Originally from Dispute Resolution Journal

ARBITRABILITY — FRAUD IN THE INDUCEMENT — SEPARABILITY — NEW YORK

Where there is an allegation of fraud in the inducement of a contract, the agreement to arbitrate, being separable, requires the issue be arbitrated. Overruling the long standing New York rule [Wrap-Vertiser v. Plotnick, 3 N.Y.2d 17 (1957)], the Court of Appeals ruled that ". . . under a broad arbitration provision the claim of fraud in the inducement should be determined by arbitrators." In reaching this holding, the court reasoned that fraud itself is arbitrable and prior decisions had frequently been made to depend on the precise wording of the arbitration clause, which led to many inconsistent decisions. The key to the issue, the court reasoned, was not so much the wording of the clause as the judicial attitude which, in recent years, has recognized that a "broad" arbitration clause reflects a general desire to have all issues arbitrated. To reach the view that fraud should be arbitrated, the court adopted the "separability" concept, that the arbitration clause is a separate agreement and if it is itself "valid" then arbitration should be ordered even if the substantive portions of the contract were induced by fraud. In addition to the legal theory of separability, the court gave weight to substantial policy arguments, primarily, that the old rule had led to intense litigation before the controversy could even reach arbitration. The court also indicated that the legislative encouragement of arbitration had removed a large burden from the courts. In addition, the holding would prevent the "forum shopping" possible because of the federal rule of separability.

Weinrott v. Carp, N.Y.2d , N.Y.S.2d , N.E.2d (1973).