New York Law Review

Tag: Arbitration Agreement

  • Wu v. Uber Tech., Inc., 2024 NY Slip Op 05869: Enforceability of Arbitration Agreements in Clickwrap Contracts

    2024 NY Slip Op 05869

    A clickwrap agreement containing an arbitration clause is enforceable if the user is given reasonable notice of the terms and manifests assent, even if the user doesn’t read the terms; however, challenges to the enforceability of the arbitration agreement based on misrepresentation or unconscionability are for the arbitrator to decide if the agreement includes a delegation provision.

    Summary

    In Wu v. Uber, the New York Court of Appeals addressed the enforceability of an arbitration agreement within Uber’s updated terms of service, to which Wu purportedly assented through a clickwrap process. The court held that the clickwrap process, involving an email and in-app pop-up, provided reasonable notice of the terms, including the arbitration clause, and that Wu’s act of checking the box and confirming constituted assent. The court further determined that challenges to the arbitration agreement’s scope, specifically whether it applied to a pending lawsuit, were matters for the arbitrator, given the presence of a delegation provision. The court found that the delegation provision was valid, thus obligating Wu to arbitrate these disputes.

    Facts

    Emily Wu was injured while using Uber’s service, and she initiated a personal injury lawsuit against Uber. Uber later updated its terms of service, including an arbitration agreement, which were presented to users via an email and a clickwrap process in the app. Wu received the email and, upon logging into the app, checked a box and confirmed her agreement to the updated terms. The new terms provided that all disputes, including those regarding personal injury and claims that had accrued before the user agreed to the new terms, would be settled through arbitration. Uber subsequently demanded arbitration, and Wu moved to stay the arbitration and requested sanctions for an alleged violation of the Rules of Professional Conduct. The lower courts compelled arbitration and stayed the litigation, and Wu appealed to the Court of Appeals.

    Procedural History

    Wu initiated a personal injury action. Uber updated its terms and demanded arbitration based on the clickwrap agreement. The trial court denied Wu’s motion to stay arbitration and granted Uber’s motion to compel, finding an agreement to arbitrate and that the challenges to the agreement were for the arbitrator. The Appellate Division affirmed. The Court of Appeals granted leave to appeal, and certified a question regarding whether the Appellate Division’s order was properly made.

    Issue(s)

    1. Whether the clickwrap process used by Uber constituted a valid agreement to arbitrate.
    2. Whether the scope of the arbitration agreement, including its applicability to a pending lawsuit, should be determined by the court or the arbitrator.
    3. Whether Uber’s communications violated Rule 4.2 of the Rules of Professional Conduct.

    Holding

    1. Yes, because the clickwrap process provided reasonable notice of the terms and Wu manifested her assent by checking the box and clicking confirm.
    2. Yes, because the arbitration agreement contained a delegation provision granting the arbitrator exclusive authority to resolve disputes relating to the agreement’s interpretation, enforceability, and applicability.
    3. No, because the lower court did not abuse its discretion in declining to sanction Uber.

    Court’s Reasoning

    The court began by recognizing New York’s strong public policy favoring arbitration. Citing the FAA, the court noted that arbitration agreements are treated like any other contracts. Thus, the court determined that a valid contract requires a manifestation of mutual assent. The Court stated that a person must be put on “inquiry notice” of the terms and agree to them to be bound by a web-based contract. The clickwrap process used by Uber, including the email and in-app pop-up, put Wu on inquiry notice of the terms. The Court held that a reasonably prudent user would understand that clicking the “confirm” button and checking the box constituted assent. The court also pointed out that the enforceability challenges were for the arbitrator because the agreement contained a delegation provision. The delegation provision granted the arbitrator exclusive authority over any disputes relating to the agreement’s interpretation, applicability, and enforceability. Finally, the court held that the lower court did not abuse its discretion in declining to invalidate the arbitration agreement or impose sanctions for the alleged rule 4.2 violation, as Uber lacked actual knowledge of the lawsuit at the time it sent the communications to Wu.

    Practical Implications

    This decision reinforces the enforceability of clickwrap agreements in New York, provided that the process gives reasonable notice of the terms and a clear mechanism for assent. Attorneys should advise clients using digital platforms of the importance of reviewing terms of service and the consequences of agreeing to arbitration clauses, particularly delegation provisions. Businesses must ensure that their clickwrap processes are conspicuous and provide clear notice of the terms. This case highlights the critical importance of delegation provisions, which can shift disputes over arbitration’s scope and enforceability from courts to arbitrators. This case is also a strong reminder that communications with a represented party should always go through the party’s attorney. Note that the dissent argued that the inclusion of a provision requiring arbitration of a pending lawsuit was not obvious to the consumer and that such a term required separate notice.

  • Schreiber v. K-Sea Transportation Corp., 9 N.Y.3d 331 (2007): Enforceability of Post-Injury Seaman Arbitration Agreements

    9 N.Y.3d 331 (2007)

    Post-injury arbitration agreements between seamen and their employers are not automatically prohibited, but their enforceability depends on the absence of fraud, deception, or coercion, with the burden of proof on the seaman to demonstrate the agreement’s invalidity. Any arbitration order must ensure the seaman can pursue the claim without prohibitive costs.

    Summary

    Nicholas Schreiber, a seaman, was injured while working for K-Sea Transportation. After the injury, K-Sea offered Schreiber increased maintenance payments in exchange for agreeing to arbitrate any claims related to the injury. Schreiber signed the agreement. Later, Schreiber sued K-Sea under the Jones Act. K-Sea sought to compel arbitration. The New York Court of Appeals held that post-injury arbitration agreements are not prohibited but ordered a hearing to determine the enforceability of the agreement, placing the burden on Schreiber to prove its invalidity due to factors like fraud or unconscionability. The court also specified that Schreiber shouldn’t be burdened with costs that would prevent him from pursuing his claim.

    Facts

    Nicholas Schreiber, a seaman employed by K-Sea Transportation Corp., sustained injuries while working on K-Sea’s tugboat. K-Sea initially provided maintenance payments of $15 per day. Several weeks post-injury, K-Sea’s claims manager proposed increasing payments to two-thirds of Schreiber’s regular wage as an advance against settlement, contingent on Schreiber agreeing to arbitration. Schreiber signed the agreement, which stipulated arbitration under AAA rules and K-Sea’s advancement of filing fees up to $750. Later, Schreiber sued K-Sea under the Jones Act after his injury worsened. K-Sea then demanded arbitration, but the AAA required a $10,000 filing fee, significantly exceeding the $750 mentioned in the agreement.

    Procedural History

    Schreiber petitioned the Supreme Court to stay arbitration; K-Sea cross-moved to compel it. The Supreme Court granted Schreiber’s petition, finding K-Sea failed to prove the absence of deception or coercion. The Appellate Division reversed, ordering a hearing on the agreement’s enforceability, but maintained that K-Sea had the burden to show the agreement was equitable. The New York Court of Appeals affirmed the Appellate Division’s order for a hearing, but modified it by placing the burden of proof on Schreiber to demonstrate the agreement’s unenforceability.

    Issue(s)

    1. Whether the Federal Arbitration Act (FAA) prohibits the enforcement of a post-injury arbitration agreement between a seaman and his employer?

    2. Whether Section 5 of the Federal Employers’ Liability Act (FELA) renders the arbitration agreement void?

    3. Whether the “ward of the admiralty” doctrine invalidates the arbitration agreement unless proven fair to the seaman?

    Holding

    1. No, because the agreement at issue is not a “contract of employment” excluded from the FAA; it is a separate agreement made after the employment relationship was established and after the injury occurred.

    2. No, because an arbitration agreement is not a forbidden exemption from Jones Act liability.

    3. No, because the “ward of the admiralty” doctrine does not outweigh the policy favoring arbitration; Schreiber must show fraud, unconscionability, or some other defect to invalidate the agreement.

    Court’s Reasoning

    The court reasoned that the FAA favors arbitration, even for claims under protective statutes like the Jones Act, citing Gilmer v. Interstate/Johnson Lane Corp. The court distinguished the arbitration agreement from an employment contract, finding it a separate agreement made after the injury. Therefore, the FAA applies. The court rejected the argument that FELA § 5 voids the agreement under the precedent of Boyd v. Grand Trunk Western R. Co., emphasizing the federal policy favoring arbitration. “To hold, as Schreiber urges, that any agreement to arbitrate a Jones Act claim is void would contradict that policy.”

    Regarding the “ward of the admiralty” doctrine, the court acknowledged its historical basis from Harden v. Gordon and Garrett v. Moore-McCormack Co., but asserted that it doesn’t automatically invalidate arbitration agreements. The court stated, “Schreiber is bound by his agreement with K-Sea unless he can show that fraud, unconscionability or some other defect justifies invalidating it.”

    The court ordered a hearing due to a “troubling aspect” of the agreement: the statement that K-Sea would advance filing fees “up to $750.00,” which could mislead Schreiber about the actual $10,000 fee. The court emphasized that “If Supreme Court finds that K-Sea intentionally misled Schreiber, and that if correctly informed he would not have agreed to arbitration, the arbitration agreement should be set aside.” The court also stipulated that if arbitration is compelled, K-Sea must bear any costs that would prevent Schreiber from pursuing his claim, citing Green Tree Financial Corp.-Ala. v. Randolph.

  • Credit Suisse First Boston Corp. v. Pitofsky, 4 N.Y.3d 149 (2005): Superseding Arbitration Agreements with Registered Representatives

    Credit Suisse First Boston Corp. v. Pitofsky, 4 N.Y.3d 149 (2005)

    An arbitration agreement between a broker-dealer and a registered representative can supersede a prior arbitration agreement between the registered representative and a stock exchange, but only if the subsequent agreement clearly applies to the specific dispute.

    Summary

    The New York Court of Appeals addressed whether a privately negotiated employment agreement’s arbitration clause between a broker-dealer (CSFB) and its registered representatives (Pitofsky and Santoro) superseded the arbitration provisions of an earlier agreement (Form U-4) between the employees and the New York Stock Exchange (NYSE). The court held that such an agreement could supersede the earlier one. However, in this specific case, the employment agreement contained a carve-out provision that preserved the NYSE arbitration requirement. Therefore, the dispute was required to be arbitrated before the NYSE.

    Facts

    CSFB hired Pitofsky and Santoro as real estate salespersons. As a condition of employment, they executed Form U-4s, which contained a standard arbitration clause requiring them to arbitrate disputes with their firm as required by the rules of self-regulatory organizations (SROs) like the NYSE. Later, CSFB adopted an Employment Dispute Resolution Program (EDRP), incorporated into Pitofsky and Santoro’s employment agreements, with a three-stage grievance process culminating in binding arbitration before JAMS/Endispute, the American Arbitration Association or the Center for Public Resources Institute for Dispute Resolution. The EDRP had a carve-out provision stating that if a registered representative was subject to a “legal requirement” to arbitrate under particular rules or in a particular forum (e.g., a stock exchange), that requirement would prevail.

    Procedural History

    After CSFB terminated Pitofsky and Santoro, they sought arbitration before the NYSE based on their Forms U-4. CSFB sought a stay of the NYSE arbitration, arguing the EDRP superseded the Form U-4 and the carve-out was inapplicable. Supreme Court granted CSFB’s application. The Appellate Division reversed, holding that the employment agreements could not supersede the previously executed Form U-4 agreements. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Can an arbitration clause in a privately negotiated employment agreement between a broker-dealer and its registered representative supersede the arbitration provisions of an earlier Form U-4 agreement between the employees and the NYSE?

    2. Under the specific terms of the EDRP at issue, did the parties supersede the pre-existing Form U-4 agreement as it applies to this dispute?

    Holding

    1. Yes, because established principles of contract law permit modification of an earlier agreement by a later one, supported by valuable consideration (continued employment).

    2. No, because the EDRP contained a carve-out provision that preserved the registered representatives’ obligation to arbitrate before the NYSE where a “legal requirement” to do so existed.

    Court’s Reasoning

    The Court of Appeals held that an arbitration agreement between a broker-dealer and a registered representative could supersede a prior agreement with an SRO. The court reasoned that the EDRP effectively modified the Form U-4 arbitration requirements. The court emphasized that “arbitration is a creature of contract, and it has long been the policy of this State to ‘interfere as little as possible with the freedom of consenting parties’ in structuring their arbitration relationship.”

    However, the court found that the EDRP carve-out applied in this case. The Form U-4 requires registered representatives to arbitrate disputes as required by the rules of the SROs. NYSE Rule 347(a) states that controversies arising out of employment termination “shall be settled by arbitration, at the instance of any such party…” The court disagreed with federal district court cases that interpreted the phrase “at the instance of any such party” as negating a binding obligation. The Court of Appeals stated: “That the parties could, in theory, agree to modify their obligation to arbitrate before the NYSE pursuant to rule 347 does not make the rule any less of a ‘legal requirement.’ Because arbitration agreements are inherently contractual, the parties may agree to modify them.” The court also noted CSFB’s prior communication indicating that the carve-out applied to claims brought by registered representatives.

  • Sablosky v. Edward S. Gordon Co., Inc., 73 N.Y.2d 133 (1989): Enforceability of Arbitration Clauses Absent Mutuality of Remedy

    Sablosky v. Edward S. Gordon Co., Inc., 73 N.Y.2d 133 (1989)

    An arbitration agreement supported by consideration is valid even if it lacks mutuality of remedy, meaning one party has the option to litigate while the other is bound to arbitrate.

    Summary

    Thomas Sablosky, a former commission salesman, sued Edward S. Gordon Company, Inc., for commissions he claimed were owed from a real estate sale. The company moved to compel arbitration based on an arbitration clause in Sablosky’s employment agreement, which allowed the company to elect arbitration while Sablosky was bound to it. The New York Court of Appeals held that the arbitration clause was enforceable, even though it lacked mutuality of remedy, as the overall employment contract was supported by consideration. The court also found no basis for deeming the agreement unconscionable.

    Facts

    Thomas Sablosky was employed by Edward S. Gordon Company, Inc., as a commission salesman. He claimed he was owed a $3.6 million commission for his role in the sale of the Exxon Building. Sablosky’s employment contract contained an arbitration clause that gave the company the option to demand arbitration for any disputes, while Sablosky did not have the same option. The company moved to stay the lawsuit and compel arbitration.

    Procedural History

    The Supreme Court granted the company’s motion to compel arbitration. The Appellate Division reversed, holding that the arbitration agreement was unenforceable due to a lack of mutuality of obligation. The Court of Appeals granted the company leave to appeal.

    Issue(s)

    Whether an employment contract containing an arbitration clause that compels one party to arbitrate but allows the other party the choice of arbitration or litigation is invalid for lack of mutuality of remedy or obligation.

    Holding

    No, because mutuality of remedy is not required in arbitration contracts as long as the entire agreement is supported by consideration. The court also found the agreement was not unconscionable.

    Court’s Reasoning

    The Court of Appeals reasoned that the validity of an arbitration agreement should be determined by the laws applicable to contracts generally, and contract law does not require mutuality of remedy. “If there is consideration for the entire agreement that is sufficient; the consideration supports the arbitration option, as it does every other obligation in the agreement.” The court noted that an increasing number of jurisdictions enforce commercial arbitration clauses despite the lack of mutuality of remedies. It distinguished its prior holdings in Hull Dye & Print Works v Riegel Textile Corp. and Matter of Kaye Knitting Mills [Prime Yarn Co.]. The court also addressed the plaintiff’s arguments regarding unconscionability, stating that the arbitration clause was not unreasonable, and the contract was not one of adhesion. The court explained that the real estate brokerage business is bound to generate disputes, and an employer with many employees should be able to protect itself from costly litigation by including an arbitration clause. Concerning unconscionability, the court held: “[a]n unconscionable contract [is] one which ‘is so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforcible according to its literal terms.’ ” Furthermore, the Court found that the contract was not procedurally unconscionable simply because it was drafted by the employer, as this is common practice. The court concluded that the plaintiff’s claim of potential bias in the arbitration panel was premature.

  • Itoman (U.S.A.), Inc. v. Daewoo Corp., 80 N.Y.2d 925 (1992): Determining Agreement to Arbitrate When Using Brokers

    Itoman (U.S.A.), Inc. v. Daewoo Corp., 80 N.Y.2d 925 (1992)

    When a transaction involves conflicting arbitration clauses in a broker’s salesnote and a signed confirmation, determining which document controls depends on resolving factual issues, including the broker’s authority and the timing of document execution and receipt.

    Summary

    Itoman, a textile importer, agreed to purchase fabric from Daewoo, a Korean exporter, through broker New. Daewoo sent a Confirmation with a Korean arbitration clause, which New signed. New also sent its own salesnote with a New York arbitration clause, which both parties retained without objection. A dispute arose, and Itoman sought arbitration in New York, while Daewoo sought it in Korea. The Court of Appeals reversed the lower courts’ decision to compel arbitration in New York, finding unresolved factual issues regarding the broker’s authority and the controlling document.

    Facts

    Itoman (U.S.A.), Inc. agreed to purchase textiles from Daewoo Corporation through R.D. New & Co., a broker. Daewoo sent New a “Confirmation of Order/Sales Note” with an arbitration clause requiring arbitration in Korea. New added “For the Account of Itoman (U.S.A.) Inc.” to the confirmation, signed it, and returned it to Daewoo. New also sent a separate salesnote to both Daewoo and Itoman, stipulating arbitration in New York. Both parties retained the salesnote without objection and proceeded with the transaction. A dispute later arose regarding the quality of the fabric.

    Procedural History

    Itoman petitioned to compel arbitration in New York under CPLR 7503(a). Daewoo cross-petitioned to compel arbitration in Korea. Special Term granted Itoman’s motion, holding that both parties submitted to the salesnote’s terms. The Appellate Division affirmed. The Court of Appeals reversed and remitted the matter to the Supreme Court, New York County.

    Issue(s)

    1. Whether the broker’s salesnote or Daewoo’s signed Confirmation of Order controls the arbitration agreement between Itoman and Daewoo.

    2. Whether the broker, New, had the authority to bind Itoman to arbitration in Korea through the signed Confirmation.

    Holding

    1. No, because the record contains unresolved issues of fact regarding the timing and circumstances surrounding the execution and receipt of the Confirmation, and its consistency with the salesnote.

    2. Cannot be determined on the present record, because Itoman disputes that the broker had authority to bind it to arbitration in Korea.

    Court’s Reasoning

    The Court of Appeals reasoned that while typically, retaining a broker’s salesnote without objection implies agreement to its terms, including an arbitration clause, the signed Confirmation from Daewoo, if binding on Itoman, could supersede the salesnote. The court highlighted conflicting evidence in the record. It noted the presence of three different Confirmation forms, discrepancies in their terms, and a lack of clarity regarding when the Confirmation was received and returned. The Court also considered Itoman’s claim that it was unaware of the signed Confirmation and that the broker lacked authority to bind it to arbitration in Korea. The Court found it impossible to determine which document controlled without resolving these factual disputes. The Court emphasized the need to determine New’s authority, citing Michel & Co. v Anabasis Trade, 50 NY2d 951. The Court stated, “No choice between the conflicting documents can be made on the present record…In such circumstances, we have no basis for upholding the conclusion below that the salesnote was the first and controlling document, and no choice but to remit the matter for factual determinations necessary for a proper application of the law.”

  • Matter of Marlene Industries Corp. v. Carnac Textiles, 45 N.Y.2d 327 (1978): Arbitration Agreement by Conduct

    Matter of Marlene Industries Corp. v. Carnac Textiles, 45 N.Y.2d 327 (1978)

    A party can be bound to an arbitration clause in a contract if they affirmatively agree to it through their conduct, even without signing the contract, but mere receipt of a form containing an arbitration clause, without more, is insufficient to demonstrate agreement.

    Summary

    This case addresses whether a buyer, Marlene Industries, was bound by an arbitration clause contained in a seller’s (Carnac Textiles) contract forms. The Court of Appeals held that Marlene was not bound to arbitrate because there was no clear agreement to arbitrate. The court distinguished this case from a situation where a party signs a contract with knowledge of an arbitration clause or receives multiple confirmations without objection. The key factor was the lack of affirmative conduct demonstrating agreement to arbitrate.

    Facts

    Marlene Industries and Carnac Textiles engaged in a business relationship. Carnac Textiles sent Marlene Industries several contract confirmations, each containing an arbitration clause. Marlene Industries never signed these confirmations, and there was no direct evidence that Marlene Industries was aware of the arbitration clause’s presence. Conflicting contract forms were exchanged between the parties. No evidence existed that the recipient of the contract containing the arbitration clause was aware of its presence or had agreed to arbitrate.

    Procedural History

    The case originated from a dispute between Marlene Industries and Carnac Textiles. Carnac Textiles sought to compel arbitration based on the arbitration clause in its contract confirmations. The lower courts likely ruled on the motion to compel arbitration. The New York Court of Appeals reviewed the lower court’s decision regarding the enforceability of the arbitration clause.

    Issue(s)

    Whether Marlene Industries, by receiving and retaining contract confirmations containing an arbitration clause without signing them or explicitly agreeing to arbitration, manifested an agreement to arbitrate disputes with Carnac Textiles.

    Holding

    No, because the mere receipt and retention of contract confirmations containing an arbitration clause, without a signature or other affirmative conduct indicating agreement, is insufficient to establish a binding agreement to arbitrate.

    Court’s Reasoning

    The Court emphasized that an agreement to arbitrate must be clear and unequivocal. The court distinguished this case from Schubtex, Inc. v Allen Snyder, Inc., 49 NY2d 1, where the buyer signed the first confirmation with knowledge of the arbitration clause and subsequently received and retained additional confirmations without objection. In this case, there was no evidence of such affirmative conduct. The court stated that, unlike in Schubtex, there was no evidence that Marlene Industries was even aware of the arbitration clause, let alone agreed to it. The court implicitly applied the principle that contracts, including arbitration agreements, require mutual assent. The mere exchange of forms, without a clear indication of acceptance of the arbitration clause, does not create a binding agreement. The decision reinforces the principle that a party cannot be compelled to arbitrate unless there is clear evidence of their intent to waive their right to litigate in court. The court did not explicitly discuss policy considerations, but the decision likely reflects a concern for protecting parties from unknowingly waiving their right to a judicial forum. The court emphasized that contradictory contract forms were exchanged between the parties.

  • Schubtex, Inc. v. Allen Snyder, Inc., 49 N.Y.2d 1 (1979): Arbitration Agreements Require Express Intent

    Schubtex, Inc. v. Allen Snyder, Inc., 49 N.Y.2d 1 (1979)

    An agreement to arbitrate must be express; it cannot be inferred solely from a prior course of dealing where the arbitration clause was merely printed on the back of order confirmations without explicit negotiation or prior arbitration.

    Summary

    Schubtex, Inc. sought to stay arbitration demanded by Allen Snyder, Inc., arguing there was no express agreement to arbitrate. The trial court found a valid agreement based on the parties’ prior dealings, where order confirmations contained an arbitration clause. The Appellate Division affirmed. The Court of Appeals reversed, holding that an arbitration agreement requires an express intention to be bound, not just repeated inclusion of an arbitration clause in unobjected-to order confirmations. The court emphasized that absent explicit agreement, parties retain the right to litigate disputes in court.

    Facts

    Allen Snyder, Inc. (seller) and Schubtex, Inc. (buyer) engaged in several transactions for synthetic textiles. Orders were taken orally, and Snyder sent written order confirmations containing an arbitration clause on the reverse side. A dispute arose regarding a specific order when Schubtex refused to assort the remaining goods. Snyder demanded arbitration based on the clause in the order confirmation. Schubtex sought a stay of arbitration, denying any agreement to arbitrate.

    Procedural History

    The Supreme Court initially issued a temporary stay of arbitration pending a trial to determine the existence of an arbitration agreement. After the trial, the Supreme Court determined a valid agreement existed and vacated the stay. The Appellate Division affirmed without opinion, but granted leave to appeal to the Court of Appeals.

    Issue(s)

    Whether a valid agreement to arbitrate exists solely based on the prior course of dealings between parties, where the arbitration clause was included on the reverse side of written order confirmations sent after oral agreements, and no prior disputes were arbitrated.

    Holding

    No, because evidence of a prior course of dealing alone is insufficient to establish an express agreement to arbitrate; there must be affirmative evidence that the parties expressly agreed to arbitrate their disputes.

    Court’s Reasoning

    The court relied on its prior decision in Matter of Marlene Inds. Corp. (Carnac Textiles), which held that an arbitration clause on the back of an acknowledgment of order is a material alteration and not binding unless expressly agreed upon. The court reiterated that parties should not be forced into arbitration without evidence of an express intention to be bound, emphasizing the importance of preserving the right to litigate in court absent clear consent to arbitrate.

    The court acknowledged that prior dealings can be relevant, stating, “evidence of a trade usage or of a prior course of dealings may normally be utilized to supplement the express terms of a contract for the sale of goods.” However, it found no evidence that the parties ever arbitrated a dispute or that the clause was material in their negotiations. The court reasoned that repeated use of an ineffective form (the order confirmation with the arbitration clause) does not create an agreement to arbitrate where none existed initially.

    The court distinguished the case from situations where a course of conduct clearly demonstrates an agreement to arbitrate, such as previous arbitrations or explicit negotiations regarding the clause. The absence of such evidence led the court to conclude that there was no express agreement to arbitrate in this instance. The ruling underscores that while trade usage or prior dealings can supplement a contract, they cannot substitute for an express agreement to arbitrate, protecting parties from unknowingly waiving their right to a judicial forum.

  • Crawford v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 35 N.Y.2d 290 (1974): Enforceability of Arbitration Agreements

    Crawford v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 35 N.Y.2d 290 (1974)

    An agreement to arbitrate, even if unsigned, is enforceable if there is proof that the parties actually agreed to it, and courts may consider undisputed facts outside the initial record to resolve protracted litigation and promote the speedy resolution of arbitrable controversies.

    Summary

    James Crawford, a former registered representative of Merrill Lynch, sought to recover commissions. Merrill Lynch moved to compel arbitration based on Crawford’s employment contract. Crawford then served a notice demanding arbitration before the American Arbitration Association, while simultaneously opposing Merrill Lynch’s motion. The Court of Appeals held that Crawford was required to arbitrate before the New York Stock Exchange (NYSE) based on his agreement to abide by NYSE rules when he became a registered representative, and the court considered NYSE rules submitted on appeal to resolve the issue.

    Facts

    James Crawford, a former Merrill Lynch registered representative, sued Merrill Lynch to recover commissions allegedly owed to him. Merrill Lynch moved to dismiss the action and compel arbitration before the NYSE, citing Crawford’s employment contract. Crawford then served Merrill Lynch with a “Notice of Intention to Arbitrate” before the American Arbitration Association (AAA), referencing the same agreement and Pierson’s affidavit that arbitration was the exclusive remedy. The notice was sent to Merrill Lynch’s headquarters in New York City.

    Procedural History

    The Supreme Court granted Merrill Lynch’s motion to compel arbitration before the NYSE and vacated Crawford’s arbitration before the AAA. The Appellate Division reversed, holding that Merrill Lynch’s failure to move to stay arbitration within 10 days precluded them from objecting to the validity of the agreement. The Court of Appeals reversed the Appellate Division’s order, directing the parties to arbitrate before the NYSE and vacating the AAA arbitration.

    Issue(s)

    1. Whether Merrill Lynch’s failure to move to stay arbitration within 10 days after receiving Crawford’s notice precluded them from objecting to the validity of the arbitration agreement.
    2. Whether the arbitration clause in Crawford’s Stock Exchange application constituted a “written agreement” to arbitrate, even though it was not signed by Merrill Lynch.
    3. Whether the court can consider the Exchange rules, submitted for the first time on appeal, to determine the forum for arbitration.

    Holding

    1. No, because the notice was misleading and did not provide Merrill Lynch with a fair opportunity to respond.
    2. Yes, because the statute only requires “a written agreement” and does not require that the writing be signed, “so long as there is other proof that the parties actually agreed on it”.
    3. Yes, because considering the rules would resolve the protracted litigation and further the policy favoring speedy resolution of arbitrable controversies.

    Court’s Reasoning

    The Court found that the notice of intention to arbitrate was misleading, suggesting Crawford was merely joining Merrill Lynch’s motion to compel arbitration before the Exchange, and that serving the notice at Merrill Lynch’s New York City headquarters effectively deprived Merrill Lynch of a fair opportunity to respond within the 10-day period. The Court noted, “.If this service is effective to bar contest to the arbitration, [a party who] did a nationwide business could be served anywhere, with the practical certainty that it be precluded from opposing arbitration. Such practice should not be countenanced, on the principle that service not designed to give notice cannot be grounds for a default.”
    Regarding the written agreement, the Court emphasized that CPLR 7501 only requires “A written agreement” to arbitrate and that there is no requirement that the writing be signed. The court cited to Matter of Helen Whiting, Inc. [Trojan Textile Corp.], 307 N.Y. 360, 368, stating that a signature is unnecessary “so long as there is other proof that the parties actually agreed on it”. The Court distinguished this case from Johnson v. Equitable Life Assur. Soc. of U. S. because accepting the Exchange rules would not generate factual questions needing resolution by other courts, and would instead conclude the protracted litigation and return the case to arbitrators. The Court found that the rules of the NYSE were properly before the court to ensure the speedy resolution of the case.

  • Matter of Willard Alexander, Inc. v. Glasser, 29 N.Y.2d 270 (1971): Enforceability of Arbitration Agreements in Union Constitutions

    29 N.Y.2d 270 (1971)

    When parties agree to abide by a labor union’s constitution and bylaws that mandate arbitration of disputes, that agreement constitutes a written agreement to arbitrate under CPLR 7501, even if the specific contract giving rise to the dispute lacks an arbitration clause.

    Summary

    This case addresses whether an arbitration clause within a labor union’s constitution and bylaws constitutes a “written agreement” to arbitrate under New York law (CPLR 7501) between a union member and a licensed booking agent. The Court of Appeals held that it does. Glasser, an orchestra leader and union member, refused to pay commissions to Alexander, a licensed booking agent. Alexander sought arbitration per the union’s rules. The Court found that by becoming a union member and the booking agent agreeing to be licensed by the union, both parties consented to the union’s constitution and bylaws, including the arbitration clause. Therefore, a valid written agreement to arbitrate existed, making the arbitration award enforceable. The decision underscores that membership in an organization implies consent to its rules, including arbitration provisions.

    Facts

    Alexander, a booking agent licensed by the American Federation of Musicians (AFM), arranged two engagements for Glasser, an orchestra leader and AFM member, at Roseland Dance City. Alexander’s commission was to be 10% of Glasser’s total earnings. After Glasser performed the first engagement, Alexander billed him $3,000 for the commission on both bookings. Glasser refused to pay.

    Procedural History

    Alexander requested the AFM’s international executive board to arbitrate the claim. Glasser did not participate in the arbitration. The board awarded Alexander the full amount. Special Term of the Supreme Court confirmed the award. The Appellate Division affirmed the judgment. Glasser appealed to the New York Court of Appeals.

    Issue(s)

    Whether the obligation of parties to abide by the provisions of a labor union’s constitution and bylaws, requiring the submission of disputes to arbitration, constitutes a “written agreement” between them, within the sense of CPLR 7501, to arbitrate their differences.

    Holding

    Yes, because the mutual obligation of the parties to observe the union’s arbitration provisions constitutes a “written agreement” to arbitrate under CPLR 7501.

    Court’s Reasoning

    The Court of Appeals reasoned that Glasser, by becoming a member of the AFM, agreed to abide by its constitution and bylaws, which included a mandatory arbitration clause for disputes between members and booking agents. The court stated, “when a person becomes a member of a labor organization…he thereby agrees, as a matter of law, to abide by the duly enacted provisions of its constitution and by-laws.” Similarly, Alexander, by becoming a licensed booking agent, also agreed to abide by the union’s rules. The court cited Merrill Lynch, Pierce, Fenner & Smith v. Griesenbech, where membership in the New York Commodity Exchange, with its arbitration rules, was deemed a valid agreement to arbitrate. The court distinguished the present case by noting that both parties were obligated to observe the union’s arbitration rules, creating a mutual agreement to arbitrate. The court rejected Glasser’s argument that Section 101(a)(4) of the Labor-Management Reporting and Disclosure Act was violated, clarifying that the act protects a union member’s right to sue the union, which was not limited by the arbitration rules in question. The court found no reason to set aside the arbitration award.

  • Matter of Griesenbeck v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 28 N.Y.2d 690 (1971): Scope of Arbitration Agreements Limited to Transactions on the Exchange

    Matter of Griesenbeck v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 28 N.Y.2d 690 (1971)

    An arbitration clause limited to controversies arising out of transactions “made on the Exchange” does not extend to disputes arising from transactions made on other exchanges, even if those transactions are related.

    Summary

    Griesenbeck (defendant) sought to compel arbitration with Merrill Lynch (plaintiff) regarding losses sustained from copper futures contracts. Merrill Lynch purchased copper futures on the London Metal Exchange for Griesenbeck’s account, which was connected to Griesenbeck’s existing account with copper future contracts on the New York Commodities Exchange. The New York Court of Appeals held that the arbitration clause in the agreement between the parties, which covered controversies “arising out of any transaction in commodities made on the Exchange,” did not apply to transactions on the London Metal Exchange, even if those transactions related to the New York commodities exchange transactions. The Court affirmed the order denying arbitration.

    Facts

    Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) and Griesenbeck had a customer agreement that included an arbitration clause.
    The arbitration clause covered any controversy between a member and member firms arising out of any transaction in commodities made on the Exchange.
    Griesenbeck sustained losses on copper futures contracts and sought to compel arbitration.
    Merrill Lynch had purchased copper futures contracts short on the London Metal Exchange for Griesenbeck’s account.
    Griesenbeck also held copper futures contracts on the New York Commodities Exchange.
    The transactions on the London Metal Exchange were related to a drop in the price of copper on the New York Commodities Exchange.

    Procedural History

    The lower court initially ruled in favor of Merrill Lynch, denying Griesenbeck’s motion to compel arbitration.
    The Appellate Division affirmed the lower court’s decision.
    Griesenbeck appealed to the New York Court of Appeals.

    Issue(s)

    Whether an arbitration clause in an agreement between a customer and a brokerage firm, which provides for arbitration of controversies arising out of transactions made on a specific exchange, applies to transactions made on a different exchange, even if the transactions are related.

    Holding

    No, because the arbitration clause is limited to transactions made on the specified exchange and does not extend to transactions made on other exchanges, even if those transactions are related to activities on the specified exchange.

    Court’s Reasoning

    The Court reasoned that the plain language of the arbitration clause limited its scope to transactions made on the New York Commodities Exchange. The clause stated that it covered controversies “arising out of any transaction in commodities made on the Exchange.” The Court emphasized that the transaction at issue, the purchase of copper futures on the London Metal Exchange, was not a transaction made on the New York Commodities Exchange.
    The Court rejected the argument that the connection between the London Metal Exchange transactions and the New York Commodities Exchange transactions was sufficient to bring the dispute within the scope of the arbitration clause. The Court stated that even though the London Metal Exchange transaction was causally related to the drop in the price of copper on the New York Commodities Exchange, it was still a separate transaction. The court emphasized the importance of adhering to the plain language of the arbitration agreement.
    The dissenting opinion argued that the arbitration clause should be interpreted broadly, but the majority rejected this argument, stating that they have never applied arbitration clauses in contravention of their plain language. Judge Keating, in dissent, stated, “While it is true that in cases such as Matter of Exercycle Corp. (Maratta) (9 Y 2d 329) we have broadly interpreted arbitration clauses, we have never applied them in contravention of the plain language in which they are couched.”