Court Decides Gateway Issue of Arbitrability

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Posted on: Sep 24 2025

Under the Federal Arbitration Act (“FAA”) and Article 75 of New York’s Civil Practice Law and Rules (“CPLR”), an action should be dismissed or stayed, and the claims referred to arbitration when they are subject to a broad, mandatory arbitration provision in the parties’ governing agreement.

The FAA provides that written agreements to arbitrate are “valid, irrevocable, and enforceable” and “places arbitration agreements ‘upon the same footing as other contracts’”.[1] “The FAA leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.”[2] Thus, a court “must stay proceedings once it is ‘satisfied that the parties have agreed in writing to arbitrate an issue or issues underlying the district court proceeding.’”[3]

In New York, the result is the same under the CPLR. New York has a long and strong public policy favoring arbitration, and any doubts as to whether an issue is arbitrable will be resolved in favor of arbitration.[4]

The threshold question in assessing a motion to compel arbitration is whether there is a valid and binding agreement to arbitrate.[5] The court decides that question.[6]

If the Court finds that a valid arbitration agreement exists, the next question is whether the dispute comes within the scope of that agreement. The parties can, if they choose, delegate to the arbitrator (rather than the court) the job of making that determination.[7] “Where the parties ‘explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties’ intent to delegate such issues to an arbitrator’”.[8] Incorporating the rules of the American Arbitration Association, which provide that an arbitrator shall have the power to determine the arbitrability of any claim without any need to refer such matters to a court in the first instance, evidences such intent.[9] Therefore, “[a]lthough the question of arbitrability is generally an issue for judicial determination, when the parties’ agreement specifically incorporates by reference the AAA rules, which provide that ‘[t]he tribunal shall have the power to rule on its own jurisdiction, including objections with respect to the existence, scope or validity of the arbitration agreement,’ and employs language referring ‘all disputes’ to arbitration, courts will ‘leave the question of arbitrability to the arbitrators.’”[10]

“‘When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue. That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.’”[11]

Moreover, where “it appears that the subject matter of the agreement containing the arbitration clause and the dispute between its signatories are reasonably related,” arbitration should be compelled.[12]

Further, “a nonsignatory to an arbitration clause may, in certain situations, compel a signatory to the clause to arbitrate the signatory’s claims against the nonsignatory despite the fact that the signatory and nonsignatory lack an agreement to arbitrate.”[13] For this reason, “[a] signatory to an arbitration agreement is estopped from avoiding arbitration with a non-signatory when the issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed.”[14]

In Posillico v. Posillico, 2025 N.Y. Slip Op. 33273(U) (Sup. Ct., N.Y. County Sept. 3, 2025) (here), the foregoing principles were considered by the motion court in staying the action in favor of arbitration.

In Posillico, plaintiff alleged that defendants violated his rights under a shareholder agreement (“Shareholder Agreement”) by removing him for “cause” (within the meaning of the Shareholder Agreement) as an employee and officer of Posillico, Inc. (“Posillico” or the “Company”), “thereby triggering [his] right, under the Shareholder Agreement, to compel him to sell them his shares at a fraction of their true value.”

The Shareholder Agreement contained a broad, mandatory arbitration clause, which provided, in pertinent part, that “[a]ny controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration.” The Shareholder Agreement also provided that any arbitration would be governed by “the rules then obtaining of the American Arbitration Association.”

Pursuant to the Shareholder Agreement, defendants commenced an arbitration against plaintiff. The issue before the motion court concerned which of plaintiff’s claims were subject to mandatory arbitration.

As an initial matter, the motion court held that there was “plainly a valid agreement to arbitrate (at least among the signatories to the agreement).”[15] Therefore, said the motion court, “it [was] for the arbitrator (not the Court) to determine in the first instance which, if any, of Plaintiff’s claims against Defendants Joseph K. and Michael J. are subject to mandatory arbitration under the agreement.”[16]

Having decided that there was a valid agreement to arbitrate, the motion court turned its attention to the question of which claims were arbitrable and against whom such claims could be arbitrated. The motion court framed the issue as follows:

However, Plaintiff includes non-signatories to the Shareholder Agreement (Boren and Horton) as Defendants in some of his claims. That raises the question whether there is a valid agreement that binds Plaintiff to arbitrate his claims against those non-signatories . . . .[17]

That issue, said the motion court, was “a question for the Court”.[18]

The Court found that plaintiff was “estopped from contesting [defendants’] ability to compel arbitration of Plaintiff’s fourth claim for breach of fiduciary duty and fifth claim for conspiracy to breach fiduciary duty,” assuming those claims could be arbitrated by the signatory defendants.[19] The motion court concluded that “[i]f the arbitrator determines that the relevant claims are arbitrable against [plaintiffs], the claims against [the non-signatory defendants] should be adjudicated in the same arbitration rather than in a separate litigation.”[20]

Finally, the motion court stayed the action with respect to the issue of whether plaintiff had standing (e.g., whether he was a shareholder) to bring his derivative claims for an accounting and access to the company’s books and records, “because determination of that issue in arbitration [could] dispose of those claims”.[21] The motion court held, therefore, that since it could not “determine … whether all claims in the complaint [were] subject to mandatory arbitration, it [was] proper to stay the action pending a determination of arbitrability rather than dismiss it entirely”.[22]

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] Wu v. Uber Techs., Inc., 43 N.Y.3d 288, 297 (2024).

[2] Badinelli v. Tuxedo Club, 183 F. Supp.3d 450, 453 (S.D.N.Y. 2016) (quoting Jung v. Skadden, Arps, Slate, Meagher & Flom, LLP, 434 F. Supp. 2d 211, 214–15 (S.D.N.Y.2006)) (emphasis in original). See also 9 U.S.C. § 3.

[3] Nicosia v. Amazon.com, Inc., 834 F.3d 220, 229 (2d Cir. 2016) (quoting WorldCrisa Corp. v. Armstrong, 129 F.3d 71, 74 (2d Cir. 1997)); see also CPLR 7503(a); Katz v. Cellco P’ship, 794 F.3d 341, 345 (2d Cir. 2015).

[4] CPLR 7501; see also Matter of Smith Barney Shearson v. Sacharow, 91 N.Y.2d 39, 49 (1997); Sisters of Saint John the Baptist v. Phillips R. Geraghty Constructor, Inc., 67 N.Y.2d 997 (1986); State of New York v. Philip Morris, Inc., 30 A.D.3d 26 (1st Dept. 2006), aff’d, 8 N.Y.3d 574 (2007).

[5] Matter of Belzberg v. Verus Invs. Holdings Inc., 21 N.Y.3d 626, 630 (2013).

[6] Henry Schein, Inc. v. Archer and White Sales, Inc., 586 U.S. 63, 69 (2019).

[7] Zachariou v. Manios, 68 A.D.3d 539, 539 (1st Dept. 2009) (“Whether a dispute is arbitrable is generally an issue for the court to decide unless the parties clearly and unmistakably provide otherwise.”); see also Henry Schein, 586 US at 69 (“[i]f a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue”]).

[8] Fritschler v. Draper Mgt., LLC, 203 A.D.3d 623 (1st Dept. 2022) (quoting Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205, 208 (2d Cir. 2005)).

[9] Id.. See also Life Receivables Tr. v. Goshawk Syndicate 102 at Lloyd’s, 14 N.Y.3d 850, 851 (2010).

[10] Life Receivables, 66 A.D.3d 495, 496 (1st Dept. 2009), aff’d, 14 N.Y.3d 850 (2010) (quoting Smith Barney, 91 N.Y.2d at 47).

[11] WN Partner, LLC v. Baltimore Orioles Ltd. P’ship, 179 A.D.3d 14, 17 (1st Dept. 2019) (quoting Henry Schein, 586 U.S. at 68).

[12] Maresca v. La Certosa, 172 A.D.2d 725, 726 (2d Dept. 1991); see also Ehrlich v. Stein, 143 A.D.2d 908, 910 (2d Dept. 1988) (“If the parties have broadly agreed to settle any dispute arising out of a contract between them by arbitration,” claims having a “reasonable relationship” with the agreement containing the broad arbitration clause are arbitrable).

[13] Degraw Const. Grp., Inc. v. McGowan Builders, Inc., 152 A.D.3d 567, 569–70 (2d Dept. 2017).

[14] Contec, 398 F.3d at 209; see also Merrill Lynch Int’l Fin., Inc. v. Donaldson, 27 Misc. 3d 391, 396 (Sup. Ct., N.Y. County 2010); Hoffman v. Finger Lakes Instrumentation, LLC, 7 Misc. 3d 179, 185 (Sup. Ct., Monroe County 2005).

[15] Slip Op. at *3.

[16] Id. (citing WN Partner, 179 A.D.3d at 17).

[17] Id.

[18] Id.

[19] Id. (citing Contec, 398 F.3d at 209 ( “A signatory to an arbitration agreement is estopped from avoiding arbitration with a non-signatory when the issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed”), Merrill Lynch, 27 Misc. 3d at 396 (“One circumstance that warrants estoppel is when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted conduct by both the non-signatory and the other signatory to the contract”)).

[20] Id. at *4.

[21] Id. (citing O’Sullivan v. Jacaranda Club, 224 A.D.3d 629, 630 (1st Dept. 2024)).

[22] Id. Kanner v. Westchester Med. Grp., P.L.L.C., 80 Misc. 3d 1201 (A), *12 (Sup. Ct., Bronx County 2023), aff’d, 233 A.D.3d 410 (1st Dept. 2024).

Tagged with: Alternative Dispute Resolution, Arbitrability, Arbitration, Arbitration Agreement