One of the key principles of New York contract law is that courts enforce a contract’s unambiguous terms. Recent decisions in New York commercial cases illustrate how that principle is applied to agreements relating to alternative dispute resolution.

For example, on February 20, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Key Restoration Corp. v. Union Theological Seminary, 2014 NY Slip Op. 30437(U), dismissing a lawsuit for failure to exhaust pre-litigation ADR obligations.

In Key Restoration Corp., the plaintiff sued to foreclose on its mechanic’s lien and for breach of contract and unjust enrichment. The defendant moved to dismiss on the ground that the plaintiff had failed to comply with the pre-litigation dispute resolution provisions of the parties’ contract. The trial court agreed, dismissing the complaint notwithstanding the plaintiff’s multiple arguments regarding why mediation would be futile or moot.

Agreements to submit to ADR do not have to be written. For example, on February 19, 2014, the Appellate Division, Second Department issued a decision in Willer v. Kleinman, 2014 NY Slip Op. 01164, that, while ultimately finding that the defendants had waived their rights under it, recognized the binding nature of an oral agreement to arbitrate.

Willer was “an action to recover damages for breach of contract” relating to the renovation of a “residential property in Brooklyn.” The parties’ written contract made no mention of arbitration. However, when, at the request of one of the plaintiffs, a rabbinical court summoned the defendant to appear before it to arbitrate the parties’ dispute, the defendant appeared and agreed to arbitrate the dispute. Even though the parties did not go forward with the arbitration before the rabbinical court, the Second Department held that the parties to that proceeding had created a binding oral arbitration agreement, explaining: “Oral agreements to arbitrate are not covered by CPLR article 75, and are referred to as ‘common-law arbitration’ agreements’” that, despite the absence of a writing, are “enforceable.”

Finally, term sheets prepared in connection with ADR can be binding, just as any other agreement. For example, on February 27, 2014, the New York Appellate Division, First Department issued a decision in Trolman v. Trolman, Glaser & Lichtman, P.C., 2014 NY Slip Op. 01396, affirming the enforcement of a settlement term sheet prepared at the culmination of a mediation. The First Department held that even though the parties envisioned that a term sheet would be followed by a more formal settlement agreement, it was a binding contract because it “expressed the parties’ intention to be bound, and established a meeting of the minds regarding the material terms pertaining to the settlement of plaintiff’s claim.”

We welcome suggestions regarding court decisions, upcoming oral arguments or other developments in the area of litigation in the Commercial Division of the New York State Courts or the Eastern District of New York that we should blog about.