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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: March 23, 2019

Non-Signatories Not Bound by Agreement to Arbitrate

On February 25, 2019, Justice Scarpulla of the New York County Commercial Division issued a decision in H. Roske & Assoc., Llp v Burghart, 2019 NY Slip Op 30479(U), holding that parties that did not sign an agreement to arbitrate are not required to arbitrate a dispute, explaining:

A party may not be compelled to arbitrate its dispute with another, unless the evidence establishes the parties’ clear, explicit and unequivocal agreement to arbitrate. The threshold for clarity of agreement to arbitrate is greater than with respect to other contractual terms.

None of the defendants in this action have executed an arbitration agreement with Roske & Associates. Thus, their explicit and unequivocal agreement to arbitrate must be based on other agreements or circumstances. Defendants argue that Roske & Associates should be bound to arbitrate based on non-party Schumann’s 2004 Agreement, which contains an arbitration clause.

While there are limited circumstances in which a nonsignatory to an arbitration agreement has been compelled to participate on the arbitration of a claim which is subject to arbitration between some of the parties, interrelatedness, standing alone, is not enough to subject a nonsignatory to arbitration. Further, under the principles of estoppel, a nonsignatory may be compelled to arbitrate only in those circumstance where he or she knowingly exploits the benefits of an agreement containing an arbitration clause, and receives benefits flowing directly from the agreement.

Applying the foregoing principles here, the fact that Roske & Associates’ claims against the defendants maybe intertwined with its claims against nonparty Schumann is not sufficient to require Roske & Associates to arbitrate with defendants. Defendants have failed to submit any facts to show that Roske & Associates intended to extend the 2004 Agreement’s arbitration clause to Burghardt and Gyure, who were employed many years later and do not have employment agreements with Roske & Associates. Further, Meyenschein was never employed by Roske & Associates, and the SB Firm has no relationship at all with Roske & Associates.

Also, defendants have not produced any evidence to show that there was an expectation between the parties that the 2004 Agreement would be extended to the defendants. In fact, defendants have not even shown that they knew about the 2004 Agreement’s arbitration clause before the commencement of this action. For these reasons, defendants have failed to show that I should extend Roske & Associates’ agreement to arbitrate with non-party Schumann to defendants.

(Internal quotations and citations omitted).

Commercial litigation involves more than courts. Disputes often are–by agreement–decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.

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