SCM Corp. v. Fisher Park Lane Co.

• Decision Date: 02 December 1976
• Citation: 390 N.Y.S.2d 398,358 N.E.2d 1024,40 N.Y.2d 788
• Parties: , 358 N.E.2d 1024 In the Matter of the arbitration between SCM CORPORATION, Respondent, and FISHER PARK LANE COMPANY, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 398

390 N.Y.S.2d 398

40 N.Y.2d 788, 358 N.E.2d 1024

In the Matter of the arbitration between SCM CORPORATION, Respondent and FISHER PARK LANE COMPANY, Appellant.

Court of Appeals of New York.

Dec. 2, 1976.

Charles G. Moerdler, Henry J. Silberberg and Vicki Z. Armet, New York City, for appellant.

Michael A. Cardozo and Mark Walfish, New York City, for respondent.

JONES, Judge.

We hold that, for purposes of applying the Statute of Limitations, a landlord's counterclaim to the tenant's demands for recovery of overpayment of rent (where that counterclaim is based on the assertion that the lease between them should be reformed) does not arise 'from the transactions, occurrences, or series of transactions or occurrences' upon which the tenant's claim for overpayment of rent depends. Accordingly in this instance, the landlord's attempted supplemental submission to arbitration of its claim for relief in the nature of reformation was properly stayed, on timely application of the tenant, as being barred by the six-year Statute of Limitations. We also hold that, were the landlord's counterclaim to be reached, an arbitrator would have power under a broad arbitration clause to grant appropriate relief including that similar to the remedy of reformation in equity. It was thus error below to grant the stay of arbitration on the alternative ground that the specific relief sought therein would not have been available.

In June, 1966 the parties entered into an agreement by which the tenant leased several floors of a commercial building from the landlord for a term of 50 years commencing February 28, 1968. The agreement provided a fixed rent, made subject in section 2.02 to annual adjustments equal to 17.73% Of changes in real estate taxes and expenses incurred on the building over 'Base Taxes' and an 'Expense Base Factor' as those terms were defined. Also included was an arbitration clause by which the parties agreed that 'if there be any dispute between Landlord and Tenant with respect to the provisions of this Section 2.02, the issue shall be expeditiously submitted to the American Arbitration Association for determination'.

After the tenant had entered upon the premises it was advised on August 6, 1969 of a rent escalation due to an increase in taxes for the 1969--1970 tax year and on September 21, 1970 of an escalation resulting from an increase in operating expenses during the fiscal year ended November 30, 1969. The requested payments were made without objection as were increases for each due for expense increases for the jtenant included a reservation of its right to year ended Novemb 30, 1972 and for tax increases for the 1973--1974 tax year the tenant included a reservation of its right to disagree with the escalations imposed.

On February 15, 1974 the tenant served a demand for arbitration of claims that the landlord's calculation of the 'Expense Base Factor' and the annual increments in expenses through 1972 had been improper and that the landlord had violated section 2.02 of the lease insofar as taxes on the property were concerned. Arbitration was postponed during settlement negotiations and after their collapse until it was judicially determined that the landlord was barred by lapse of time from making an application for a stay of arbitration. Shortly before the first arbitration hearing, scheduled for January 19, 1976, the landlord filed an amended answer in the arbitration proceedings in which it asserted a 'Fifth Defense' by which it sought for the first time in effect to have the lease rewritten so as to raise the tenant's liability for increases in electricity expense from 17.73%, as specified in the agreement, to 24.98%, asserted to be the tenant's proportionate share of such expenses. The tenant then promptly instituted the present proceeding for a stay of arbitration of the alleged defense asserting that the reformation sought was beyond the power of the arbitrators and in any event, not having been sought until almost 10 years after the execution of the lease, was barred by the Statute of Limitations. Upholding both contentions, the Appellate Division reversed Special Term and granted the stay. (53 A.D.2d 595, 385 N.Y.S.2d 79.)

The order should be affirmed. By virtue of CPLR 7503 (subd. (b)) the tenant is entitled to a stay of arbitration of the landlord's claim for relief if 'the claim sought to be arbitrated would have been barred by limitation of time had it been asserted in a court of the state' (CPLR 7502, subd. (b)). The landlord's countercla falls precisely within this description. As we have recently observed, in determining an application to stay arbitration on the ground the claim is time-barred, 'the period of limitations to be applied should, with exceptions not to be proliferated, depend upon the form of the remedy' (Matter of Paver & Wildfoerster (Catholic High School Assn.), 38 N.Y.2d 669, 676, 382 N.Y.S.2d 22, 25, 345 N.E.2d 565, 569). The particular form of remedy sought by what is denominated the fifth 'defense' stated in respondent's answer is a rewriting of the terms of the lease agreement with a concurrent determination of liability on the part of the tenant for additional rent in consequence of such revision of the instrument. Were the landlord to seek such relief in a judicial proceeding, it would be barred by the six-year limitation provided by CPLR 213 (subd. 1) for an action for which no other limitation is fixed by law. That statutory section is the successor to section 53 of the Civil Practice Act prescribing a 10-year period, which was applicable to actions for reformation (Hanover Fire Ins. Co. v. Morse Dry Dock & Repair Co., 270 N.Y. 86, 200 N.E. 589).

The landlord's reliance on the suggestion in Bartlett v. Judd (21 N.Y. 200) that the Statute of Limitations does not apply to an equitable defense is unwarranted. What the landlord asserts in this present instance is not a defense--that is, a bar to the claim asserted by the tenant--but is in the nature of a counterclaim, i.e., a statement of circumstances which in and of themselves may form the basis of an adjudication of affirmative relief in favor of the landlord on its claim, irrespective of the tenant's success or failure on the latter's cause of action. The landlord's repeated insistence that it seeks relief on its request for reformation only in the event that the arbitrator considers the tenant's claim for refund of overpayment of rent serves simply to make the assertion of its demand for relief contingent; it does not vary the nature of the remedy pursued.

Nor is the landlord's reliance on CPLR 203 (subd. (c)) well founded. That section excludes from the bar of limitations, but only to the extent of plaintiff's claim, counterclaims even if they would have been barred at the time of the commencement of the action, provided that the counterclaim be one that 'arose from the transactions, occurrences, or series of transactions or occurrences, upon which a claim asserted in the complaint depends.' Here, however, respondent's claim for reformation is not in the nature of recoupment, the equitable doctrine in which the statutory provision is grounded. It does not seek a recovery-back predicated on some act or fact growing out of the matter constituting the cause or ground of the action brought, but is instead a setoff--a separate and distinct claim in favor of the landlord. The tenant's demand for refund of rent overpayment is predicated on acts of the landlord related to, or by which it computed and assessed, escalations of rent after the term of the lease commenced in February, 1968; the landlord's demand for reformation is grounded on allegations as to the intention of the contracting parties prior to and at the time the lease was executed with respect to the proportionate share of electrical expense to be borne by the tenant. The tenant's claim relates to performance under the contract; the landlord's relates to the negotiation and articulation of the agreement made between the parties prior to its execution. While in a most general sense both might be said to be associated with the lease, in the language of CPLR 203 (subd. (c)), the claims do not arise out of the same transactions or occurrences.

Since the landlord's counterclaim for relief in the nature of reformation of the 1966 contract, if asserted in a law action in 1974, would have been barred by the Statute of Limitations, the tenant has properly been granted a stay of arbitration under CPLR 7503 (subd. (b)).

We find no merit in the landlord's contentions that the tenant by initiating arbitration authorizing that remedy and by participating therein for two years has waived any right to challenge respondent's demand that the arbitrator reform the lease. First, it may be observed that there has been no participation in arbitration of respondent's demand for reformation by petitioner, which moved promptly after receipt of the amended answer to stay arbitration of that claim. Neither may petitioner be said to have waived its right to challenge the arbitrability of the claim for reformation by virtue of the fact that it initiated the arbitration process. On timely application and absent participation in arbitration proceedings without challenge to the matters introduced, there is no basis for barring a party who has sought arbitration from thereafter seeking judicial determination as to arbitrability of matter set forth in an answer which would expand the scope of the arbitration (cf. Matter of James Talcott, Inc. (Lowenstein & Sons), 33 N.Y.2d 924, 353 N.Y.S.2d 721, 309 N.E.2d 124).

Finally, because the issue has been briefed and argued expansively by the parties in this action, was explicitly addressed by the court below, and is one on which lower courts have differed (cf. Swartz v. Swartz, 49 A.D.2d 254, 374 N.Y.S.2d 857; Matter of Agora Development Corp. (Low), 19 A.D.2d 126, 241 N.Y.S.2d 126; Stewart-Scott Constr. Corp. v. Schaefer...