When Arbitration is Under AAA Rules, Questions of Arbitrability are for the Arbitrator to Decide

On August 24, 2021, Justice Emerson of the Suffolk County Commercial Division issued a decision in Bromberg & Liebowitz v. O’Brien, 2021 NY Slip Op. 50813(U), holding that when an arbitration is governed by the AAA rules, questions of arbitrability are for the arbitrator to decide, explaining:

The arbitration clause in the parties’ agreement provides, in pertinent part, as follows:

“Any controversy or claim arising out of or relative to this AGREEMENT, or the breach thereof, shall be submitted to arbitration before a single arbitrator, subject to the commercial arbitration rules of the American Arbitration Association . . . .”
The Commercial Arbitration Rules of the American Arbitration Association (“AAA”) provide, in pertinent part, as follows:

“The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.”

Although the question of arbitrability is generally an issue for judicial determination, when the parties’ agreement specifically incorporates by reference the rules of the American Arbitration Association (“AAA”) and employs language referring “all disputes” to arbitration, courts will leave the question of arbitrability to the arbitrators. Here, the agreement incorporates the rules of the AAA and provides that “any controversy or claim arising out of or relative to” the agreement shall be submitted to arbitration. Thus, the scope of the parties’ arbitration agreement, including issues of arbitrability, are for the arbitrator to determine.

“Questions of arbitrability” is a term of art covering disputes about (1) whether the parties are bound by a given arbitration clause, as well as disagreements about (2) whether an arbitration clause in a concededly binding contract applies to a particular controversy. Both disputes involve the arbitration agreement’s scope. Thus, whether the arbitration clause applies to the plaintiff’s claims is an issue to be resolved by the arbitrator and not the court.

Likewise, the issue of whether Jennifer O’Brien and 328 Main LLC, who are not signatories to the agreement, may compel arbitration is an issue properly resolved by the arbitrator. Moreover, as a signatory to a contract containing an arbitration clause incorporating by reference the AAA rules, the plaintiff cannot disown its agreed-to obligation to arbitrate “any controversy or claim arising out of or relative to” the agreement, including the question of arbitrability with Jennifer O’Brien and 328 Main LLC. A signatory to an arbitration agreement is estopped from avoiding arbitration with a non-signatory when (i) there is a close relationship between the parties and controversies involved and (ii) the signatory’s claims against the non-signatory are intimately founded in and intertwined with the underlying agreement containing the arbitration clause. The court finds that these two requirements have been met. Accordingly, the matter is stayed, and the parties are directed to proceed to arbitration.

(Internal quotations and citations omitted).

Stay informed!
Sign up for email alerts and notifications here.