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Current Developments in the Commercial Divisions of the
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Posted: June 12, 2015

Party Bound by Arbitration Clause in LLC Agreement in Suit Based on Related Employment Agreement

On June 2, 2015, the First Department issued a decision in Kellman v. Whyte, 2015 NY Slip Op. 04596, holding that a plaintiff whose claim was based on an employment agreement was bound by the arbitration clause in a related LLC agreement.

In Kellman, the plaintiff brought an action for “monies purportedly owed pursuant to an employment letter and a related limited liability company operating agreement.” The trial court denied the defendants’ motion to compel arbitration under the LLC agreement’s arbitration clause. The First Department reversed, explaining:

The arbitration clause in the operating agreement, which plaintiff signed, compels plaintiff to arbitrate all of her claims, even her claims against nonsignatories to the agreement, because plaintiff’s claims are intertwined with the agreement. In determining whether plaintiff’s claims are subject to arbitration, the employment letter and operating agreement should be read together. The employment letter expressly incorporates the operating agreement by stating, among other things, that the operating agreement would set forth the detailed profit-sharing agreement between the parties. . . .

Because all of plaintiff’s claims are subject to arbitration, the stay should be vacated and the complaint should be dismissed.

(Internal quotations and citations omitted).

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