Commercial division update:
Binding nonsignatories to arbitration agreements

Recent years have witnessed significant growth in the use of arbitration to resolve disputes. Viewed by many as less costly and speedier than litigation, and certainly more private, it has become the preferred route for many. With the prevalence of arbitration clauses in modern agreements, it is more important than ever for individuals and businesses to express clearly the scope of who is bound to an arbitration agreement and to understand the theories under the law for binding nonsignatories.

New York public policy encourages the enforcement of agreements to arbitrate. See Matter of Smith Barney Shearson v. Sacharow, 91 N.Y.2d 39, 49 (1997). Because arbitration is a matter of contract, however, “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960). Despite this general rule and CPLR § 7501’s requirement that arbitration agreements be in writing, New York has recognized that there is sometimes a “need to impute the intent to arbitrate to a nonsignatory.” TNS Holdings v. MKI Sec. Corp., 92 N.Y.2d 335, 339 (1998). Courts in New York consider a well-established set of theories for determining when nonsignatories should be bound to arbitration agreements.

Read the full update.