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Air Pegasus of New York, Inc. v. Liberty Helicopter Tours

August 1, 2007

AIR PEGASUS OF NEW YORK, INC., A DELAWARE CORPORATION AND AIR PEGASUS HELIPORT, INC., A DELAWARE CORPORATION, PLAINTIFFS-APPELLANTS,
v.
LIBERTY HELICOPTER TOURS, INC., A NEW YORK CORPORATION, DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT,
v.
ALVIN S. TRENK AND ABIGAIL TRENK, THIRD-PARTY DEFENDANTS/APPELLANTS.
AIR PEGASUS OF NEW YORK, INC., A DELAWARE CORPORATION AND AIR PEGASUS HELIPORT, INC. A DELAWARE CORPORATION, PLAINTIFFS,
v.
LIBERTY HELICOPTER TOURS, INC., A NEW YORK CORPORATION, DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT,
v.
ALVIN S. TRENK AND ABIGAIL TRENK, THIRD-PARTY DEFENDANTS.



On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-2713-03.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 7, 2007

Before Judges Wefing, C.S. Fisher and Messano.

We address in a single opinion the issues raised by these two appeals argued back-to-back since they involve common procedural histories and factual backgrounds. In A-3656-05T5, plaintiffs Air Pegasus of New York, Inc. (APNY) and Air Pegasus Heliport, Inc. (APH), third-party defendants Alvin S. Trenk and Abigail Trenk, and non-party Trenk Partners, L.P., (collectively, the Trenk parties) initially appealed from two orders. The first, dated September 8, 2005, confirmed an earlier arbitrator's award of December 8, 2004, that dismissed their claims against defendant Lawlor, O'Brien & Chervenak, LLC (LOC); the second, dated February 8, 2006, denied their motion to vacate the arbitrator's award of April 8, 2005, and confirmed that award.*fn1 In A-3703-05T5, non-party Jeff Ellentuck appeals from these orders as well as a third, interim order, dated October 3, 2005, that similarly denied his motion to vacate the arbitrator's December 8, 2004, determination.

We have carefully considered the arguments raised in light of the record and applicable legal standards. Because the arbitral proceedings employed here were so fundamentally flawed, we reverse all three orders entered by the motion judge that confirmed the arbitrator's two awards. As a result, in A-3656-05T5, we reinstate the pleadings of the various parties, and remand the matter for further proceedings consistent with this opinion. The appeal filed in A-3703-05T5, therefore, is dismissed as moot.

I.

In an effort to identify the parties and provide some context for the arbitral proceedings that are at the core of these appeals, we briefly summarize the facts as alleged in the underlying litigation, which was subsequently dismissed with prejudice and referred to binding arbitration by agreement of the litigants.

In 1996, APH entered into a written agreement with the Hudson River Park Trust to exclusively operate the West 30th Street heliport located at the Hudson River on Manhattan's west side. When the written agreement lapsed, APH continued to operate the heliport on a month-to-month basis.

Alvin S. Trenk is the chairman of APH, the president of APNY, a corporation separate and distinct from APH, and the general partner of Trenk Partners, L.P. Abigail Trenk is his daughter and maintains an interest in the partnership. Trenk, through APNY, had acquired a shareholder interest in defendant Liberty Helicopters, Inc. (Liberty) which conducted business and sightseeing helicopter excursions from the heliport.

Together with defendant Drew E. Schaefer, Trenk founded Sightseeing Tours of America, Inc. (STA). In 1996, Liberty became a subsidiary of STA which promoted, marketed and operated sightseeing helicopter tours around the New York City metropolitan area. Trenk Partners became a significant shareholder of STA and Trenk served as president, chief executive officer, and chairman of STA's board of directors until May of 2003. Despite these titles, Trenk apparently exercised little day-to-day control over STA/Liberty's helicopter operations.

In 1997, Schaefer transferred his interest in STA, approximately 38.9% of the outstanding shares, to his ex-wife Pamela. The various other individuals identified in pleadings in the underlying litigation included Schaefer's brother, Darryl, a member of STA's board of directors, and Thomas J. Yessman, STA's chief operating officer since 2001, and subsequently its chief executive officer and chairman of its board of directors. Ellentuck, who was never a party in the underlying litigation, owns one percent of the shares in STA.*fn2

On May 19, 2003, the first salvo in the litigation battle was fired. Trenk filed a lawsuit on behalf of himself and STA in the Chancery Division, Docket No. UNN-C-67-03, alleging that Schaefer, with the conspiratorial assistance of LOC, STA's accountants, had diverted corporate assets for his personal use or other non-corporate purposes. He sought an accounting and control of STA's finances, the imposition of a constructive trust on the wrongfully diverted funds, and other legal and equitable relief.

At a special board of directors meeting held on May 29, 2003, controlling shareholders of STA struck back by approving a resolution removing Trenk from his positions as STA president, chief executive officer and chairman, but allowing him to retain his seat on the board. On July 9, STA successfully moved to have the complaint re-captioned, removing the corporation as a plaintiff and leaving Trenk as the sole plaintiff. In a series of amended complaints filed thereafter, Trenk, individually, and Trenk Partners, "[i]ndividually and [d]erivatively on behalf of [STA]," reiterated these claims and requested similar relief against defendants.

On July 21, 2003, a second action was filed; Trenk filed this complaint in the Law Division, Docket No. UNN-L-2713-03. The plaintiffs in that complaint, APNY and APH, alleged that Liberty had violated a 1996 consulting agreement with APNY by failing to pay monthly commissions based upon Liberty's operations at the heliport. The complaint further alleged that as a result of that default, Liberty was also in default of its agreement with APH which granted Liberty exclusive use of the West 30th Street heliport for sightseeing tours. Plaintiffs APNY and APH sought to terminate the agreements, as well as consequential and compensatory damages, attorneys' fees, and other relief.

On August 5, 2003, the parties negotiated a written consent agreement that was incorporated into an order entered that day. The terms of the agreement are relatively unimportant to our resolution of the issues presented. It suffices to say that the consent order effectively stayed the litigation, continued the contractual relationship between APNY and Liberty, and provided for Liberty to pay its contractual obligations to APH under protest and without prejudice to its ability to contest all issues at trial. The order also provided that any late payment to either APNY or APH would result in an immediate default requiring Liberty to "vacate the [] 30th Street Heliport." In addition, under the consent order, Liberty agreed to forego its "exclusive right to conduct sightseeing tours out of the [] 30th Street Heliport."*fn3

On September 29, 2003, Liberty filed its answer and asserted a counterclaim against APH and APNY alleging breach of contract, breach of the implied covenant of good faith and fair dealing, fraud and negligent misrepresentation. It also filed a third-party complaint against Trenk and his daughter alleging breach of fiduciary obligations, waste of corporate assets, and tortious interference with Liberty's business. These allegations in the counterclaim and third-party complaint also arose, in large part, out of disputes regarding the two agreements with APH and APNY.

In early 2004, the Trenk parties, represented by Trenk's son Steve, and STA, represented by its general counsel, Elliot H. Vernon, and Yessman, began to negotiate a possible global settlement of the litigation. After a series of communications between the parties, on May 10, 2004, Vernon wrote to Steve Trenk indicating that "Liberty [] and its affiliates are prepared to execute a binding arbitration agreement," appointing James Ortenzio "as arbitrator/monitor to decide all issues including, but not limited to, those [previously] discussed." Ortenzio, an attorney, was the former chairman of the Hudson River Park Trust and possessed significant knowledge of the heliport's operations; moreover, he was a mutually agreeable choice to serve as arbitrator.

After further negotiations and the exchange of various proposals, a written "Arbitration and Monitor Agreement" (the Agreement) was executed by APNY, APH, Trenk Partners, Trenk, individually, and Abigail Trenk. Drew Schaeffer, his ex-wife Pamela, and his brother Darryl also executed the Agreement, as did Yessman, Liberty and the various Schaeffer corporate entities. STA, LOC and Ellentuck were not signatories to the Agreement.

Pursuant to Agreement's terms, the two lawsuits were dismissed with prejudice, except the parties agreed that the Law Division would retain jurisdiction "solely for the purposes of summarily enforcing any and all determinations that have been made by the Arbitrator." The Agreement further provided that Ortenzio would not be bound by any particular set of rules or procedures for the conduct of any and all arbitration proceedings, meetings, hearings, activities, and determinations, but rather [he shall] have full and complete authority to determine what rules of procedure, proof requirements, and the like will be implemented by him on an issue-by-issue basis in his sole and exclusive discretion in order to expeditiously resolve the issue, which will be presented to him by the Parties hereto promptly following the execution of this Agreement.

The Agreement also gave Ortenzio the right to "make all determinations regarding the admissibility, relevance and materiality of evidence offered in order to achieve a just, equitable, speedy and cost-effective resolution of all issues presented by the parties."

The Agreement also appointed Ortenzio as the "[m]onitor of STA." In this capacity, he had "full power and authority" to access all corporate information, and "to oversee, review, and inquire into any and all operational and financial aspects of [STA] and any and all of its wholly owned subsidiaries including . . . Liberty . . . ." Among his "prerogatives" as monitor, Ortenzio could "refer any issue identified by him during the course of his activities to binding arbitration before him as

[a]rbitrator pursuant to the [] provisions of th[e] Agreement . . . ." The parties agreed that any decision made by Ortenzio shall be made with consideration of the following: (1) the laws of New York State, (2) that shareholder decisions are and will continue to be based on the majority vote of shareholders, (3) that the minority shareholders of STA/Liberty are and will continue to be afforded common law and statutory rights, and ...


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