## Facts

- Henry Lewis agreed to sell Murray Siegel one-half of the stock of Lewis’s closely held corporation for $55,000: $10,000 cash and $1,000 monthly installments.
- The agreement gave Lewis an option to rescind before final payment by repaying all amounts paid plus one-half of any increase in corporate net worth.
- The agreement required arbitration before two named individuals: Lewis’s long-time attorney (who helped draft the agreement) and the corporation’s long-time accountant (who also served as escrowee).
- The designated arbitrators had extensive prior involvement with the corporation and personal familiarity with the negotiations and later business operations; Siegel had separate counsel when contracting.
- About three years later, Lewis accused Siegel of converting corporate funds; Lewis sought to exercise the rescission option, and Siegel tendered the remaining balance to extinguish the option.
- The parties demanded arbitration on these disputes, including how to calculate net worth and any increase in net worth if rescission were valid.
- Before arbitration began, Siegel petitioned to vacate the designated arbitrators based on their relationships with Lewis and their preexisting knowledge, without alleging fraud, duress, overreaching, or grossly unequal bargaining power.

## Issues

1. Whether a court may, before arbitration begins, vacate the parties’ contractual designation of arbitrators solely because the arbitrators have long-standing professional relationships with one party and prior knowledge of the transaction and dispute.

## Decision

- The Court of Appeals reversed the order disqualifying the named arbitrators and denied the petition to vacate their designation.
- The court held that pre-arbitration disqualification was improper where the relationships and familiarity were known when the parties agreed to the arbitration clause and no claim of improper procurement was made.
- The contractual selection of arbitrators was reinstated, allowing arbitration to proceed under the parties’ agreement.

## Legal Principles

- Arbitration is a consensual process; courts generally enforce the parties’ contractual choice of arbitrators, including selections made for familiarity with the parties or subject matter.
- Arbitrators are not held to the same disqualification standards as judges; prior professional relationships and prior knowledge do not automatically establish disqualifying partiality in commercial arbitration.
- Absent allegations that the arbitrator-selection clause was procured by fraud, duress, overreaching, or grossly unequal bargaining power, courts should not replace the parties’ chosen arbitrators before proceedings begin.
- Challenges based on actual bias or misconduct are ordinarily addressed, if at all, through post-award vacatur mechanisms rather than presumed in advance.

## Conclusion

The court enforced the parties’ agreement naming an attorney and accountant closely connected to one party as arbitrators, ruling that known relationships and familiarity with the dispute do not justify pre-arbitration disqualification without a showing that the designation was improperly procured or that arbitral misconduct occurred.


Matter of Siegel (Lewis), 40 N.Y.2d 687, 389 N.Y.S.2d 800 (1976)