Matter of American Ins. Co. [Messinger—Aetna Cas. & Sur. Co.], 43 N.Y.2d 184 (1977)
r
r
A general release settling substantive claims does not automatically waive the right to arbitrate disputes arising from the underlying agreement unless the release explicitly addresses or terminates the arbitration agreement itself.
r
r
Summary
r
This case addresses whether a general release, executed after a dispute arose under agreements containing arbitration clauses, waived the right to arbitrate future disputes under those agreements. The Court of Appeals held that the general release, which settled substantive claims, did not preclude arbitration because it did not explicitly address or terminate the arbitration agreement. The court reasoned that an arbitration agreement is separable from the substantive provisions of a contract, and a general release only terminates substantive rights unless it explicitly indicates an intent to waive the right to arbitrate.
r
r
Facts
r
Sedlow and Charles Schlaifer & Company, Inc. entered into a stockholders agreement and an employment agreement, both containing arbitration clauses for disputes arising from the agreements. A dispute arose, and the corporation paid Sedlow $5,000 in exchange for a general release of all claims. Sedlow then sought arbitration, claiming entitlement to a percentage of corporate profits and stock under the original agreements. The corporation argued the general release barred arbitration.
r
r
Procedural History
r
The lower court initially ruled in favor of allowing arbitration. The Appellate Division affirmed this decision. The Court of Appeals then reviewed the Appellate Division’s order.
r
r
Issue(s)
r
Whether a general release, settling substantive claims under a contract containing an arbitration clause, operates to waive the right to arbitrate disputes arising under that contract when the release does not explicitly mention the arbitration agreement.
r
r
Holding
r
No, because a general release addresses only the substantive rights and obligations under the original agreement, not the separate agreement to arbitrate, unless explicitly stated otherwise.
r
r
Court’s Reasoning
r
The Court of Appeals reasoned that an arbitration agreement is a separable provision from the substantive terms of a contract. A general release, absent explicit language to the contrary, is construed to pertain only to the substantive rights and obligations, effectively terminating those specific claims. The court distinguished the situation from one involving a cancellation agreement, which nullifies the entire agreement, including the arbitration clause from its inception (Matter of Minkin [Halperin], 279 App Div 226, affd 304 NY 617). The court emphasized that parties can explicitly modify or terminate their agreement to arbitrate in any instrument modifying the substantive provisions of their original agreement (County of Sullivan v Edward L. Nezelek, Inc., 42 NY2d 123, 128). However, because the general release lacked any reference to arbitration or an intent to waive the right to arbitrate, the arbitration clause remained in effect. The court stated, “Once the parties to a broad arbitration clause have made a valid choice of forum…all questions with respect to the validity and effect of subsequent documents purporting to work a modification or termination of the substantive provisions of their original agreement are to be resolved by the arbitrator.”