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Party Cannot Rely On Contract and Disclaim Arbitration Provision Contained Therein

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  • Posted on: Aug 10 2022

By: Jeffrey M. Haber 

Arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral, private person will resolve any legal disputes between them, instead of a judge or jury in a court of law.1 In business and commercial transactions, arbitration is the preferred means of resolving disputes. It is encouraged and recognized as the public policy of the State of New York.2 For this reason, “New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to arbitration.”3 

Since arbitration is a “creature of contract”4, only signatories to a contract containing an arbitration agreement can be compelled to arbitrate.5 Consequently, “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”6 For this reason, “a party will not be compelled to arbitrate and, thereby, to surrender the right to resort to the courts, absent evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes. The agreement must be clear, explicit and unequivocal and must not depend upon implication or subtlety.”7 

Notably, and relevant to today’s article, “an assignee of a contract may avail itself of an arbitration clause contained therein even though the assignee was not a party to the underlying agreement and the contract does not refer to an assignee”.8 

Today, we examine Roberts v. Rodgers & Hammerstein Holdings LLC, 2022 N.Y. Slip Op. 04885 (1st Dept. Aug. 9, 2022) (here), a case in which the Court was asked to decide whether a breach of contract claim fell within the scope of the parties’ agreement to arbitrate. As discussed below, the Court held that such claims were included within the agreement to arbitrate.

Roberts involved motions to compel arbitration and to stay the action. 

Plaintiff is musician who has worked in the business for five decades. Plaintiff contended that he composed vocal arrangements for various Broadway shows, including Smokey Joe’s Café, the subject of the litigation. Plaintiff claimed that defendants deprived him of royalties relating to the show pursuant to the terms of a Vocal Arranger Agreement that he executed in May 1994 with non-party L&S Broadway Company (“L&S”). 

The agreement contained a clause requiring the arbitration of all disputes related to the agreement: “Any dispute arising under, out of, or in relation to this Agreement or any breach or asserted breach thereof shall be determined and settled by arbitration ….” The Vocal Arranger Agreement also contained a provision that permitted L&S to assign “all or any part of [its] rights” therein to third parties.

Plaintiff alleged that L&S assigned all of its right related to the musical (Smokey Joe’s Café) to the Stoller Defendants.9 Plaintiff claimed that he was not aware of this assignment until 2020.

Plaintiff also contended that he was not aware of another agreement in which L&S assigned the rights to license stock, amateur and second-class productions of the musical to the R&H Defendants in 1999.10 He claimed that defendants were not informed that he was entitled to credit relating to future productions of the musical and that he needed to be paid accordingly.

Plaintiff sued, asserting causes of action for breach of contract against all defendants pursuant to the Vocal Arranger Agreement. Plaintiff also asserted causes of action for money had and received and unjust enrichment.

The R&H Defendants claimed that the dispute had to be resolved by arbitration. They claimed that the Vocal Arranger Agreement contained an arbitration clause that governed the allegations and relief sought in the operative complaint. The R&H Defendants noted that their agreement with L&S also contained an arbitration provision. Thus, they claimed that plaintiff’s breach of contract claim relied upon the R&H Agreement with L&S, under which plaintiff was a third-party beneficiary. The R&H Defendants argued that arbitration was required for third-party beneficiaries to a contract.

The Stoller Defendants made similar arguments. They argued that plaintiff could not pick and choose which provisions of the agreement to rely on. The Stoller Defendants emphasized that plaintiff was seeking compensation under the Vocal Arranger Agreement, which has a clear and unambiguous arbitration provision. 

In opposition, plaintiff maintained that he was not a party to any subsequent agreements (agreements which he claimed he only recently learned about) and could not be required to arbitrate with parties with whom he never entered into a contract. He insisted that defendants exploited his arrangements without payment or credit to him. 

The motion court granted defendants’ motions to compel arbitration.

The motion court found that the Vocal Arranger Agreement contained a clear and unambiguous arbitration provision requiring the parties to arbitrate their dispute. This included assignees (e.g., the Stoller Defendants and the R&H Defendants) under the assignment provision of the agreement, which specifically “permitted L&S to assign its rights under the contract without limitation”. “That the defendants were not signatories to that contract”, said the motion court, “is of no moment because they assumed the obligations of the original signatory (L&S).”

The motion court also observed that plaintiff’s claims fell within the scope of the arbitration agreement: “The glaring fact is that, here, plaintiff signed a contract which contained an arbitration clause, and he brings claims based on that contract. So, he has to arbitrate.” 

The motion court further held that since plaintiff was a beneficiary of the R&H agreement that contained an arbitration provision, even though it was not a signatory, under the direct benefits estoppel theory, plaintiff could be compelled to arbitrate. “Under the direct benefits theory of estoppel, a nonsignatory may be compelled to arbitrate where the nonsignatory ‘knowingly exploits’ the benefits of an agreement containing an arbitration clause, and receives benefits flowing directly from the agreement”.11 “Here,” said the motion court, “that is exactly what plaintiff is trying to do. He is trying to enforce the R&H Defendants’ obligations under contracts (and receive those benefits) that contain an arbitration provision.”

[Ed. Note: this Blog examined the direct benefits theory of estoppel here.]

On appeal, the Appellate Division, First Department affirmed.

In a pithy decision, the Court held, as did the motion court, that the arbitration provision in the agreement required arbitration of the dispute: “Since plaintiff’s claim for breach of contract is based on the Vocal Arranger Agreement’s payment provision, the claim is related to an asserted breach of the agreement and is therefore subject to its arbitration clause.”12 

The Court also held, without stating the applicable doctrine by name, that plaintiff was required to arbitrate his breach of contract claims under the direct benefits estoppel theory: “because plaintiff’s claim for breach of contract invokes benefits incorporated into the R&H Agreement explicitly for plaintiff’s benefit, his claim is also subject to that agreement’s arbitration clause”.13


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.


Footnotes

  1. Rent-A-Ctr., W, Inc. v. Jackson, 561 U.S. 63, 67 (2010) (noting that “arbitration is a matter of contract”).
  2. Matter of Smith Barney Shearson v. Sacharow, 91 N.Y.2d 39, 49 (1997) (citations and quotation marks omitted); Stark v. Molod Spitz DeSantis & Stark, P.C., 9 N.Y.3d 59, 66 (2007) (internal citation omitted).
  3. Stark, 9 N.Y.3d at 66 (internal quotation marks and citation omitted).
  4. Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir. 2001).
  5. TBA Global, LLC v. Fidus Partners, LLC, 132 A.D.3d 195, 202 (1st Dept. 2015).
  6. AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648 (1986) (quoting Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960)).
  7. Waldron v. Goddess, 61 N.Y.2d 181, 183-84 (1984); see also Matter of Trump (Refco Props.), 194 A.D.2d 70, 74 (1st Dept. 1993).
  8. Application of Vann, 78 A.D.2d 255, 259 (1st Dept. 1980) (internal quotations and citation omitted).
  9. The Stoller Defendants are: Mike Stoller, The Estate of Jerome Leiber a.k.a. The Jerome I. Leiber 1997 Family Trust, and Leiber Stoller Productions, Inc.
  10. The R&H Defendants are: Rodgers & Hammerstein Holdings, LLC, The Rodgers & Hammerstein Organization, Concord Theatricals Corp., and Broadway Asia Company LLC.
  11. Matter of Belzberg v. Verus Invs. Holdings Inc., 21 N.Y.3d 626, 631 (2013).
  12. Slip Op. at *1 (citing God’s Battalion of Prayer Pentecostal Church, Inc. v. Miele Assoc., LLP, 6 N.Y.3d 371, 374 (2006)).
  13. Matter of SSL Intl., PLC v Zook, 44 A.D.3d 429, 430 (1st Dept. 2007).
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