Rita Cusimano,, et al., Respondents,v.Andrew V. Schnurr, CPA, et al., Appellants. Bernard V. Strianese, et al., Intervenors-Appellants.BriefN.Y.November 18, 2015To be Argued by: ALAN HELLER (Time Requested: 30 Minutes) APL-2014-00287 New York County Clerk’s Index No. 652429/11 Court of Appeals of the State of New York RITA CUSIMANO, individually, and derivatively as a Shareholder, Officer, Partner and Member of BERITA REALTY CORP., BERITA REALTY CO., and BERITA REALTY, LLC, and a Partner of the STRIANESE FAMILY LIMITED PARTNERSHIP and DOMINIC J. CUSIMANO, Plaintiffs-Respondents, – against – ANDREW V. SCHNURR, CPA, MICHAEL GERARD NORMAN, CPA, P.C. and MICHAEL GERARD NORMAN, CPA, individually, Defendants-Appellants, – and – BERNARD V. STRIANESE and BERNADETTE STRIANESE, Third-Party Intervenors-Appellants. BRIEF FOR DEFENDANTS-APPELLANTS and THIRD-PARTY INTERVENOR-APPELLANT BERNARD V. STRIANESE GARVEY SCHUBERT BARER Attorneys for Defendants-Appellants and Third-Party Intervenor-Appellant Bernard V. Strianese 100 Wall Street, 20th Floor New York, New York 10005 Tel.: (212) 965-4526 Fax: (212) 334-1278 i TABLE OF CONTENTS Page Preliminary Statement and Summary of Argument ..................................... 1 Issues Presented ........................................................................................... 14 Jurisdiction of this Court .............................................................................. 16 Summary of Facts and Procedural Background A. The Parties ......................................................................................... 16 B. The Relevant Contracts Do Not Evidence Transactions Involving Interstate Commerce .......................................................................... 17 1. The FLIP Limited Partnership Agreement ................................. 17 2. The Berita Limited Liability Company Agreement ................... 19 3. The Seaview Agreement ............................................................. 20 C. The 2010 FLIP Action and Arbitration/Rita Loses the Arbitration .................................................................................... 21 D. Rita Moves to Vacate the FLIP Arbitration Award, and Loses ........ 22 E. Rita files the Berita Action in Supreme Court, Nassau County ........ 23 F. The Berita Action is Sent to Arbitration ............................................ 23 G. The Draft Complaint of This Action ................................................. 24 H. Rita and Dominic Move to Disqualify the Accountants’ Counsel and Lose ............................................................................... 25 I. The Accountants Move to Dismiss the Complaint; Respondents Serve Three Non-Party Subpoenae and Refuse to Withdraw Them Pending the Determination of the Motion to Dismiss ............ 26 ii J. Respondents Vigorously Opposed the Motion to Dismiss Including, but not Limited to, Opposing the Argument that the Claims in the Complaint are Barred by the Applicable Statutes of Limitations ......................................................................................... 27 K. Oral Argument of the Motion to Dismiss/the Complaint is Dismissed ....................................................................................... 27 L. Instead of Filing an Amended Complaint, the Respondents File a Statement of Claim with the AAA and Move to Stay or Dismiss their own Action Pursuant to CPLR 7503 ......................................... 29 M. The July 3, 2013 Decision and Order ................................................ 31 N. The Decision of the Appellate Division ............................................ 32 ARGUMENT THE APPELLATE DIVISION DECISION SHOULD BE REVERSED AND THE JUDGMENT REINSTATED ................................................ 33 I. THE FAA DOES NOT APPLY TO THE PARTIES’ UNDERLYING AGREEMENTS; THE TIMELINESS ISSUE IS FOR THE COURT TO RESOLVE .................................. 33 A. The Citizens Bank, Allied Bruce and Diamond Waterproofing Agreements Themselves Each Evidenced Transactions Affecting Commerce .................... 33 B. The First Department Misapplied Allied Bruce ................... 34 C. The Agreements at Issue Only Involved Intra-Family New York Transactions ....................................................... 40 D. The Post Contract Activities of Non-Parties to the Berita Agreement and the Subsequent Purchase of Property in Florida By the FLIP do not Make the Agreements Subject to the FAA ............................................................................ 43 II. RESPONDENTS WAIVED THEIR RIGHT TO HAVE THE AAA DETERMINE THE TIMELINESS OF THEIR CLAIMS ...... 45 CONCLUSION ............................................................................................ 56 iii TABLE OF AUTHORITIES Page(s) Cases: Adams v. Suozzi, 433 F.3d 220 (2d Cir. 2005)............................................. 34 Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265 (1995) .................................................................................. 33, 35, 36, 37, 38, 42 Baronoff v. Kean Development Co., Inc., 12 Misc.3d 627 (S.Ct., Nassau Cty. 2006) ......................................................................... 38 California Suites, Inc. v. Russo Demo, Inc., 98 A.D.3d 144 (1st Dept. 2012) ........................................................................................ 13, 50 Citizens Bank v. Alfafabco, Inc., 539 U.S. 52 (2003) .......................... 33, 37-38, 42 Commander Oil Corp. v. Shapiro. 245 A.D.2d 330 (2nd Dept. 1997) ....... 47 County of Rockland v. Rockland Ass‘n of Mgmt., 69 A.D.3d 621 (2nd Dept. 2010) ....................................................................................... 46-47 Cusimano v. Berita Realty, LLC, 103 A.D.3d 720 (2nd Dept. 2013) ..................................................................... 23-24, 51n.7 Cusimano v. Strianese, 97 A.D.3d 744 (2nd Dept. 2012) ........................... 44n.6 De Sapio v. Kohlmeyer, 35 N.Y.2d 402 (1974) ........................................... 45 Diamond Waterproofing Systems, Inc. v. 55 Liberty Owners Corp., 4 N.Y.3d 247 (2005) .................................................................. 33, 34, 38, 39, 42 Digitronics lnventioneering Corp. v. Jameson, 52 A.D.3d 1099 (3rd Dept. 2008) ....................................................................................... 47 Electrostim Medical SenJices, Inc. v. Health Care Services Corp., 2012 WL 5373462 (S.D. Tex 2012) ......................................................... 55n.9 Hart v. Tri-State Consumer, Inc., 18 A.D.3d 610 (2nd Dept. 2005) ..................................................................................... 13, 47, 50 Hawthorne Dev. Assocs. v. Gribin, 128 A.D.2d 874 2nd Dept. 1987) ........ 47 iv Louisiana Stadium, supra, 626 F.3d 156 (2nd Cir. 1010) ........................... 52, 55n.9 Matter of Cohen, 17 A.D.2d 279 (1st Dept. 1962) ...................................... 6 Matter of Laszlo N. Tauber & Assoc. I v. American Mgt. Assn., 304 A.D.2d. 413 (1st Dept. 2003) ............................................................ 34, 43 Paver & Wildfoerster v. Catholic High Sch. Ass'n, supra, 38 N.Y.2d 673 (1976) ........................................................................................................ 40n.4 Petroleum Pipe Americas Corporation v. Jindal Saw, Ltd., 575 F.3d 476 (5th Cir. 2009) .......................................................................................... 49 Schiffer v. Slomin’s, Inc., 40 Misc.3d 884 (Dist. Ct., Nassau Cty. 2013) .................................................................... 37 Sherrill v. Grayco Builders, Inc. 99 A.D.2d 965 (1st Dept. 1984) aff’d 64 N.Y.2d 261 (1985) .................................................................... 13, 45, 50 Stark v. Molod Spitz DeSantis & Stark, P.C., 9 N.Y.3d 59 (2007) ............. 45 Thyssen, Inc. v. Calypso Shipping Corp, S.A., 310 F.3d 102 (2nd Cir. 2002) ......................................................................................... 52, 55n.9 Waldman v. Mosdos Bobov, Inc., 72 A.D.3d 983 (2nd Dept. 2010) ........... 47, 50 Statutes: 9 U.S.C. § 2 .................................................................................................. 3, 33 CPLR § 5602(a)(1)(i) ................................................................................... 16 CPLR § 7503 ...................................................................... 7, 23, 29, 30, 31, 32, 40 CPLR § 7503(b) ........................................................................................... 30 CPLR §7502 ................................................................................................. 1, 32, 39 CPLR §7502(b) ...................................................................... 2, 6, 7, 12, 39, 39.n.4 General Business Law § 399-c .................................................................... 38 Preliminary Statement and Summary of Argument Defendants-Appellants Andrew W. Schnurr, CPA (“Schnurr”), Michael Gerard Norman, CPA, PC and Michael Gerard Norman, CPA (“Norman”) (the “Accountants”) and Intervener-Appellant Bernard Strianese (“Bernard”) (collectively, “Appellants”) submit this Brief in support of their Appeal from the Decision and Order of the Appellate Division, First Department, dated August 7, 2014 (Axxviii)1 (the “Appellate Division Decision”). The Appellate Division Decision reversed the Judgment of the Supreme Court, New York County (Charles E. Ramos, J.) entered on September 11, 2013 (A63-68) (the “Judgment”), and Order of Justice Ramos entered on July 16, 2013 (A10-52) (the “Order”) which, to the extent appealed from, granted: (i) the Accountants’ cross motion and Bernard’s motion to stay the arbitration commenced by Respondents in the American Arbitration Association (“AAA”) to the extent of staying the arbitration of all claims against Schnurr on statute of limitations grounds, and staying the arbitration of certain claims against the remaining Appellants on statute of limitations grounds, and (ii) Respondents’ motion, brought pursuant to CPLR §7502, to stay their own action (commenced one year earlier in the Supreme Court, New York County) to the extent of directing the parties to arbitrate the non-time-barred claims. 1 All parenthetical references are to Appellants’ Record. 2 On Appeal, the First Department was asked to determine, first, whether the Federal Arbitration Act (“FAA”) applied to the underlying agreements; second, whether, even if the FAA applies, Respondents waived their right to avoid CPLR §7502(b) by, inter alia, (i) engaging in approximately four years of litigation over the terms and enforceability of the arbitration clauses in the agreement, including making their own CPLR §7502(b) argument to a lower court in support of their motion to vacate a prior AAA arbitration award on limitations grounds (A689), without ever raising the FAA; and (ii) by filing their claims in the underlying action in New York State Supreme Court to try to avoid arbitration, not objecting to Appellants’ position that the statute of limitations was for the court to determine, submitting the statute of limitations issues to the court to determine, and then changing their mind and invoking the FAA only after the court ruled against them on the relevant issues. In its ruling, the First Department erroneously concluded that the FAA applies to the underlying agreements, the timeliness issue was for the AAA arbitrators to determine, and Respondents did not waive their right to have the timeliness issues determined by the AAA. As a result, the First Department reversed the Judgment and the Order of Judge Ramos. (Axliii-xliv). Leave to appeal was granted by this Court on November 24, 2014. (Axxvi) 3 The FAA applies to the enforcement of an arbitration clause in a “contract evidencing a transaction involving [interstate] commerce.” 9 U.S.C. § 2 (emphasis added). Thus, to invoke the FAA, Respondents had to demonstrate that the agreements themselves evidenced transactions that affected interstate commerce. The plain language of the statute, the caselaw cited by the parties, and even the caselaw cited by the First Department all make this clear. What is also clear is that Respondents failed to sustain this burden. Yet, the First Department erroneously rejected Appellants’ argument that “the FAA does not apply because the agreements themselves do not expressly contemplate transactions involving interstate commerce.” (Axxxvii). Instead, the First Department based its decision not on the agreements themselves but on the fact that the entities’ business is “commercial real estate” and, years after the agreements were entered into, one of the entities acquired property in Florida. In the First Department’s view, “requiring the parties to include a specific reference to interstate commerce in their agreements would undermine the purpose of the FAA by encouraging further litigation as parties contested whether interstate commerce was contemplated at the time the agreement was executed.” (Axxxvii). But, the First Department’s decision creates the result it seeks to avoid. A rule, following the language of 9 U.S.C. § 2 that requires the lower courts to look to the agreement itself to evaluate the interstate commerce question, requires only 4 that courts evaluate one agreement and determine whether such agreement evidences a transaction involving interstate commerce. To the contrary, if what matters is the type of “business” the parties later engage in – an issue that may not be apparent from the agreement itself or for many years after the agreements at issue were consummated – the lower courts will be compelled time and time again to look to external evidence for the answer. This would require the parties to submit (perhaps conflicting) affidavits explaining what type of business has been engaged in and whether, and to what extent, such business impacts commerce or “interstate commerce.” This result is one that will “undermine the purpose of the FAA by encouraging further litigation as parties contested whether interstate commerce” not evidenced in the agreement itself was actually engaged in by the parties or their entities. Here, Respondents did not demonstrate that the agreements themselves, which do nothing more than form and contain the management structure for New York entities, evidenced a transaction involving interstate commerce. Instead, Respondents, in a contentious litigation over the facts, relied on convoluted paths to supposed FAA applicability. On one path, FAA applicability supposedly arose from an acquisition by one entity years after the agreements were executed. On the other path, FAA applicability allegedly arose because of connection between a third-party entity (named Greenbriar) in which one of the parties’ entities (Berita) 5 held a passive, minority interest, and another third-party unrelated entity, that was allegedly involved in interstate commerce. Only in this way were the Respondents able to try to belatedly invoke the FAA in connection with an agreement that, by its own terms, is to be “construed in accordance with and governed by the laws of the State of New York applicable in the case of agreements made and to be performed entirely within such State.” (A200). The First Department’s decision, which looked primarily to the type of business engaged in by the entities years after the agreements were executed, creates another problem. In the case of New York partnerships or New York Limited Liability Companies, there can be controlling members and non- controlling members. Under the First Department’s decision, any manager or general partner of a New York entity can now foist the FAA on his/her co-owners at any time he or she pleases simply by having the entities, years after the agreements were entered into, engage in a few small interstate transactions. A contract should not be interpreted and governed by New York law for a period of years and then transformed into an FAA contract later on, based on post- contract conduct of a party to that contract (or, in this case, non-parties to the contract). Parties should be able to know at the time of contracting whether their agreement will be subject to the FAA, not years down the road or once a dispute arises. Principles of contract interpretation mandate that it is the agreement made 6 at the time of contracting that should control. Another problem created by the First Department decision is that it leaves CPLR §7502(b) with an extremely limited, if any, application. CPLR § 7502(b) was enacted for a purpose and is supported by strong policy considerations of its own. As was stated in Matter of Cohen, 17 A.D.2d 279, 282 (1st Dept. 1962): Section 1458-a (the predecessor to CPLR 7502 (subd. (b)) was proposed upon the basis that ‘[t]he same considerations of public policy which make stale claims in actions at law unenforceable also apply to disputes in arbitration.’ Specifically, it was enacted to eliminate the confusion theretofore existing in the decisions as to whether a proceeding in court could be invoked to enforce the defense of the statute of limitations or whether the applicability of the defense was in the sole discretion of the arbitrators. (N.Y.Legis. Annual, 1959, pp. 12, 13, 27.)’ (additional citations omitted). In proceedings authorized by a prior agreement to arbitrate future disputes, it is for the court to determine whether the claim, and therefore the arbitration, is barred by the Statute of Limitations. Id. (Citations omitted) (emphasis supplied). Thus, in response to confusion in the caselaw about whether the statute of limitations should be resolved by the courts or the arbitrators, the New York State Legislature spoke unequivocally: The issue is for the courts. The legislature conferred on courts in this State, through CPLR § 7502(b), a limited gatekeeper role to ensure that parties do not have to face time-barred claims in an alternative dispute resolution forum. Indeed, understanding the court’s gatekeeper role but before being struck with their epiphany that the FAA rendered such motions 7 unavailable, Respondents attempted to avail themselves of this right and, to try to induce a Nassau County Judge to vacate alleged time barred claims awarded in a prior AAA arbitration award (A398-403), argued to the lower court that “[u]nder CPLR 7502 and 7503, Rita [Cusimano] has an absolute right [to] obtain a judicial determination on her statute of limitations defense without having to participate in the arbitration.” (A689 [emphasis supplied]). As Respondents’ acknowledged, CPLR §7502(b) affords parties the “right” to ask the courts to apply the statute of limitations to time-barred claims through motion practice which is often unavailable, or far more limited, in an alternative dispute resolution forum. If the First Department’s decision in this case is affirmed, the definition of an agreement evidencing “interstate commerce” will hereinafter be interpreted so broadly that the FAA will control virtually every arbitration agreement entered into by every New York entity. This not only all but vitiates the legislature’s promulgation of CPLR §7502(b), it also may discourage, rather than encourage, arbitration agreements. Thus, while there is undoubtedly a public policy in this state in favor of arbitration, the First Department’s decision in this case does nothing to further that policy consideration. When the courts are open, and play their statutorily conferred gatekeeper role, parties are more likely to agree to arbitration agreements 8 and have the merits of their disputes heard in alternative forums.2 If the FAA always applies (regardless of what was “contemplated at the time the agreement was executed” [Axxxvii]), then parties who might otherwise agree to arbitration may decline to do so in order to be certain that they will have the right to make a motion to a sophisticated jurist on statute of limitations issues if a dispute arises. If a party must always risk losing their right to make a motion to a Justice of this State addressed to the statute of limitations issues if he or she agrees to arbitration, it will discourage, rather than encourage, agreements to arbitrate. * * * Even if the First Department was correct, and the FAA does somehow apply to the parties’ underlying agreements, the First Department erred when it ignored Respondents’ waiver of their right to invoke the FAA and have the arbitrators determine the limitations issues. This clear waiver was manifested by, inter alia, (i) the years Respondents spent litigating the arbitrability of the parties’ agreements exclusively under New York law in two other related intra-family litigations commenced by Respondent Rita Cusimano (“Rita”) in Nassau County Supreme 2 By agreeing to arbitration, their disputes may be heard before sophisticated and not-so-sophisticated attorneys, accountants, real estate professionals, businessmen, family friends or Rabbis. Unlike the “merits” of a dispute, the statute of limitations is purely a legal issue, which parties may want to have ruled upon by a judge. 9 Court, including appeals to the Appellate Division after the Nassau County Supreme Court compelled her to arbitrate (A16; 437-43), (ii) Respondents’ commencement of this action in the New York Supreme Court despite the fact that they were warned in advance of its filing that the claims made in that action should be arbitrated in the AAA (A443-48); (iii) Respondents’ decision to litigate this action in the New York Supreme Court for over one year (including, but not limited to, the filing a pre-answer motion to disqualify Appellants’ counsel) (infra, at 24-27); (iv) Respondents’ service of three non-party subpoenae which, after they refused to withdraw them, forced the Appellants to file three separate motions to quash them (infra, at 27); and (v) even more egregiously, Respondents’ willing and active litigation of the precise issue they now claim to want to arbitrate – whether the claims interposed in the AAA statement of claim are barred by the statute of limitations – in the lower court (infra, at 27-31). Respondents only sought to invoke the FAA after they received an adverse ruling from Justice Ramos on the timeliness and legal viability of their claims (A282, 285-86, 312), and after Respondents were told by the lower court Justice that their claims could be deemed frivolous (A311). Indeed, prior to being struck with their epiphany that the action they commenced in the New York Supreme Court must be arbitrated (and prior to their filing of a AAA Statement of Claim interposing virtually the identical claims to 10 those that were interposed in the State Court action), Respondents had vigorously opposed a motion by the Accountants to dismiss the New York Supreme Court complaint, spent nine (9) out of the sixteen (16) pages of legal argument to Justice Ramos on the timeliness issue and explained to the lower court why the claims made in the Complaint should not be dismissed on limitations grounds. Respondents even submitted an Affidavit from Rita giving alleged factual reasons why she did or did not discover, or should not have discovered, an alleged multi- decade fraud she sought to assert in the action. (A511-13). Not once in their argument did Respondents tell the lower court that limitations issues were for the AAA arbitrators to decide, that the FAA governed the agreements, or that the lower court could not hear any argument on statute of limitations. In fact, at that time, Respondents welcomed a decision by Justice Ramos on the limitations issues. As Respondents’ counsel stated during the oral argument before the lower court on the statute of limitations issues: THE COURT: You don’t want to go to arbitration. [Respondents’ Counsel]: Correct, your Honor. ... There certainly is no reason why we should go to arbitration simply because Mr. Heller wants us to. (A300). 11 All of this changed on July 17, 2012, nearly eleven (11) months after the lower court action was commenced, when Justice Ramos determined the following: [T]he claims against Mr. Schnurr are barred by the statute of limitations. They are clearly untimely. (A282). [T]o the extent that there is an allegation of accounting malpractice [against Mr. Norman] that deals with events that occurred before the three years prior to the filing of the summons … those claims would be barred by the statue of limitations. (A285). I’m not going to waste your time and my time adjudicating [Accounting Malpractice] claims that have been barred by the statute of limitations. … Those activities that preceded the three years prior to the key date are out (A286). A lot of what you are alleging here [for breach of fiduciary duty, fraud and aiding and abetting a breach of fiduciary duty and fraud] obviously happened 20 years ago, or more. You know that’s well beyond what we can do anything about. If it happened it happened. We have statute of limitations ... the law is not going to reach back that far. (A312). I’m getting a nasty feeling here that this is frivolous litigation. (A300). I see here a pattern of constant litigation. I don’t like it. I don’t like wasting people’s time and money on spite litigation. ... If that’s what this is … there will be sanctions in the form if attorneys’ fees. (A311). It was only after these statements and rulings by Justice Ramos that Respondents and their counsel conveniently arrived at the conclusion that the matter is arbitrable, that the FAA controlled, that the AAA must determine whether Respondents’ claims are timely and that the Court did not have any power to 12 decide limitations issues. Notably, and unlike Respondents, Appellants’ position on this issue has always been clear and consistent: the arbitration clauses contained in the agreement are valid, enforceable, and subject to review and enforcement under New York law, including CPLR §7502(b). The lower court did not accept Respondents’ cynical gaming of the litigation process. (A10-52). The Court properly held that Respondents could not, simply because the Court had not ruled in their favor on the issues of timeliness and legal sufficiency of their Complaint, disregard over one year of active litigation and its prior Order by belatedly invoking the FAA and bolting the Court for arbitration. Rather, the Court agreed that Respondents’ conduct was a “flagrant example of forum shopping – dressed up as a professed concern for judicial economy – in order to get a second bite at the apple in arbitration.” (A31-32). Specifically, Justice Ramos held: [T]he Cusimanos have charted their own procedural course via litigation not arbitration. They have consistently sought to litigate their disputes regarding Berita, FLIP and the Seaview entities, both here and in Nassau County Supreme Court. The Cusimanos responded on the merits to the accountants’ initial motion to dismiss, and, at oral argument of that motion, counsel for the Cusimanos advised this Court that his clients were not willing to go to arbitration (7/17/12 Tr. at 35 [A300]). The Cusimanos resorted to arbitration only after receiving an unfavorable ruling from this Court on the timeliness and legal sufficiency of their claims against Schnurr and Norman. 13 This is a flagrant example of forum shopping – dressed up as a professed concern for judicial economy – to get a second bite at the apple in arbitration. The Court will not and does not accept such a gaming of the litigation process, and any right that Rita may have had to insist on arbitration of her claims against the accountants has been waived by her resort to, and aggressive participation in this litigation (see 1/15/13 Tr. at 31-32). … (A31-32). It is well-settled that “[t]he Courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration.” Sherrill v. Grayco Builders, Inc. 99 A.D.2d 965, 967 (1st Dept. 1984) aff’d 64 N.Y.2d 261 (1985). Thus, any right that Respondents may have had to invoke the FAA and insist that the arbitrators rule on the statute of limitations issues has been waived. See California Suites, Inc. v. Russo Demo, Inc., 98 A.D.3d 144, 156 (1st Dept. 2012) (a party may “to a large extent chart their own procedural course through the courts [and, as such, will fashion] the basis upon which a particular controversy will be resolved”); Hart v. Tri-State Consumer, Inc., 18 A.D.3d 610, 612 (2nd Dept. 2005) (plaintiff waived his rights because “[h]e commenced an action seeking a judicial determination of the controversy and only sought arbitration after efforts at settlement failed” and, as the Second Department noted, “[h]e alleged the same wrongs in the arbitration and in the action”). 14 To permit a Plaintiff to file an action in court, test the waters by presenting issues, including whether the claims in a complaint are time barred, and then allow that Plaintiff to bolt from the state court for the AAA, and procure a “do over” on limitations, would encourage litigants to file actions in the state court, test whether the assigned Judge is sympathetic to their claims and then run to arbitration – and wipe the slate clean – if the Judge rules adversely on a motion to dismiss on limitations or other grounds. That is precisely the precedent set by the First Department’s decision holding that no waiver of the FAA occurred and the limitations issues can be re-argued to and re-decided by the AAA Panel. * * * Accordingly, the Court should reverse the First Department and reinstate the Judgment and Order of Justice Ramos. Issues Presented 1. Whether a court can look beyond an agreement itself and, in particular, at business activities and transactions that occurred years after the agreement was executed, to determine whether an agreement evidences interstate commerce where, as here, the agreement at issue only involved intra-family New York transactions, pursuant to which New York residents formed a limited liability company and limited partnership pursuant to the provisions of the New York 15 Limited Liability Company Law and the New York Limited Partnership Law, respectively, with places of business in New York, only? 2. Whether the Respondents waived their right to have the AAA determine limitations issues where, among other things, Respondents (i) chose the court as the forum for their dispute, (ii) were warned prior to the filing of the court Complaint that their claims should be arbitrated in the AAA, (iii) told the lower court on multiple occasions that they did not wish to arbitrate their claims in the AAA, (iv) litigated in court for over a year including, but not limited to, moving to disqualify Appellants’ counsel, serving three non-party subpoenas and forcing the Appellants to move to quash them; (v) previously commenced two separate actions in the Supreme Court, Nassau County arising out of the agreements at issue in this Action and, after being directed to arbitration in both cases by court Order, appealed one of the Orders, made a motion to renew, were directed to arbitration again and appealed that decision; and (vi) defended (and lost) a motion on timeliness and legal sufficiency of their claims and only belatedly invoked the FAA to try and get a “do over” after the lower court found their claims to be time- barred and legally insufficient, and suggested that their claims could be frivolous? 16 Jurisdiction of this Court This Court has jurisdiction over this Appeal pursuant to CPLR § 5602(a)(1)(i), on the grounds that the August 7, 2014 Decision and Order of the Appellate Division, which reversed the Order and the Judgment, is a “final order” which is not appealable as of right. This Court granted Appellants’ motion for leave to appeal on November 24, 2014. Summary of Facts and Procedural Background A. The Parties Rita is the daughter of Bernard (and Carmela Strianese) and the sister of Co- Appellant Bernadette Strianese (“Bernadette”). Bernard and Carmela (who are both well into their 90s), have been in the business of acquiring and managing commercial property for over 50 years. During that time, they acquired with their monies/assets the properties that are currently owned by the two entities relevant to this Action, the Strianese Family Limited Partnership (the “FLIP”) and Berita Realty Co., subsequently known as Berita Realty LLC (“Berita”). (A409-10; 523). The Accountants provided accounting services to the FLIP and Berita; Schnurr until approximately 2003 (A517); Norman until 2010 for Respondents and to present for the other parties. (A520). Norman and Schnurr, who have no affiliation with each other, only overlapped for a brief period in providing accounting services. (A272-76). 17 Bernard and Carmela formed the FLIP on June 4, 1998 and funded it with approximately $1.6 million of their money. Berita was funded by Bernard with over $5.5 million of his and his wife’s money, in the form of loans made by Bernard. (A331-397). Neither Rita nor Bernadette has ever contributed any money to either entity. As determined by the AAA in a prior preceding, Bernard and Carmela are the current owners of over 91% of the FLIP, with Rita and Bernadette owning Limited Partnership interests of approximately 4.45% each (which were generously gifted to them by Bernard and Carmela in three annual gifts in 1998, 1999 and 2000). (A398). Rita and Bernadette are each 50% owners of Berita. (A522). B. The Relevant Contracts Do Not Evidence Transactions Involving Interstate Commerce 1. The FLIP Limited Partnership Agreement On or about June 3, 1998, Bernard and his wife Carmela, both living at 260 Elderfields Road, Manhasset, New York (and who, at the time of its execution, were or nearing their 80s) executed the Strianese Family Limited Partnership Agreement. (A183-201). 18 The limited partnership agreement signed by Bernard and Carmela provided, in relevant part, the following: 1.1 Formation. [Bernard and Carmela] hereby agree to become partners and to form a limited partnership pursuant to the provisions of the [New York Revised Limited Partnership Act (the “Act”)] … (A183). 1.3 Specified Office and Agent. … The Partnership shall continuously maintain a registered office in the State of New York which shall be at 260 Elderfields Road, New York. … (Id.). 9.1 Any claim or controversy arising from this Agreement which cannot be resolved by the Partners [which, at the time of execution, were Bernard and Carmela only] shall be settled by arbitration under the rules of the American Association … (A195). 10.1 … “Certificate” means the Certificate of Limited Partnership of the Partnership as filed by the Partnership in the office of the Secretary of State of New York … (Id.). 12.11 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York applicable in the ace of agreements made and to be performed entire within such State. (A200). The FLIP Partnership Agreement evidences no “transaction,” much less a transaction involving interstate commerce. The Agreement simply forms and sets forth the management structure for a New York partnership between a husband and wife, both of whom were New York residents at the time of contracting. 19 2. The Berita Limited Liability Company Agreement On or about January 1, 2001, Rita and Bernadette executed an operating agreement for an entity named Berita Realty LLC. (A165-82). The sole asset of Berita at the time of the execution of the operating agreement consisted of a 19% ownership interest in Greenbriar Associates, a New York Limited Liability Company. The Berita operating agreement signed by Rita and Bernadette provided, in relevant part, the following: WHEREAS, the parties hereto desire to form a limited liability company pursuant to the laws of the State of New York … (A165). 1. Formation. The parties hereby confirm that they have formed a limited liability company … pursuant to the provisions of the New York Limited Liability Company Law … (Id.). 4. Place of Business. The principal place of business for the Limited Liability Company shall be at 10 Seaview Blvd., Port Washington, NY … the Limited Liability Company hereby designates the Secretary of State of New York as agent of the Limited Liability Company for the Service of Process. (A166). 11. Management of the Limited Liability Company. The Members hereby designate BERNARD V. STRIANESE to serve as Manager for the Limited Liability Company. The business and affairs of the Limited Liability Company shall be conducted and managed by the Manager … in accordance with this Agreement and the laws of New York. (A173). 20. Arbitration. Any dispute, controversy or claim arising out of or in connection with this Agreement or any breach or alleged breach hereof … shall be submitted to, and settled by, arbitration … (A180). 20 22. Miscellaneous. This Agreement and the rights and liabilities of the parties hereunder shall be governed by and determined in accordance with the laws of the State of New York. (A181). The Berita Operating Agreement evidences no “transaction,” much less a transaction involving interstate commerce. The Agreement simply forms and sets forth the management structure for a New York Limited Liability Company owned by two sisters, both of whom were New York residents at the time of contracting. 3. The Seaview Agreement On or about January 1, 2000, Rita and Bernadette executed a purchase agreement relating to a New York corporation named 60 Seaview Corp. (“Seaview”). (A204-09). Seaview owned the properties located at 10 and 60 Seaview Boulevard, Port Washington, NY and the sole purpose of that Agreement was to document the sale by Rita of interest in Seaview to Bernadette. (A438). The purchase and sale agreement signed by Rita and Bernadette provided, in relevant part, the following: 7. Arbitration of disputes. If any disputes should arise among the parties arising out of this Agreement … such disputes shall be settled by arbitration in accordance with the rules of the American Arbitration Association … (A207). 10. Miscellaneous. … (c) This Agreement shall be construed and enforced in accordance with the laws of the State of New York. (A208). 21 The Seaview purchase and sale agreement documents the purchase by one sister from the other sister of an interest in a New York entity. (A438). While this may be a “transaction,” it had no affect on interstate commerce. C. The 2010 FLIP Action and Arbitration/Rita Loses the Arbitration Over their lifetimes, Bernard and Carmela have made millions of dollars in gifts to their daughters, Rita and Bernadette (in addition to the 4.45% interest described above). (A524). However, in recent years, Rita has become belligerent toward them and commenced a scorched earth litigation campaign to rip assets away from them. Rita’s litigation war with her sister and her elderly parents in the State Courts has been going on for over four years – one action alone commenced in 2010 in Nassau County resulted in 113 docket entries even though it was ultimately sent to (over Rita’s vigorous objection) and tried in arbitration before the AAA. Rita first attempted to steal her parents’ assets through the commencement of a dissolution and accounting proceeding she filed in Nassau County Supreme Court in Cusimano v. Strianese Family Limited Partnership, Index No. 008522/2010 (the “FLIP Action”). (A408). In that proceeding, Rita falsely claimed that she and Bernadette were the 50-50 partners of the FLIP, and that they were deadlocked, which necessitated dissolution and the distribution of the FLIP’s assets to them. (A409-12). 22 As this “dissolution” proceeding was really just a sham to rip the FLIP away from Bernard and Carmela, they intervened in the proceeding and prevailed on a motion to compel arbitration before the AAA. (A16). Rita desperately sought to avoid arbitration and filed numerous sets of papers seeking to avoid litigating the dispute in the AAA. During the court proceedings over the arbitrability of the FLIP case, no party contended that the FAA applied. After hearings were held before three AAA arbitrators on December 15, 20, and 21, 2010, the arbitration was resolved in Bernard and Carmela’s favor. (A398-407). D. Rita Moves to Vacate the FLIP Arbitration Award, and Loses After Bernard and Carmela moved to confirm the Award, Rita cross-moved to vacate it on various grounds. Far from contending that the FAA applied, one argument made by Rita to Justice Warshawsky was that the claims made by Bernard (and Carmela) to ownership of the FLIP were time-barred and that, by statute, the court, not the AAA arbitrators, must determine the timeliness of those claims. (A413, 689). Specifically, Respondents (in total contradiction to the arguments made to the First Department and to Justice Ramos, and presumably in opposition to this Appeal), argued: Under CPLR 7502 and 7503, Rita has an absolute right [to] obtain a judicial determination on her statute of limitations defense without having to participate in the arbitration. (A689) (emphasis supplied). 23 In response, Appellants never contended that the FAA applied to bar the application of CPLR §7502 or §7503. Appellants, as they have throughout, maintained their position that New York law applies exclusively to the agreements. E. Rita files the Berita Action in Supreme Court, Nassau County In July, 2010 Rita commenced a second action in Nassau Supreme entitled Cusimano v. Berita Realty LLC and Bernadette Strianese, Index No. 013147/2010, seeking the dissolution of a second family entity known as “Berita LLC.” (the “Berita Action”). (A420-36). The Berita Action named Berita and Bernadette as defendants, but did not name Bernard. (Id.) F. The Berita Action is Sent to Arbitration In a decision dated March 2, 2011, Justice Warshawsky granted a stay of the Berita Action and, over Rita’s objections, directed arbitration of Rita’s Berita claims. (A437-41). Neither the parties’ various contentions about the arbitrability of the Berita action, nor Justice Warshawsky’s decision, made any reference to the FAA. (Id.). Rita did not accede to the directive that she arbitrate her dispute before the AAA; instead she appealed Justice Warshawsky’s ruling (and the subsequent denial of her motion to renew and reargue the lower court decision) directing her claims to arbitration to the Second Department. See Cusimano v. Berita Realty, 24 LLC, 103 A.D.3d 720 (2nd Dept. 2013). During the entire appellate process, no party so much as mentioned the FAA. In February, 2013, Rita lost her appeal. Id. G. The Draft Complaint of This Action In July, 2011, after Rita lost the FLIP Arbitration, Rita and her husband co- Respondent Dominic (“Dominic”) Cusimano’s counsel forwarded to Bernard’s and Bernadette’s counsel a draft complaint (the “Draft”) that ultimately became the Complaint in this action. (A442). While the Draft was substantively similar to the Complaint ultimately filed in the New York Supreme Court, the two complaints contained two critical differences. First, the Draft Complaint named Bernadette and Bernard as defendants along with the Accountants. Second, the Draft Complaint contained a Nassau County caption, not a New York County caption. (A442). A few days after the receipt of the Draft, Respondents’ counsel told Rita and Dominic’s counsel that the prior Nassau County Supreme Court Justice Warshawsky Orders mandated that the claims asserted in the Draft Complaint be brought in arbitration not in court. Rita and Dominic’s counsel was told that an argument would be presented to Justice Warshawsky that the action, if filed, would be a direct violation of his prior arbitration Orders. (A443-48). 25 In response, even though the parties had litigated these issues for years in Nassau County, Rita and Dominic filed the new action in New York County and only against the Accountants. (A86-112). Rita and Dominic filed the Complaint in New York County, and without Bernard and Bernadette, to create the appearance that the action was not subject to arbitration, and in the obvious hopes that the Accountants would make third-party claims against Bernard and Bernadette, thereby circumventing Justice Warshawsky’s arbitration orders. That is, the new action was venued in New York County as an act of forum shopping similar to Rita and Dominic’s current attempt to forum shop their way away from Justice Ramos to arbitration. H. Rita and Dominic Move to Disqualify the Accountants’ Counsel and Lose Before the Accountants were given a chance to respond to the Complaint, Respondents filed a motion to disqualify the Accountants’ chosen defense counsel. After hundreds of pages of briefs, affidavits, expert opinions and exhibits were prepared and filed with the Court and oral argument was held, the Court denied Rita and Dominic’s motion. (A650-73). The basis of the motion for disqualification was the Accountants were obligated to file third-party actions against Bernard (A660) (thereby circumventing Justice Warshawsky’s arbitration orders and allowing the matter to proceed in court). 26 During oral argument on the motion for disqualification, Respondents’ counsel told the Court that Respondents intended, after the resolution of motions to dismiss, to file a motion seeking to compel arbitration. At no time during the briefing or oral argument of the Respondents’ Disqualification Motion did Respondents or their counsel argue that the claims interposed in the Action were arbitrable or mention the FAA. In fact, Respondents at all relevant times vehemently objected to the arbitrability of the claims in the Action and told Justice Ramos “I wouldn’t even have the right to sue [the Accountants] in arbitration.” (A666). I. The Accountants Move to Dismiss the Complaint; Respondents Serve Three Non-Party Subpoenae and Refuse to Withdraw Them Pending the Determination of the Motion to Dismiss After the Court denied Respondents’ disqualification motion, the Accountants moved to dismiss the Complaint. The basis of the Motion was that most if not all of the claims made in the Complaint were time-barred, insufficiently pled, and/or directly refuted by documentary evidence. While the motion to dismiss was being briefed by the parties, Respondents served three pre-answer non-party subpoenae. Respondents’ counsel was asked to withdraw the subpoenae while the Motion to Dismiss was pending but refused to do so. The Accountants were thus forced to make three separate motions to quash the subpoenae. (A310-11). 27 J. Respondents Vigorously Opposed the Motion to Dismiss Including, but not Limited to, Opposing the Argument that the Claims in the Complaint are Barred by the Applicable Statutes of Limitations In opposition to the Motion to Dismiss, Respondents filed an attorney Affirmation with fifteen Exhibits annexed thereto, an Affidavit from Rita and a twenty-five page Memorandum of Law -- with nine (9) of the sixteen (16) pages of legal argument dedicated exclusively to Respondents’ position that their claims were not time-barred. Not once in any of the papers filed by Respondents in opposition to the motion to dismiss time-barred claims did Respondents or their counsel state, argue, suggest, or imply that the Court could not decide limitations issues, that the matter was governed by the FAA or that the timeliness of Respondents’ claims was for the AAA to decide. K. Oral Argument of the Motion to Dismiss/the Complaint is Dismissed On July 17, 2012, the Motion to Dismiss (and the motions to quash the subpoenae) were orally argued. (A266-313). During oral argument, Justice Ramos noted that the vast majority of the claims asserted against the Accountants were time-barred. See, i.e., A282 (“the claims against Mr. Schnurr are barred by the statute of limitations. They are clearly untimely”); A286 (“I’m not going to waste your time and my time adjudicating claims that have been barred by the statute of limitations. … Those activities that preceded the three years prior to the key date are out”); A312 (“A lot of what you are alleging here obviously happened 28 20 years ago, or more. You know that’s well beyond what we can do anything about. ... We have statute of limitations … the law is not going to reach back that far.”) After oral argument, the Court “dismiss[ed] the complaint with leave to replead with specificity” because “[i]t is so vague it does not comport at all, particularly when it comes to allegations of breach of fiduciary duty, which are serious, and fraud, which is very serious.” (A309). The Court further cautioned Respondents that: [The Amended Complaint should not] give me conclusory statements, don’t say something was fraudulent[. T]ell me what was done, when it was done [and] … if you want to say the statute has been tolled, again, you are going to be very specific about the acts you allege toll the statute because you don’t toll statutes without doing something fairly serious here. (A309-10) (emphasis supplied). The lower court also stated: You can go to the law book and look up every possible cause of action any lawyer has ever thought of and include it in a complaint, or you can pick and choose where you think you’ve really got a chance of winning and pursue what has some merit and has some basis in fact and law, that is not stale. A lot of what you are alleging here obviously happened 20 years ago, or more. You know that’s well beyond what we can do anything about. If it happened it happened. We have statute of limitations. 29 You know something? Your client is going to have to get over it, that’s life. She sat on her rights, she didn’t care, she got treated nicely by her father and now she’s annoyed about it. Okay. But the law is not going to reach back that far. Give me something that I can adjudicate with some sense that this is current and we’re not going to be dealing with statute of limitations decisions. … (A312-13) L. Instead of Filing an Amended Complaint, the Respondents File a Statement of Claim with the AAA and Move to Stay or Dismiss their own Action Pursuant to CPLR 7503 Rita and Dominic did not want to resubmit this action to a Judge who was “getting a nasty feeling … that this is frivolous litigation” (A300) and who further stated: “[T]ell me what was done, when it was done [and] if you want to say the statute has been tolled, again, you are going to be very specific about the acts you allege toll the statute. (A309-10) (emphasis supplied). Thus, instead of complying with the July 17, 2012 Order by filing and serving an Amended Complaint, on September 13, 2012 Respondents filed a forty- four page Statement of Claim naming the Accountants and adding Bernard and Bernadette as parties. Rather than removing the “conclusory statements,” or being “very specific about the acts [that] toll the statute,” the Statement of Claim was nearly identical to the Complaint Justice Ramos had dismissed. (Compare, A121- 64 and A86-112). 30 Indeed, the main difference between the Statement of Claim and the Complaint is that the new Statement of Claim named both Bernard and Bernadette as respondents. Now that there was no chance of avoiding Justice Warshawsky’s arbitration orders, there was no reason for Rita and Dominic to keep up the charade that this action was only brought against the Accountants. One day later, Respondents moved for an order pursuant to CPLR §7503 staying or dismissing their own year-old Action pending arbitration. (A659). In Response, the Accountants cross-moved for, inter alia, an Order – also pursuant to CPLR 7503(b), the very provision relied upon by Respondents – staying Respondents’ claims on the grounds that the claims asserted in the Statement of Claim were barred by the statute of limitations (A314-15) and, now that they were formally named in the arbitration, non-parties Bernard and Bernadette filed motions: (i) to intervene in this Action; and (ii) upon such intervention, for an Order pursuant to CPLR 7503(b) permanently staying the claims asserted against them in the Statement of Claim, on the grounds that all such claims were time-barred. (A862-63). Respondents, while advocating that the Court grant their own CPLR § 7503 motion, asserted for the first time that the Court no longer had the authority to decide the timeliness issues raised in Appellants’ CPLR § 7503 motions because of Respondents’ reliance on the FAA. 31 M. The July 3, 2013 Decision and Order On July 3, 2013, Justice Ramos granted Respondents’ CPLR § 7503 motion solely to the extent that the arbitration proceed in accordance with the Court’s Order regarding the expiration of the statute of limitations with respect to certain claims. (A10-52). Specifically, the Court stayed any claims: (i) Against Schnurr (who last provided any services for any of the parties in 2003); (ii) For breach of fiduciary duty (Counts III and IV), Accounting Malpractice (Counts VII and VIII) and Aiding and Abetting a Breach of Fiduciary Duty (Counts XI and XII) against Norman occurring prior to September 2, 2008; (iii) For Fraud (Count X), Aiding and Abetting a Fraud (Counts XI and XII) and Fraudulent Concealment (Count XIII) against Norman occurring prior to September 2, 2005; (iv) For Breach of Fiduciary Duty (Counts I and II) and Misappropriation (Count V) against Bernard and Bernadette occurring prior to October 5, 2009 and September 13, 2009, respectively; (v) For Misappropriation (Count VI), Fraud (Counts IX and X) and Fraudulent Concealment (Count XIII) against Bernard and Bernadette occurring prior to October 5, 2006 and September 13, 2006, respectively; and (vi) For an Accounting in connection with Berita (Count XIV) would be subject to a six year statute of limitations and that the claim is deem interposed as of July 12, 2010. 32 The Order of Justice Ramos was entered in the office of the Clerk of the Supreme Court, New York County on July 16, 2013. (A10). On September 11, 2013, the Judgment was entered in the Supreme Court, New York County which, inter alia, (i) granted Appellants’ motion for an order pursuant to CPLR § 7503 staying their own lower court action filed on September 2, 2011 in the Supreme Court, New York County under Index No. (652429/2011) in favor of an arbitration of the virtually identical claims interposed by them one year later in a Statement of Claim filed in the AAA and (ii) granted the cross- motion of the Accountants and motion by Bernard (and their co-Respondent Bernadette Strianese) to, inter alia, permanently stay certain time-barred claims from proceeding to arbitration pursuant to CPLR §§ 7502 and 7503. (A63-68). N. The Decision of the Appellate Division By Decision and Order of the Appellate Division, First Department, dated August 7, 2014, the Appellate Division concluded that the FAA did apply to the contracts at issue and held that the question of whether Respondents’ claims are time-barred is for the AAA arbitrators. (Axxxviii). The Appellate Division also found that Respondents did not waive their right to have the statue of limitations issue decided by the AAA arbitrators. (Axliii). As a result, the First Department reversed the Judgment and the Order. This Court granted Appellants’ motion for leave to appeal on November 24, 2014. 33 ARGUMENT THE APPELLATE DIVISION DECISION SHOULD BE REVERSED AND THE JUDGMENT REINSTATED I. THE FAA DOES NOT APPLY TO THE PARTIES’ UNDERLYING AGREEMENTS; THE TIMELINESS ISSUE IS FOR THE COURT TO RESOLVE The FAA applies to the enforcement of an arbitration clause in a “contract evidencing a transaction involving [interstate] commerce,” 9 U.S.C. § 2 (emphasis supplied). The First Department failed to adhere to the requirement that, before a party can invoke the FAA, the party must first demonstrate that the agreement itself evidences transactions that affects interstate commerce. A. The Citizens Bank, Allied Bruce and Diamond Waterproofing Agreements Themselves Each Evidenced Transactions Affecting Commerce The cases Respondents cited in their First Department Brief all corroborated Appellants’ position because they all concerned arbitration clauses in agreements where the agreements themselves evidenced a transaction affecting interstate commerce. See, e.g., Citizens Bank v. Alfafabco, Inc., 539 U.S. 52 (2003) (debt- restructuring agreement secured by business assets located in several states involved interstate commerce); Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265 (1995) (agreement by multistate termite treating companies to 34 provide treatments and repairs, using interstate materials, involves interstate commerce); Adams v. Suozzi, 433 F.3d 220 (2d Cir. 2005) (agreement allowing County to defer payroll to union employees involved interstate commerce). In Diamond Waterproofing Systems, Inc. v. 55 Liberty Owners Corp., 4 N.Y.3d 247 (2005), this Court held that a contract to repair and reconstruct the façade of a building in New York was subject to the FAA because, in part, an Illinois company was involved in drafting plans, meetings related to project were held in New Jersey, and materials and services were obtained from various states. In accordance with the precedent of the cases above, the Court focused on the project embodied in the contract containing the arbitration clause. See Matter of Laszlo N. Tauber & Assoc. I v. American Mgt. Assn., 304 A.D.2d. 413 (1st Dept. 2003). B. The First Department Misapplied Allied Bruce The relevant question for the First Department should have been whether the FLIP or Berita (or Seaview) Agreements themselves embody transactions that affect interstate commerce – and they do not. The Berita and FLIP agreements are each New York intra-family transactions pursuant to which New York residents formed a limited liability company and a limited partnership pursuant to the provisions of the New York Limited Liability Company Law and the New York Limited Partnership Law, respectively (A165, 183), with a place of business in 35 New York (A166, 183).3 The Complaint alleges that Berita and the FLIP, the New York entities formed by the relevant agreements, are “passive” and require “little or no active management.” (A89). There is no merit to the argument that agreements forming “passive” New York entities, like the FLIP and Berita, impact interstate commerce. Nevertheless, the First Department, citing exclusively to Allied-Bruce, held that the agreements need not “contemplate” interstate commerce. (Axxxvii- xxxviii). The First Department reasoned that it “was enough that a transaction involving commerce had occurred in fact (513 US at 277-279).” (Axxxvii). But this argument misreads Allied-Bruce, because it ignores the requirement that the interstate “transaction” that “had occurred in fact” be one evidenced in the agreement containing the arbitration clause. Stated differently, Allied-Bruce stands for the proposition that, where the subject agreement itself evidences a transaction involving interstate commerce, what parties subjectively “contemplated” about interstate commerce at the time of entering into the agreement will not suffice to avoid the FAA. The fact that the agreement itself evidences a transaction involving interstate commerce is paramount. 3 The Seaview Agreement, which was also referenced in Respondents’ Complaint and in their AAA Statement of Claim, involved an intra-family purchase of a family member’s interest in a New York entity. (A204-09). 36 Allied-Bruce says as much. In the opinion, the Court rhetorically asks: “Does ‘evidencing a transaction’ mean only that the transaction (that the contract ‘evidences’) must turn out, in fact, to have involved interstate commerce? Or, does it mean more?” Id., 513 U.S. at 277 (emphasis supplied). The Court answered that question by holding that it is sufficient “that the transaction that the contract evidences” turns out, in fact, to have involved interstate commerce. Id. The Court stated in its answer: We find the interpretive choice difficult, but for several reasons we conclude that the first interpretation (‘commerce in fact’) is more faithful to the statute than the second (‘contemplation of the parties’). First, the ‘contemplation of the parties’ interpretation, when viewed in terms of the statute's basic purpose, seems anomalous. That interpretation invites litigation about what was, or was not, ‘contemplated.’ Why would Congress intend a test that risks the very kind of costs and delay through litigation (about the circumstances of contract formation) that Congress wrote the Act to help the parties avoid? See Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 29 (1983) (the Act ‘calls for a summary and speedy disposition of motions or petitions to enforce arbitration clauses’). Moreover, that interpretation too often would turn the validity of an arbitration clause on what, from the perspective of the statute’s basic purpose, seems happenstance, namely whether the parties happened to think to insert a reference to interstate commerce in the document or happened to mention it in an initial conversation. After all, parties to a sales contract with an arbitration clause might naturally think about the goods sold, or about arbitration, but why should they naturally think about an interstate commerce connection? Further, that interpretation fits awkwardly with the rest of §2. That section, for example, permits parties to agree to submit to arbitration ‘an existing controversy arising out of’ a contract made earlier. Why 37 would Congress want to risk non enforceability of this later arbitration agreement (even if fully connected with interstate commerce) simply because the parties did not properly ‘contemplate’ (or write about) the interstate aspects of the earlier contract? The first interpretation, requiring only that the ‘transaction’ in fact involve interstate commerce, avoids this anomaly, as it avoids the other anomalous effects growing out of the ‘contemplation of the parties’ test. Id. at 278. Properly interpreted, Allied-Bruce, supports Respondents’ argument that the “agreement itself” must evidence interstate commerce for the FAA to apply. Put another way, if like here commerce in fact is nowhere to be found in an agreement, the commerce clause should in no way apply. Until the First Department’s contrary conclusion, lower courts in New York agreed with Respondents’ reading of Allied-Bruce. See Schiffer v. Slomin’s, Inc., 40 Misc.3d 884, 895 (Dist. Ct., Nassau Cty. 2013). Schiffer involved a contract, containing an arbitration clause, for installation and monitoring of a security system in a New York home. Id. at 895. After a lengthy and well-reasoned analysis of the federal and New York precedent on the FAA, the Court held: This Court … remains bound to follow the prevailing legal standard in New York as set forth by the Court of Appeals in Diamond Waterproofing, which was premised on … Allied–Bruce and Citizens Bank: in determining whether a contract falls within the ambit of the [FAA], the trial court must first assess whether the subject contract affects interstate commerce. Id. (emphasis added). 38 Similarly, in Baronoff v. Kean Development Co., Inc., 12 Misc.3d 627 (S.Ct., Nassau Cty. 2006) the respondent argued that the FAA applied to the dispute over an agreement to renovate a piece of New York real estate (as affecting interstate commerce) because materials used by the construction company during the home improvement came from out-of-state. In denying the application, the Court held “[t]aking respondent's reasoning to it logical extreme, any contract for consumer goods, involving any goods from outside of New York, would not receive the intended protection of [GBL 399-c].” Id. at 631. The Court further reasoned that, “[w]hile the Federal Arbitration Act may in some cases preempt a state statute such as section 399-c, it may only do so in transactions ‘affecting commerce.’ The agreements herein, when measured against the standards set by applicable case law, cannot be said to ‘affect commerce.’ To hold otherwise, would render General Business Law § 399-c a virtual nullity.” Id. (emphasis supplied). By applying the FAA to agreements forming New York entities, the First Department broadly interpreted the term “involving commerce” well beyond the breadth contemplated by Diamond Waterproofing, Allied-Bruce, Citizens Bank and their progeny. The First Department should not have looked beyond the agreement itself and, in particular, at transactions that occurred years after the agreement was executed. 39 The First Department’s decision will also have the effect – contrary to the Court’s stated intention – of inviting more litigation as to the proper forum to address the limitations issues. Under the language of the FAA, and this Court’s decision in Diamond Waterproofing, a court should look to the agreement itself to determine whether the FAA applies. This rule requires that the Court simply look at the agreement presented and determine whether the agreement evidences a transaction affecting interstate commerce. If, instead, the issue is whether, years after the agreement was executed, the parties actually engaged in certain transactions that impacted interstate commerce, the Court will need to look to external evidence to make a determination. Parties will need to submit affidavits and documents about the transactions, and the courts will be compelled to delve far into the factual issues solely to determine whether they have jurisdiction to rule on the statute of limitations and other issues. The First Department decision will also have the effect of rendering CPLR §7502(b) a virtual nullity, thereby undermining the important legislative purpose for which it was enacted.4 If the First Department determination is permitted to 4 As stated, supra, “the purpose of [CPLR 7502(b)] was to apply the Statute of Limitations referable to the substantive issue to arbitration proceedings, and to permit it to lie as a bar to the arbitration proceeding. … [CPLR 7502] was proposed upon the basis that ‘[t]he same considerations of public policy which make stale claims in actions at law unenforceable also apply to disputes in arbitration.’ Specifically, it was enacted to eliminate the confusion theretofore 40 remain, non-jurists assigned as arbitrators will be given carte blanche to determine decades old claims (which, under normal circumstances, would be stayed from arbitration as time barred pursuant to CPLR 7502(b) and 7503). C. The Agreements at Issue Only Involved Intra-Family New York Transactions Here, the agreements at issue only involved intra-family transactions, pursuant to which New York residents, formed a limited liability company pursuant to the provisions of the New York Limited Liability Company Law, with a place of business only in New York. Respondents did not dispute this. Specifically, in or about June 3, 1998, Bernard and his wife Carmela, both around 80 years old and living at 260 Elderfields Road, Manhasset, New York, executed the FLIP partnership agreement. (A183-201). The language of the agreement evidences the fact that the agreement itself in no way affected commerce. It provides that this limited partnership was formed pursuant to the provisions of the New York Revised Limited Partnership Act (A183); that the partnership will continuously maintain a registered office in the State of New York at 260 Elderfields Road, New York (Id.); and the partnership Agreement shall be existing in the decisions as to whether a proceeding in court could be invoked to enforce the defense of the statute of limitations or whether the applicability of the defense was in the sole discretion of the arbitrators.” Paver & Wildfoerster v. Catholic High Sch. Ass'n, supra, 38 N.Y.2d at 673-74 (1976) (citations omitted) (emphasis supplied). 41 construed in accordance with and governed by the laws of the State of New York applicable in the ace of agreements made and to be performed entire within such State (A200). Thus, nothing in this FLIP Agreement between a New York domiciled husband and wife related to, or affected in any way, manner or form, interstate commerce. Similarly, on or about January 1, 2001, Rita and Bernadette (who were also New York residents) executed an operating agreement for Berita. Like the FLIP intra-family limited partnership agreement, the Berita operating agreement signed by Rita and Bernadette evidences only New York conduct. It provides that the parties desire to form a limited liability company pursuant to the laws of the State of New York (A165), confirmed its formation pursuant to the provisions of the New York Limited Liability Company Law (Id.), provided for the LLC’s principal place of business in Port Washington, NY (A166), designated the Secretary of State of New York as agent for the service of Process (Id.) and agreed that the Agreement and the rights and liabilities of the parties hereunder shall be governed by and determined in accordance with the laws of the State of New York. (A181). Thus, this Agreement governing the relationship between two New York domiciled sisters did not relate to, or affect in any way, manner or form, interstate commerce. 42 The Seaview agreement, which was signed on or about January 1, 2000 by Rita and Bernadette, also had no impact on interstate commerce. That agreement concerned the purchase by Bernadette from Rita the interest she held in a New York corporation named 60 Seaview Corp. (A204-09; 438). The purchase and sale agreement signed by Rita and Bernadette confirmed this purely New York State transaction. It exclusively relates to the purchase of an interest in a New York entity (A204-06) and provides that it shall be construed and enforced in accordance with the laws of the State of New York. (A208). The aforementioned agreements between New York domiciled spouses and New York domiciled sisters, are not like the agreements in Citizens Bank, Allied Bruce, and Diamond Waterproofing. In those cases, unlike the situation at hand, there was an element of the contractual relationship that affected commerce. For example, in Citizens Bank, supra, 539 U.S. at 57, the matter involved a debt- restructuring agreement secured by business assets located in several states involved interstate commerce. In Allied-Bruce, supra, 513 U.S. at 282, the agreement at issue was entered into with a multistate termite treating company to provide treatments and repairs, using interstate materials. In Diamond Waterproofing Systems, Inc., supra, 4 N.Y.3d at 250, the contract at issue was to repair and reconstruct façade of building in New York and the FAA applied because an Illinois company was involved in drafting plans for the project, 43 meetings related to project were held in New Jersey, and materials and services were obtained from various states. In each of those cases, “the subject matter of the contract” was the factor that caused the Court to hold that the contract affected commerce and, as a result, the FAA controlled. See Matter of Laszlo N. Tauber & Assoc. I, supra, 304 A.D.2d. at 413 (the only relevant consideration is the subject matter of the contract when determining whether there the FAA has been implicated). Since nothing in the agreements at issue in this lawsuit evidence a transaction involving interstate commerce, the First Department erred when it held that the FAA applied to this dispute. D. The Post Contract Activities of Non-Parties to the Berita Agreement and the Subsequent Purchase of Property in Florida by the FLIP do not Make the Agreements Subject to the FAA As set forth above, the relevant question is whether FLIP or Berita Agreements embody transactions that affect interstate commerce – and they do not. Nor does the Seaview Agreement which involved an intra-family agreement between sisters to purchase an interest in a New York entity. That the FLIP ultimately purchased a property in Florida is of no matter. Even if post-agreement conduct was of any import, nothing that the Respondents claim Appellants have done in connection with the FLIP Agreement had any connection to the State of Florida. While the FLIP may have years later owned a 44 store in Florida,5 the activities that gave rise to Respondents’ claims occurred exclusively in New York. As Judge Ramos correctly held, none of the FLIP claims pertain to any activity outside of New York. (A29).6 Similarly, Respondents’ grasp at an irrelevant and convoluted path to an interstate connection for Berita, claiming Berita has an interest in a hotel on Long Island that is itself a franchise of an international hotel chain, and that Berita therefore derives income from interstate commerce. All this is irrelevant to the agreement at issue. In any event, Berita owns but one asset -- an approximate 19% passive stake in the Greenbriar, a New York entity. While Greenbriar owns and derives income from a Marriott Residence Inn on Long Island, it is undisputed that Greenbriar and Berita are separate entities and, therefore, Greenbriar's alleged participation in interstate commerce cannot be imputed to Berita. (A132-33). Accordingly, because nothing in the FLIP, Berita or Seaview Agreements evidences any transaction involving interstate commerce, the FAA does not apply to this dispute. 5 The Appellants themselves contend that the investment is “entirely passive, requiring little or no active management.” (A28-29; 143). 6 In any event, as mentioned above, all of the Respondents’ claims relating to the FLIP (and the Florida Property) have previously been arbitrated, which arbitration resulted in an award in favor of Bernard, which award was confirmed by the Supreme Court, Nassau County, and affirmed on appeal by the Second Department in Cusimano v. Strianese, 97 A.D.3d 744 (2nd Dept. 2012). 45 II. RESPONDENTS WAIVED THEIR RIGHT TO HAVE THE AAA DETERMINE THE TIMELINESS OF THEIR CLAIMS Even if, arguendo, the FAA did in fact apply to the agreements themselves, the First Department nevertheless committed reversible error when it refused to affirm the lower court ruling that Respondents waived the right to have the AAA determine the timeliness of their claims. It is well-settled that “[t]he right to arbitrate, like any other contractual right, may be modified, waived, or abandoned.” Stark v. Molod Spitz DeSantis & Stark, P.C., 9 N.Y.3d 59, 66 (2007); see also De Sapio v. Kohlmeyer, 35 N.Y.2d 402, 406 (1974) (utilization of judicial discovery procedures is also an affirmative acceptance of the judicial forum); Sherrill, supra, 99 A.D. 2d at 967 (“Defendants’ acts have unequivocally shown a preference for the courtroom and they have thus waived their right to arbitration”). This Court recognized that it is not necessary for a Court to fix the precise act constituting the party’s election to pursue litigation, “it is enough that the totality presented here is so conclusively waiver that it ‘may not be unilaterally recalled’.” Sherrill v. Grayco Builders, Inc., 64 N.Y.2d 261, 273 (1985). 46 Here, even accepting the First Department’s determination that the FAA applied to the contracts at issue, Respondents waived their right to invoke that right because, inter alia, they (i) spent years litigating the arbitrability of the parties’ agreements under New York law (A16; 437-43), (ii) commenced the lower court action in the New York Supreme Court despite the fact that they were warned in advance of its filing that the claims made in that action should be arbitrated in the AAA (A443-47); (iii) litigated in the New York Supreme Court for over one year (including, but not limited to, the filing a pre-answer motion to disqualify Appellants’ counsel); (iv) served three non-party subpoenae which, after they refused to withdraw them, forced the Appellants to file three separate motions to quash them; and (v) even more egregiously, litigated the precise issue – whether the exact claims interposed in the AAA statement of claim are barred by the statute of limitations – in the lower court, their chosen forum, only seeking to invoke the FAA (and claim that the AAA should resolve timeliness issues) after they received an adverse ruling from Justice Ramos on the timeliness and legal viability of their claims. In fact, there are a plethora of cases in this State that hold that the act of commencing an action in court (rather than initially invoking the right to arbitrate), is a primary factor (if not the sole factor) in determining whether that party has waived his/her right to compel arbitration. See County of Rockland v. Rockland 47 Ass‘n of Mgmt., 69 A.D.3d 621 (2nd Dept. 2010) (“commencement” of action “constituted a waiver of the right to arbitration”); Waldman v. Mosdos Bobov, Inc., 72 A.D.3d 983, 983-84 (2nd Dept. 2010) (party waived by previously commencing litigation “regarding the same dispute”); Digitronics lnventioneering Corp. v. Jameson, 52 A.D.3d 1099, 1100 (3rd Dept. 2008) (“party commencing an action may generally be assumed to have waived its right to arbitration when its use of the judicial process is ‘clearly inconsistent’ with it seeking arbitration at a later date”); Hart, supra, 18 A.D.3d at 612 (2nd Dept. 2005) (plaintiff waived right to arbitrate by pursuing “judicial determination” of “arbitrable issues,” seeking arbitration only after settlement failed); Commander Oil Corp. v. Shapiro. 245 A.D.2d 330 (2nd Dept. 1997) (waiver because plaintiff “commenced this lawsuit” and “thereby elected to litigate”); Hawthorne Dev. Assocs. v. Gribin, 128 A.D.2d 874, 875 (2nd Dept. 1987) (waiver where plaintiffs “commenced an action at law involving arbitrable issue”). But Respondents did not merely commence an action, they attacked the Accountants choice of counsel, served three pre-answer non-party subpoenae and vigorously opposed a motion to dismiss in the lower court action (which included nine (9) out of the sixteen (16) pages of legal argument on the timeliness issue). Respondents even submitted an Affidavit from Rita giving alleged factual reasons why she did or did not discover, or should not have discovered, the alleged multi- 48 decade fraud allegedly perpetrated by her father (with the alleged assistance of Schnurr and Norman). (A511-13). Not once in any of the umpteen pages of argument did Respondents tell the Court that limitations issues are for the AAA arbitrators to decide, that the FAA governed the agreements, or that the Court cannot hear any argument on statute of limitations. In fact, Respondents welcomed a decision by the Court on the limitations issues. Respondents’ counsel even stated in open court to Justice Ramos that “[t]here certainly is no reason why we should go to arbitration simply because Mr. Heller wants us to.” (A300). Not only did Respondents actively litigate the merits for over a year, but all of it occurred (i) after Justice Warshawsky sent two prior actions involving the FLIP and Berita entities to arbitration over Respondents’ objections (A437-41), and (ii) after Appellants’ counsel stated in open court that the matter should be arbitrated and Respondents’ counsel incredibly responded that his clients “wouldn’t even have the right to sue [the Accountants] in arbitration.” (A666). All of this changed on July 17, 2012, when Justice Ramos told Respondents’ counsel the following: [T]he claims against Mr. Schnurr are barred by the statute of limitations. They are clearly untimely. (A282). [T]o the extent that there is an allegation of accounting malpractice [against Mr. Norman] that deals with events that occurred before the three years prior to the filing of the summons … those claims would be barred by the statue of limitations. (A285). 49 I’m not going to waste your time and my time adjudicating [Accounting Malpractice] claims that have been barred by the statute of limitations. … Those activities that preceded the three years prior to the key date are out (A286). A lot of what you are alleging here [for breach of fiduciary duty, fraud and aiding and abetting a breach of fiduciary duty and fraud] obviously happened 20 years ago, or more. You know that’s well beyond what we can do anything about. If it happened it happened. We have statute of limitations ... the law is not going to reach back that far. (A312). I’m getting a nasty feeling here that this is frivolous litigation. (A300). I see here a pattern of constant litigation. I don’t like it. I don’t like wasting people’s time and money on spite litigation. ... If that’s what this is … there will be sanctions in the form if attorneys’ fees. (A311). It was only after these statements and rulings that Respondents conveniently came to the realization that the FAA applied to this dispute and the court did not have any power to decide limitations issues. This conduct alone – hearing that what the Judge had to say and then bolting for arbitration when the bolting party did not like what she had heard – should have, in and of itself, been sufficient to determine that a waiver had occurred. See Petroleum Pipe Americas Corporation v. Jindal Saw, Ltd., 575 F.3d 476, 482 (5th Cir. 2009) (waiver has occurred where the party did not seek arbitration until that party “learned [at a court conference] that the district court was not receptive to [that party’s] arguments”). 50 This Court has held that: “The Courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration.” Sherrill, supra, 64 N.Y.2d at 274. Respondents have already argued limitations issues to the lower court. After charting their own course, after extensive briefing and Court rulings, they cannot now claim that the issue is for the arbitrators. See California Suites, supra, 98 A.D.3d at 156 (a party may “to a large extent chart their own procedural course through the courts [and, as such, will fashion] the basis upon which a particular controversy will be resolved”); Hart, supra, 18 A.D.3d at 612 (Respondent deemed to have waived his right to arbitrate because “[h]e commenced an action seeking a judicial determination of the controversy and only sought arbitration after efforts at settlement failed” and, as the Second Department noted, “[h]e alleged the same wrongs in the arbitration and in the action”); Waldman, supra, 72 A.D.3d at 984 (Second Department affirmed the refusal of the lower court to confirm an arbitration award because the claimant had filed two prior judicial actions regarding the same dispute, and held that this party “affirmatively [sought] the benefits of litigation, in a manner ‘clearly inconsistent with [its] later claim that the parties were obligated to settle their differences in arbitration’” and “‘[b]y 51 commencing an action at law involving arbitrable issues’ … the party ‘waived whatever right [they] had to arbitration’.” [citation omitted]).7 Under these circumstances, Respondents’ were properly held to have “charted [their] own course” by submitting the timeliness issues to the Court, and they must now abide by its determination. To permit otherwise and allow a Plaintiff to file an action in Court, test the waters by presenting issues, including whether the claims in the Complaint are time barred, and then allow that Plaintiff to bolt from the State court to the AAA and procure a “do over” on limitations, would encourage litigants to file actions in the State court, test whether the assigned Judge is sympathetic to their claims and run to arbitration – and wipe the slate clean – once the Judge reveals a distaste for the claims and rules against that plaintiff on limitations or other grounds. That is precisely the precedent set by the August 7, 2014 Decision and Order of the First Department when it held that no waiver of the FAA occurred and the limitations issue should be re-decided by the AAA Panel. 7 The Cusimano family filed three actions in the New York State Courts (two in Nassau County and one in New York County) and resisted the demand for arbitration of each of those claims. Indeed, they went so far as to continue to resist arbitration of its Berita accounting claim (A437-442) and appealed the Order compelling them to arbitrate that claim to the Second Department at the very same time the issue of arbitrability of this action, based on the same Berita agreement, was being litigated before Justice Ramos. See Cusimano, supra, 103 A.D.2d 720. 52 Respondents argued to the First Department (and will undoubtedly argue here) that Appellants have not been prejudiced. This is far from the truth. “Prejudice can be substantive, such as when a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration.” Thyssen, Inc. v. Calypso Shipping Corp, S.A., 310 F.3d 102, 105 (2nd Cir. 2002); see also Louisiana Stadium, supra, 626 F.3d 156, 159-60 (2nd Cir. 1010) (waiver under the FAA where plaintiff sought arbitration only after receiving detailed letter of perceived deficiencies in its complaint, and after unsuccessfully opposing a motion to transfer); Petroleum Pipe Americas Corporation, supra, 575 F.3d at 482 (waiver where the party waited to move to arbitrate until after the “district court’s pronouncement [during a] conference” that “it had considered the parties’ arguments and intended to rule against [that party’s] interpretation of the [agreement at issue]”). Here, there was clearly prejudice because Respondents lost on the question of the timeliness (and legal sufficiency) of their claims in the Court. (A10-52). Then, instead of filing of an Amended Complaint as they said they would (A313), Respondents tried to forum shop and leave the Court for the AAA under the guise of “judicial economy” as a way to “get a second bite at the apple” in arbitration. (A32). 53 The First Department, however, issued a free pass to the Respondents because it incorrectly concluded that Justice Ramos gave them “another bite at the apple” when he allowed them to replead with specificity. (Axli). Respectfully, the First Department missed the point. While it is true that Respondents were given the opportunity to amend, it is also true that Judge Ramos stated: [The Amended Complaint should not] give me conclusory statements, don’t say something was fraudulent[. T]ell me what was done, when it was done [and] if you want to say the statute has been tolled, again, you are going to be very specific about the acts you allege toll the statute because you don’t toll statutes without doing something fairly serious here. (A309-10) (emphasis supplied). Rather than removing the “conclusory statements,” or being “very specific about the acts [that] toll the statute,” the Statement of Claim was nearly identical to the Complaint Justice Ramos had dismissed. (Compare A121-64 and A86-112). Had Respondents simply filed a nearly identical Amended Complaint with the lower court, there is no doubt that Judge Ramos would have dismissed it. Respondents moved to arbitration, and are now fighting to have the limitations issues adjudicated there after years after trying to avoid arbitration, precisely because they understood how Judge Ramos was likely to rule. 54 Moreover, as is clear from the July 17, 2002 transcript, Justice Ramos (i) had already dismissed the entire accounting malpractice claim against Schnurr and all malpractice claims against Norman that predated September 2008 (A282, 285); (ii) cautioned the Respondents to not give him conclusory statements in the amended complaint (A309-10); (iii) cautioned them to not “look up every possible cause of action any lawyer has ever thought of and include it in a complaint” but to “pick and choose where you think you’ve really got a chance of winning and pursue what has some merit and has some basis in fact and law, that is not stale” (A312); (iv) told them that “[a] lot of what [they] are alleging here … happened 20 years ago … well beyond what we can do anything about … [w]e have statute of limitations” (Id.); (v) [Rita] is going to have to get over it, that’s life. She sat on her rights, she didn’t care …” (Id.); and (vi) cautioned Respondents that “the law is not going to reach back that far” that the Amended Complaint must “[g]ive [him]something that [he] can adjudicate with some sense that this is current.” (Id.). Rather than comply with any of that, Respondents simply filed the original Complaint as a Statement of Claim. In other words, simply because Justice Ramos gave Respondents the opportunity to replead the fraud and breach of fiduciary duty claims with greater specificity did not mean that they could come back with the same claims and allegations (which they ultimately did in the Statement of Claim including, but not 55 limited to, the dismissed accounting malpractice claims) and skirt dismissal on limitations grounds.8 Accordingly, the First Department erred when it failed to recognize the prejudice of Respondents’ conduct.9 8 The First Department erred when it found that Bernard did not suffer prejudice because he was “not named as [a defendant] in the motion to dismiss [and] cannot claim prejudice because of the litigation costs involved in the earlier motion.” As set forth in the Brief of Co-Appellant Bernadette (at 46-47), the First Department failed to address the four years of litigation among the parties in the Berita and FLIP actions or Respondents’ gamesmanship of leaving Bernard and Bernadette out as defendants in the original New York Supreme Court action (even though Bernard’s name appeared at least seventy-five (75) times in that Complaint as an alleged perpetrator of fraud against his daughter Rita spanning nearly thirty years). (A86-112). 9 “Prejudice can … [also] be found when a party too long postpones his invocation of his contractual right to arbitration, and thereby causes his adversary to incur unnecessary delay or expense.” Thyssen, Inc., supra, 310 F.3d at 105. In Louisiana Stadium the Court found sufficient prejudice and that the plaintiff waived its right to arbitration based on an eleventh month delay between the plaintiff’s initial filings in state and federal court and its motion to compel arbitration because “the parties spent a significant amount of time and expense litigating” several motions. Id. at 159-160. As set forth above, Respondents waited over a year (after no fewer than three motions costing significant sums in legal fees) to try and change venue to arbitration, which is clearly prejudicial and warrants a finding of waiver. See Electrostim Medical SenJices, Inc. v. Health Care Services Corp., 2012 WL 5373462 at *6 (S.D. Tex 2012) (“[a] key inquiry is whether finding no waiver would effectively give a litigant ‘a second bite at the apple through arbitration’.” [citations omitted]). CONCLUSION For the foregoing reasons the First Department Decision should be reversed and the Judgment reinstated. 10 Dated: New York, New York February 5, 2015 GARV:1:CHUBERTBARER By: ~d). J. Alb Alan A. Hefler Attorneys for Respondents Schnurr, Norman and Bernard Strianese 100 Wall Street, 20th Floor New York, New York 10005 (212) 965-4526 10 While Appellants believe that the arguments made herein should result in the reversal of the First Department's Decision and the reinstatement of the Judgment, Appellants respectfully refer to, and incorporate by reference, any additional arguments made in the Brief submitted by co-Appellant Bernadette Strianese. 56