Court Enforces Agreement to Arbitrate

On October 29, 2014, Justice Schmidt of the Kings County Commercial Division issued a decision in Reed v. Yankowitz, 2014 NY Slip Op. 32843(U), enforcing an agreement to arbitrate.

In Reed, the parties' dispute related to a joint venture involving real property. The defendants moved to dismiss the plaintiffs' lawsuit on the ground that the parties had agreed to arbitrate their dispute. The court agreed, writing:

Before commencing this action the parties appeared before Rabbi Leichtag, one of the arbitrators mentioned in paragraph 8 of the agreement. It appears that Rabbi Leichtag directed that an accountant review the books and records of the venture, and that he failed to appear at the further arbitration sessions scheduled. Thereafter, defendant contends that plaintiff refused to schedule any further sessions until defendant paid plaintiff $50,00.00.

Plaintiff's argue that they are entitled to a judicial determination rather than an arbitration of this dispute, positing that the arbitration clause of paragraph 8 by its clear terms only requires arbitration of decisions, voting, control and management of the joint venture. As the clause states, one of the two enumerated rabbis would have the deciding vote on such issues as may arise between the partners involving control and management of the company. This arguably would not cover the present issue, which goes beyond the day to day operation of the business, inasmuch as one party is alleged to have unilaterally and fraudulently sold the property that was the subject of the joint venture. Plaintiff contends that the general arbitration clause of paragraph 16 only refers back to paragraph 8, and means that the American Arbitration Association (AAA) shall be the default arbitrator of decisions, management and control of the venture if the parties do not wish to utilize one of the rabbis selected in paragraph 8 to be a tie breaking vote.

The court held both that this contention was not supported by the text of the parties' agreement and,

In any event, the plaintiffs' appearances before an arbitrator without having sought a stay of arbitration pursuant to CPLR 97503(b) or otherwise preserving their right to have the issue of arbitrability judicially determined waives that right. Where the contract contains a valid arbitration agreement, a party's participation in the arbitration hearings constitutes a waiver of the claim that the arbitrators do not have jurisdiction over the matter. Moreover, even questions of fraud fall under general arbitration clauses unless specifically excluded. As such, although plaintiffs may not have pleaded fraud sufficiently to withstand a motion to dismiss, that claim can still be considered in an arbitration.

(Internal quotations and citations omitted.)