Cusimano v. Schnurr
| Decision Date | 16 December 2015 |
| Parties | Rita CUSIMANO, Individually and Derivatively as Shareholder, Officer, Partner and Member of Berita Realty Corp. and Others, and as Partner of Strianese Family Limited Partnership, et al., Respondents, v. Andrew V. SCHNURR, CPA, et al., Appellants, and Bernard V. Strianese et al., Intervenors–Appellants. |
| Court | New York Court of Appeals Court of Appeals |
Garvey Schubert Barer, New York City (Alan A. Heller and Benjamin Liebowitz of counsel), for Andrew V. Schnurr and others, appellants, and Bernard V. Strianese, intervenor-appellant.
Campolo, Middleton & McCormick, LLP, Ronkonkoma (Patrick McCormick and Christine Malafi of counsel), and Joseph, Terracciano & Lynam LLP, Syosset (Peter J. Terracciano and Janine T. Lynam of counsel), for Bernadette Strianese, intervenor-appellant.
Dewey Pegno & Kramarsky LLP, New York City (David S. Pegno, Tamara L. Bock and David C. Gartenberg of counsel), for respondents.
The issues presented by this appeal are whether the Federal Arbitration Act (FAA) is applicable to disputes arising under the agreements at issue and, if so, whether plaintiffs Rita and Dominic Cusimano waived their right to arbitrate by pursuit of this litigation. We hold that the FAA does apply, but that plaintiffs waived their right to arbitrate.
This appeal concerns three commercial agreements entered into among family members regarding family-owned entities. Each agreement was executed by New York residents1 and each contains a provision stating that disputes will be settled by arbitration pursuant to the rules of the American Arbitration Association (AAA).
The first agreement at issue is the partnership agreement relating to the Strianese Family Limited Partnership (FLIP), which was formed by Rita's father, intervenor Bernard Strianese, and mother, nonparty Carmella Strianese, in 1998. The FLIP maintains its office in New York. According to the partnership agreement, the FLIP was formed for the stated purposes of owning, acquiring and developing real property, as well as making other types of investments. The FLIP had owned commercial property in Deer Park, New York, but now owns property in Florida that it leases to a CVS drug store.
In 2010, Rita commenced a prior action in Nassau County Supreme Court seeking judicial dissolution of the FLIP. Bernard and Carmella intervened and successfully moved to compel arbitration of the proceeding. The court subsequently granted intervenors' motion to confirm the arbitration award that found them to be majority owners (Matter of Cusimano v. Strianese Family LP, 2011 N.Y. Slip Op. 34206[U], 2011 WL 13042890 [2011] ), and the Appellate Division affirmed (Matter of Cusimano v. Strianese Family Ltd. Partnership, 97 A.D.3d 744, 949 N.Y.S.2d 94 [2d Dept.2012] ).
The second agreement at issue is the operating agreement of Berita Realty, LLC, which was formed by Rita and her sister, intervenor Bernadette Strianese, in 2001. Its principal place of business is in Port Washington, New York. Berita owns a 19% interest in an entity called Greenbriar Associates, which, in turn, owns a Marriott hotel in Plainview, New York.
In 2010, Rita commenced a separate action in Nassau County Supreme Court seeking judicial dissolution of Berita and an accounting. Bernadette moved to compel arbitration and the court stayed the proceeding, directing arbitration of all issues (Matter of Cusimano v. Berita Realty LLC, 2011 N.Y. Slip Op. 34207[U], 2011 WL 13042891 [2011] ). Upon Rita's appeal, the Appellate Division affirmed (Matter of Cusimano v. Berita Realty, LLC, 103 A.D.3d 720, 959 N.Y.S.2d 711 [2d Dept.2013] ).
Also at issue is an agreement by which Rita sold her interest in one of the "Seaview Corporations"—60 Seaview—to Bernadette.
The Seaview Corporations were formed by Bernard, Rita and Bernadette, and own two commercial buildings in Port Washington, New York.
The instant action was commenced in August 2011 in New York County Supreme Court, alleging fraud and malpractice against the family's accountants (defendants Schnurr and Norman) for work they had performed between 1991 and 2009, including allegations that they had aided and abetted fraud and other misconduct on the part of Bernard and Bernadette, who were not named as defendants. Before defendants responded to the complaint, plaintiffs moved to disqualify defendants' counsel. Plaintiffs also sought discovery by serving three nonparty subpoenas, which defendants moved to quash. During oral argument on the motion to disqualify, defense counsel maintained that the matter "belongs in arbitration."
Defendants then moved to dismiss the complaint on several grounds, including that the claims were time-barred. Supreme Court dismissed the complaint, but gave plaintiffs 20 days to replead certain causes of action with specificity. The court, however, made clear that it viewed many of the claims as falling outside the statute of limitations. Moreover, while discussing why plaintiffs were seeking corporate documents from the defendant accountants, the court told plaintiffs' counsel:
On the 20th day, plaintiffs filed a demand for arbitration and a statement of claim with AAA. The allegations were nearly identical, except that Bernard and Bernadette were included as respondents.
Plaintiffs then moved to dismiss the action they had commenced in Supreme Court or, in the alternative, for a stay pending arbitration. Defendant accountants cross-moved to dismiss the action with prejudice or, in the alternative, to permanently stay the claims asserted in the arbitration demand as time-barred. Bernard and Bernadette moved to intervene and for a permanent stay of the arbitration claims, as barred by the statute of limitations.
Concluding that the FAA was inapplicable because the totality of the economic activity at issue did not have an effect on interstate commerce, Supreme Court determined that it, rather than the arbitrator, was the appropriate forum to decide the statute of limitations issues (40 Misc.3d 1208[A], 2013 N.Y. Slip Op. 51077[U], 2013 WL 3481406 [2013] ). The court further opined that this was "a flagrant example of forum shopping" and that plaintiffs had waived the right to arbitration by their "resort to, and aggressive participation in this litigation" (2013 N.Y. Slip Op. 51077[U], *10). Supreme Court therefore granted the motions to intervene, granted the motions and cross motion to stay the arbitration to the extent of staying certain claims on statute of limitations grounds and granted the plaintiffs' motion to the extent of directing that the parties arbitrate the remaining non-time-barred claims.
The Appellate Division, among other things, reversed the judgment insofar as appealed from, and denied the motions and cross motion to stay arbitration (120 A.D.3d 142, 991 N.Y.S.2d 400 [1st Dept.2014] ). The Court held that the FAA applied to the agreements because each "concern[ed] transactions that affect[ed] commerce" (120 A.D.3d at 148, 991 N.Y.S.2d 400 ). In particular, the Court observed that the entities were involved in commercial real estate, holding interests in properties that were rented to an international hotel chain and a national drug store chain. The Court rejected the argument that plaintiffs had waived the right to arbitration, holding that they had not engaged in "protracted litigation" and there was no resulting prejudice to the other parties. This Court granted defendants and intervenors leave to appeal and we now reverse.
The United States Supreme Court has interpreted the reach of the FAA extremely broadly, characterizing the act's basic purpose as "overcom[ing] courts' refusals to enforce agreements to arbitrate" (Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270, 115 S.Ct. 834, 130 L.Ed.2d 753 [1995] ). In Allied–Bruce, the Supreme Court held that the term "involving commerce" was meant to be the functional equivalent of "affecting commerce," which typically signals Congress's intent to invoke the full extent of its powers under the Commerce Clause (see 513 U.S. at 273–274, 115 S.Ct. 834 ).
In particular, the Court addressed the scope of the statutory language, "evidencing a transaction involving commerce." The Court observed that there were conflicting interpretations of the phrase—whether it meant that the parties had contemplated substantial interstate activity at the time they had entered the agreement, or whether the transaction at issue must have turned out, in fact, to have involved interstate commerce (see 513 U.S. at 277, 115 S.Ct. 834 ). The Court concluded that the "commerce in fact" interpretation was more in keeping with the statute, pointing out that the "contemplation of the parties" test appeared contrary to congressional intent, as it would invite litigation about what the parties had been thinking when they executed the agreement (see 513 U.S. at...
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