III. Enforceability of Arbitration Agreements

• Jurisdiction: New York

III. Enforceability of Arbitration Agreements

Arbitration is a preferred means of settling disputes and, in the absence of compelling public policy, the matter will be submitted to arbitration.²⁷ However, if the contract contains conditions precedent to the right to arbitrate, it is for the court to decide if these conditions have been satisfied.²⁸

If there is a challenge to the validity or binding nature of the arbitration agreement, the court, not the arbitrator, decides whether the agreement is enforceable between the parties.²⁹

Courts will not enforce an arbitration agreement that would oust a governmental body from its role in enforcement of major state policies,³⁰ violate the law³¹ or result in an award that violates a public policy that is beyond waiver.³² Nor will courts compel arbitration where the parties enter an agreement after an action relating to the subject matter of the agreement has been commenced and the agreement is used to restrict the rights of parties uninformed of the action.³³ Generally, a nonsignatory to arbitration will not be forced to arbitrate unless it is the "alter ego" of a signatory to arbitration.³⁴ However, a nonsignatory can be equitably estopped from avoiding arbitration if it knowingly receives direct benefits under an agreement that contains an arbitration clause.³⁵

A public policy exception can be invoked to preclude arbitration.³⁶ Public policy considerations have led New York courts to hold claims involving securities law violations,³⁷ estate distribution,³⁸ state antitrust laws,³⁹ matters involving insolvent insurance companies in liquidation,⁴⁰ usury claims (if arbitration is sought by the usurious lender),⁴¹ granting tenure to public school teachers,⁴² the layoff or termination of civil service employees,⁴³ or attorney disqualification or discipline⁴⁴ to be nonarbitrable.⁴⁵ The Court of Appeals has also held that public policy requires the invalidation of arbitration agreements if they contain terms that would preclude a party from vindicating his or her statutory rights in the arbitral forum.⁴⁶

Public policy does not preclude the arbitration of spousal or child support issues.⁴⁷

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Notes:

^[27] Prinze v. Jonas, 38 N.Y.2d 570, 381 N.Y.S.2d 824 (1976); see Schreiber v. K-Sea Transp. Corp., 9 N.Y.3d 331, 849 N.Y.S.2d 194 (2007) (holding that the federal policy favoring arbitration is applicable to claims arising under protective statutes like the Jones Act); The nature of the arbitration process specifically limits the court's role in the proceeding. See, e.g., In re N.Y. State Office of Children & Family Servs. (Lanterman), 62 A.D.3d 1109, 879 N.Y.S.2d 247 (3d Dep't 2009) (refusing to compel arbitration of a teacher's wrongful termination claim after the teacher lost her license), aff'd, 14 N.Y.3d 275, 899 N.Y.S.2d 726 (2010); see also State Farm Ins. Cos. v. DeSarbo, 52 A.D.3d 936, 859 N.Y.S.2d 312 (3d Dep't 2008) (under CPLR art. 75, "a court may involve itself in the arbitration process within the first 20 days . . . or following the conclusion of the arbitration proceeding," but "[t]here exists no authority for a court to become involved . . . between these periods") (quoting Nationwide Mut. Ins. Co. v. Miller, 95 A.D.2d 961, 464 N.YS.2d 291 (3d Dep't 1983)).

^[28] See Lakeland Fire Dist. v. E. Area Gen. Contractors, Inc., 16 A.D.3d 417, 791 N.Y.S.2d 594 (2d Dep't 2005) (whether conditions precedent to arbitration have been satisfied is a question to be determined by the courts) (citing Bd. of Educ. v. Merritt Meridian Constr. Corp., 210 A.D.2d 854, 621 N.Y.S.2d 139 (3d Dep't 1994)).

^[29] See M.I.F. Sec. Co. v. R.C. Stamm & Co., 94 A.D.2d 211, 463 N.Y.S.2d 771 (1st Dep't), aff'd in part, 60 N.Y.2d 936, 471 N.Y.S.2d 84 (1983); see also Granite Rock Co. v. Int'l Bhd. of Teamsters , 561 U.S. 287 (2010) (holding that dispute over ratification of collective bargaining agreement was to be resolved by the District Court because its resolution was necessary to determine whether arbitration clause applied); Smith Barney, Harris Upham & Co. v. Luckie, 85 N.Y.2d 193, 623 N.Y.S.2d 800, reh'g denied, 85 N.Y.2d 1033, 631 N.Y.S.2d 291 (1995); Banc of Am. Secs. v. Knight, 3 Misc. 3d 1107(A), 787 N.Y.S.2d 676 (Sup. Ct., N.Y. Co. 2004) (if arbitration clause contains choice-of-law clause providing that New York law applies. Parties' intent will be given effect even if the FAA would otherwise apply, if to do so would not conflict with the policies underlying that act) (citing Salvano v. Merrill Lynch, Pierce, Fenner & Smith, 85 N.Y.2d 173, 623 N.Y.S.2d 790 (1995)); Schiffer v. Slomin's, 48 Misc. 3d 15, 19, 11 N.Y.S.3d 799 (App. Term, 2d Dep't 2015) ("General Business Law § 399–c is a categorical rule prohibiting mandatory arbitration clauses in consumer contracts, and thus, at least where there exists a nexus with interstate commerce, is displaced by the FAA."); but see Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd's, 14 N.Y.3d 850, 901 N.Y.S.2d 133, cert. denied, 562 U.S. 962, 131 S. Ct. 463 (2010) (holding that the scope and validity of the parties' arbitration agreement, including issues of arbitrability, were for the arbitration tribunal to determine); In re Liverpool Pub. Library (Civil Serv. Emps. Ass'n, Inc.), 72 A.D.3d 1613, 899 N.Y.S.2d 707 (4th Dep't 2010) (holding that although the question of...