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The Arbitrator, Not The Court, Decides Questions of Contract Validity

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  • Posted on: Jul 20 2022

By: Jeffrey M. Haber

It is well-settled that the arbitration provisions of the Civil Practice Law and Rules (CPLR § 7501 et seq.) evidence a legislative intent to encourage arbitration.1 In fact, arbitration is a preferred means for the settlement of disputes between parties.2

In light of the foregoing, (1) when parties to a contract have clearly and unambiguously agreed to arbitrate their disputes, the courts will enforce that agreement, as they would any other agreement, to give effect to the parties’ intention; (2) the courts will not substitute their judgment for that of the arbitrator(s); and (3) the courts will confirm an arbitration award, unless a movant can demonstrate that one of the grounds for vacatur set forth in the CPLR exist – a task that is often difficult to do.

“Where there is no substantial question whether a valid agreement [to arbitrate] was made or complied with, and the claim sought to be arbitrated is not barred by limitation …, the court [will] direct the parties to arbitrate.”3 Where the validity of an agreement to arbitrate is in question, the court retains the authority, in the initial instance, to assess whether the arbitration clause – independent of overall contractual validity – is valid.4  If the court finds the arbitration clause to be valid (as in Sussman v. Bryah, LLC, 2022 N.Y. Slip Op. 32300(U) (Sup. Ct., N.Y. County July 14, 2022) (here), the case that we examine today), then the case must give way to the arbitrator on the question of overall contractual validity.5

Sussman involved a dispute arising from defendant’s manufacture and installation of custom kitchen cabinets in plaintiff’s apartment. In addition to allegations concerning defendant’s workmanship and the condition of the materials used (i.e., the kitchen cabinets), plaintiff alleged that defendant was not licensed as a Home Improvement Contractor, pursuant to New York City Administrative Code § 20-387,6 at the time the services were performed.

The agreement pursuant to which the work was performed provided that “[a]ny dispute arising under this Sales Contract shall be settled by binding arbitration pursuant to the rules of the American Arbitration Association”. 

Based upon the foregoing language, defendant moved to compel arbitration. Plaintiff opposed the motion, arguing that the sales agreement, as opposed to the arbitration provision, was invalid because defendant was allegedly not a licensed contractor. Plaintiff contended that by violating Administrative Code § 20-387, the entire sales contract was void.

The court granted the motion. In doing so, the Court found that plaintiff only “challenge[d] the validity of the whole agreement and [did] not separately challenge the arbitration clause.” “Accordingly,” concluded the Court, “the issue of whether this contract was legal must, therefore, be decided by the arbitrator.”

In explaining its rationale, the Court noted that plaintiff did not provide any “basis to assail the arbitration clause itself, as an expression of mutual consent to arbitrate disputes.” In the absence of such evidence, said the Court, “[t]his dispute must … now move forward to arbitration for disposition of any and all relevant questions, including, importantly, whether defendant possessed the capacity, as a licensed Home Improvement Contractor, to enter into the sales agreement ….”

Takeaway

In many of the arbitration cases this Blog examines, the issue before the court is whether the parties agreed to arbitrate their disputes – that is, whether they have a valid and binding agreement to arbitrate. Sussman bucks this trend by focusing on the agreement as a whole, which, as discussed, is an issue for the arbitrator to decide. 


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. E.g., Matter of Weinrott (Carp), 32 N.Y.2d 190, 199 (1973).
  2. Id.
  3. CPLR § 7503(a).
  4. Matter of Prinze, 38 N.Y.2d 570 (1976).
  5. Id. See also Monarch Consulting, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 26 N.Y.3d 659, 661 (2016).
  6. New York City Administrative Code, § 20-387, provides that “[n]o person shall solicit, canvass, sell, perform or obtain a home improvement contract as a contractor from an owner without a license therefor.”
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