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In the Matter of the Application of Ramy Lakah and Michel Lakah

Issue Discussed: Power of Arbitrators

Submitted by Michele L. Jacobson, Esq., Royce F. Cohen, Esq.

Date Promulgated: March 6, 2009

Issue Decided: Does an arbitration panel have the authority to determine whether non-signatories to an arbitration agreement may be subject to the arbitration proceedings?

In In the Matter of the Application of Ramy Lakah and Michel Lakah, petitioners, two non-signatories to arbitration agreements, moved for a preliminary injunction before the United States District Court for the Southern District of New York, seeking to prevent an arbitration panel from determining whether they were bound by the arbitration agreements at issue in the arbitration, such that they were proper parties to the arbitration. The district court preliminarily enjoined the arbitration proceeding against the non-signatories pending the court’s own determination as to whether they were bound by the arbitration agreements.

UBS, et al., commenced an arbitration against Lakah Funding Limited, four guarantors of the bonds, and inter alia, Ramy and Michel Lakah. Significantly, Michel Lakah was not a signatory to the applicable arbitration agreements, and Ramy Lakah signed only on behalf of Lakah Funding Limited and guarantors. Ramy Lakah did not sign in his personal capacity. Ramy and Michel Lakah petitioned the Supreme Court of the State of New York to stay the arbitration as against them on the basis that they were not parties to the arbitration agreements. UBS, et al., removed the petition to federal court. The arbitration panel advised counsel that the next phase of the arbitration would address the issue of whether the arbitration panel had jurisdiction over Ramy and Michel Lakah. In response, Ramy and Michel Lakah moved for a preliminary injunction to enjoin the arbitration panel from making that determination. 2009 WL 577663.

Citing the Supreme Court’s decision in AT & T Techs. v. Commc’ns Workers of America, 475 U.S. 643, 649 (1986), the district court held that “the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.” Id. Finding that being forced to spend significant time and resources litigating whether they were proper parties to the arbitration before a body lacking authority to decide that issue would irreparably injure the petitioners, the district court granted their motion for a preliminary injunction.

The district court further held that the respondents were enjoined from participating in any arbitration proceeding on the issue of whether the petitioners were bound by the arbitration agreements at issue. The district court also ordered that its decision be delivered to the arbitration panel, admonishing that the court was certain that the arbitrators would “follow the law” and forebear from making any determinations as to whether the petitioners were required to arbitrate.

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* Michele L. Jacobson is a partner in the litigation department of Stroock & Stroock & Lavan, L.L.P., concentrating her practice on insurance and reinsurance litigation and arbitration. Ms. Jacobson has represented ceding companies, reinsurers, retrocessionaires, liquidators and intermediaries in a vast array of matters in state and federal courts, as well as before arbitration panels throughout the country.

**Royce F. Cohen is an associate in the litigation department of Stroock & Stroock & Lavan, L.L.P., concentrating on insurance and reinsurance litigation and arbitration. Ms. Cohen has represented ceding companies in a wide range of matters in state and federal courts as well as before arbitration panels throughout the country.