New York Law Review

Tag: CPLR 7503(c)

  • Fiveco, Inc. v. Haber, 13 N.Y.3d 143 (2009): Enforceability of Arbitration Clauses After Contract Expiration

    Fiveco, Inc. v. Haber, 13 N.Y.3d 143 (2009)

    An untimely petition to stay arbitration will not be considered under the exception articulated in Matter of Matarasso when the parties agreed to arbitrate, but the dispute concerns whether the agreement containing the arbitration clause is still in effect.

    Summary

    Fiveco, Inc. sought to stay arbitration with Bruce Haber, arguing that the underlying contracts containing the arbitration clause had expired. Haber argued the petition was untimely under CPLR 7503(c). The New York Court of Appeals held that because the parties initially agreed to arbitrate, the Matarasso exception (allowing consideration of untimely petitions when there was never an agreement to arbitrate) did not apply. The court reasoned that Fiveco’s argument concerned the contract’s present viability, not the initial agreement to arbitrate, and thus the petition was time-barred, and the dispute must be submitted to arbitration.

    Facts

    Bruce Haber entered into agreements with Fiveco’s predecessor to install and maintain game machines in a bar. The agreements contained an arbitration clause for disputes. The term was seven years, automatically extended for five years if Haber made a “payment, loan or advance” to the bar owner. Fiveco purchased the bar and assumed the agreements. Haber issued Fiveco a $1,000 check described as a “bonus.” Fiveco later demanded removal of the machines, claiming the agreements expired. Haber then demanded arbitration, arguing the $1,000 payment extended the agreements.

    Procedural History

    Fiveco petitioned to stay arbitration, but it was filed more than 20 days after Haber’s demand. Supreme Court granted the stay. The Appellate Division reversed, holding the petition was time-barred under CPLR 7503(c) and the Matarasso exception didn’t apply. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether an untimely petition to stay arbitration can be considered under the Matarasso exception when the parties initially agreed to arbitrate, but the dispute concerns whether the agreement containing the arbitration clause remains in effect.

    Holding

    No, because the Matarasso exception applies only when the parties never agreed to arbitrate, not when the dispute concerns the present viability of a contract containing an arbitration clause.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s ruling. The court emphasized that CPLR 7503(c) requires a party to object to arbitration within 20 days of the demand, or be precluded from objecting to the validity of the agreement. The court then clarified the limited exception created in Matarasso, which allows a court to consider an untimely petition to stay arbitration where “its basis is that the parties never agreed to arbitrate, as distinct from situations in which there is an arbitration agreement which is nevertheless claimed to be invalid or unenforceable because its conditions have not been complied with” (Matter of Matarasso, 56 NY2d at 266 [emphasis in original]).

    The court found that Fiveco’s argument that the contracts had expired did not fall within the Matarasso exception because Fiveco did not argue that the parties *never* agreed to arbitrate. The court stated that “Fiveco does not assert that the parties never entered into an arbitration agreement; rather, it simply attacks the present viability of the contracts containing the agreement to arbitrate. Thus, the Matarasso exception is inapplicable under the circumstances of this case.” The court emphasized that the Legislature, in enacting CPLR 7503(c), did not intend “to bind persons to the arbitral process by their mere inaction for 20 days where no agreement to arbitrate has ever been made” (id. at 267). Because Fiveco’s petition was untimely and the Matarasso exception didn’t apply, the Court of Appeals held that Fiveco was required to submit to arbitration.

  • Matter of Matarasso v. Continental Cas. Co., 56 N.Y.2d 264 (1982): Enforcing Timeliness in Objecting to Arbitration

    56 N.Y.2d 264 (1982)

    A motion to stay arbitration is only permissible outside the 20-day statutory period when the basis of the motion is that the parties never agreed to arbitrate, not when the claim involves the validity or enforceability of an existing arbitration agreement due to non-compliance with its conditions.

    Summary

    This case concerns the timeliness of a motion to stay arbitration. Matarasso served a demand for arbitration on Continental Casualty Company (Continental). Continental moved to stay the arbitration after 60 days, arguing that the parties never agreed to arbitrate. The New York Court of Appeals held that Continental’s motion was permissible despite being filed outside the 20-day window prescribed by CPLR 7503(c), because the basis of the motion was that no agreement to arbitrate existed. The court distinguished this from situations where an arbitration agreement exists but is claimed to be invalid or unenforceable.

    Facts

    Matarasso served a demand for arbitration upon Continental Casualty Company. Continental moved for a stay of arbitration 60 days after the demand was served. Continental argued that the parties had never agreed to arbitrate.

    Procedural History

    The lower court’s decision regarding the stay of arbitration is not explicitly detailed in this memorandum opinion. The New York Court of Appeals reviewed the case to determine whether the motion to stay arbitration was timely, given that it was filed outside the 20-day period specified in CPLR 7503(c).

    Issue(s)

    Whether a motion to stay arbitration may be entertained outside the 20-day period of CPLR 7503(c) when the basis of the motion is that the parties never agreed to arbitrate.

    Holding

    Yes, because a motion to stay arbitration may be entertained outside the 20-day period of CPLR 7503(c) when its basis is that the parties never agreed to arbitrate, as opposed to situations where an arbitration agreement exists but is claimed to be invalid or unenforceable due to non-compliance with its conditions.

    Court’s Reasoning

    The court focused on interpreting CPLR 7503(c), which requires a party served with a demand for arbitration to move to stay such arbitration within 20 days or be precluded from objecting. The court created an exception to this rule, stating that a motion to stay is permissible outside the 20-day period when the moving party argues that no agreement to arbitrate ever existed. The court reasoned that the 20-day rule is designed to prevent parties from delaying arbitration based on challenges to the validity or enforceability of an existing agreement. However, it should not bar challenges to the very existence of an agreement to arbitrate, since such a challenge goes to the heart of whether arbitration is proper at all. The court distinguished between arguing that an arbitration agreement is invalid (e.g., due to fraud or duress) and arguing that no such agreement was ever formed. The court emphasized the importance of upholding the statutory framework for arbitration while also recognizing the fundamental right to challenge whether an agreement to arbitrate exists in the first place. According to the court, “a motion [to stay arbitration] may be entertained when, as here, its basis is that the parties never agreed to arbitrate, as distinct from situations in which there is an arbitration agreement which is nevertheless claimed to be invalid or unenforceable because its conditions have not been complied with”.

  • Matter of State Farm Mut. Auto. Ins. Co., 87 N.Y.2d 828 (1995): Enforcing Timeliness in Objecting to Arbitration Demands

    Matter of State Farm Mut. Auto. Ins. Co., 87 N.Y.2d 828 (1995)

    A motion to stay arbitration based on arguments about compliance with contract conditions, as opposed to a challenge to the existence of an arbitration agreement itself, must be made within the 20-day statutory period following the demand for arbitration.

    Summary

    State Farm denied the appellant’s claim for underinsurance coverage after he settled for the maximum amount ($300,000) of the tortfeasor’s insurance policy, which exceeded the appellant’s underinsurance coverage ($100,000). When the appellant demanded arbitration, State Farm moved to stay it more than four months later, arguing no underinsurance coverage was available. The New York Court of Appeals reversed the lower court’s stay, holding that State Farm’s motion was untimely under CPLR 7503(c) because their argument concerned compliance with contract conditions, not the existence of an arbitration agreement. Therefore, the issue of coverage was now within the province of the arbitrator.

    Facts

    The appellant was seriously injured in an automobile accident on August 18, 1992. He settled with the tortfeasor’s insurance company for $300,000, the policy’s maximum limit. The appellant had an automobile insurance policy with State Farm, including $100,000 in underinsurance coverage. State Farm denied the appellant’s underinsurance claim, arguing that since the tortfeasor’s policy limits exceeded the appellant’s, no underinsurance coverage was available.

    Procedural History

    The appellant served a demand to arbitrate the underinsurance claim on October 15, 1993. State Farm moved to stay the arbitration on February 15, 1994, which was more than four months after service of the demand. Supreme Court granted the stay, concluding that the appellant was not entitled to underinsurance coverage. The Appellate Division affirmed. The Court of Appeals reversed the Appellate Division’s order and denied the petition to stay arbitration.

    Issue(s)

    Whether a motion to stay arbitration, based on arguments that certain conditions of the insurance contract have not been complied with, can be entertained when it is made outside the 20-day period prescribed by CPLR 7503(c), or whether it is precluded as untimely.

    Holding

    No, because State Farm’s argument related to whether certain conditions of the contract had been complied with, not whether an agreement to arbitrate existed. As such, State Farm’s motion to stay arbitration was barred by the CPLR 7503(c) 20-day period to object to arbitration.

    Court’s Reasoning

    The Court relied on CPLR 7503(c), which requires a party served with a demand for arbitration to move to stay such arbitration within 20 days of service, or be precluded from objecting. The Court cited Matter of Matarasso (Continental Cas. Co.), 56 N.Y.2d 264, where it articulated a narrow exception to this 20-day rule. The exception applies only when the motion to stay arbitration argues that the parties never agreed to arbitrate. The court reasoned that State Farm’s argument—that the appellant’s underinsurance claim was invalid because the tortfeasor’s insurance exceeded the appellant’s—concerned compliance with the conditions of the insurance contract, not the existence of an agreement to arbitrate. As the court stated in Matarasso, a motion to stay arbitration may be entertained when “its basis is that the parties never agreed to arbitrate, as distinct from situations in which there is an arbitration agreement which is nevertheless claimed to be invalid or unenforceable because its conditions have not been complied with.” Because the parties didn’t dispute that the policy contained an arbitration agreement, State Farm’s failure to move for a stay within 20 days waived its right to object to arbitration based on the policy’s coverage terms. The issue of coverage thus falls within the arbitrator’s authority.

  • Matarasso v. Continental Cas. Co., 56 N.Y.2d 264 (1982): Untimely Motion to Stay Arbitration Based on Lack of Agreement

    Matarasso v. Continental Cas. Co., 56 N.Y.2d 264 (1982)

    A motion to stay arbitration may be entertained outside the 20-day period specified in CPLR 7503(c) when the basis for the motion is that the parties never agreed to arbitrate.

    Summary

    Claimants sought uninsured motorist benefits under a commercial umbrella liability policy after recovering the maximum benefits from their primary policy. The insurer, Continental Casualty, moved to stay arbitration, arguing it never agreed to arbitrate such claims. Claimants argued the motion was untimely under CPLR 7503(c). The New York Court of Appeals held that the 20-day time limit to move for a stay of arbitration does not apply when the moving party argues that no agreement to arbitrate exists at all. In such cases, a motion to stay can be entertained even after the 20-day period expires.

    Facts

    Claimants were injured in an automobile accident involving an uninsured vehicle.

    They received the maximum benefits under their primary automobile insurance policy’s uninsured motorist indorsement.

    Claimants then sought to recover excess damages under Continental Casualty’s commercial umbrella policy.

    The umbrella policy covered Daniel Matarasso and A. Matarasso & Co., Inc. for general, automobile, and employer liability above the limits of underlying policies.

    One underlying policy was the automobile liability policy from which claimants already received uninsured motorist benefits.

    Procedural History

    Claimants served a demand for arbitration on Continental Casualty.

    Continental Casualty moved to stay arbitration, arguing no agreement to arbitrate existed.

    Special Term granted the stay.

    The Appellate Division affirmed.

    The Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order.

    Issue(s)

    Whether a motion to stay arbitration can be entertained outside the 20-day period specified in CPLR 7503(c) when the moving party argues that no agreement to arbitrate exists between the parties.

    Holding

    Yes, because the 20-day preclusion in CPLR 7503(c) only applies when there is an existing agreement to arbitrate and a party is arguing the agreement is invalid or unfulfilled, but does not apply when a party argues no agreement to arbitrate ever existed.

    Court’s Reasoning

    The court emphasized that CPLR 7503(c) speaks in terms of “parties,” implying the statute targets parties to an arbitration agreement. The court reasoned that the legislature did not intend to bind individuals to arbitration by mere inaction when no agreement to arbitrate has ever been made.

    The court distinguished between challenging the validity or compliance of an existing arbitration agreement (which requires a timely motion to stay) and arguing that no agreement to arbitrate exists at all. The 20-day time limit applies only when an agreement to arbitrate exists.

    The court noted that the umbrella policy contained no arbitration provision. The court also determined that the mandatory uninsured motorist indorsement of section 167 of the Insurance Law, requiring uninsured motorist coverage in automobile liability policies, does not apply to the umbrella policy, because it is an excess liability policy covering various insurance types, not solely an automobile liability policy.

    The court cited Aetna Life & Cas. Co. v Stekardis, 34 NY2d 182 to reinforce the strictness of the 20 day rule where an agreement to arbitrate exists. However, here the court emphasized that the statute’s wording implies it is directed towards actual parties to an agreement. The court stated, “Given the ease with which a broader class of persons could have been included within the statute’s ambit, we cannot impute to the Legislature an intent to bind persons to the arbitral process by their mere inaction for 20 days where no agreement to arbitrate has ever been made.”

  • Knickerbocker Ins. Co. v. Gilbert, 28 N.Y.2d 57 (1971): Service by Mail is Effective Upon Posting

    Knickerbocker Ins. Co. v. Gilbert, 28 N.Y.2d 57 (1971)

    Under CPLR 7503(c), service of a notice of application to stay arbitration by registered or certified mail is effective upon mailing (posting), not upon receipt, provided it occurs within the statutory 10-day period.

    Summary

    This case addresses whether the service of a notice to stay arbitration is effective upon mailing or receipt. Knickerbocker Ins. Co. sought to stay arbitration initiated by Gilbert. The notice to stay was mailed on the tenth day after Knickerbocker received the notice to arbitrate, but Gilbert received it on the eleventh day. The Court of Appeals held that service is timely if the notice to stay is posted within the 10-day period, emphasizing the importance of procedural orderliness and the legislative intent behind the statute. The decision clarifies the practical implications of CPLR 7503(c) for arbitration proceedings.

    Facts

    In March 1966, Gilbert was a passenger in a car accident. Her husband drove the car, owned by Merritt, who was insured by Knickerbocker. Gilbert sued Merritt, who impleaded Knickerbocker, arguing her husband exceeded his permitted use of the vehicle. Gilbert also filed a claim under the uninsured motorist clause of Merritt’s policy. On November 28, 1969, Gilbert mailed Knickerbocker a notice of intention to arbitrate, received on December 1, 1969. Knickerbocker mailed a notice and application for a stay of arbitration on December 11, 1969, which Gilbert received on December 12, 1969. The critical issue was whether the insurer’s notice to stay, delivered on the eleventh day, barred them from asserting inarbitrability.

    Procedural History

    The Supreme Court initially held that service was not effective until delivery. The Appellate Division affirmed this decision, with two justices dissenting. The Court of Appeals then reviewed the case to determine whether mailing the notice to stay arbitration within the 10-day period constituted effective service.

    Issue(s)

    Whether, under CPLR 7503(c), service of a notice of application to stay arbitration by registered or certified mail is effective upon mailing (posting) within the 10-day statutory period, or only upon receipt by the other party?

    Holding

    Yes, because a reading of the statute, amplified by its legislative history, suggests that service is timely if the notice to stay is posted within the 10-day period. Requiring receipt within the 10 days defeats the purpose of encouraging mailing and the legislative intent behind the statute.

    Court’s Reasoning

    The Court reasoned that the legislative history of CPLR 7503(c) indicates that service of the notice to stay arbitration was intended to be effective if posted within the 10-day period. The court emphasized that the draftsmen of CPLR did not intend to change the method of service of the notice to stay arbitration. The court stated, “The key words are ‘with no change in meaning.’ For that qualification to be true, the notice to stay arbitration must remain assimilated to a paper served in a pending action, namely, one which could be served by posting to an attorney, and did not require receipt within the time limit to be effective.”

    The Court also highlighted policy reasons, stating that requiring receipt within the 10-day period defeats the purpose of encouraging mailing. The court further reasoned that because the notice to arbitrate starts the time to respond upon receipt, the adversary receives a full 10 days to decide and act on the decision to seek a stay, without foreshortening the time at either the beginning or end. The Court stated, “Nor does this view make for an unfair or intrinsically inconsistent practice between the notice to arbitrate and the notice to stay.”

    Finally, the court addressed the subsidiary point that the notice was addressed to the claimant’s attorney instead of the claimant. The court stated, “Consequently, it is more broadly logical and much more salutary to regard the service of the notice to arbitrate as importing a consent to the procedure associated with and provided for a motion to stay arbitration, invited by a notice to arbitrate. For that reason, the rule in the Berner case viewing the notice to stay as invited by the notice to arbitrate, is preferable to the restrictive view taken in the Monarch and State-Wide cases.”