Federal Arbitration Act [FAA]

Cusimano v Schnurr, 2014 NY Slip Op 05702 [1st Dept. 2014]

In September 2012, instead of filing an amended complaint, the Cusimanos filed a demand for arbitration and statement of claim with the American Arbitration Association (AAA). In the arbitration, which was brought against both the accountants and the Strianeses, the Cusimanos asserted claims similar to those raised in the complaint in the court action. Plaintiffs then moved pursuant to CPLR 7503(a) to stay the action pending the arbitration. The accountants cross-moved pursuant to CPLR 7503(b) to permanently stay the arbitration on the grounds that the arbitration claims are time-barred. By separate motions, the Strianeses each moved to intervene in the court action and to permanently stay the arbitration based on the statute of limitations. The Cusimanos opposed a stay of arbitration and argued that, because the agreements were subject to the FAA, the issue of the statute of limitations was for the arbitrator, not the court, to decide.

In a decision and order entered July 16, 2013, the motion court found that the FAA does not apply to the agreements at issue because they do not involve interstate commerce. Thus, the motion court concluded that the question of whether the claims are barred by the statute of limitations was for it to decide. The motion court then found that many of the Cusimanos' claims were barred by the statute of limitations, and granted the accountants' and the Strianeses' [*4]motions to the extent of permanently staying arbitration of the time-barred claims ^[FN4]. The motion court also concluded that any right Rita may have had to arbitrate was waived by her resort to, and participation in, the litigation of this action. Finally, the court granted plaintiffs' motion to the extent of directing the parties to proceed to arbitration on the non-time-barred claims. A judgment was entered on September 11, 2013, and plaintiffs now appeal from both the order and judgment.^[FN5]

We first determine whether the court properly considered the statute of limitations issue or whether it should have been left for the arbitrator. Essential to this question is the determination of whether the FAA applies to the agreements of the three family entities. It is well-settled, and the parties do not dispute, that if the agreements are governed by the FAA, then the timeliness issue is for the arbitrator, not the court (see Matter of Diamond Waterproofing Sys., Inc. v 55 Liberty Owners Corp., 4 NY3d 247, 252 [2005])^[FN6]. The FAA governs agreements which "evidenc[e] a transaction involving commerce" (9 USC § 2). In determining if the FAA applies to a contract, the central question is whether the "agreement is a contract evidencing a transaction involving commerce within the meaning of the [FAA]" (Citizens Bank v Alafabco, Inc., 539 US 52, 53 [2003] [internal quotation marks omitted]).

Courts have interpreted the term "involving commerce" broadly (see id. at 56; Allied-Bruce Terminix Companies, Inc. v Dobson, 513 US 265, 270 [1995]). In Allied-Bruce, the United States Supreme Court concluded that the purpose of the FAA — to reduce the amount of litigation through the enforcement of arbitration agreements — supports a broad interpretation of the term "involving commerce" (513 US at 275). The Court declined to restrict transactions involving commerce only to those "activities within the flow of commerce" (id. at 273 [internal quotation marks and emphasis omitted]). Rather, it found the phrase "involving commerce" to be the equivalent of "affecting commerce," a term associated with the broad application of Congress's power under the Commerce Clause (id. at 273-274; see Citizens Bank, 539 US at 56).

The Supreme Court reaffirmed this interpretation of "involving commerce" in Citizens Bank, stating that "it is perfectly clear that the FAA encompasses a wider range of transactions than those actually in commerce, that is, within the flow of interstate commerce" (539 US at 56 [internal quotation marks omitted]). Further, the Court held that individual transactions do not need to have a substantial effect on interstate commerce in order for the FAA to apply (id.). Rather, as long as there is economic activity that constitutes a general practice "bear[ing] on interstate commerce in a substantial way," the FAA is applicable (id. at 57; see also Wien & Malkin LLP v Helmsley-Spear, Inc., 6 NY3d 471, 478 [2006], cert dismissed 548 US 940 [2006]; ImClone Sys. Inc. v Waksal, 22 AD3d 387, 387 [1st Dept 2005]).

Based on a broad application of the term "involving commerce," we find that the FAA applies to the agreements at issue. Each of the agreements concerns transactions that affect commerce, and all of the entities are involved in the rental of commercial property. FLIP's rental property, which is located in Florida, is leased by a CVS drug store; Berita owns an interest in an entity that in turn owns a Marriott Hotel; and Seaview owns two commercial buildings. Because commercial real estate can affect interstate commerce, the ownership of and investment in the commercial buildings here, one of which is occupied by an international chain hotel and another which houses a national chain drug store located out-of-state, renders the FAA applicable to these agreements (see Frumkin v P & S Constr., N.Y., Inc., 116 AD3d 602, 603 [1st Dept 2014]).

We reject respondents' claims that the FAA is inapplicable because, in their view, this is a dispute about the mismanagement of the family entities in New York State. The proper inquiry is whether the economic activity in question represents a general practice that bears on interstate commerce in a substantial way (see Citizens Bank, 539 US at 56-57; Diamond Waterproofing, 4 NY3d at 250 [FAA was applicable "as the contract had an effect on interstate commerce"] [emphasis added]). This dispute not only involves substantial commercial transactions covering real properties, some of which are not in this state, but as plaintiffs note, the properties are part of national hotel and drug store chains.

Respondents contend that the FAA does not apply because the agreements themselves do not expressly contemplate transactions involving interstate commerce. This argument seeks to narrow the applicability of the FAA in a manner that the courts have declined to adopt. In Allied-Bruce, the Supreme Court faced the question of whether, at the time of agreement, the parties must have contemplated that the contract would evidence a transaction involving substantial interstate commerce or if it was enough that a transaction involving commerce had occurred in fact (513 US at 277-279). The Court found that requiring parties to include a specific reference to interstate commerce in their agreements would undermine the purpose of the FAA by encouraging further litigation as parties contested whether interstate commerce was contemplated at the time the agreement was executed (id. at 278-279). The fact that the agreements here did not expressly contemplate the ownership of commercial real estate that would affect interstate commerce does not, under Allied-Bruce, preclude this Court from finding that the FAA applies.^[FN7]