Arbitration Permanently Stayed Given Dispute Over Authenticity of Agreement Containing Arbitration Clause

On August 18, 2022, Justice Barry R. Ostrager of the New York County Commercial Division issued a decision in SMI Central Park Tower LLC v. Genesis Central Park Tower, LLC, Index No. 655036/2021, granting an Article 75 petition to permanently stay arbitration when there was a genuine dispute concerning whether the alleged agreement including the arbitration clause was authentic, explaining:

While the Court could and does accept that Mr. Tao was in New York when the disputed agreement was allegedly signed by him, and the Court could and does accept that Mr. Tao conducted business in a rather nonchalant and informal manner, the Court cannot fully accept Mr. Yuan’s testimony because Mr. Yuan entered into an agreement with the Bank of Shanghai that provides, inter alia, that in the event Genesis prevails on the arbitrability issue and the disputed agreement is held to be valid, neither Genesis nor the Bank of Shanghai will proceed against Mr. Yuan on a $40 million guaranty he signed in connection with the Bank of Shanghai loan to Genesis (NYSCEF Doc. No. 212). Consequently, there is sufficient doubt about the authenticity of the disputed agreement for the Court to grant Petitioner’s motion to stay the arbitration.

However, because a final determination of the validity of the disputed agreement would be entirely dispositive of the rights and obligations of the parties, the Court is granting the Petition to permanently stay the arbitration on the basis that Petitioner has met the burden of satisfying the Court that, at this preliminary stage of this dispute, there is insufficient evidence that Petitioner entered into an agreement to arbitrate. The Court finds that the issue of the validity of the disputed agreement is more appropriately decided in a plenary action in Court, during which witnesses other than the witnesses who appeared at the July 27, 2022 hearing can provide further evidence bearing on the authenticity of the disputed agreement in the context of the entire transaction.

There is a strong public policy in New York in favor of enforcing arbitration clauses. But this public policy may yield when there is a dispute about whether the parties actually agreed to arbitrate a given dispute. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions about enforcing or avoiding an arbitration agreement.