On December 4, 2024, Justice Cohen of the New York County Commercial Division issued a decision in Selim 730 LLC v. SHVO 730 LLC, 2024 NY Slip Op. 34292(U), holding that fraudulent inducement allegations were insufficient to overcome an agreement’s arbitration clause then the alleged fraud di not relate to the arbitration provision, explaining:
Here, Plaintiff does not dispute that the Settlement Agreement contains an agreement to arbitrate. The Settlement Agreement is clear that the parties agreed to arbitrate and waived their right to have such disputes tried by a court or jury. Rather, the issue is whether an arbitrator or the Court decides whether the Settlement Agreement was fraudulently induced.
It is well settled that while there is generally a presumption that the issue of arbitrability will be determined by the courts, the arbitrator decides the issue where the parties evince a clear and unmistakable agreement to arbitrate arbitrability as part of their alternative dispute resolution choice. Here, the parties incorporated the AAA rules into their arbitration clause. Therefore, consistent with those Rules, the parties chose to delegate the issue of arbitrability to the arbitrator.
Plaintiff’s suggestion that raising the specter of fraudulent inducement is sufficient to remove this issue from the arbitrator’s purview is unavailing. The issue of fraud in the inducement affects the validity of the arbitration clause only when the fraud relates to the arbitration provision itself, or was part of a grand scheme that permeated the entire contract. To demonstrate that fraud permeated the entire contract, it must be established that the agreement was not the result of an arm’s length negotiation, or the arbitration clause was inserted into the contract to accomplish a fraudulent scheme. Here,
Plaintiff does not plead that any alleged fraud relates to the parties’ rights to litigate versus arbitrate in the event of a dispute, but instead to Seren-730’s purported ownership interest in Crown730.While Plaintiff argues that it would not have entered into the agreement if it had known the true facts regarding Defendants’ ownership interest in the 730 Investment, this is insufficient as it does not relate to the arbitration clause itself.
The cases on which Plaintiff relies involved circumstances in which there was a question as to whether the agreement was the result of forgery or obtained through fraud in the
execution, fraudulent representations of the respondent-attorney, or where the agreement was the product of self-dealing by defendant who signed the agreement in his capacity as officer and director of the plaintiff corporations, none which are present here.Plaintiff is, of course, free to raise its claims and defenses in the arbitration.
(Internal quotations and citations omitted).