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Current Developments in the Commercial Divisions of the
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Posted: July 21, 2015

Plaintiff Bound By Arbitration Clause in Contract to Which it Was Not A Party

On July 13, 2015, Justice Scarpulla of the New York County Commercial Division issued a decision in BGC Notes, LLC v. Gordon, 2015 NY Slip Op. 31221(U), ordering a dispute to arbitration even though the plaintiff did not sign the contract containing the agreement to arbitrate.

In BGC Notes, the plaintiff sought summary judgment in lieu of complaint on a note that had been issued by the plaintiff in connection with the defendant’s employment by an affiliate. The defendant moved to compel arbitration, relying on the arbitration provision in his employment contract. The trial court agreed, explaining:

Except under limited circumstances, nonsignatories to an agreement are not subject to arbitration agreements. A nonsignatory party to an agreement containing an arbitration clause may be so bound, however, based on the ordinary principles of contract and agency including: (l) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; and (5) estoppel.

Under the principles of estoppel, a nonsignatory may be compelled to arbitrate where he or she knowingly exploits the benefits of an agreement containing an arbitration clause, and receives benefits flowing directly from the agreement. In determining whether a nonsignatory receives a direct benefit, the guiding principle is whether the benefit gained by the nonsignatory is one that can be traced directly to the agreement containing an arbitration clause.

(Internal quotations and citation omitted). The court went on to hold that the plaintiff was bound by the arbitration provision in the Employment Agreement because it had “receive[d] direct benefits flowing from” the agreement.

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