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Current Developments in the Commercial Divisions of the
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Posted: May 2, 2017

Arbitration Provisions in Agreements Enforced Despite Claim That Agreements Were Invalid

On April 14, 2017, Justice Singh of the New York County Commercial Division issued a decision in Southport Lane Management, LLC v. Adler, 2017 NY Slip Op. 30715(U), enforcing arbitration clauses notwithstanding the allegations that the agreements containing the clauses were invalid, explaining:

Even if the employment agreements or separation agreements are not valid, the arbitration provisions within therm are valid. To demonstrate that fraud permeated the entire contract, it must be established that the agreement was not the result of an arm’s length negotiation, or the arbitration clause was inserted into the contract to accomplish a fraudulent scheme.

. . . The language in the parties’ arbitration agreements is unambiguous and easily interpreted from the language, within the defendants’ employment contracts. There is no evidence that the arbitration provisions were permeated by fraud. In interpreting arbitration agreements, courts will give effect to the parties’ intent and reasonable expectations based on the language used in the agreement. Not only did the defendants’ employment agreements include arbitration provisions, but the separation agreements also included an arbitration provision signifying Southport’s intention to arbitrate employment matters in JAMS. Moreover, pursuant to CPLR 7503(b), in order to stay arbitration, a significant issue must arise that a valid agreement was not made or has not been complied with or that the claim sought to be arbitrated is barred by limitation under subdivision (b) of section 7502. It should be emphasized that in the absence of a compelling public policy, arbitration is a preferred means for the settlement of disputes.

The parties executed valid employment agreements and separation agreements requiring that all employment issues that arise between the parties are arbitrated by JAMS. Therefore, pursuant to the arbitration provisions in the agreements, all of plaintiffs’ claims and defendants’ counterclaims are to be arbitrated.

(Internal quotations and citations omitted).

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