Seidman LLP to perform annual audits of Jarnis and its related entities and create audited financial statements for each of those entities for the years 1996 through 1999. These audits shall include review and verification of any materials called for in the Jarnis Agreement and the Flor- ida Limited Partnership Agreements and the information called for in any reports to be generated under those agreements. Copies of the audit reports shall be provided to all Jarnis interest holders. BDO Seidman’s reasonable fees and expenses shall be borne by Jarnis, as shall the rea- sonable fees and expenses of any successor firm. In the event that BDO Seidman is unable or unwilling to com- 33a plete the engagement, the parties shall either agree on an- other accounting firm, or such firm may be selected by the Court under its power to enforce this Award. * * * * * Dated: March 5, 2003 /s/__Robert M. Grossman Robert M. Grossman, Arbitrator --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_0757%3A2. Public record. Not legal advice.