Agreement That Referenced Arbitration and Litigation Was Not a Clear, Explicit, and Unequivocal Agreement to Arbitrate

On March 28, 2023, Justice Joel M. Cohen of the New York County Commercial Division issued a decision in FFS Data Corp. v. The OLB Group, Inc., 2023 NY Slip Op 30968(U), holding that an asset purchase agreement that referenced both arbitration and litigation of claims, which the court described as a "marvel of linguistic misdirection," did not include a clear, explicit, and unequivocal agreement mandating arbitration, explaining:

Defendant The OLB Group ("OLB") moves for an order compelling arbitration of this action based on a dispute resolution provision contained in an Asset Purchase Agreement entered into by OLB and Plaintiff FPS Data Corporation ("FFS"). As discussed below, the provision upon which OLB's motion is based is a marvel of linguistic misdirection. Although it references arbitration, it does so obliquely at the end of a lengthy paragraph that otherwise indicates an intention that disputes be litigated in court. In addition, the agreement elsewhere provides that "any claims of any kind arising out of or relating to the Agreement or the transactions contemplated hereby . . .shall be tried before a judge of a court having jurisdiction without a jury." All things considered, the Court finds that OLB has not met its burden of demonstrating that the parties agreed to mandatory arbitration of disputes under the Asset Purchase Agreement. Accordingly, its motion to compel arbitration is denied.

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"Although arbitration is favored as a matter of public policy, equally important is the policy that seeks to avoid the unintentional waiver of the benefits and safeguards which a court of law may provide in resolving disputes. Indeed, unless the parties have subscribed to an arbitration agreement it would be 'unfair to infer such a significant waiver on the basis of anything less than a clear indication of intent"' (TNS Holdings, Inc. v MKI Sec. Corp., 92 NY2d 335, 339 [1998] [citations omitted]). Thus, "a party will not be compelled to arbitrate ... absent evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes. The agreement must be clear, explicit and unequivocal . . . and must not depend upon implication or subtlety" (Matter of Waldron [Goddess}, 61 NY2d 181, 183 [1984] [citations omitted]). Although this standard is often invoked when assessing whether non-signatories are bound to an otherwise clear arbitration agreement (e.g., Pursuit Inv. Mgt., LLC v Alpha Beta Capital Partners, L.P., 127 AD3d 565, 565 [1st Dept 2015]; TBA Glob., LLC v Fidus Partners, LLC, 132 AD3d 195, 202 [1st Dept 2015]), it is not limited to those instances (see e.g., Ed of Managers of 825 W End Condominium v Grunstein, 192 AD3d 500, 500 [1st Dept 2021] [holding that "there was no clear, explicit, and unequivocal agreement" between the parties to arbitrate their dispute because the applicable contractual clause called for arbitration only if one party first elected to proceed to mediation, and that party had not done so]).

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Pulling together the various provisions cited above, and seeking to avoid negating any unequivocal contractual language, the Court finds that the most natural and harmonious reading is that the arbitration sentence at the end of Section 6.9 is triggered if, and only if, the parties first elected the option of pursuing mediation in lieu of a court proceeding. Such a procedure would be similar to that set forth in the contractual provision at issue in Ed of Managers of 825 W End Condominium v Grunstein (192 AD3d 500, 500 [1st Dept 2021]), in which the court found there was no binding agreement to arbitrate absent an election by the board of managers to mediate the dispute.

New York has a strong public policy in favor of arbitration. But if there is a dispute about whether the parties agreed to arbitrate, rather than litigate, the court will scrutinize the agreement at issue, and require a party to arbitrate only if there is a "clear, explicit, and unequivocal" agreement to arbitrate. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions about arbitrability under a purported arbitration clause.