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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: January 1, 2021

Non-Signatories Not Bound by Agreement’s Arbitration Provision

On December 16, 2020, Justice Borrok of the New York County Commercial Division issued a decision in Euro Pac. Capital, Inc. v. Fat Brands, Inc., 2020 NY Slip Op. 34217(U), holding that non-signatories were not bound by an agreement’s arbitration clause, explaining:

Pursuant to CPLR ยง 7503(b), a stay of arbitration may be granted on the ground that a valid agreement to arbitrate was not made or has not been complied with.

Here, the AGP Agreement plainly provides for New York state or federal courts as the exclusive forum for any disputes under that agreement, including even after termination of that Agreement. Inasmuch as the respondent relies on the Dalmore Agreement as a basis for arbitration, AGP and Mr. Kinzer are indisputably not signatories to the Dalmore Agreement and, therefore, cannot be bound to its terms. To the extent that the August and December Emails modify any terms in either the AGP Agreement or the Dalmore Agreement, nothing in the emails addresses arbitration in any way.

Respondent’s reliance on FINRA Rule 12200 is also unavailing. FINRA Rule 12200 requires arbitration of disputes between FINRA members and its customers, at the customer’s request, arising in connection with the members’ business activities, unless, as provided in FINRA Rule 12100(1), the customer is a broker or dealer. However, arbitration pursuant to FINRA Rule 12220 is not mandatory where there is a written agreement between the parties that provides to the contrary. Rather, where there is an unambiguous forum selection clause such as the one in the AGP Agreement here, the forum-selection clause displaces the agreement to arbitrate in FINRA Rule 12200.

Finally, to the extent that the respondent maintains that even if the AGP Agreement is still operable and applicable, the forum selection does not cover the instant dispute, the argument fails. If the December Email modified the ADP Agreement as respondent contends, the December Email would be a part of the ADP Agreement, not a separate related agreement, and any dispute arising under the ADP Agreement so amended (if it was amended by the December Email which in any event is not supported by the record) would be one agreement as amended such that the dispute would arise under the ADP Agreement, as amended, which does not contain an agreement to arbitrate by ADP. The forum selection clause in the AGP Agreement even if amended by the December Email applies to any disputes that arise under this Agreement, even after the termination of this Agreement.

(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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