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Given the preemptive force of the Federal Arbitration Act (FAA), the New York Rule, requiring written confirmation of arbitration agreements, is only enforceable if the subject matter of the contract does not involve interstate commerce, according to a New York trial court.
In Kahan Jewelry Corp. v. Venus Casting, Inc., No. 105609/07, 2007 WL 2871001, (N.Y. Sup. Ct. Sept. 5, 2007), Kahan and Venus engaged in many transactions for the purchase of gold using a certain blank check and delivery ticket system. Each purchase’s delivery ticket featured terms and conditions, including an agreement to arbitrate all related disputes with a Beth Din rabbinical court of Kahan’s choosing. The delivery tickets were not signed by either party.
A dispute arose over payments made on certain deliveries, upon which Kahan requested arbitration proceedings with a Beth Din. Venus was given notice of the request and was advised that the arbitration would commence unless opposed within 20 days. Venus made no attempt to oppose arbitration within that time, and the Beth Din subsequently entered an award for Kahan.
Kahan moved to confirm the arbitration award. In opposing the motion, Venus aruged that the terms on the unsigned delivery ticket did not constitute a valid agreement to arbitrate and rendered Kahan’s award invalid.
The Court agreed that a line of New York cases, predating the Uniform Commercial Code (UCC), held that arbitration provisions in unsigned confirmations were invalid. Application of this “New York Rule,” according to the Court, would require it to hold the delivery ticket agreement to arbitrate invalid because it was not signed.
However, the Court observed that the New York Rule was preempted to the extent it was inconsistent with the Federal Arbitration Act (FAA) if the arbitration agreement involved interstate commerce. The Court found that the gold delivery agreements involved interstate commerce, triggering the application of the FAA to this agreement.
Since the FAA forbids courts from applying stricter standards to an agreement to arbitrate than to other terms within the contract, the Court refused to apply the New York Rule to the Kahan-Venus agreement. According to the Court, the FAA required that all terms on the ticket be equally subjected to the UCC rule that terms were binding if not objected to within ten days. Therefore, Venus’s failure to object to the arbitration term within ten days made the term binding, the agreement valid, and Kahan’s award enforceable.
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