Arbitration of Woodcrest Fabrics, Inc., Matter of

• Decision Date: 20 December 1983
• Citation: 98 A.D.2d 52,469 N.Y.S.2d 728
• Parties: In the Matter of the ARBITRATION OF WOODCREST FABRICS, INC., Petitioner-Respondent, For a Judgment Staying the Arbitration Commenced by Taritex, Inc., Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 728

469 N.Y.S.2d 728

98 A.D.2d 52

In the Matter of the ARBITRATION OF WOODCREST FABRICS, INC. Petitioner-Respondent For a Judgment Staying the Arbitration Commenced by Taritex, Inc., Respondent-Appellant.

Supreme Court, Appellate Division First Department.

Dec. 20, 1983.

Donald L. Kreindler, New York City, of counsel (Kreindler & Relkin, P.C., New York City, attorneys), for respondent-appellant.

Will Levins, New York City, of counsel (Ballon, Stoll & Itzler, New York City, attorneys), for petitioner-respondent.

Before KUPFERMAN, J.P., and SULLIVAN, ASCH, SILVERMAN and MILONAS, JJ.

SULLIVAN, Justice.

On or about September 24, 1981, Taritex, Inc., an importer of textile fabric, entered into a contract with Woodcrest Fabrics, Inc., a converter of such fabric, for the sale of approximately 50,000 yards of grey blended voile to Woodcrest. That same day Taritex forwarded to Woodcrest a sales contract which contained a broad arbitration clause providing for resolution of all disputes before the General Arbitration Council of the Textile Industry (GAC), a division of the American Arbitration Association. Woodcrest retained the contract without objection but did not sign it. Thereafter, Taritex delivered and Woodcrest accepted the goods specified in the contract. Woodcrest, however, asserting that the goods were defective, failed to pay the invoices as they fell due. After efforts to reach an amicable settlement failed Taritex served a demand for arbitration, which was received by Woodcrest on March 29, 1982.

The demand for arbitration specifically identified the written contract pursuant to which arbitration was sought, set forth the name and address of the party serving the notice, quoted in full the broad arbitration clause contained on the face of the sales contract, described the dispute and specified the relief sought, and, in accordance with the requirements of CPLR 7503(c), contained the following notice:

PLEASE TAKE FURTHER NOTICE that pursuant to CPLR Section 7503(c), unless within twenty days after service of this Demand for Arbitration you apply to stay this arbitration, you shall thereafter be precluded from objecting that a valid agreement was not made or has not been complied with and from asserting in court the bar of a limitation of time.

It is undisputed that an application to stay arbitration was not made until April 22, 1982, some 24 days after Woodcrest received the demand for arbitration.

By letter dated March 30, 1982 to GAC, Woodcrest's attorneys acknowledged receipt of the demand; gave notice that they were appearing in behalf of Woodcrest; and advised GAC that the fabric was substandard and defective and that in due course Woodcrest would interpose a counterclaim for damages. On April 8, 1982, ten days after receipt of the demand for arbitration and with ten days remaining during which Woodcrest could have timely petitioned for a judicial stay, its attorneys reversed their position and withdrew the notice of appearance because Taritex allegedly failed to attach to the demand for arbitration a copy of the contract referred to therein, and on the further ground that it failed to file three copies of said contract with GAC, as required by GAC Rules. Determining that Taritex had fully complied with its rules, GAC advised Woodcrest's attorneys on April 9th that, although they were free to withdraw their representation of Woodcrest, the arbitration proceedings would continue.

Despite this finding by GAC that its rules had been followed, and with nine days remaining in the 20-day statutory period in which to initiate a proceeding to stay arbitration, Woodcrest neither applied to the court to stay arbitration nor requested a copy of the contract. As already noted, not until April 22, 1982, 24 days after receipt of the arbitration demand, did it move to stay arbitration, alleging that it was not a party to an arbitration agreement with Taritex. Taritex opposed the motion and sought to compel arbitration, asserting, inter alia, the untimeliness of the application.

Special Term granted the motion, holding, apparently, at least in part, that the 20-day time limitation is not a bar to an application to stay arbitration "if the demand [does] not meet statutory requirements." Taritex's demand for arbitration, however, plainly complied in all respects with CPLR 7503(c). Nor did Woodcrest contend otherwise. It argued, instead, that GAC Rules were not followed because Taritex failed to attach a copy of the contract to the demand for arbitration served on it. The issue of compliance with the arbitrator's procedural rules is, of course, a matter for the arbitrator. ^*

Since the demand for arbitration complied with section 7503(c), and Woodcrest failed to apply to stay arbitration within the 20-day statutory period prescribed therein, it is precluded as a matter of law from contesting arbitrability. This is the clear mandate of CPLR 7503(c), which, in pertinent part, provides: "An application to stay arbitration must be made by the party served within twenty days after service upon him of the notice or demand, or he shall be ... precluded" from objecting.

The time period contained in CPLR 7503(c) is the equivalent of a statute of limitations and may not be extended. (Jonathan Logan, Inc. v. Stillwater Worsted Mills, 31 A.D.2d 208, 295 N.Y.S.2d 853, aff'd 24 N.Y.2d 898, 301 N.Y.S.2d 636, 249 N.E.2d 477; Weinstein-Korn-Miller, 8 N.Y. Civil Practice § 7503.28, p. 75-110.) It is to be strictly construed. (Aetna Life & Casualty Co. v. Stekardis, 34 N.Y.2d 182, 356 N.Y.S.2d 587, 313 N.E.2d 53; Matter of Allstate Insurance Co. [Ness], 32 A.D.2d 912, 302 N.Y.S.2d 492.)

Woodcrest seeks to avoid the preclusive effect of the 20-day limitation of CPLR 7503(c) by arguing that the statute does not apply in the instance where, as here, the claim is made that an arbitration agreement between the parties does not exist. But, of necessity, that is precisely the claim whenever the validity of an arbitration agreement is challenged. Here, it is incontrovertible that Woodcrest is a party to a contract which, whether by agreement or not, contains a provision for arbitration. The only issue is the validity or enforceability of that provision. Woodcrest's interpretation, if accepted, would nullify the purpose and meaning of CPLR 7503(c), which is specifically addressed to the party who claims not to be bound by an agreement to arbitrate. It requires such a party to make application to the court within 20 days after service of the demand for arbitration, or else be precluded from thereafter challenging the validity of the agreement upon which arbitration is...