Matter of the Arbitration between SCM Corp. and Fisher Park Lane Co., 40 N.Y.2d 788 (1976)

A landlord’s counterclaim for reformation of a lease agreement, asserted in response to a tenant’s claim for overpayment of rent, does not arise from the same transactions or occurrences as the tenant’s claim, and is thus subject to the Statute of Limitations; however, an arbitrator acting under a broad arbitration clause generally has the power to grant relief similar to reformation.

Summary

SCM Corp. (tenant) sought arbitration against Fisher Park Lane Co. (landlord) for overpayment of rent based on improper calculation of escalations. The landlord then attempted to amend its answer in the arbitration to effectively rewrite the lease, increasing the tenant’s liability for electricity expenses. The tenant sought a stay of arbitration, arguing that the landlord’s claim was time-barred and beyond the arbitrator’s powers. The New York Court of Appeals held that the landlord’s reformation claim was subject to the Statute of Limitations because it didn’t arise from the same transaction as the tenant’s claim. The Court further held that arbitrators generally possess the power to grant remedies akin to reformation under a broad arbitration clause.

Facts

In 1966, SCM Corp. leased commercial space from Fisher Park Lane Co. for 50 years, commencing in 1968. The lease included a fixed rent subject to annual adjustments based on changes in real estate taxes and expenses. The lease also contained a broad arbitration clause for disputes regarding these adjustments. The tenant paid rent increases without objection until 1972. In 1974, the tenant demanded arbitration, claiming improper calculation of the expense base factor and tax escalations. Shortly before the arbitration hearing, the landlord sought to amend its answer to increase the tenant’s liability for electricity expense, claiming the original lease incorrectly stated the tenant’s share.

Procedural History

The tenant initiated arbitration. The landlord attempted to amend its answer to include a claim for reformation of the lease. The tenant then sought a stay of arbitration regarding the reformation claim. Special Term initially denied the stay, but the Appellate Division reversed, granting the stay. The landlord appealed to the New York Court of Appeals.

Issue(s)

1. Whether the landlord’s counterclaim for reformation of the lease is subject to the Statute of Limitations.
2. Whether arbitrators have the power under a broad arbitration clause to grant relief akin to reformation of a contract.

Holding

1. Yes, because the landlord’s claim for reformation did not arise from the same transactions or occurrences as the tenant’s claim for rent overpayment.
2. Yes, because arbitrators have the power to fashion remedies appropriate to resolve disputes, including relief that might be considered reformation, unless the arbitration agreement limits such authority or public policy dictates otherwise.

Court’s Reasoning

The Court reasoned that the landlord’s claim for reformation, if pursued in a court action, would be subject to the six-year Statute of Limitations under CPLR 213(1). The Court distinguished the landlord’s claim from a true