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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: January 24, 2021

Parties That Did Not Sign or Benefit From Agreement Containing Arbitration Provision Not Required to Arbitrate

On January 12, 2021, the First Department issued a decision in Alam v. Ahmad, 2021 NY Slip Op. 00104, holding that parties that did not sign or benefit from an agreement containing an arbitration provision is not required to arbitrate, explaining:

As the arbitration provisions at issue do not clearly and unequivocally provide that questions about the scope of the arbitration provisions are for the arbitration panel to determine, the threshold question, whether the dispute is encompassed within an agreement to arbitrate, is a question for the courts.

Even assuming, arguendo, that the dispute between the parties arises out of or in connection with the share sale agreements, plaintiffs are not bound by the arbitration provisions contained in the agreements because they are not signatories to the agreements. Although there is a dispute as to whether plaintiff Alam signed the agreements, there is no dispute that he would have signed it in his representative capacity on behalf of the IFG Fund.

Defendants’ direct benefits theory of estoppel does not apply here to bind plaintiffs to the arbitration provisions. There is no evidence that plaintiffs knowingly exploited the benefits of the share sale agreements or that they received benefits flowing directly from them. To the contrary, any benefits plaintiffs may receive as a result of the execution of the share sale agreements will come pursuant to the partnership agreement. Accordingly, defendants’ motion to compel arbitration was properly denied.

(Internal 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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