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The New York Court of Appeals determined that a law firm did not waive its right to compel arbitration when it participated in litigation because the resort to the courts was justified by urgent need.
In Stark v. Molod Spitz DeSantis & Stark, P.C., 2007 WL 2988825 (N.Y. Oct. 16, 2007), after four years as an equity partner in Molod Spitz DeSantis & Stark (“the firm”), Stark became a contract partner under an employment agreement she negotiated with the firm. The agreement stipulated that all controversies and claims arising out of the agreement were to be resolved by binding arbitration.
Afterward, Stark left the firm, and brought a special proceeding action against the firm seeking various forms of relief. Stark and the firm agreed to a stipulation of settlement, which promptly resolved the dispute. The stipulation allowed Stark to continue representing her clients, and also included a mutual reservation-of-rights provision that preserved the rights and remedies of the parties.
Stark served the firm with a second complaint seeking compensatory and punitive damages for injury to her professionally and personally. The firm moved to compel arbitration pursuant to the employment agreement.
The lower courts determined that by actively participating in a special proceeding and a plenary action that involved matters falling within the scope of the arbitration clause, the firm manifested its acceptance of the judicial forum and waived its contractual right to compel arbitration.
The Court disagreed with the lower courts’ decisions, noting that not every trip into a courthouse results in a waiver of the right to arbitrate: “where urgent need to preserve the status quo requires some immediate action which cannot await the appointment of arbitrators, wavier will not occur.”
The Court noted that this instance is one where urgent need justifies resort to the courts. The stipulation agreement minimized interruption of Stark’s and the firm’s respective clients. Neither of the parties’ clients would have been well served by a delay in waiting for resolution to arbitration.
The firm’s motions were contemplated by the stipulation, and the firm only sought to enforce it. Finally, the parties did include a mutual reservation-of-rights provision in the stipulation that preserved the firm’s right under the agreement to compel arbitration.
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