26 N.Y.3d 393 (2015)
A party waives its right to arbitrate a dispute when its litigation conduct is inconsistent with the intent to arbitrate and causes prejudice to the opposing party.
Summary
The New York Court of Appeals held that the plaintiffs, Rita and Dominic Cusimano, waived their right to arbitration by actively pursuing litigation for approximately one year before seeking to compel arbitration. The court determined that the Federal Arbitration Act (FAA) applied to the agreements at issue because they concerned commercial real estate transactions that affected interstate commerce. However, the court found that the plaintiffs’ behavior, including their expressed reluctance to arbitrate when the court viewed their claims unfavorably, demonstrated an intent to forum shop and prejudiced the defendants, leading to a waiver of their right to arbitrate.
Facts
Rita Cusimano, along with other family members, were involved in several commercial agreements, including a partnership agreement for Strianese Family Limited Partnership (FLIP), an operating agreement for Berita Realty, LLC, and an agreement for the sale of Rita’s interest in 60 Seaview Corp. These agreements contained arbitration clauses. The Cusimanos initiated a lawsuit against the family’s accountants, alleging fraud and malpractice, and engaged in extensive motion practice and discovery. After a period of litigation and faced with potential dismissal of their case and the court’s negative view of their claims, the Cusimanos demanded arbitration. The defendants moved to dismiss the action and to stay the arbitration claims as time-barred. The trial court found the FAA inapplicable and ruled the Cusimanos had waived their right to arbitration. The Appellate Division reversed.
Procedural History
The New York County Supreme Court initially dismissed the plaintiffs’ complaint but allowed them to replead certain causes of action. It later granted the defendants’ motion to stay arbitration based on the statute of limitations, finding the FAA inapplicable and the Cusimanos had waived arbitration. The Appellate Division, First Department, reversed, holding that the FAA applied and the Cusimanos had not waived their right to arbitrate. The New York Court of Appeals granted the defendants leave to appeal and reversed the Appellate Division, finding that the Cusimanos had waived their right to arbitration.
Issue(s)
1. Whether the Federal Arbitration Act (FAA) applied to the commercial agreements at issue.
2. Whether the plaintiffs waived their right to arbitrate by pursuing litigation.
Holding
1. Yes, because the agreements concerned commercial real estate transactions that affected interstate commerce, triggering the FAA.
2. Yes, because the plaintiffs’ conduct in actively litigating the case for an extended period, after being told their case was frivolous and seeking arbitration only when their legal position was threatened, constituted a waiver of their right to arbitration.
Court’s Reasoning
The court first addressed the applicability of the FAA. It cited the U.S. Supreme Court’s broad interpretation of the FAA, stating that the FAA applies to agreements that concern transactions