Arbitrator, Not Court, Must Consider Fraudulent Inducement Claim, 2nd Cir. Affirms

NEW YORK — A federal appeals court has affirmed dismissal of a fraud suit against Costco Wholesale Corp. (NASDAQ: COST), ruling that an arbitrator, not the court, should determine whether the arbitration clause in the parties’ sales contracts is invalid on the basis of fraudulent inducement.

In an Oct. 9 order, the 2nd Circuit U.S. Court of Appeals noted that the Federal Arbitration Act does not permit federal courts to consider claims of fraud in the inducement of the contract generally.

Between October 2005 and September 2008, Costco and ES Electrosales Leadsinger Co. Ltd. entered into a series of agreements …