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THE CONTRACT PROPERLY ACCORDED THE ARBITRATOR THE AUTHORITY TO DETERMINE “GATEWAY” QUESTIONS OF ARBITRABILITY; NONSIGNATORIES ARE COMPELLED TO ARBITRATE (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Miller, over a two-justice dissent, determined: (1) the contract properly accorded the arbitrator the power to decide whether the issues raised in the complaint were arbitrable (so-called “gateway” questions); and (2) the non-signatories, here plaintiff’s LLC and defendant’s law partner and law firm, are subject to the arbitration provision in the contract. Plaintiff is a professional football player and defendant is an attorney who represented plaintiff in contract negotiation and marketing and endorsements. The opinion is detailed and comprehensive and cannot be fully summarized here:

… Revis [plaintiff athlete] entered into an agreement with Schwartz [defendant attorney] pursuant to which they agreed to arbitrate “gateway” questions of arbitrability … . …

… [N]either the Supreme Court, nor this Court, nor any court, has the authority to decide whether and to what extent these parties’ disputes are arbitrable … . Indeed, just as a court may not “rule on the potential merits of the underlying” claim that is assigned by contract to an arbitrator, “even if it appears to the court to be frivolous”… , “a court may not decide an arbitrability question that the parties have delegated to an arbitrator” … , even if the court determines that “the argument that the arbitration agreement applies to the particular dispute is ‘wholly groundless'” … . * * *

“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” … . “The benefits must be direct, and the party seeking to compel arbitration must demonstrate that the party seeking to avoid arbitration relies on the terms of the agreement containing the arbitration provision in pursuing its claim” … . Revis v Schwartz, 2020 NY Slip Op 08094, Second Dept 12-30-20

 

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