On August 7, 2014, in Cusimano v. Schnurr, the Appellate Division, First Department reversed an order of the trial court that had denied the plaintiffs' motion to stay litigation pending arbitration (991 N.Y.S.2d 400 (1st Dep't 2014)).

Mr. and Mrs. Cusimano sued accountants who rendered services to certain entities that invest in commercial real estate. The accountants moved to dismiss on statute of limitations grounds. The lower court granted the motion with respect to acts or omissions preceding 2008, but granted the Cusimanos leave to replead.

Rather than filing an amended complaint, pursuing the remaining claims, or appealing the dismissal, the Cusimanos filed a demand for arbitration and statement of claim with the American Arbitration Association (AAA). In the arbitration, the Cusimanos asserted claims similar to those raised in the partially-dismissed complaint in the court action. The plaintiffs then moved pursuant to the New York Civil Practice Law and Rules (CPLR) to stay their lawsuit pending the arbitration (CPLR 7503(b)). The accountants cross-moved to stay the arbitration, arguing that the arbitration claims were time-barred.

The lower court found that the Federal Arbitration Act (FAA) did not apply to the agreements at issue because they did not involve interstate commerce. Applying state arbitration law, the court ruled that the statute of limitations was for the court to decide, not the arbitrator(see Practice Note, Choosing an Arbitral Seat in the US: New York: Threshold Issues). The court found that certain claims were time-barred and dismissed those claims. The court further directed the parties to arbitrate the non-time-barred claims.

The accountants appealed, raising two issues for the Appellate Division:

Regarding the first issue, the Cusimanos argued that the FAA is inapplicable because, in their view, the dispute was about the mismanagement of the family entities in New York State. The court noted that even if that were the case, the transaction at issue need not be in the flow of interstate commerce. Citing to the US Supreme Court, the court noted that the FAA applies to activity that, in the aggregate, would represent a general practice that bears on interstate commerce in a substantial way (see Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 57 (2003)). Because the ownership of, and investment in, commercial buildings can affect interstate commerce, the FAA applies. (For a more detailed explanation of the relationship between the FAA and state laws, see Practice Note, Understanding US Arbitration Law.)

Having decided that the FAA applies and the statute of limitations defense was an issue for the arbitrator, the court next had to decide if the Cusimanos waived their right to arbitrate. It noted that there is no bright line test to determine waiver. A court must consider:

The court held that the Cusimanos did not waive their right to arbitrate because:

For a more detailed analysis of waiver of the right to arbitrate, see Practice Note, Compelling and Staying Arbitration in New York State Supreme Court: Waiver.

Note: On December 16, 2015, the New York Court of Appeals affirmed the holding regarding the application of the FAA but reversed on the issue of waiver (Cusimano v. Schnurr, 23 N.Y.S.3d 137 (2015)). While there is support for the view that waiver is one of the issues that should be decided by the arbitrator, the court held that whether a party has waived arbitration by litigation-related conduct is an issue for New York courts.