On December 8, 2022, the First Department issued a decision in Matter of Pearl Capital Bus. Funding, LLC v. Berkovitch, 2022 NY Slip Op. 07003, holding that even though an arbitral award might have allowed businesses to retain part of a law firm’s fees, the award should not be vacated because it violated public policy, explaining:
The parties have not shown that the arbitration award falls within one of the three narrow circumstances justifying judicial review — namely, that it violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator’s power. The arbitrator did not exceed his power by failing to award to B&B revenue payments from the fourth quarter of 2018. Whether B&B was entitled to those payments was a substantive claim that the parties submitted to binding arbitration under the terms of the agreement, and the arbitrator rejected the claim on the ground that B&B materially breached the agreement.
Nor was the arbitrator’s decision irrational or violative of public policy based on a risk that it allowed Pearl and ABF to retain some fees for B&B’s legal services. Although an arbitrator may not overtly disregard the law, arbitrators are not strictly tethered to substantive and procedural laws and may do justice as they see it, provided their decisions do not give rise to one of the circumstances under which a court may review the award. Here, the ethics of the parties’ revenue-sharing arrangement was before the arbitrator, who concluded that the arrangement enabled the parties to share aggregate revenue without violating the prohibition against corporate provision of legal services — a legal conclusion not judicially reviewable for error.
Moreover, even assuming Pearl and ABF’s retention of all revenue for the fourth quarter of 2018 includes some amount of fees for B&B’s legal service, the award would not fall within the limited public policy exception, which applies only in cases in which public policy considerations prohibit, in an absolute sense, certain relief being granted by an arbitrator. Here, the award does not reveal on its face whether a failure to offset Pearl and ABF’s award would violate Judiciary Law § 495; rather, it would be necessary to engage in extended factfinding into the parties’ sharing of revenue under the complex formula outlined in the agreement, which was already evaluated by the arbitrator. In addition, a modification awarding B&B’s claimed share of the revenue is inappropriate, as it would not merely correct a calculation error but would effectively reverse the arbitrator’s resolution of the merits.
(Internal quotations and citations omitted).