Breslin Brookhaven, LLC v Rose
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Attorneys and Parties
Brief Summary
This case arose from a limited liability company (LLC) real estate development venture and addressed whether claims over financing and member conduct had to be sent to arbitration under the LLC operating agreement.
The Supreme Court, Nassau County, denied the defendants' motion under CPLR 7503(a) [motion to compel arbitration and stay litigation pending arbitration] to compel arbitration and stay the action, and also denied their alternative request under CPLR 3211(a) [motion to dismiss a pleading].
The Appellate Division overturned the portion of the order denying the defendants' CPLR 7503(a) request and directed that the dispute be sent to arbitration with the court action stayed.
The court found that the operating agreement contained a broad arbitration clause covering disputes 'arising out of or relating to' the agreement, the dispute bore a reasonable relationship to that agreement, AVR Enterprises, LLC (AVR) could enforce the clause as Rose's assignee, and the defendants did not waive arbitration by litigating a separate 2022 action.
Background
On August 17, 1999, Allan V. Rose and Breslin Brookhaven, LLC entered into an operating agreement for Rose-Breslin Associates, LLC, formed to acquire and develop unimproved land in Suffolk County. The agreement stated that if there was a dispute between the parties arising out of or relating to matters set forth in the agreement, either party could submit the dispute to binding arbitration before the American Arbitration Association. In May 2024, Breslin Brookhaven, LLC, individually and derivatively on behalf of the LLC, sued Rose and AVR, alleging among other things breach of contract. The plaintiff claimed Rose had made loans to the LLC in a way that bypassed third-party funding requirements and structured repayment to prioritize principal over interest, and that the plaintiff had agreed to forego third-party financing based on that arrangement.
Lower Court Decision
The lower court denied the defendants' motion to compel arbitration and stay the action, or alternatively to dismiss the complaint. The plaintiff had argued that AVR was not a signatory to the arbitration agreement and that the defendants had waived any right to arbitrate by appearing and litigating on the merits in a separate 2022 action concerning Rose's assignment of his LLC interest to AVR.
Appellate Division Reversal
The Appellate Division modified the order by granting the branch of the motion seeking to compel arbitration and stay all proceedings pending arbitration. It held that the arbitration clause was broad enough to cover the present dispute, that AVR could enforce the clause because Rose's interest was assignable under the operating agreement and the agreement did not bar an assignee from invoking arbitration, and that participation in a different lawsuit did not waive the right to arbitrate this dispute. As modified, the order was otherwise affirmed, with costs to the defendants.
Legal Significance
The decision reinforces New York's strong enforcement of contractual arbitration provisions where the clause is broad and the dispute is reasonably related to the contract. It also confirms that a nonsignatory assignee may enforce an arbitration clause when the underlying agreement permits assignment and does not exclude assignees from enforcement. In addition, the ruling clarifies that litigating a separate action does not, without more, waive arbitration rights in a later case involving a different dispute.
A broad arbitration clause in an LLC operating agreement will be enforced for related business disputes, and an assignee of a member's interest may invoke that clause if the agreement allows assignment. Separate prior litigation between the parties does not automatically waive the right to compel arbitration in a new action.