New York: 'Affects' Interstate Commerce Enough for FAA, Statute of Limitations (Web)

On March 24th, 2005, the Court of Appeals of New York held that the Federal Arbitration Act (“FAA”) extends to all written arbitration provisions in contracts that affect interstate commerce.  The court also ruled that a statutes of limitations question had to be answered by the arbitrator unless the contract provided that New York law govern its enforcement.
 
Judge Ciparick authored the unaminous opinion of the court.  The case involved a contract to repair the roof and façade of a residential building in New York City’s Financial District.  The repair work was completed in October, 1996, but an inspection of the building after the September 11th attacks found cracks.  The building cooperative sought damages for breach of contract and negligence.  The contractor argued that the statute of limitations barred recovery and that under New York law the court should dismiss the case.
 
Although the trial court had declined to apply the FAA because the contract did not substantially affect interstate commerce, the Appellate Division and Court of Appeals applied the more liberal “affects” test in finding that the contract fell under the FAA.  Various non-party companies in Illinois, New Jersey, Oklahoma, Maryland and Kansas were involved in the project in some way, and so the contract affected interstate commerce.
 
On the statute of limitations argument, Judge Ciparick clarified that “[a] choice of law provision, which states the New York law shall govern both ‘the agreement and its enforcement,’ adopts as binding New York’s rule that threshold Statute of Limitations questions are for the courts [but in] the absence of more critical language concerning enforcement… all controversies, including issues of timeliness are subjects for arbitration.”
 
In this case, the choice of law provision read “[t]he Contract shall be governed by the law of the place where the Project is located.”  The Court held that this was not an express intention to have the courts determine the Statute of Limitations issues, and therefore it was for the arbitrator to decide.
 
Diamond Waterproofing Systems, Inc., v. 55 Liberty Owners Corp. can be found at 2005 WL 673581 (Ct. App. N.Y. March 24, 2005).  It is also available at: http://www.courts.state.ny.us/reporter/3dseries/2005/2005_02358.htm

                                                                                                           
 - Mark Boyko