Arbitration: non-arbitrable issue inextricably intertwined with an arbitrable issue

The First Department, in Protostorm, Inc. v Foley & Lardner LLP, 193 AD3d 486, 487 [1st Dept 2021], held that a non-arbitrable issue can be decided in an arbitration when the issue is inextricably intertwined with the arbitrable issue. The court held:

Where there is no substantial question whether a valid agreement [to arbitrate] was made or complied with, . . . the court shall direct the parties to arbitrate” and its order “shall operate to stay a pending . . . action” (CPLR 7503 [a] [emphasis added]). Once a valid arbitration agreement is identified, an arbitration should only be stayed “when the sole matter sought to be submitted to arbitration is clearly beyond the arbitrator’s power” (Matter of Silverman [Benmor Coats], 61 NY2d 299, 309 [1984] [emphasis added]). Further, where “arbitrable and nonarbitrable claims are inextricably interwoven, the proper course is to stay judicial proceedings pending completion of the arbitration, particularly where . . . the determination of issues in arbitration may well dispose of nonarbitrable matters” (Cohen v Ark Asset Holdings, 268 AD2d 285, 286 [1st Dept 2000]; see also Lake Harbor Advisors, LLC v Settlement Servs. Arbitration & Mediation, Inc., 175 AD3d 479 [2d Dept 2019]; Matter of Monotube Pile Corp. v Pile Found. Constr. Corp., 269 AD2d 531 [2d Dept 2000]).

There is no dispute that there is a valid agreement between the parties to arbitrate any dispute regarding unpaid fees. Thus, the court must compel arbitration of defendants’ claim for unpaid fees and stay this action pending completion of the arbitration (CPLR 7503 [a]). Moreover, because plaintiff’s nonarbitrable malpractice claim is inextricably intertwined with the arbitrable claim for unpaid fees, the proper course is to stay the action pending completion of the arbitration (see Cohen, 268 AD2d at 286 **2 ; Lake Harbor Advisors, LLC, 175 AD3d at 479; Monotube Pile Corp., 269 AD2d at 531).

To the extent plaintiff argues that it cannot be forced to arbitrate its malpractice claim because it did not explicitly agree to do so, both the First and Second Departments have clearly found that a nonarbitrable issue can be decided in an arbitration when it is inextricably intertwined with an arbitrable issue, particularly where, as here, the determination of the arbitrable unpaid fees claim may dispose of the nonarbitrable malpractice claim (see Cohen, 268 AD2d at 286; Lake Harbor Advisors, LLC, 175 AD3d at 480; Monotube Pile Corp., 269 AD2d at 531-532).

R. A. Klass
Your Court Street Lawyer

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