Appellate Court Affirms Arbitration Agreement in Dispute over Sale of Home Health Care Agency

December 2, 2016 - A unanimous panel of the New York Supreme Court, Appellate Division, Second Department, affirmed an order compelling arbitration obtained by Morrison Cohen on behalf of a client.  The case, Markowits, et al. v. Friedman, et al. (App. Div. Doc. No. 2014-08193; Kings Cty. Index No. 502667/2013), involves a dispute related to the potential sale of a home health care agency located in Brooklyn, New York, in which the Plaintiffs argue that alleged fraudulent inducement by the Defendants relieve Plaintiffs of paying for the agency in full.

As part of the agreements intended to transfer ownership of the home health agency from Defendants to Plaintiffs, the parties executed an arbitration agreement.  The Second Department rejected the Plaintiffs' argument that the arbitration agreement was invalid because the sale itself was allegedly fraudulently induced, holding that a “broad arbitration provision is separable from the substantive provisions of a contract such that the agreement to arbitrate is valid” notwithstanding any allegations of fraud related to the “substantive provisions of the contract.”

The Second Department also rejected Plaintiffs' argument that Defendants waived their right to arbitrate by commencing a separate, derivative action in their role as owners of the home health agency, holding that the arbitration agreement at issue applied only to personal claims related to the sale of the home health agency, and that any derivative claims alleging mismanagement and waste of corporate assets fell outside the scope of the agreement and were not arbitrable.