Court Rejects Defense That Arbitration Agreement Was Signed Under Duress

On January 4, 2019, Justice Scarpulla of the New York County Commercial Division issued a decision in Kahan Jewelry Corp. v. First Class Trading, L.P., 2019 NY Slip Op. 30039(U), rejecting a defense that an arbitration agreement was signed under duress, explaining:

It is well settled that repudiation of an agreement on the ground that it was procured by duress requires a showing of both (1) a wrongful threat, and (2) the preclusion of the exercise of free will. An agreement procured under duress must be promptly disaffirmed, or otherwise deemed to have been ratified. Objections to the validity of an arbitration agreement allegedly entered into under duress are waived if the objecting party participates in the arbitration.

Here, Berkovits claims that he was coerced into signing the arbitration agreement on behalf of his companies at the Beit Din, and only did so under duress. However, Berkovits is a sophisticated business owner who executed the agreement, and he has submitted no objective evidence to show that he could not have declined to execute the agreement. Most importantly, Berkovits did not disaffirm the agreement at any time thereafter, and in fact, proceeded with and participated in the arbitration. Berkovits' argument that he was denied the right to counsel is also without merit. After his Toen resigned, he had time to procure new counsel, however did not do so.

Even though the matter was closed, upon request by Berkovits for one more appearance, the Beit Din gave him the opportunity to appear once more on November 13, 2017. He appeared at the final hearing, presented evidence on his own and then told the arbitrators that he had no further evidence to introduce.

Further, his contention that the Beit Din improperly conditioned continued hearings on the execution of an arbitration agreement by Susan Berkovits is also meritless. Upon close examination of the email exchange from December 2017, as well as letters from petitioners' counsel, it is clear that no one was attempting to coerce Susan Berkovits into attending the arbitration, or conditioning continued hearings on the execution of an arbitration agreement by Susan Berkovits. Rather, the correspondence simply explained that as someone who guaranteed the obligations at issue, she "may wish" to appear at the arbitration, and the later correspondence explained that if she did not appear, there would be no reason to have any further sessions because all the evidence had already been submitted.

(Internal quotations and citations omitted).

As this decisions discusses, a claim of duress can relate to economic duress, and not just the paradigm case of someone being forced to sign a contract with a gun to their head. But, as this decision also shows, the standards for pleading duress are demanding. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a contract entered into under duress.