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Arbitration Pulls in Corporation That Didn’t Exist When Principals Agreed to Arbitrate

Where arbitration has been agreed to, no claims reach court. Courts are constantly called upon to describe the boundaries of this absolute exclusion.
In a recent Massachusetts Appeals Court case Silverwood Partners, LLC v. Wellness Partners, LLC (AC 16-P-1174) (July 25, 2017) a corporation that did not exist when the arbitration was signed, tried to escape the reach of arbitration – to no avail.

The case involved two securities industry people who worked for one firm and started another, competitive one. Almost all securities industry flaps are resolved strictly and privately outside of the Courts, in arbitration. The old company sued the newly-formed competitor and the former employees who formed it.

As individual employees of a securities business, the departing former employees asserted, and the Court agreed, that the competition claims had to be resolved by arbitration.

The old company amended its complaint to sue just the new corporation – claiming the arbitration sweep didn’t reach this newly formed entity. The new company urged the court to bundle the whole thing up in arbitration, to dismiss from Court the remaining claims.

The decision put the new corporation into arbitration with all the rest of the parties and claims since they were so related and since they all arose from acts by people who were subject to arbitration.

COBB COMMENTARY – If you agree to arbitrate you are stuck with that way of resolving disputes, sometimes even if you don’t.

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Charles W. Cobb

Attorney at Law


320 Nevada Street Ste 301,

Newton MA 02460




(978) 979-1223

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