Maybe Third Party Grading is Useful After All
Longacre
Posts: 16,717 ✭✭✭
Caution-- this is a very long post involving a court case from 1991 (listed publically) involving PNG arbitration and a very expensive body bag by NGC. Feel free to skip it if you don't want to read the entire thing. If you do read it, the things I find interesting about this case are:
(1) The court finds that arbitration through PNG is not inherently biased. I always wondered about this. Does anyone have any experience with this arbitration process?
(2) Everyone tends to knock the TPGs. In this case, it is possible that no one would have ever known that the coin was possibly cleaned (although the facts are quite unusual in that how can the coin supposedly be "untreated, undipped, and original" at one point in time, and then covered with hairlines at a later date?)
(3) There is a comment that the coin was properly graded in 1980. Have the grading standards changed so much from 1980 to 1990 where a coin could be Proof 65 in 1980 and body bagged in 1990?
(4) In case you've never dealt with lawyers in NY, there is a saying that every litigation includes the normal lawyer-type things (pleadings, responses, etc.), and that NY is unique becuase every court action also includes a motion for Rule 11 sanctions against the other side's attorneys for filing frivilous or harassing lawsuits with no basis in fact, etc.
United States District Court, S.D. New York.
Max HUMBERT and Paramount International Coin Corp., Petitioners,
v.
Gene ZANER, Respondent.
Gene ZANER, Petitioner,
v.
David W. AKERS, Respondent.
Nos. 90 Civ. 843(KC), 90 Civ. 1780(KC).
Feb. 8, 1991.
MEMORANDUM AND ORDER
CONBOY, District Judge:
BACKGROUND
*1 These related actions arise out of a dispute over a rare 1869 U.S. $3.00 gold brilliant proof [FN1] coin. In 1980, Gene Zaner purchased the coin from Paramount International Coin Corporation Ltd. ("Paramount") for $28,500. According to Zaner, the seller represented that the coin was in "Proof-65" condition [FN2] and that it had never been dipped, cleaned, or tampered with in any way. Declaration of Gene Zaner, dated July 27, 1990 ("Zaner Decl."), 3. [FN3] In 1983, Zaner sent the coin to Paramount to be reevaluated, and Akers again rated the coin as being in Proof-65 condition. Id. 4. In 1988, Zaner attempted to sell the coin through a rare gold coin auction. The following description, assertedly prepared by David Akers, appeared in the auction catalog: "1869 Gem Brilliant Proof. 25 specimens struck. A beautiful, completely original Gem Proof that has never been cleaned, 'dipped' or tampered with in any way." Declaration of Julian J. Bailey, dated July 27, 1990 ("Bailey Decl."), Exhibit 6. The bidding range for the coin was given as $20,000-25,000, id., but the coin did not obtain a bid in excess of the floor bid of $18,000 set by Zaner (Zaner Decl. 8).
Following the auction, Stack's, the sponsor of the auction, had the coin evaluated by the Numismatic Guaranty Corporation of America ("NGC"). NGC arranged for three experts to inspect and grade the coin. The coin was, however, returned with a description of "cleaned, no grade." [FN4] Zaner Decl. 10. According to Scott Travers, a grader for NGC who has inspected Zaner's coin,
The presence of numerous hairline scratches serve [sic] as telltale indisputable evidence of this coin having been subjected to abrasive cleaning of mild to moderate intensity. The cleaning can be confirmed by tilting and rotating the coin under a pinpoint light source and viewing the overwhelming number of criss-crossing parallel striations which penetrate the surface of the coin. Travers Decl. 7.
Travers further avers that, whereas an uncleaned 1869 U.S. $3.00 gold proof coin would have been worth $100,000 in 1989, Zaner's coin in its current condition is worth $10,000-12,000. Id. 13. [FN5] Asserting that he himself has never cleaned his coin or had it cleaned (Zaner Decl. 11), Zaner alleges that the coin's condition and grade were misrepresented to him at the time he bought it from Paramount and at the time of the auction in 1988.
Upon learning about the NGC evaluation, Zaner contacted the Professional Numismatists Guild, Inc. ("PNG"), seeking its help in his dispute over the condition his coin was in when he bought it. Zaner received a standard form by which he could demand arbitration against Max Humbert, president of Paramount in 1980 when Zaner purchased the coin, and Akers, under the auspices of the PNG, of which both Humbert and Akers are members. (Bailey Decl.Exh. 9) As the forms Zaner received indicate, the bylaws of the PNG provide that a non-member may demand arbitration from a member, and that "every member of the PNG is bound to observe the arbitration provisions without further execution of any agreement." Id. Zaner signed the demand for arbitration against Humbert and Akers on June 22, 1989. Id. He enclosed a "synopsis of the dispute" with his demand.
*2 On September 5, 1989, Zaner informed the PNG by letter that his "grievance re: David W. Akers will be dropped at this time." Declaration of David L. Ganz, filed in Zaner v. Akers, 90 Civ. 1780(KC), dated July 19, 1990, Exh. 4. The proceeding against Humbert, however, continued, and Humbert and Zaner each selected an arbitrator. Humbert selected Lawrence Stack, whose father, Harvey Stack, is a principal of Stack's, the rare coin dealer and auctioneer that sponsored the 1988 auction. Zaner chose John Albanese, the head of the NGC. In accordance with PNG arbitration procedures, Stack and Albanese then selected a third neutral arbitrator or umpire, Gerald Bauman.
On January 9, 1990, the arbitrators issued a decision in favor of Humbert and Paramount, finding that they "shall have no liability to Mr. Zaner." Humbert Decl.Exh. 3. The decision was signed by Bauman and Stack, but not by Albanese. The parties disagree, however, about whether an arbitration actually took place.
According to Zaner and Albanese, Zaner withdrew from the arbitration and no arbitration ever took place. Zaner asserts that, sometime in December of 1989, he learned from his son, Keith Zaner, that Lawrence Stack had bragged to Keith "that he had been involved in seven arbitrations, had never lost and feels like F. Lee Bailey." Zaner Decl. 14. Zaner also learned that Bauman had "close dealings" with Stack's. Id. Concerned that the arbitration before the PNG would not afford him "substantial justice", id., Zaner "orally advised John Albanese that [he] wished that arbitration not take place, and [he] forwarded a letter dated January 8, 1990 to Paul Koppenhaver [, Executive Director of the PNG,] at PNG advising him of my withdrawal from the upcoming arbitration." Id. 15.
Although he admits that the arbitrators spoke by phone a few times to discuss Zaner's case, Declaration of John Albanese, dated April 20, 1990 ("Albanese Decl."), 9, Albanese declares that no hearing was ever scheduled for the presentation of evidence. Id. Nor was there, according to Albanese, "a meeting of the arbitrators to discuss all the facts and conclusions in order to render a decision." Id. 11. Albanese admits that he met with Stack and Bauman at a convention in Florida, but asserts that he informed his fellow arbitrators at that time of Zaner's withdrawal from the arbitration and of his own decision not to participate further. Id. 10. Albanese also recalls that he "was then surprised to find out that within days of advising Mr. Stack and Mr. Bauman of Mr. Zaner's decision and my withdrawal, an arbitration decision was issued." Id. 11. Albanese asserts that the decision, dated January 9, 1990, which has a blank line for Albanese's signature (see Humbert Decl. Exh. 3), gives the false impression that the evidence was weighed by all three arbitrators, although he did not participate in any weighing of evidence. Id. Albanese concludes, "I do not believe Mr. Zaner's claim was actually arbitrated, and certainly I did not participate in any hearing with all parties present. All the evidence was not weighed and no award should have been issued." Id. 12.
*3 According to Bauman and Stack, on the other hand, an arbitration did take place. Bauman asserts that "[t]he arbitration was held at the Florida United Numismatist (FUN) convention in Florida at which time all three arbitrators were in attendance, and the matter heard." Affidavit of Gerald Bauman, sworn to on April 23, 1990 ("Bauman Aff."), 6. It is not clear from this statement whether the arbitrators actually discussed the matter and weighed the evidence during their encounter in Florida. Indeed, Bauman avers that a decision was reached based on deliberation of the facts during numerous telephone conferences which took place before the convention, id. 7, not deliberation during a meeting in Florida, thus giving rise to an inference that no deliberation took place in Florida.
Stack declares that the matter "was generally discussed in very brief fashion" at the convention. Declaration of Lawrence Stack, undated ("Stack Decl."), 5. The sole issue for determination, according to Stack, was whether Zaner's coin was properly graded when it was sold in 1980. Id. To resolve this issue, the arbitrators each independently examined the coin and then discussed their conclusions. Id. 6. Because Stack and Bauman agreed that the coin had been properly graded in 1980, they signed the arbitration award declaring that Humbert had no liability to Zaner. Id. 9. Stack explains that the arbitration "was not and is not an arbitral proceeding that involved witnesses, or experts. None were offered by Albanese or Zaner, who had made a written submission outlining this claim." Id. 10.
On February 28, 1990, Zaner, through his then-counsel, Ronald Lasky, informed Akers that unless Akers resolved his dispute with Zaner, Zaner would publish an advertisement concerning his dispute with Akers. See Ganz Decl. Exhs. 5 and 6. Akers then served Zaner with a statutory notice pursuant to N.Y.C.P.L.R. § 7503, demanding arbitration.
In Humbert v. Zaner, 90 Civ. 843(KC), Humbert and Paramount petition to confirm the arbitrator's decision. Zaner counterclaims for an order vacating the decision. In Zaner v. Akers, 90 Civ. 1780(KC), Zaner petitions to stay the arbitration demanded by Akers.
Currently pending before the Court are cross-motions for summary judgment in both actions. In Humbert v. Zaner, 90 Civ. 843(KC), Humbert and Paramount move for summary judgment on their petition to confirm the arbitrator's decision, or, in the alternative, an order vacating the decision and ordering a new arbitration before the PNG. Zaner cross-moves for summary judgment vacating the decision and ordering a new arbitration before the American Arbitration Association. Both sides also move for sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure. In Zaner v. Akers, 90 Civ. 1780(KC), Akers moves for summary judgment, denying Zaner's petition to stay arbitration, and for sanctions. Zaner cross-moves for summary judgment, granting his petition for a stay of arbitration, and also for sanctions.
DISCUSSION
Humbert v. Zaner, 90 Civ. 843(KC). Humbert and Paramount move for summary judgment confirming the arbitration award. Zaner opposes confirmation of the award, and moves for summary judgment on his counterclaim to vacate the award, [FN7] on two main grounds: (a) that Bauman and Stack were partial and that the PNG as a whole is a biased forum; and (b) that the arbitrators exceeded their powers by failing to hold a hearing and receive evidence and to meet to discuss their findings and conclusion.
[Edited portion about court test of partiality]
Zaner's conclusory allegations regarding relationships between the parties, non-parties, and the arbitrators, do not satisfy his burden of showing partiality or bias on the part of the arbitrators or the PNG. Although some relationships between arbitrators and parties to the arbitration give rise to a finding of "evident partiality," see, e.g., Morelite, 748 F.2d at 85 (father-son relationship between arbitrator and an officer of one party to the arbitration constitutes "evident partiality"), courts must analyze each relationship in light of surrounding facts and circumstances. Here, none of the relationships identified by Zaner give rise to an inference of "evident partiality." The fact that Lawrence Stack is Harvey Stack's son is irrelevant because Harvey Stack is not a party to the arbitration. For the same reason, the fact that Gerald Bauman had "close dealings" with Stack's is irrelevant. Finally, the fact that Lawrence Stack bragged to Keith Zaner about his won-lost record in arbitrations is irrelevant here because Stack is not an adversary but an arbitrator.
Zaner's conclusory assertion that arbitration before the PNG, "a forum created by coin dealer members", Zaner Decl. 14, is inherently partial or biased does not establish that Zaner cannot or did not get a fair hearing before the PNG. Because "[e]xpertise in an industry is accompanied by exposure, in ways large and small, to those engaged in it...." Andros Compania Maritima, S.A. v. Marc Rich & Co., 579 F.2d 691, 701 (2d Cir.1978), it is inevitable that key members in a field, especially one as narrow as the numismatic field, are known to one another and in fact may work with or for one another from time to time. See Morelite, 748 F.2d at 83. The existence of such contacts within a field does not establish, however, that arbitrators before a specialized forum are inherently biased. If that were the case, arbitrations before stock exchanges, maritime agencies or other specialized forums would all be subject to claims of inherent bias and partiality merely because they are specialized forums.
In any event, by selecting the PNG as the forum for arbitration, Zaner opted in favor of a tribunal with expertise regarding the particular subject matter of his dispute. Having selected the PNG as his arbitral forum, Zaner cannot now be heard to complain that that forum is inherently biased. Cf. Garfield & Co. v. Wiest, 432 F.2d 849, 853-54 (2d Cir.1970) (in context of SEC arbitration, any objection to arbitrators based on their dealings through specialists are waived by member firms when they agree to exchange arbitration).
*5 With regard to the second ground, a court may vacate an award "[w]here the arbitrators were guilty of misconduct ... 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," 9 U.S.C. § 10(c), or "[w]here the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made," 9 U.S.C. § 10(d).
Although the arbitrators apparently did not hold a hearing to receive evidence formally, there is no indication that Zaner ever sought to introduce evidence at a hearing, that the arbitrators refused to hold a hearing, or that a hearing was necessary. Moreover, although PNG arbitration rules allow the arbitrators to schedule hearings for taking testimony and receiving evidence, such hearings are rarely scheduled, especially in disputes over the grading of a coin. See Declaration of Paul Koppenhaver, undated, 14.
Thus the absence of a hearing alone is not a ground to vacate the arbitration award.
It is somewhat troubling, however, that the arbitrators may never have met to deliberate and discuss their findings and conclusion. As noted earlier, see discussion supra at 6-7, neither Bauman nor Stack explicitly and directly contradicts Albanese's assertion that the three of them did not meet in Florida to discuss Zaner's case. Rather, both cite to the numerous telephone conversations the arbitrators had about the matter in support of their contentions that the arbitrators adequately discussed the matter and that an arbitration was held. An inference may therefore be drawn that, after Albanese informed the others that he was no longer participating in the arbitration, Bauman and Stack reached a conclusion together. At the same time, however, the arbitrators had had numerous conversations by telephone. It is thus possible that the arbitrators thoroughly discussed Zaner's case and that Albanese's position was given due consideration. We simply cannot determine from the record before us whether the arbitrators' failure to meet in Florida constitutes "misbehavior by which the rights of [Zaner] have been prejudiced," 9 U.S.C. § 10(c), or whether the arbitrators "so imperfectly executed [their powers] that a mutual, final, and definite award upon the subject matter submitted was not made," 9 U.S.C. § 10(d). Accordingly, Humbert and Paramount's motion for summary judgment confirming the arbitration, and Zaner's cross-motion for summary judgment vacating the award, are denied.
[Edited to delete text regarding vacating award]
III. Sanctions
Both parties have moved for sanctions in both actions. In each action, each side claims that the other side has needlessly prolonged this litigation by presenting groundless arguments and overly voluminous papers. Sanctions are not appropriate here. First, we do not find that either side has presented wholly groundless arguments. Second, while it is true that the papers submitted in both actions were unnecessarily lengthy and duplicative, these defects are not grounds for Rule 11 sanctions. Accordingly, all motions for sanctions are denied.
[Edited to delete additional information about sanctions]
SO ORDERED.
FN1. A "proof" coin is one that is issued specially by the Mint and sold during the year of issue at a premium (a price above the face value of the coin). "Brilliant proof" coins are manufactured on specially prepared planchets and struck two or more times on polished dies to insure chromium-like brilliance. Declaration of Scott Travers, dated July 27, 1990
("Travers Decl."), 8.
FN2. According to both the second (1981) and third (1987) editions of the ANA Official Guide to Grading U.S. Coins, "Proof-65" or "Choice Proof"
refers to a proof which may show some very fine hairlines, usually from friction-type cleaning or friction-type drying or rubbing after dipping. To the unaided eye, a Proof-65 or a Choice Proof will appear to be virtually perfect. However, 5x magnification will reveal some minute lines. Such hairlines are best seen under strong incandescent light.
Declaration of David L. Ganz, dated August 2, 1990 ("Ganz Decl."), 13. Scott Travers, Zaner's expert and the principal owner of Scott Travers Rare Coin Galleries, agrees that "a Proof-65 does not have to be completely free of hairlines. A moderately hairlined proof, though, often grades Proof-63." S. Travers, The Coin Collector's Survival Manual 172 (1981); see also S. Travers, The Coin Collector's Survival Manual 172-73 (1988).
FN3. Unless otherwise indicated, all references to declarations, affidavits and other documents are to papers filed in Humbert v. Zaner, 90 Civ. 843(KC).
FN4. Abrasive cleaning of a coin, especially if the coin is in a high
mint state grade, can lower the value of the coin substantially. Travers Decl. 9.
FN5. The parties dispute how valuable Zaner's coin would be if it had never been cleaned. Humbert asserts that, if Zaner's coin had not been cleaned, it would be worth $30,000-35,000 today. See Ganz Decl. 16 and exhibits cited therein. With regard to Travers' estimate, Zaner does not explain why, if the coin would have been worth $100,000 if it were uncleaned, he set a bid floor of $18,000 for the coin at the auction and the coin was listed in the catalog at a bidding range of $20,000-25,000.
FN6. Alternatively, Zaner asserts, in litigation against Stack's in New York State Supreme Court, that Stack's either tampered with the coin or switched it with another coin. Humbert suggests that Zaner's pleading in the state court action should be considered as an admission against interest in the actions before us. (See Humbert's "Memorandum of Law", dated July 19, 1990, at 5-7, 21-23) Although we recognize that Zaner's position in the state court action is inconsistent with his position before us, Zaner's allegations are akin to pleadings in the alternative, necessitated by Zaner's not knowing the true facts. That Zaner's position in state court is set forth in an affirmation by his attorney, Julian J.
Bailey, is of no moment in light of the common practice by attorneys in state court of including argument in their affidavits and affirmations on behalf of their clients.
FN7. Humbert and Paramount argue that Zaner's counterclaim, seeking an order vacating the award, cannot substitute for a notice of motion to vacate the award, and that therefore Zaner has not made a timely motion to vacate the award pursuant to 9 U.S.C. § 12, which provides, "[n]otice of a motion to vacate, modify, or correct an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered." We disagree. A counterclaim to vacate an arbitration award may serve as a notice of motion to vacate the award as long as the counterclaim is filed within the three month limitations period. See, e.g., The Hartbridge, 57 F.2d 672, 673 (2d Cir.1932) ("Upon a motion to confirm the party opposing confirmation may apparently object upon any ground which constitutes a sufficient cause under the statute to vacate, modify, or correct, although no such formal motion has been made"); International Bhd. of Elec. Workers, Local Union No. 323 v. Coral Elec. Corp., 576 F.Supp. 1128, 1132 (S.D.Fla.1983); Catz American Co. v. Pearl Grange Fruit Exchange, Inc., 292 F.Supp. 549, 551 (S.D.N.Y.1968). The cases cited by Humbert and Paramount are not to the contrary, as they
address the timing, rather than the form, of objections to confirmation. See Florasynth, Inc. v. Pickholz, 750 F.2d 171, 171-72 (2d Cir.1984) (defendant's failure to move to vacate an award within the three month time provided precludes him from later seeking that relief when a motion is made to confirm the award); Pennsylvania Eng'g Corp. v. Islip Resource Recovery Agency, 710 F.Supp. 456, 461 (E.D.N.Y.1989) (plaintiffs were precluded from raising objections to confirmation after statutory time limit had expired); see also The Hartbridge, 57 F.2d at 673 (one party's motion to confirm arbitration award imposes upon other party an obligation to move to vacate if he intends to do so).
FN8. Humbert and Paramount would apparently agree to a new arbitration only before the PNG. Zaner would apparently agree to a new arbitration only before the AAA. Zaner does not address, however, whether reformation of the arbitration agreement would be an appropriate remedy if the court were to conclude that Zaner was entitled to void the agreement because of a unilateral mistake. According to at least one commentator, reformation is not an appropriate remedy in cases of unilateral mistake. 3 A. Corbin, Corbin on Contracts § 608 at 673 (1960).
FN9. Zaner also argues that he cannot get a fair hearing before the
PNG because it favors members over non-members and because most of the members know each other. As we have stated earlier, see supra at 11, Zaner's conclusory allegations that the PNG provides a biased forum for arbitration are insufficient to establish his claim that he cannot get a fair hearing. Moreover, Zaner, as an owner of at least one rare coin and as the father of the Keith Zaner, an editor of Coin World, was no doubt aware when he demanded arbitration before the PNG that members were likely to know each other and other numismatists. Thus, this argument is no ground for not enforcing Zaner's arbitration agreement with Humbert and Paramount.
FN10. Article VII § 3(b) provides that "[e]ach member consents and agrees to arbitrate any claim or controversy, difference or dispute and to abide by any award rendered." Article VII § 3(p) provides that "f a non-member wishes to arbitrate any claim or controversy with a member, provided the non-member agrees in writing to abide by any award, arbitration may be had in accordance with this Article...."
FN11. The last paragraph of the agreement Zaner signed reads as follows: "I also agree that in the event I have any dispute, now or in the future, with the Professional Numismatists Guild, Inc., it shall be subject
exclusively to arbitration under the rules of the Professional Numismatists Guild, Inc. then in effect." Zaner Decl. Exh. 9.
FN12. Although a party may not maintain an action for damages on the basis of mistake unless the mistake was induced by the defendant's fraudulent or reckless misrepresentation, Alden Auto Parts Warehouse, Inc. v. Dolphin Equip. Leasing Corp., 682 F.2d 330, 332 n. 1 (2d Cir.1982), equity will grant rescission of a contract, upon the basis of a party's unilateral mistake, when there is no prejudice to the other party, and the parties can be returned to the status quo. Broadway--111th Street Assoc. v. Morris, 160 A.D.2d 182, 553 N.Y.S.2d 153, 155 (1st Dep't 1990).
(1) The court finds that arbitration through PNG is not inherently biased. I always wondered about this. Does anyone have any experience with this arbitration process?
(2) Everyone tends to knock the TPGs. In this case, it is possible that no one would have ever known that the coin was possibly cleaned (although the facts are quite unusual in that how can the coin supposedly be "untreated, undipped, and original" at one point in time, and then covered with hairlines at a later date?)
(3) There is a comment that the coin was properly graded in 1980. Have the grading standards changed so much from 1980 to 1990 where a coin could be Proof 65 in 1980 and body bagged in 1990?
(4) In case you've never dealt with lawyers in NY, there is a saying that every litigation includes the normal lawyer-type things (pleadings, responses, etc.), and that NY is unique becuase every court action also includes a motion for Rule 11 sanctions against the other side's attorneys for filing frivilous or harassing lawsuits with no basis in fact, etc.
United States District Court, S.D. New York.
Max HUMBERT and Paramount International Coin Corp., Petitioners,
v.
Gene ZANER, Respondent.
Gene ZANER, Petitioner,
v.
David W. AKERS, Respondent.
Nos. 90 Civ. 843(KC), 90 Civ. 1780(KC).
Feb. 8, 1991.
MEMORANDUM AND ORDER
CONBOY, District Judge:
BACKGROUND
*1 These related actions arise out of a dispute over a rare 1869 U.S. $3.00 gold brilliant proof [FN1] coin. In 1980, Gene Zaner purchased the coin from Paramount International Coin Corporation Ltd. ("Paramount") for $28,500. According to Zaner, the seller represented that the coin was in "Proof-65" condition [FN2] and that it had never been dipped, cleaned, or tampered with in any way. Declaration of Gene Zaner, dated July 27, 1990 ("Zaner Decl."), 3. [FN3] In 1983, Zaner sent the coin to Paramount to be reevaluated, and Akers again rated the coin as being in Proof-65 condition. Id. 4. In 1988, Zaner attempted to sell the coin through a rare gold coin auction. The following description, assertedly prepared by David Akers, appeared in the auction catalog: "1869 Gem Brilliant Proof. 25 specimens struck. A beautiful, completely original Gem Proof that has never been cleaned, 'dipped' or tampered with in any way." Declaration of Julian J. Bailey, dated July 27, 1990 ("Bailey Decl."), Exhibit 6. The bidding range for the coin was given as $20,000-25,000, id., but the coin did not obtain a bid in excess of the floor bid of $18,000 set by Zaner (Zaner Decl. 8).
Following the auction, Stack's, the sponsor of the auction, had the coin evaluated by the Numismatic Guaranty Corporation of America ("NGC"). NGC arranged for three experts to inspect and grade the coin. The coin was, however, returned with a description of "cleaned, no grade." [FN4] Zaner Decl. 10. According to Scott Travers, a grader for NGC who has inspected Zaner's coin,
The presence of numerous hairline scratches serve [sic] as telltale indisputable evidence of this coin having been subjected to abrasive cleaning of mild to moderate intensity. The cleaning can be confirmed by tilting and rotating the coin under a pinpoint light source and viewing the overwhelming number of criss-crossing parallel striations which penetrate the surface of the coin. Travers Decl. 7.
Travers further avers that, whereas an uncleaned 1869 U.S. $3.00 gold proof coin would have been worth $100,000 in 1989, Zaner's coin in its current condition is worth $10,000-12,000. Id. 13. [FN5] Asserting that he himself has never cleaned his coin or had it cleaned (Zaner Decl. 11), Zaner alleges that the coin's condition and grade were misrepresented to him at the time he bought it from Paramount and at the time of the auction in 1988.
Upon learning about the NGC evaluation, Zaner contacted the Professional Numismatists Guild, Inc. ("PNG"), seeking its help in his dispute over the condition his coin was in when he bought it. Zaner received a standard form by which he could demand arbitration against Max Humbert, president of Paramount in 1980 when Zaner purchased the coin, and Akers, under the auspices of the PNG, of which both Humbert and Akers are members. (Bailey Decl.Exh. 9) As the forms Zaner received indicate, the bylaws of the PNG provide that a non-member may demand arbitration from a member, and that "every member of the PNG is bound to observe the arbitration provisions without further execution of any agreement." Id. Zaner signed the demand for arbitration against Humbert and Akers on June 22, 1989. Id. He enclosed a "synopsis of the dispute" with his demand.
*2 On September 5, 1989, Zaner informed the PNG by letter that his "grievance re: David W. Akers will be dropped at this time." Declaration of David L. Ganz, filed in Zaner v. Akers, 90 Civ. 1780(KC), dated July 19, 1990, Exh. 4. The proceeding against Humbert, however, continued, and Humbert and Zaner each selected an arbitrator. Humbert selected Lawrence Stack, whose father, Harvey Stack, is a principal of Stack's, the rare coin dealer and auctioneer that sponsored the 1988 auction. Zaner chose John Albanese, the head of the NGC. In accordance with PNG arbitration procedures, Stack and Albanese then selected a third neutral arbitrator or umpire, Gerald Bauman.
On January 9, 1990, the arbitrators issued a decision in favor of Humbert and Paramount, finding that they "shall have no liability to Mr. Zaner." Humbert Decl.Exh. 3. The decision was signed by Bauman and Stack, but not by Albanese. The parties disagree, however, about whether an arbitration actually took place.
According to Zaner and Albanese, Zaner withdrew from the arbitration and no arbitration ever took place. Zaner asserts that, sometime in December of 1989, he learned from his son, Keith Zaner, that Lawrence Stack had bragged to Keith "that he had been involved in seven arbitrations, had never lost and feels like F. Lee Bailey." Zaner Decl. 14. Zaner also learned that Bauman had "close dealings" with Stack's. Id. Concerned that the arbitration before the PNG would not afford him "substantial justice", id., Zaner "orally advised John Albanese that [he] wished that arbitration not take place, and [he] forwarded a letter dated January 8, 1990 to Paul Koppenhaver [, Executive Director of the PNG,] at PNG advising him of my withdrawal from the upcoming arbitration." Id. 15.
Although he admits that the arbitrators spoke by phone a few times to discuss Zaner's case, Declaration of John Albanese, dated April 20, 1990 ("Albanese Decl."), 9, Albanese declares that no hearing was ever scheduled for the presentation of evidence. Id. Nor was there, according to Albanese, "a meeting of the arbitrators to discuss all the facts and conclusions in order to render a decision." Id. 11. Albanese admits that he met with Stack and Bauman at a convention in Florida, but asserts that he informed his fellow arbitrators at that time of Zaner's withdrawal from the arbitration and of his own decision not to participate further. Id. 10. Albanese also recalls that he "was then surprised to find out that within days of advising Mr. Stack and Mr. Bauman of Mr. Zaner's decision and my withdrawal, an arbitration decision was issued." Id. 11. Albanese asserts that the decision, dated January 9, 1990, which has a blank line for Albanese's signature (see Humbert Decl. Exh. 3), gives the false impression that the evidence was weighed by all three arbitrators, although he did not participate in any weighing of evidence. Id. Albanese concludes, "I do not believe Mr. Zaner's claim was actually arbitrated, and certainly I did not participate in any hearing with all parties present. All the evidence was not weighed and no award should have been issued." Id. 12.
*3 According to Bauman and Stack, on the other hand, an arbitration did take place. Bauman asserts that "[t]he arbitration was held at the Florida United Numismatist (FUN) convention in Florida at which time all three arbitrators were in attendance, and the matter heard." Affidavit of Gerald Bauman, sworn to on April 23, 1990 ("Bauman Aff."), 6. It is not clear from this statement whether the arbitrators actually discussed the matter and weighed the evidence during their encounter in Florida. Indeed, Bauman avers that a decision was reached based on deliberation of the facts during numerous telephone conferences which took place before the convention, id. 7, not deliberation during a meeting in Florida, thus giving rise to an inference that no deliberation took place in Florida.
Stack declares that the matter "was generally discussed in very brief fashion" at the convention. Declaration of Lawrence Stack, undated ("Stack Decl."), 5. The sole issue for determination, according to Stack, was whether Zaner's coin was properly graded when it was sold in 1980. Id. To resolve this issue, the arbitrators each independently examined the coin and then discussed their conclusions. Id. 6. Because Stack and Bauman agreed that the coin had been properly graded in 1980, they signed the arbitration award declaring that Humbert had no liability to Zaner. Id. 9. Stack explains that the arbitration "was not and is not an arbitral proceeding that involved witnesses, or experts. None were offered by Albanese or Zaner, who had made a written submission outlining this claim." Id. 10.
On February 28, 1990, Zaner, through his then-counsel, Ronald Lasky, informed Akers that unless Akers resolved his dispute with Zaner, Zaner would publish an advertisement concerning his dispute with Akers. See Ganz Decl. Exhs. 5 and 6. Akers then served Zaner with a statutory notice pursuant to N.Y.C.P.L.R. § 7503, demanding arbitration.
In Humbert v. Zaner, 90 Civ. 843(KC), Humbert and Paramount petition to confirm the arbitrator's decision. Zaner counterclaims for an order vacating the decision. In Zaner v. Akers, 90 Civ. 1780(KC), Zaner petitions to stay the arbitration demanded by Akers.
Currently pending before the Court are cross-motions for summary judgment in both actions. In Humbert v. Zaner, 90 Civ. 843(KC), Humbert and Paramount move for summary judgment on their petition to confirm the arbitrator's decision, or, in the alternative, an order vacating the decision and ordering a new arbitration before the PNG. Zaner cross-moves for summary judgment vacating the decision and ordering a new arbitration before the American Arbitration Association. Both sides also move for sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure. In Zaner v. Akers, 90 Civ. 1780(KC), Akers moves for summary judgment, denying Zaner's petition to stay arbitration, and for sanctions. Zaner cross-moves for summary judgment, granting his petition for a stay of arbitration, and also for sanctions.
DISCUSSION
Humbert v. Zaner, 90 Civ. 843(KC). Humbert and Paramount move for summary judgment confirming the arbitration award. Zaner opposes confirmation of the award, and moves for summary judgment on his counterclaim to vacate the award, [FN7] on two main grounds: (a) that Bauman and Stack were partial and that the PNG as a whole is a biased forum; and (b) that the arbitrators exceeded their powers by failing to hold a hearing and receive evidence and to meet to discuss their findings and conclusion.
[Edited portion about court test of partiality]
Zaner's conclusory allegations regarding relationships between the parties, non-parties, and the arbitrators, do not satisfy his burden of showing partiality or bias on the part of the arbitrators or the PNG. Although some relationships between arbitrators and parties to the arbitration give rise to a finding of "evident partiality," see, e.g., Morelite, 748 F.2d at 85 (father-son relationship between arbitrator and an officer of one party to the arbitration constitutes "evident partiality"), courts must analyze each relationship in light of surrounding facts and circumstances. Here, none of the relationships identified by Zaner give rise to an inference of "evident partiality." The fact that Lawrence Stack is Harvey Stack's son is irrelevant because Harvey Stack is not a party to the arbitration. For the same reason, the fact that Gerald Bauman had "close dealings" with Stack's is irrelevant. Finally, the fact that Lawrence Stack bragged to Keith Zaner about his won-lost record in arbitrations is irrelevant here because Stack is not an adversary but an arbitrator.
Zaner's conclusory assertion that arbitration before the PNG, "a forum created by coin dealer members", Zaner Decl. 14, is inherently partial or biased does not establish that Zaner cannot or did not get a fair hearing before the PNG. Because "[e]xpertise in an industry is accompanied by exposure, in ways large and small, to those engaged in it...." Andros Compania Maritima, S.A. v. Marc Rich & Co., 579 F.2d 691, 701 (2d Cir.1978), it is inevitable that key members in a field, especially one as narrow as the numismatic field, are known to one another and in fact may work with or for one another from time to time. See Morelite, 748 F.2d at 83. The existence of such contacts within a field does not establish, however, that arbitrators before a specialized forum are inherently biased. If that were the case, arbitrations before stock exchanges, maritime agencies or other specialized forums would all be subject to claims of inherent bias and partiality merely because they are specialized forums.
In any event, by selecting the PNG as the forum for arbitration, Zaner opted in favor of a tribunal with expertise regarding the particular subject matter of his dispute. Having selected the PNG as his arbitral forum, Zaner cannot now be heard to complain that that forum is inherently biased. Cf. Garfield & Co. v. Wiest, 432 F.2d 849, 853-54 (2d Cir.1970) (in context of SEC arbitration, any objection to arbitrators based on their dealings through specialists are waived by member firms when they agree to exchange arbitration).
*5 With regard to the second ground, a court may vacate an award "[w]here the arbitrators were guilty of misconduct ... 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," 9 U.S.C. § 10(c), or "[w]here the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made," 9 U.S.C. § 10(d).
Although the arbitrators apparently did not hold a hearing to receive evidence formally, there is no indication that Zaner ever sought to introduce evidence at a hearing, that the arbitrators refused to hold a hearing, or that a hearing was necessary. Moreover, although PNG arbitration rules allow the arbitrators to schedule hearings for taking testimony and receiving evidence, such hearings are rarely scheduled, especially in disputes over the grading of a coin. See Declaration of Paul Koppenhaver, undated, 14.
Thus the absence of a hearing alone is not a ground to vacate the arbitration award.
It is somewhat troubling, however, that the arbitrators may never have met to deliberate and discuss their findings and conclusion. As noted earlier, see discussion supra at 6-7, neither Bauman nor Stack explicitly and directly contradicts Albanese's assertion that the three of them did not meet in Florida to discuss Zaner's case. Rather, both cite to the numerous telephone conversations the arbitrators had about the matter in support of their contentions that the arbitrators adequately discussed the matter and that an arbitration was held. An inference may therefore be drawn that, after Albanese informed the others that he was no longer participating in the arbitration, Bauman and Stack reached a conclusion together. At the same time, however, the arbitrators had had numerous conversations by telephone. It is thus possible that the arbitrators thoroughly discussed Zaner's case and that Albanese's position was given due consideration. We simply cannot determine from the record before us whether the arbitrators' failure to meet in Florida constitutes "misbehavior by which the rights of [Zaner] have been prejudiced," 9 U.S.C. § 10(c), or whether the arbitrators "so imperfectly executed [their powers] that a mutual, final, and definite award upon the subject matter submitted was not made," 9 U.S.C. § 10(d). Accordingly, Humbert and Paramount's motion for summary judgment confirming the arbitration, and Zaner's cross-motion for summary judgment vacating the award, are denied.
[Edited to delete text regarding vacating award]
III. Sanctions
Both parties have moved for sanctions in both actions. In each action, each side claims that the other side has needlessly prolonged this litigation by presenting groundless arguments and overly voluminous papers. Sanctions are not appropriate here. First, we do not find that either side has presented wholly groundless arguments. Second, while it is true that the papers submitted in both actions were unnecessarily lengthy and duplicative, these defects are not grounds for Rule 11 sanctions. Accordingly, all motions for sanctions are denied.
[Edited to delete additional information about sanctions]
SO ORDERED.
FN1. A "proof" coin is one that is issued specially by the Mint and sold during the year of issue at a premium (a price above the face value of the coin). "Brilliant proof" coins are manufactured on specially prepared planchets and struck two or more times on polished dies to insure chromium-like brilliance. Declaration of Scott Travers, dated July 27, 1990
("Travers Decl."), 8.
FN2. According to both the second (1981) and third (1987) editions of the ANA Official Guide to Grading U.S. Coins, "Proof-65" or "Choice Proof"
refers to a proof which may show some very fine hairlines, usually from friction-type cleaning or friction-type drying or rubbing after dipping. To the unaided eye, a Proof-65 or a Choice Proof will appear to be virtually perfect. However, 5x magnification will reveal some minute lines. Such hairlines are best seen under strong incandescent light.
Declaration of David L. Ganz, dated August 2, 1990 ("Ganz Decl."), 13. Scott Travers, Zaner's expert and the principal owner of Scott Travers Rare Coin Galleries, agrees that "a Proof-65 does not have to be completely free of hairlines. A moderately hairlined proof, though, often grades Proof-63." S. Travers, The Coin Collector's Survival Manual 172 (1981); see also S. Travers, The Coin Collector's Survival Manual 172-73 (1988).
FN3. Unless otherwise indicated, all references to declarations, affidavits and other documents are to papers filed in Humbert v. Zaner, 90 Civ. 843(KC).
FN4. Abrasive cleaning of a coin, especially if the coin is in a high
mint state grade, can lower the value of the coin substantially. Travers Decl. 9.
FN5. The parties dispute how valuable Zaner's coin would be if it had never been cleaned. Humbert asserts that, if Zaner's coin had not been cleaned, it would be worth $30,000-35,000 today. See Ganz Decl. 16 and exhibits cited therein. With regard to Travers' estimate, Zaner does not explain why, if the coin would have been worth $100,000 if it were uncleaned, he set a bid floor of $18,000 for the coin at the auction and the coin was listed in the catalog at a bidding range of $20,000-25,000.
FN6. Alternatively, Zaner asserts, in litigation against Stack's in New York State Supreme Court, that Stack's either tampered with the coin or switched it with another coin. Humbert suggests that Zaner's pleading in the state court action should be considered as an admission against interest in the actions before us. (See Humbert's "Memorandum of Law", dated July 19, 1990, at 5-7, 21-23) Although we recognize that Zaner's position in the state court action is inconsistent with his position before us, Zaner's allegations are akin to pleadings in the alternative, necessitated by Zaner's not knowing the true facts. That Zaner's position in state court is set forth in an affirmation by his attorney, Julian J.
Bailey, is of no moment in light of the common practice by attorneys in state court of including argument in their affidavits and affirmations on behalf of their clients.
FN7. Humbert and Paramount argue that Zaner's counterclaim, seeking an order vacating the award, cannot substitute for a notice of motion to vacate the award, and that therefore Zaner has not made a timely motion to vacate the award pursuant to 9 U.S.C. § 12, which provides, "[n]otice of a motion to vacate, modify, or correct an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered." We disagree. A counterclaim to vacate an arbitration award may serve as a notice of motion to vacate the award as long as the counterclaim is filed within the three month limitations period. See, e.g., The Hartbridge, 57 F.2d 672, 673 (2d Cir.1932) ("Upon a motion to confirm the party opposing confirmation may apparently object upon any ground which constitutes a sufficient cause under the statute to vacate, modify, or correct, although no such formal motion has been made"); International Bhd. of Elec. Workers, Local Union No. 323 v. Coral Elec. Corp., 576 F.Supp. 1128, 1132 (S.D.Fla.1983); Catz American Co. v. Pearl Grange Fruit Exchange, Inc., 292 F.Supp. 549, 551 (S.D.N.Y.1968). The cases cited by Humbert and Paramount are not to the contrary, as they
address the timing, rather than the form, of objections to confirmation. See Florasynth, Inc. v. Pickholz, 750 F.2d 171, 171-72 (2d Cir.1984) (defendant's failure to move to vacate an award within the three month time provided precludes him from later seeking that relief when a motion is made to confirm the award); Pennsylvania Eng'g Corp. v. Islip Resource Recovery Agency, 710 F.Supp. 456, 461 (E.D.N.Y.1989) (plaintiffs were precluded from raising objections to confirmation after statutory time limit had expired); see also The Hartbridge, 57 F.2d at 673 (one party's motion to confirm arbitration award imposes upon other party an obligation to move to vacate if he intends to do so).
FN8. Humbert and Paramount would apparently agree to a new arbitration only before the PNG. Zaner would apparently agree to a new arbitration only before the AAA. Zaner does not address, however, whether reformation of the arbitration agreement would be an appropriate remedy if the court were to conclude that Zaner was entitled to void the agreement because of a unilateral mistake. According to at least one commentator, reformation is not an appropriate remedy in cases of unilateral mistake. 3 A. Corbin, Corbin on Contracts § 608 at 673 (1960).
FN9. Zaner also argues that he cannot get a fair hearing before the
PNG because it favors members over non-members and because most of the members know each other. As we have stated earlier, see supra at 11, Zaner's conclusory allegations that the PNG provides a biased forum for arbitration are insufficient to establish his claim that he cannot get a fair hearing. Moreover, Zaner, as an owner of at least one rare coin and as the father of the Keith Zaner, an editor of Coin World, was no doubt aware when he demanded arbitration before the PNG that members were likely to know each other and other numismatists. Thus, this argument is no ground for not enforcing Zaner's arbitration agreement with Humbert and Paramount.
FN10. Article VII § 3(b) provides that "[e]ach member consents and agrees to arbitrate any claim or controversy, difference or dispute and to abide by any award rendered." Article VII § 3(p) provides that "f a non-member wishes to arbitrate any claim or controversy with a member, provided the non-member agrees in writing to abide by any award, arbitration may be had in accordance with this Article...."
FN11. The last paragraph of the agreement Zaner signed reads as follows: "I also agree that in the event I have any dispute, now or in the future, with the Professional Numismatists Guild, Inc., it shall be subject
exclusively to arbitration under the rules of the Professional Numismatists Guild, Inc. then in effect." Zaner Decl. Exh. 9.
FN12. Although a party may not maintain an action for damages on the basis of mistake unless the mistake was induced by the defendant's fraudulent or reckless misrepresentation, Alden Auto Parts Warehouse, Inc. v. Dolphin Equip. Leasing Corp., 682 F.2d 330, 332 n. 1 (2d Cir.1982), equity will grant rescission of a contract, upon the basis of a party's unilateral mistake, when there is no prejudice to the other party, and the parties can be returned to the status quo. Broadway--111th Street Assoc. v. Morris, 160 A.D.2d 182, 553 N.Y.S.2d 153, 155 (1st Dep't 1990).
Always took candy from strangers
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
0
Comments
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
<< <i> The court finds that arbitration through PNG is not inherently biased. I always wondered about this. Does anyone have any experience with this arbitration process? >>
I do not have any direct experience with the arbitration process. However, I have spoken with a couple of people/dealers who have been involved. Based upon those discussions, I am under the impression that they took their roles very seriously and were able and willing to be impartial.
Cameron Kiefer
Do you have any idea either what happened to the coin or the ultimate resolution of the case(es)? (In the papers you found, Humbert and Paramount's motion for summary judgment confirming the arbitration as well as Zaner's cross-motion for summary judgment vacating the award were both denied.)
Mark