On April 22, 2010, the New York State Supreme Court, Appellate Division, First Department, unanimously affirmed a trial court order dismissing a motion to compel arbitration by broker Imperial Capital LLC against distressed debt hedge fund 3V Capital Master Fund Ltd. 3V Capital faced a lawsuit by Deephaven Distressed Opportunities Trading, Ltd. and its affiliates for its alleged breach of a contract requiring it to purchase claims held by Deephaven against a bankruptcy estate. 3V Capital dragged Imperial, its securities clearance broker, and another hedge fund, Post Distressed Master Fund, L.P., which had promised but then failed to purchase those same claims from 3V Capital, into the lawsuit as third-party defendants. Since the litigation at issue involved Imperial’s actions as broker for an uncompleted sale of bankruptcy claims, the Appellate Division agreed with the trial court that the sale fell outside the narrow terms of the securities clearance brokerage arbitration agreement between 3V Capital and Imperial. This article details the background of the action and the court’s legal analysis.