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: PETER J. TERRACCIANO Time Requested: 15 Minutes APL-2014-00287 New York County Clerk’s Index No. 652429/11 Court of Appeals 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 THIRD-PARTY INTERVENOR-APPELLANT BERNADETTE STRIANESE PETER J. TERRACCIANO, ESQ. JANINE T. LYNAM, ESQ. JOSEPH, TERRACCIANO & LYNAM LLP 2 Roosevelt Avenue, Suite 200 Syosset, New York 11791 Telephone: (516) 496-0202 Facsimile: (516) 921-7785 Attorneys for Third-Party Intervenor- Appellant Bernadette Strianese February 5, 2015 TABLE OF CONTENTS Page TABLE OF AUTHORITIES iii PRELIMINARY STATEMENT 1 QUESTIONS PRESENTED 7 JURISDICTION 9 STATEMENT OF THE CASE 9 A. The Parties 9 B. The Agreements 10 1. The Berita Operating Agreement 10 2. The FLIP Partnership Agreement 11 3. The Seaview Agreement 12 C. Procedural Background 13 1. The FLIP Action 14 2. The Berita Action 18 3. The Accountant Action 23 4. The Arbitration Filing 28 5. Motions to Intervene and Permanently Stay Arbitration 28 6. The Supreme Court’s Decision 29 i Page 7. The Appellate Division, First Department’s Decision 30 8. Leave to Appeal 31 ARGUMENT 31 I. THE APPELLATE DIVISION ERRED WHEN IT HELD THAT THE FEDERAL ARBITRATION ACT APPLIES TO THE UNDERLYING AGREEMENTS AND, AS A RESULT, THAT THE STATUTE OF LIMITATIONS ISSUES WAS FOR THE ARBITRATOR TO DETERMINE 31 II. THE APPELLATE DIVISION ERRED WHEN IT DETERMINED THAT THE RESPONDENTS DID NOT WAIVE THEIR RIGHT TO HAVE THE STATUTE OF LIMITATIONS ISSUE DECIDED BY THE ARBITRATOR 42 CONCLUSION 53 ii TABLE OF AUTHORITIES Cases Page(s) Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995) 32, 33, 34, 41 fn.5, 42 B.G. Balmer & Co., Inc. v. U.S. Fidelity and Guar. Co., 1998 U.S. Dist. LEXIS 17175 (E.D. Pa. 1998) 38-39 Braun Equip Co. Inc. v. Meli Borelli Assocs., 220 A.D.2d 311, 311 (1st Dept. 1995), Iv. denied 71 N.Y.2d 807 (1988) 43-44 Citizens Bank v. Alfafabco, Inc., 539 U.S. 52 (2003) 32, 33 Com-Tech Assoc. v. Computer Assoc., 938 F.2d 1574, 1578 (2d Cir. 1991) 6 Cotton v. Slone, 4 F.3d 176, 179 (2d Cir. 1993) 45, 48 Crespo v. 160 W. End Ave. Owners Corp., 253 A.D.2d 28, 31 (1st Dep’t 1999) 32 Cusimano v. Strianese Family Ltd. Partnership, 97 A.D.3d 744 (2d Dept. 2012), lv dismissed in part, denied in part 20 N.Y.3d 1001 (2013) 17 De Sapio v. Kohlmeyer, 35 N.Y.2d 402, 406 (1974) 4 Diamond Waterproofing Sys., Inc. v. 55 Liberty Owners Corp. 4 N.Y.3d 247 (2005) 33, 35 Doctor’s Associates, Inc. v. Distajo, 207 F.3d 126, 131 (2d Cir. 1997) 39 iii Cases Page(s) Flores v. Lower E. Side Serv. Ctr., Inc., 4 N.Y.3d 363, 372 (2005) 43 Frumkin v. P&S Const., N.Y., Inc., 116 A.D.3d 602, 603 (1st Dept. 2014) 40 Hart .v. Tri-State Consumer, Inc., 18 A.D.3d 610 (2d Dept. 2005) 44 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) 41 fn.6 Jorge v. Sutton, 134 A.D.2d 573, 573 (2d Dept. 1987) 44 Kramer v. Hammond, 943 F.2d 176, 178-179 (2d Cir. 1991) 51 La. Stadium & Exposition Dist. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 626 F.3d 156, 159 (2d Cir. 2010) 46-47 Leadertex v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995) 47, 46 Madison Hill Corp. v. Continental Baking Co., 21 A.D.2d 538 (1st Dept. 1964) 31 Matter of City of NY v. Uniformed Fire Officers Assn., 95 N.Y.2d 273 (2000) 31 Matter of Cusimano v. Berita Realty, LLC, 103 A.D.3d 719 (2d Dept. 2013) 22 Matter of Cusimano v. Berita Realty, LLC, 103 A.D.3d 720 (2d Dept. 2013) 22 iv Cases Page(s) Matter of Paver & Wildfoerster, 38 N.Y.2d 669 (1976) 31 Matter of Waldman v. Mosdos Bobov, Inc., 72 A.D.3d 983 (2d Dept. 2010) 44 Merrill Lynch, Pierce, Fenner & Smith, Inc., et al., v. Benjamin, 1 A.D.3d 39 (1st Dept. 2003) 3 Moses H. Cone Mem. Hosp. v. Mercury Cost. Corp., 460 U.S. 1 (1983) 41 fn.6 N.J.R. Assoc. v. Tausend, 19 N.Y.3d 597, 602 (2012) 42 fn.6 PPG Indus. v. Webster Auto Parts, Inc., 128 F.3d 103, 107 (2d Cir. 1997) 47 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, n12 (1967) 36 Scherk v. Alberto-Culver Co., 417 U.S. 506, 51 (1974) 36 Sherrill v. Grayco Bldrs., 64 N.Y.2d 261, 272 (1985) 43 Stark v. Molod Spitz DeSantis & Stark, PC, 9 N.Y.3d 59, 66 (2007) 42, 43 Tech in P’Ship v. Rudin, 538 Fed. Appx. 38, 39 (2d Cir. N.Y. 2013) 50 Thysen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 105 (2d Cir. 2002) 47 v Cases Page(s) Volt Info. Scis. v. Bd of Trs., 489 U.S. 468, 476 (1989) 36 Statutes Page(s) 9 U.S.C. § 2 2, 34, 32 CPLR § 7502(b) 2, 3, 4, 7, 17, 41, 42 fn.6, 48 CPLR § 7503(a) 2, 3, 7, 26, 29, 31, 42fn.6 vi PRELIMINARY STATEMENT Intervener-Appellant, Bernadette Strianese (“Bernadette”) submits this Brief in support of her Appeal from the Decision and Order of the Appellate Division, First Department, dated August 7, 2014 (R1. xxvii) (the “Appellate Division Decision”), which reversed the Judgment of the Supreme Court, New York County (Charles E. Ramos, J.) entered on September 11, 2013 (R. 63-68) (the “Judgment”), and Order of Justice Ramos entered July 16, 2013 (R. 10-37) (the “Order”) which, to the extent appealed from, granted: (i) Intervenor-Appellant Bernadette’s motion to stay the arbitration commenced by Respondents in the American Arbitration Association (“AAA”) to the extent of staying certain claims against Intervenor-Appellant Bernadette on statute of limitations grounds, and (ii) Respondents’ motion 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 non-time-barred claims. The issues presented on this appeal are whether the Federal Arbitration Act (“FAA”) applies to the parties’ underlying agreements, thereby directing the determination of the statute of limitations to an arbitrator, and, if the FAA applies, 1 All parenthetical references are to Appellants’ Record. 1 whether Respondents waived their rights to arbitrate the timeliness issue when they charted a course of litigation, and only switched to arbitration to avoid a dismissal of their claims by the Supreme Court on statute of limitations and other grounds. In finding that the FAA applied to the parties’ dispute, the First Department erroneously looked at commercial real estate transactions that occurred years after the governing agreements were entered into, as opposed to the language and substance of the agreements themselves. (R. xxxvi). The underlying agreements do not evidence a transaction involving [interstate] commerce, as required by 9 U.S.C. § 2 – they merely set forth the rights, responsibilities and duties of these intra-family New York entities. Even if subsequent conduct was relevant, the First Department failed to recognize that this case is an intra-family dispute, concerning New York residents, who entered into intra-family transactions and agreements in New York. The fact that third-parties, who are not signatories to the agreements, may “affect” interstate commerce, should not be considered in the determination of the applicability of the FAA. This elaborate connection to interstate commerce advanced by Respondents, and sanctioned by the First Department, was inconsistent with the nature and context of the agreements themselves. 2 Further, to allow an arbitrator to decide the statute of limitations issue herein, would circumvent the Court’s statutory role under CPLR §§ 7502 and 7503, which clearly evidences the New York State legislature’s intent to have a court decide, if called upon to do so, the defense of the statute of limitations. Merrill Lynch, Pierce, Fenner & Smith, Inc., et al., v. Benjamin, 1 A.D.3d 39 (1st Dept. 2003). The First Department’s decision in this case, if upheld by this Court, would leave CPLR §§ 7502 and 7503 with little, if any, future effect. However, even assuming, arguendo, that the FAA does apply, Respondents waived their right to have the statute of limitations issue determined by an arbitrator when they charted a course of constant litigation in various forums. Respondents turned to arbitration more than two (2) years after being directed to arbitration by the Nassau County Supreme Court, and only after causing Intervenor-Appellant Bernadette both substantive prejudice and prejudice due to the tremendous cost and time delay Bernadette was subjected to during the continued litigation of these issues by Respondents. If Respondents can now turn to arbitration and invoke the FAA, then all of that litigation, and its associated expense, was a complete frolic and detour. As this Court of Appeals has aptly put it: “[t]he courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his 3 own unique structure combining litigation and arbitration.” De Sapio v. Kohlmeyer, 35 N.Y.2d 402, 406 (1974). The procedural history will bear out that this has precisely been the Respondents’ method of prosecuting their claims and, as a result, they have waived any right they may have had to arbitrate the statute of limitations issues. The Respondents’ continued forum-shopping and gamesmanship cannot be overlooked in the waiver analysis. In fact, the Respondents had every intention of adjudicating their claims in the judiciary – and fought for years to stay in court – until it was clear that their efforts to avoid the statute of limitations would be unsuccessful in that forum. In fact, the commencement of two separate actions in court, one of which contained identical claims, causes of action and relief as contained in the Demand for Arbitration, clearly evidenced Respondents’ desire to litigate rather than arbitrate. Respondents even went so far as to contend that their own defense of statute of limitations in a prior dispute (under the subject agreements) was for the court to decide under CPLR § 7502. (R.688-692). Indeed, no party had ever raised the FAA, or argued anything besides the fact that the arbitration clauses should be determined under New York law, until Justice Ramos ruled against Respondents on the statute of limitations issues. 4 The Respondents consistently argued against arbitration for years prior to the filing of their Demand for Arbitration, despite being directed to arbitration twice (by the Nassau County Supreme Court). Even after those decisions were entered, Respondents’ stated – at oral argument on certain Appellants’ motion to dismiss on statute of limitations and other grounds – that they still “did not want to go to arbitration.” (R. 300 lns. 14-15). This affirmative statement by Respondents’ Counsel, during oral argument on the relevant issues, clearly exhibits the Respondents’ waiver of any right they may have held to have the limitations issues decided by the Court. Their September 2012 filing of the Demand for Arbitration was a complete and utter reversal of their hard-fought and heavily-disputed position that their claims were not subject to arbitration. However, even then, Respondent’s reversal was not all inclusive. Despite the filing of the Demand for Arbitration with the AAA, the Respondents refused to withdraw their two pending appeals before the Appellate Division Second Department wherein they continued to claim that their dispute with Appellant was not subject to arbitration. These conflicting and simultaneous positions exhibited an utter disregard for judicial economy as well as imposed great prejudice on the Appellants in their attempt to defend against Respondents’ inconsistent positions. 5 The record is replete with evidence of prejudice to Bernadette caused by Respondents’ years of forum-shopping – in defending an Order to Show Cause seeking dissolution in Supreme Court Nassau County, moving to compel arbitration, providing substantial discovery after being ordered to do so by the Supreme Court, Nassau County, defending against Respondents’ renewal motion claiming new facts which warranted a finding of waiver of Bernadette’s right to arbitration – and two subsequent appeals to the Second Department spanning over a two and a half (2 ½) year period. All of this was overlooked in the First Department’s determination that the Respondents did not waive their right to have the statue of limitations decided by an arbitrator. (R. xlii, fn. 11). Notably, Respondents caused all of this litigation after being advised that their claims were subject to arbitration and, to a great extent, after Appellants successfully moved to compel their claims into arbitration in Nassau County. “To permit litigants to exercise their contractual rights to arbitrate at … a late date, after they have deliberately chosen to participate in costly and extended litigation would defeat the purpose of arbitration: that disputes be resolved with dispatch and with a minimum of expense.” Com-Tech Assoc. v. Computer Assoc., 938 F.2d 1574, 1578 (2d Cir. 1991). The Appellate Division Decision should be reversed, and the Judgment and Order of the Supreme Court should be reinstated. 6 QUESTIONS PRESENTED 1. Whether a court can look beyond an agreement itself and, in particular, at transactions that occurred years after the agreement was executed or at the conduct of non-parties to the agreement, to determine whether an agreement “affects” interstate commerce so as to render the Federal Arbitration Act applicable and deprive the lower court of jurisdiction to rule on statute of limitations under CPLR §§ 7502 and 7503 where, as here, the agreement at issue only involved intra-family transactions, pursuant to which New York residents formed a limited liability company under the provisions of the New York Limited Liability Company Law, with a place of business in New York, only? The First Department erred in holding that the FAA applies to the underlying agreements, erroneously looking far beyond the agreements to find that the parties’ business or this dispute involves substantial interstate commerce, when in fact they do not. 2. Whether the Plaintiffs-Respondents waived their right to have the AAA determine limitations issues where, among other things, Plaintiffs- Respondents: (i) chose the Court as the forum for their dispute with Defendants- Appellants, after years of litigating in Nassau County wherein Respondents obtained substantial discovery and prosecuted several appeals, in an effort to avoid 7 the agreements’ arbitration clauses; (ii) were warned prior to the filing of the Complaint that their claims must be arbitrated in the AAA; (iii) told the Supreme Court on multiple occasions – including during oral argument on the limitations issues – 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 certain Defendants-Appellants’ counsel, serving three non-party subpoenas and forcing the certain Defendants-Appellants to move to quash them; (v) defended (and lost) a motion on timeliness and legal sufficiency of their claims; (vi) commenced a separate action in the Supreme Court, Nassau County wherein they were directed to arbitration by order, appealed the order, made a motion to renew, were directed to arbitration again and appealed that decision, moved to New York County to try and avoid the arbitration orders, 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? The First Department erred in holding that Respondents did not waive their right to arbitrate the statute of limitations issue by having pursued their claims in litigation, and in holding that there was lack of prejudice to Appellants sufficient to support waiver. 8 JURISDICTION The Court has jurisdiction over this appeal pursuant to CPLR § 5602(a)(1)(i) because the underlying action originated in the Supreme Court, New York County (R.10-50); the decision below is an order of the Appellate Division First Department, entered on August 7, 2014 that finally determined the action and is not appealable as a matter of right (R. xxvii-xliv); and this Court granted leave to appeal on November 24, 2014 (R. xxvi-xxvii). STATEMENT OF THE CASE A. The Parties Respondents, Rita Cusimano (“Rita”) and Dominic J. Cusimano (collectively “Respondents” or “Cusimano”) are husband and wife, and Rita is the daughter of the Intervenor-Appellant Bernard Strianese (“Bernard”) and the sister of Bernadette. The Accountant Defendants, Andrew W. Schnurr, CPA (“Schnurr”), Michael Gerard Norman CPA, PC and Michael Gerard Norman, CPA (“Norman”) (collectively “Accountant Defendants”) provided various accounting services to the individual parties as well as to various family entities. The family entities consist of the Strianese Family Limited Partnership (the “FLIP”), Berita Realty Co., subsequently known as Berita Realty LLC (“Berita”) and the Seaview Corporations (“Seaview”). 9 B. The Agreements There are three (3) relevant agreements which provide for arbitration of the parties disputes – the Berita Operating Agreement, the FLIP Partnership Agreement and the Seaview Buy-Out Agreement. 1. The Berita Operating Agreement The underlying Berita agreement is an Operating Agreement entered into between Bernadette and Rita, the only two members, established to set forth their “respective rights and obligations in connection with the limited liability company” (R. 165). The Berita Operating Agreement contains the usual and customary corporate governance provisions, e.g., capital contributions, the allocation of profits and losses to the members, accounting procedures and the management and operation of an otherwise passive entity (as acknowledged by the Respondents). (R. 165-182). The provisions contained in the Berita Operating Agreement all point to New York Law and its application. Specifically, the Operating Agreement states that “[t]he 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” (R. 181). In addition, the Berita Agreement repeatedly invokes the New York Limited Liability Company Law. (R. 165-82). It makes no mention of any 10 “transaction,” and only forms the agreement as to the governance structure of the limited liability company. Justice Ramos and Justice Warshawsky were on point in their analysis of the Berita Agreement and the parties disputes. Justice Ramos held that Berita’s “operating agreement governs the rights of the two members, Rita and Bernadette” (R. 27). In granting Bernadette’s Order to Show Cause to compel arbitration, Justice Warshawsky similarly stated that “[t]hese are actions which directly related to the operation and management of Berita” (R. 440). Both Justice Ramos and Justice Warshawsky astutely recognized that the Berita Agreement’s sole purpose was to govern the entity and its members. The Operating Agreement did not relate to any transactions entered into by Berita, and therefore is clearly not a contract evidencing a transaction involving interstate commerce as required for the FAA to apply. 2. The FLIP Partnership Agreement The FLIP Partnership Agreement is an agreement of a Limited Partnership entered into as of June 3, 1998 between Bernard V. Strianese and Carmela Strianese, both individuals then residing in Manhasset, New York, as the general and limited partners. (R. 183). Like the Berita Operating Agreement, the FLIP Agreement provides for the corporate governance of the Family Limited 11 Partnership, e.g., the allocation of profits and losses, transfers of partnership interests, dissolution, management and general business purposes. The FLIP Agreement does not address, nor does it embody any transaction that could affect interstate commerce at the time of its execution, or at any time thereafter. The Agreement further provides that the Partnership shall “continuously maintain a registered office in the State of New York which shall be at 260 Elderfields Road, Manhasset, New York” (R. 183). The FLIP Partnership Agreement states: “This Agreement shall 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.” (R. 200). Clearly, this explicit language disclaims the use of the FAA with regard to this Agreement and puts its performance, including enforcement, within the State. 3. The Seaview Agreement The third and final agreement, the Seaview Agreement, dated January 1, 2000 (over fourteen years ago) was entered into by and between Rita Cusimano, residing in Muttontown, New York 11545 and Bernadette Strianese, with addresses c/o B.V. Roberts Realty in Port Washington, New York. (R. 204). The Agreements were duly notarized in Nassau County. (R. 209). The Agreement provides for the sale of Cusimano’s interest in the Seaview Corporations, New 12 York entities, to Strianese for the sum of $240,000.00. (R. 204-5). Simultaneously with the execution of the Buy-Out Agreement, Cusimano resigned as officer and director of 60 Seaview Corp. and 20 Seaview Corp. (R. 210-211). The Seaview Corporation Agreement between Rita and Bernadette clearly states that “[t]his Agreement shall be construed and enforced in accordance with the laws of the State of New York” (R. 208), and as a result, all claims concerning the statute of limitations arising out of the Seaview Agreement must be determined by the Court. The Seaview Agreement clearly does not evidence a transaction involving interstate commerce nor does it contemplate one. It merely sets forth the terms under which the parties agreed to the sale of Cusimano’s interest in a New York corporation to a New York resident. C. Procedural Background Rita has commenced several actions in the Supreme Court of the State of New York that include the same claims contained in the Demand for Arbitration and Statement of Claim as amended. Through these actions, Respondents have repeatedly availed themselves of the Courts and have consistently disregarded the Arbitration provisions contained in the agreements. Their continued “foray” into the courtroom and explicit position that “they do not want to arbitrate,” together 13 with the great prejudice endured by Appellants, amply supports the Supreme Court’s finding of waiver. 1. The FLIP Action The first action commenced by Rita in May of 2010 in the Supreme Court, Nassau County, sought a dissolution of one of the family partnerships known as the Strianese Family Limited Partnership or the “FLIP.”2 According to the Statement of Claim, as amended, the FLIP is a “passive” entity, requiring little or no active management. (R. 143-44 ¶100). After the formation of FLIP and the execution of the Partnership Agreement, Bernard deeded a Deer Park, New York Property to the FLIP. Years later, the FLIP purchased a commercial property located at 3187 South Congress Avenue, Palm Springs, Florida (the “Florida Property”). (R. 102; 409). At the time of the dissolution proceeding, the FLIP’s Flordia property was leased to a CVS drug store under a triple net lease. (R. 102 ¶58). The lease required CVS to be responsible for the maintenance of the Florida Property, the payment of the real estate taxes, the payment of insurance, the payment of all utilities and repairs. The FLIP did not operate, own, or manage the CVS drug store. (R. 409; 102 ¶58). 2Rita’s FLIP Action also sought to hold Bernadette liable for $500,000.00 for allegedly mismanaging the FLIP. 14 After the filing of the FLIP dissolution action by Rita, Bernard and his wife Carmela Strianese intervened, claiming that they were the majority owners of the FLIP.3 Bernard and Carmela Strianese filed an Order to Show Cause to stay Rita’s action and compel arbitration pursuant to the Partnership Agreement’s arbitration clause. (R. 195). Rita vehemently resisted arbitration, maintaining her position that the FLIP claims were not arbitrable, and that the arbitration clause contained in the FLIP’s Partnership Agreement was inapplicable and unenforceable. In response, Bernard and Carmela argued that the FLIP claims were arbitrable under the FLIP’s arbitration clause. However, no party ever once contended that the Federal Arbitration Act applied to the FLIP Agreement. Indeed, the FLIP Agreement itself states: “This Agreement shall 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.” (R. 200) (emphasis added). There is no mention in the agreement of any “transaction” that could arguably affect interstate commerce. The Supreme Court, citing exclusively to New York law in deciding the issues of arbitrability, issued an Order granting Bernard and Carmela Strianese’s Motion to Compel Arbitration. (R. 16). Despite this directive, which stayed the 3 At the time, Rita claimed to be a 50-50 owner of the FLIP alongside Bernadette. 15 FLIP Action, Rita moved to pursuant to CPLR § 3102(c) to the Supreme Court, Nassau County, to compel the deposition of Bernard and Carmela in Aid of Arbitration. (R. 608-612). In granting Rita’s Motion, the Court directed the deposition, but stayed it for thirty (30) days from the date of the decision to allow the FLIP Arbitration to begin. The FLIP Arbitration was then swiftly conducted in December 2010. (R. 398). After conclusion of the arbitration, the Arbitration Panel issued an Arbitration Decision and Award on February 10, 2011 and a Modification dated February 23, 2011 directing, inter alia, that: (i) Bernard and Carmela Strianese own 2% of the general partnership interests and 89.0946% of the limited partnership interests of FLIP; (ii) that Rita and Bernadette each own 4.4527% of the limited partnership interests in FLIP. (R. 398-407). Thereafter, Bernard and Carmela moved to confirm the Arbitration Award and Rita cross-moved for vacatur of the award. (R. 408-416). Simultaneously, in April 2011, Rita served a Subpoena for bank documents pertaining to the FLIP on State Bank of Long Island, which prompted the filing of a quash motion by Bernard, which was heavily defended by Rita. During the voluminous briefing of the motions to confirm and vacate, no party so much as mentioned the Federal Arbitration Act. (R. 408). In fact, in her application to vacate the Arbitration 16 Award, Rita argued to Justice Warshawsky that she has an absolute right to obtain a judicial determination on her alleged statute of limitations defense to her parents claims pursuant to CPLR § 7502, the very issue that Rita now claims is for the arbitrators to determine pursuant to the FAA. (R. 688-692). Again, no party mentioned or referenced the FAA. The Arbitration Award was confirmed by an Order of the Supreme Court, Nassau County (Hon. Ira Warshawsky, J.), dated August 17, 2011 (“FLIP Order”). (R. 408-16). Thereafter, Rita appealed the FLIP Order. Yet again, during the lengthy appellate process, no party contended that the Federal Arbitration Act applied to the FLIP Agreement, or to any party’s claims or defenses. In July 2012, the FLIP Order was unanimously affirmed on appeal by the Second Department. (R. 417). Rita then brought a motion for reargument before the Second Department or, alternatively, for permission to appeal to the Court of Appeals, which was denied by the Second Department. Cusimano v. Strianese Family Ltd. Partnership, 97 A.D.3d 744 (2d Dept. 2012), lv dismissed in part, denied in part 20 N.Y.3d 1001 (2013). A similar application to the Court of Appeals was also denied. Id. 17 2. The Berita Action Shortly after filing the FLIP Action (i.e., before she lost the FLIP Arbitration), Rita commenced a second action in the Supreme Court, Nassau County, seeking a formal accounting and a dissolution of another family entity known as Berita Realty LLC. (R. 420). The same relief is also sought in Respondents’ new Statement of Claim as amended and Demand for Arbitration. Rita and Bernadette are the sole members of Berita, each maintaining a fifty percent (50%) membership interest. (R. 213 ¶4). Berita owns only one asset, a minority interest (19%) in another New York limited liability company known as and by Greenbriar Associates, LLC (“Greenbriar”). Greenbriar owns a parcel of land on Old Country Road in Plainview, New York. Greenbriar originally operated as an unassisted senior community. Years later, and only after this initial venture failed, Greenbriar was able to obtain a Franchise Agreement with the Marriott which allows the Marriott to operate a Residence Inn on the Greenbriar (New York) property. Berita does not own any interest in the Marriott or have any management role therein. (R. 213-14 ¶6 & 8). According to the Statement of Claim as amended, Berita’s ownership interest in Greenbriar is entirely “passive” and requires little or no active management. (R. 92 ¶15; 132 ¶42). 18 Following the commencement of the Berita Action, Bernadette cross-moved to compel arbitration of Rita’s claims pursuant to the Berita Operating Agreement, which contains an arbitration clause that clearly extended to Rita’s accounting and dissolution action. (R. 437-41). Rita vigorously contested Bernadette’s application, arguing that the Berita arbitration clause was narrow in scope and that it did not include a provision that would allow an accounting and dissolution to be capable of resolution by mediation. (Id.). In briefing and submitting the Berita arbitrability issue to the Court, no party claimed that the Federal Arbitration Act applied or was in any way relevant to the arbitrability determination. (Id.). Bernadette cited exclusively to New York law and, at all times, has maintained her position that New York law only is applicable to the agreements. To the contrary, Rita argued that her Berita claims were not subject to arbitration at all. Prior to the Court’s determination of Bernadette’s Motion to Compel Arbitration of the Berita Action, Justice Warshawsky, at the request and urging of the Respondents’ Counsel, ordered discovery of the books and records of Berita. Specifically, Justice Warshawsky ordered that Rita “shall be given access to the books and records of [Berita] from 2001, or the time of its founding to date. Those records shall be made available either by the tax manager or anyone the tax manager shall appoint through the accountants … . Those records should be made 19 available no more than ten days from today’s date”. (R. 971). Bernadette complied, providing substantial discovery to Rita, at the direction of the Supreme Court, Nassau County. In fact, commencing on November 4, 2010, Respondents Accountant, Louis Chan of H.J. Cohn, LLP spent two days scanning and copying the books and records of Berita pursuant to this directive of Justice Warshawsky. (R. 933). On March 2, 2011 Justice Warshawsky in Nassau County Supreme Court, citing exclusively to New York law, issued an Order staying the Berita Action, and compelling arbitration. (R. 437-441). Despite this first order directing Rita to arbitration, Rita continued with litigation for approximately two years, until she filed her Demand for Arbitration in September of 2012, only after Justice Ramos ruled against her on key issues, including the statute of limitations. Instead, Rita filed a Notice of Appeal to the Second Department of the Warshawsky Decision and after several motions to enlarge her time to perfect the Appeal, Rita submitted to the Appellate Division a Brief and Reply Brief arguing her position to the Second Department – that the Berita claims were not subject to arbitration. In addition to her appeal before the Second Department, Cusimano waited until February 2011, almost an entire year, to file a motion seeking a “renewal” of 20 the Warshawsky Order – based upon alleged “new evidence” (the “Renewal Motion”). (R. 934-36). Cusimano waited to file the Renewal Motion until Justice Warshawsky retired from the bench, so she could have another Justice hear her application, even though the alleged “new evidence” was all in her possession well before she filed the Renewal Motion. This is yet another example of the gamesmanship by Rita that has chartered her course throughout these various litigations. In the Renewal Motion, Rita claimed that subsequent conduct by Bernard had resulted in a waiver of Bernadette’s right to arbitrate the Berita dissolution proceeding. (R.935). Rita affirmatively and unequivocally argued that the issue of whether Bernard’s conduct in Court had resulted in a waiver of the right to arbitrate under the Berita Agreement was for the Court to decide – which it would not have been if the FAA applied. (R. 935). Indeed, at no time during her argument of the Renewal Motion did Rita claim the application of the FAA, in which case the waiver issue would arguably have been for the arbitrators to determine. Bernadette also did not argue that the FAA applied, and instead successfully contested the waiver argument under New York law. Following Justice Warshawsky’s retirement, the Berita matter was reassigned to Honorable Justice Bucaria. After full submission of the Renewal 21 Motion, including Bernadette’s opposition thereto, Justice Bucaria found Cusimanos’ claim of “new evidence” unavailing, and in agreement with Justice Warshawsky, again directed arbitration by Order dated April 23, 2012 (“Bucaria Order”). Justice Bucaria once again properly upheld the arbitration clause contained in the Operating Agreement of Berita. (R. 936). Justice Bucaria’s decision cited exclusively to New York law in determining the arbitrability issue presented by the Renewal Motion. (R. 934-36). Rita again filed an Appeal with the Appellate Division, Second Department in connection with Bucaria Order, holding firm that her claims were not subject to arbitration and that Bernard and Bernadette waived their right to arbitrate. The appeal on the Warshawsky Order was dismissed by the Second Department (after it was fully briefed by the parties), as the order appealed from was superseded by the Bucaria Order. Matter of Cusimano v. Berita Realty, LLC, 103 A.D.3d 719 (2d Dept. 2013). As for the Bucaria Order, the Second Department held on February 13, 2013 that the Supreme Court properly adhered to the prior determination (the Warshawsky Order) granting the motion of Respondent Bernadette Strianese to stay the proceeding and compel arbitration. Matter of Cusimano v. Berita Realty, LLC, 103 A.D.3d 720 (2d Dept. 2013). 22 Once again, during the entire appellate process, no mention was made of the Federal Arbitration Act. Rita firmly maintained her position that the Courts were to decide her fate not the arbitrators. This lengthy motion practice and complete briefing of two (2) appeals was done at great expense to Bernadette and spanned over a two year period, all the while Rita forced prejudicial delay and expense to accrue to Bernadette’s detriment. 3. The Accountant Action Having tried and failed twice (once before Justice Warshawsky and once in the Renewal Motion before Justice Bucaria) to avoid the arbitration clauses in the Berita Agreement, Rita tried to avoid arbitration through a backdoor change of venue to New York County Supreme Court. To that end, in September 2011, and after she lost the FLIP Arbitration, Rita, together with her husband, Appellant Dominic J. Cusimano, filed the within Action (Rita’s third court action) against the Accountant Defendants, alleging various claims in connection with Berita and the FLIP. Despite nearly 18 months of prior litigation in Nassau County involving Berita and the FLIP, including the expense of hundreds of thousands of dollars in litigation and appellate work, this action was commenced in the Supreme Court, New York County, to forum-shop away from the prior Orders (affirmed on appeal) compelling arbitration. 23 In fact, before filing this Complaint, Appellants’ prior Counsel forwarded a draft of the Complaint to Respondents’ attorneys. (R. 442). This “draft Complaint” initially listed Appellants Bernadette and Bernard as defendants in addition to the Accountant Defendants and contained a Nassau County Venue in the caption. (R. 442). Appellants’ attorneys immediately advised Respondents’ Counsel that the filing of this “draft Complaint” was a direct violation of the Warshawsky Order directing arbitration of the Berita claims. (R. 443, 447). In response, the Respondents removed Bernadette and Bernard from the caption and changed the venue to New York County, then filed the Complaint. Indeed, though the new Complaint named only the family accountants as Defendants, it was replete with countless references to Bernard and Bernadette. It was Respondents’ obvious hope and expectation that the Accountant Defendants would seek indemnification or contribution from Bernard and Bernadette in the New York County Action (bringing them in as third-party defendants), with the entire matter then proceeding in Court, and the Nassau County arbitration Orders being completely circumvented. Precisely to this point, during oral argument on a disqualification motion discussed herein, Respondents’ Counsel explicitly contended that “[t]he accountant should be suing their employer, the principal, the father [Bernard] for contribution or indemnity.” (R. 660). It is unmistakable that 24 Respondents continued to have no regard for the Warshawsky or Bucaria Orders or the appeals therefrom (both of which were still pending in the Second Department at that time). (R. 886). After commencing this Action, Respondents – in another backdoor effort to avoid arbitration – served three extremely broad pre-answer Subpoenas, including a subpoena on Bernadette, as well as on Bernard and for a second time on Valley National Bank, formerly State Bank of Long Island. By the service of these Subpoenas, Respondents sought information and documents on various distributions, including banking information. (R. 310). The information sought pertained to Respondents’ claims that had been directed to arbitration. The service of these Subpoenas necessitated Motions to Quash as the issues targeted by the subpoenas had twice been compelled into arbitration. (R. 613-17). After oral argument, Justice Ramos stayed discovery, including the Subpoenas, pending a determination of the Accountant Defendants motion to dismiss (R. 267, 310-311). Also, in this Accountant Action, Rita moved to disqualify the Accountant Defendants’ Counsel (also Counsel for Bernard) thereby contending that this issue was for the Court to decide. The Supreme Court saw through this poorly orchestrated charade, denying Respondents’ Motion to disqualify the Accountant Defendants’ Counsel. The 25 Accountant Defendants then moved to dismiss the action, on various grounds, including the statute of limitations. (R. 266-313). In response, Respondents defended the Motion to Dismiss and actively litigated the statute of limitations issues before the Court. Respondents never once stated that they believed arbitration applied or that the Federal Arbitration Act required that arbitrators, not the Court, determine the limitations issues. The Motion to Dismiss was granted by Justice Ramos on July 17, 2012, finding that a number of Cusimanos’ claims were time-barred and that their fraud claim was not plead with specificity pursuant to CPLR § 3016(b). (R. 309 lns. 13- 26; 310 lns. 2-14). Respondents were given a deadline of September 13, 2012 by Justice Ramos, to file an amended Complaint. (R. 310 lns. 9-10). Respondents assured the Court that they would replead, “focus” the Complaint, and show timely claims that could proceed. (R. 313 lns. 3-5). Respondents were equally adamant that their claims were not arbitrable, arguing their position in the Supreme Court before Justice Ramos, as well as in their then pending appeals before the Second Department. (R. 300 lns.14-15; lns. 19-20). But the Cusimanos did not file and serve an amended complaint as directed; instead they filed a Demand for Arbitration and a motion under CPLR § 7503 to stay their own action in favor of the newly commenced arbitration. (R. 113-17). 26 In addition to the Accountant Defendants, the Demand for Arbitration named Bernard and Bernadette, and included the same time-barred and insufficiently plead claims that Justice Ramos had already dismissed. (R. 118-64). Now that their plan to avoid arbitration had been thwarted, Respondents dropped the charade that the New York Action was brought against the Accountants only, and formally named Bernard and Bernadette in the Demand for Arbitration. That is, after forum shopping her way to New York Supreme Court (to Justice Ramos) from Nassau County to try to avoid the arbitration Orders, Rita was met with yet another forum that ruled against her and recognized her claims were time-barred and insufficiently plead. As a result, she tried to again forum shop her way to the very arbitration forum that she had spent years trying to avoid. Thus, after nearly two and a half years of litigation wherein the Cusimanos and their various Counsel objected to, vehemently opposed, and tried to avoid arbitration at all costs, including pursuing two appeals from orders directing them to arbitration, they decided to seek arbitration in an effort to circumvent Justice Ramos’ Order that had dismissed their claims as time-barred. It was only their continued desire to forum shop that led to Cusimano’s epiphany that the FAA somehow applied to their claims, for the first time after years of litigation disputing 27 the very arbitration clauses and agreements they now claim are governed by the FAA. 4. The Arbitration Filing: In or about September 13, 2012, Cusimanos filed and served the Demand for Arbitration and Statement of Claim upon all Respondents, including Bernadette. The forty-four page Statement of Claim contains seventeen Counts, seven of those Counts relating directly to Bernadette, alleging breach of fiduciary duty, misappropriation of funds/conversion and fraud, all of which rely on the same set of facts as the original complaint filed only against the Accountant Defendants. (R. 118-164; 86-111). Respondents simply added Bernadette and Bernard into the Complaint that Justice Ramos had already dismissed as time-barred and improperly pled, changed the caption to the American Arbitration Association, and filed it.4 5. Motions to Intervene and Permanently Stay Arbitration After the Arbitration filing, Bernadette, now that she had been formally added as a Respondent in the Demand for Arbitration and Statement of Claim, cross-moved before Justice Ramos for an Order pursuant to CPLR § 1012 and § 4 Notably, this surprise Arbitration filing came eighteen (18) months after Justice Warshawsky directed arbitration in the Berita dissolution Action (to wit, March 2, 2011). (R. 437-441) 28 1013 granting Bernadette permission to intervene in the within action and upon such intervention, for an order pursuant to CPLR § 7503 (b) permanently staying any and all claims asserted against Bernadette on the grounds that such claims are time-barred. (R. 50). The statute of limitations issues presented on Bernadette’s motion were nearly identical to those presented in the Accountant Defendants’ original motion. Bernadette’s motion was also fully consistent with the position that she had taken for years: the arbitration agreements are valid and enforceable, and subject exclusively to New York law in their interpretation and enforcement. The Accountant Defendants Cross-Moved to Dismiss. Appellant Bernard, like Bernadette, moved to intervene and for a permanent stay of any and all claims asserted against Bernard in the Statement of Claim on the grounds that all such claims are time-barred pursuant to the applicable statute of limitations. (R. 48-51). 6. The Supreme Court’s Decision In an order entered on July 16, 2014 the Supreme Court, New York County, the Hon. Charles E. Ramos, J.S.C. issued an Order granting, inter alia, Bernadette’s Cross-Motion to intervene in the lower court action and granting a permanent stay of the Arbitration on statute of limitations grounds on various claims. The Court issued an order: (i) holding that a three-year statute of limitations applies to Counts I, II and V of the Statement of Claim and, thus, these 29 claims are permanently stayed as against Bernadette for acts or omissions occurring prior to September 13, 2009; and (ii) holding that a six-year statute of limitations applies to Counts VI, IX, X and XIII of the Statement of Claim, and, thus, these claims are permanently stayed as against Bernadette for acts or omissions occurring prior to September 13, 2006. (R. 10-50) Rita appealed this Decision and Order to the Appellate Division, First Department. (R. 8-9). 7. The Appellate Division, First Department’s Decision On August 7, 2014, the Appellate Division, First Department, issued a Decision and Order reversing, on the law, the lower Court. The First Department held that the FAA did apply to the underlying agreements, finding that the dispute between the parties “bears on interstate commerce in a substantial way” and, as a result, that the issue of timeliness was for the arbitrator to decide. (R. xxxvii). The First Department also concluded that the Respondents did not waive their right to arbitrate the statute of limitations issue since “they did not file a substantive motion or obtain discovery material” nor did they find prejudice to Appellants. (R. xliii). Based on these findings, the First Department reversed the Judgment of the Supreme Court, New York County entered on September 11, 2013. 30 8. Leave to Appeal On September 5, 2014, Appellant and Intervenor-Appellants, including Bernadette, jointly moved to this Court for leave to appeal, and on November 24, 2014, this Court granted the motion. (R. xxvi-xxvii). ARGUMENT POINT I THE APPELLATE DIVISION ERRED WHEN IT HELD THAT THE FEDERAL ARBITRATION ACT APPLIES TO THE UNDERLYING AGREEMENTS AND, AS A RESULT, THAT THE STATUTE OF LIMITATIONS ISSUE WAS FOR THE ARBITRATOR TO DETERMINE. The court’s role is clearly delineated by CPLR §7503, which sets forth the legislature’s intent that the court decide certain issues, if called upon to do so, before compelling or staying arbitration, including the defense of the statute of limitations. Merrill Lynch, Pierce, Fenner & Smith, Inc., et al., v. Benjamin, 1 A.D.3d 39 (1st Dept. 2003); Matter of City of NY v. Uniformed Fire Officers Assn., 95 N.Y.2d 273 (2000). It is well settled that, under New York law, a court may determine whether arbitration of all or part of a claim should be stayed because it is time-barred. Madison Hill Corp. v. Continental Baking Co., 21 A.D.2d 538 (1st Dept. 1964); see also Matter of Paver & Wildfoerster, 38 N.Y.2d 669 (1976). 31 In order for the Federal Arbitration Act to apply and preempt this well- settled New York principle, a party must show that the contract is one that “evidences a transaction involving commerce.” 9 U.S.C. § 2; Citizens Bank v. Alafabco, 539 U.S. 52, 53 (2003); See also Crespo v. 160 W. End Ave. Owners Corp., 253 A.D.2d 28, 31 (1st Dep’t 1999). “[T]he only relevant consideration is the subject matter of the contract.” Lazio N. Tauber & Assocs. I, LLC v. American Mgt. Assn., 2002 WL 34357997 *1 (N.Y. Sup. Ct. 2002). Here, the First Department erroneously determined that the FAA is applicable. In coming to this conclusion, the First Department relied heavily on Allied-Bruce, spending considerable time discussing the “contemplation rule” as applicable to the within facts in its holding. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995). The First Department’s application of Allied Bruce is clearly flawed. In Allied Bruce, the Supreme Court determined that the issue of what was “contemplated” by the parties at the time of contracting does not control whether the FAA applies. Rather, according to the Allied Bruce Court, the proper issue to consider is whether the agreements themselves evidence a transaction involving interstate commerce. Where the agreements themselves evidence such a transaction, the Allied Bruce Court held, the parties cannot avoid the FAA’s 32 application by arguing about whether interstate commerce was expressly “contemplated” by the parties. 513 U.S. 281. Allied Bruce thus supports Appellant’s position on this appeal: The controlling issue is whether the agreements themselves evidence a transaction involving interstate commerce. The issue of what was “contemplated” by the parties, what type of “business” the parties (or other entities) generally conduct, or what the “dispute” is about, cannot overcome the mandate that the agreements must evidence a transaction involving interstate commerce. Appellant’s position is fully consistent with Allied Bruce, as well as other federal court precedent and the decisions of this Court. See, Citizens Bank v. Alfafabco, Inc., 539 U.S. 52 (2003) (debt-restructuring agreement was governed by the FAA since it was secured by business assets located in several states involved interstate commerce); Diamond Waterproofing Sys., Inc. v. 55 Liberty Owners Corp. 4 N.Y.3d 247 (2005) (contract to repair and reconstruction the roof of a commercial building in Manhattan, was governed by the FAA since the subject dispute affected interstate commerce in that “numerous out-of-state entities were involved”; “the engineer’s drawings were created … in Illinois”; the “largest supplier of materials … was a New Jersey Company”; and “various additional materials, equipment and services for the project were obtained from Oklahoma, Maryland and Kansas.”) 33 The policy reasons behind such a rule are evident. As an initial matter, such a rule is consistent with the language of the FAA, 9 U.S.C. § 2, which states that “[a] written provision in … a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction … .” 9 U.S.C.S. § 2. Moreover, the rule furthers the policy goals that arbitration should be a fast and efficient way to resolve disputes. In fact, in Allied Bruce the Supreme Court stated that “[w]e agree that Congress, when enacting this law, had the needs of consumers, as well as others, in mind. See S. Rep. No. 536, 68th Cong., 1st Sess., 3 (1924) (the Act, by avoiding ‘the delay and expense of litigation,’ will appeal ‘to big business and little business alike, …corporate interests [and] … individuals’).” 513 U.S. at 280. There is no reason for lower courts to wade into the factual issues of what type of business has been conducted by the parties over the years or what the dispute is about before determining who should hear a motion to dismiss. The lower court must only examine the subject contract – not affidavits, other documents, or live testimony – before determining whether the FAA applies. Here, the FLIP and Berita agreements do not embody or evidence a “transaction involving commerce.” The Agreements – a Partnership Agreement (R. 183-200); an Operating Agreement (R. 165-182) – evidence no transaction involving 34 interstate commerce. Thus, there is no basis to hold that interstate commerce confers Federal Arbitration Act coverage over the contract. This principle is fully consistent with the prior precedent of this Court. The Court of Appeals held in Diamond Waterproofing Sys., Inc. v. 55 Liberty Owners Corp., that “where a contract containing an arbitration provision affects interstate commerce, disputes arising thereunder are subject to the FAA.” 4 N.Y.3d 247, 252 (2005). In Diamond, the Court of Appeals concluded that the construction project arising from the contract to repair and reconstruct the entire facade and roof of a nationally landmarked residential building in Manhattan “affected” interstate commerce, warranting the application of the FAA. This holding was predicated on the fact that numerous out-of-state entities were involved in the project that was the subject of the contract. Here, the contracts involved in the FLIP and Bertia matters (the main claims herein) are corporate governance agreements, not transactional contracts. These corporate governance agreements do not encompass any commercial “transaction,” much less the terms of a transaction that does or could have an “affect” on interstate commerce. Instead, the Agreements detail mechanisms, processes and relations by which New York family entities are controlled and managed. 35 * * * Respondents’ position that the contracts themselves must evidence a transaction affecting interstate commerce for the FAA to apply is fully consistent with the contractual principles relevant to arbitration clauses. Arbitration, after all, is manifestly a matter of contract, and parties to an arbitration agreement are free to select the terms under which they will arbitrate. Parties may contractually agree who will hear their disputes, where the disputes will be heard, what procedures will be utilized, what law will apply, and who will incur the costs. The policy codified in the FAA is thus to ensure that private agreements to arbitrate are enforced according to their terms. Volt Info. Scis. v. Bd of Trs., 489 U.S. 468, 476 (1989). See also, Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, n12 (1967) (the Act was designed “to make arbitration agreements as enforceable as other contracts, but not more so”); Volt, supra, at 474, quoting Scherk v. Alberto- Culver Co., 417 U.S. 506, 51 (1974) (the Federal Arbitration Act intended courts to “enforce [arbitration] agreements into which parties had entered,” and to “place such agreements ‘upon the same footing as other contracts.”) Given that arbitration is a creature of contract, it only makes sense that the issue of whether the FAA applies be determined by looking to the provisions of the contract itself. 36 * * * Even if the Court finds that it’s the nature of the entities’ “business” or the nature of the “dispute” that matters (not what the contract embodies, as we believe) the businesses and this dispute have nothing to do with interstate commerce. The dispute and claims herein are about the governing of an intra-family New York partnership and limited liability company. As the trial court correctly determined, “the totality of the economic activity in question has no affect on interstate commerce, and thus, the FAA does not apply to the claims asserted by the Cusimano’s in arbitration.” (R. 30). The First Department clearly misapplied the law and the facts, when they mistakenly held that the affect on interstate commerce of third-parties, a CVS drug store and a New York Marriott Residence, lead to the conclusion that the dispute between these family-members involves interstate commerce. (R. xxxvii). Berita does not have an ownership interest in the Marriott Residence, nor does it operate or manage the Marriott Residence. Berita merely holds a minority interest in Greenbriar, another New York entity. While Greenbriar has a Franchise Agreement allowing the Marriott to operate a Residence Inn in Plainview, New York, this certainly does not mean that Berita – a “passive entity” 37 according to the Statement of Claim – is involved in any transaction that affects interstate commerce. As Justice Ramos properly determined, “[s]ince Berita does not have a direct interest in the Marriott hotel, a dispute regarding the ownership and management of Berita does not involve interstate commerce.” (R. 28). Greenbriar Partnership merely has a Franchise Agreement allowing the Marriot to operate a Residence Inn; Berita has no direct connection to the Marriot and does not in any way participate in interstate commerce. In fact, in the 1980’s when the property was first developed by the Greenbriar Partners, it was constructed as an unassisted senior living facility, not a Marriot Residence. (R. 133, 214). Rita’s central claim regarding Berita is that “distributions” from Berita were misappropriated by Bernard, with the assistance of Bernadette and the accountants, all within the State of New York. (R. 132-141 ¶¶39-85). These alleged “distributions” misappropriated by Bernard were in fact loan repayments; loan repayments that were made from a New York Limited Liability Company (Berita) to a New York resident (Bernard). These repayments (and the disputes arising therefrom) even in the broadest interpretation of “affecting” interstate commerce do not exhibit a nexus sufficient to invoke the FAA. B.G. Balmer & Co., Inc. v. U.S. Fidelity and Guar Co., 1998 U.S. Dist. LEXIS 17175 (E.D. Pa. 1998) (“The 38 Agreement, which establishes an agency relationship between USF & G, a Maryland corporation, and Balmer, a Pennsylvania corporation, clearly implicates interstate commerce and creates significantly more than the ‘slightest nexus’ with interstate commerce that the Arbitration Act requires”); Doctor’s Associates, Inc. v. Distajo, 207 F.3d 126, 131 (2d Cir. 1997) (“[T]he franchise agreements between DAI, a Florida corporation, and franchisees from various other states ‘evidence[ ] a transaction involving commerce.’”) Rita’s main claims regarding the FLIP states that there was “accounting malpractice” committed by Schnurr and Norman with the assistance of Bernard or Bernadette, all New York Residents, and that there was misconduct in the internal management of the FLIP. (R. 141-143). No part of the FLIP dispute concerns the property owned in Florida, or the independently owned CVS drug store operating out of that Property. The final claims in Rita’s Demand for Arbitration concern the sale of Rita’s stock in Seaview Corporations. (R. 146). In or about January 1, 2000 Rita and Bernadette entered into an Agreement wherein Rita sold her equity interest in the Seaview Corporations to Bernadette for the sum of $240,000.00 (R. 204-209). Rita now claims, fourteen (14) years after the fact, that she was somehow fraudulently induced in selling her interests for below market value. (R. 98, 146). 39 These claims clearly do not affect interstate commerce as they solely concern money damages regarding an agreement between Bernadette and Rita (both New York residents) for the sale of Rita’s interest in the family corporations. The First Department concluded that “[b]ecause commercial real estate can affect interest commerce” the FAA is applicable to the parties’ agreements. (R. xxxvi). In so holding, the First Department cited to Frumkin v. P&S Const., N.Y., Inc., which is clearly different from the facts and circumstances herein, in that Frumkin concerned a construction project for the sale of units to many out-of-State persons, as well as funding from a nationally chartered bank, all of which was evidenced by the subject agreement. 116 A.D.3d 602, 603 (1st Dept. 2014). The Frumkin economic activities “affect” on interstate commerce cannot be compared to the facts herein. Moreover, Frumkin does not stand for the proposition that the mere fact that a business owns commercial real estate does not, without more, lead to the conclusion that the business engages in interstate commerce. Such a holding would arguably subject every contract concerning New York “commercial real estate” with an arbitration clause – including garden variety landlord-tenant disputes, non-payment of rent proceedings, and slip and fall cases – to the FAA. 40 Such an overbroad application of the FAA would only serve to discourage parties from including arbitration clauses in their agreements, the antithesis of the FAA’s policy goals. As discussed above, arbitration is a creature of contract; parties have always been free to bargain for how, and by whom, their disputes will be adjudicated in their agreements. As with any contractual matter, the Court’s main concern in deciding the scope of arbitration agreements is to “faithfully reflect[] the reasonable expectations of those who commit themselves to be bound by [them]." Leadertex v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 28 (2d Cir. N.Y. 1995). If the FAA nearly always applies, regardless of what the agreements say or what the parties “contemplated”5 at the time of contracting, the only way a party can be assured that the FAA will not apply is to not agree to arbitrate at all. This undermines not only the FAA’s policy goals, but also vitiates the New York State legislature’s intent that the Court adjudicate certain issues, like the statute of limitations pursuant to CPLR § 7502(b).6 5 The First Department, in quoting Allied Bruce mistakenly concluded that it’s enough that a transaction involving commerce occurred in fact and the contract did not have to expressly contemplate such transaction. The Court held that “requiring parties to include specific references 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.” See (R. xxxvii) 513 U.S. at 277-279. 6 In cases where it has been determined that the FAA applies to the parties contract the “presumption is that the arbitrator should decide ‘allegation[s] of waiver, delay, or a like defense to arbitrability’”. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002), quoting Moses H. Cone Mem. Hosp. v. Mercury Cost. Corp., 460 U.S. 1 (1983). “New York law, in contrast, 41 The determination that the FAA applies to the parties’ agreements and/or disputes, as well as the First Department’s reliance on Allied-Bruce to come to this determination, is reversible error warranting reversal by this Court and the reinstatement of the trial Court’s Decision and Order. POINT II THE APPELLATE DIVISION ERRED WHEN IT DETERMINED THAT THE RESPONDENTS DID NOT WAIVE THEIR RIGHT TO HAVE THE STATUTE OF LIMITATIONS ISSUE DECIDED BY THE ARBITRATOR. Assuming that the FAA does apply to the parties agreements, the First Department committed reversible error in finding that the Respondents continued foray into the courtroom did not create a waiver. The First Department failed to recognize the full import of Respondents’ actions in the Accounting Action, failed to consider the Respondents’ conduct in the Berita and FLIP Actions, and ignored the prejudice imposed on Bernadette. (R. xl-xlii). With respect to waiver, Cusimano’s past actions are clearly determinative. “Like contract rights generally, a right to arbitration may be modified, waived or abandoned.” Stark v. Molod Spitz DeSantis & Stark, PC, 9 N.Y.3d 59, 66 (2007); allows a threshold issue of timeliness to be asserted in court” N.J.R. Assoc. v. Tausend, 19 N.Y.3d 597, 602 (2012) citing CPLR §§ 7502 (b) and 7503(a) 42 quoting Sherrill v. Grayco Bldrs., 64 N.Y.2d 261, 272 (1985). Respondents have clearly waived their right to arbitrate, not only based on their commencement of the Accounting Action, but also by virtue of their initiation and continued participation in the Berita and FLIP Actions in the Supreme Court, Nassau County and the Appellate Division, Second Department. The Respondents cannot compel arbitration on the issue of timeliness when their use of the courts are “clearly inconsistent with (their) later claim that the parties were obligated to settle their differences by arbitration.” Stark at 66, quoting Flores v. Lower E. Side Serv. Ctr., Inc., 4 N.Y.3d 363, 372 (2005). In fact, for the three (3) years prior to the filing of the Demand for Arbitration and the Respondents’ epiphany that the issues of the statute of limitations was for an arbitrator to decide, the Respondents argued to the contrary, opposing the applicability of the arbitration provisions to every issue of law and fact, including the statue of limitations, even going so far as to seek a judicial determination of their statute of limitations defense before Justice Warshawsky in the FLIP Action (R. 688-692) and arguing at oral argument before Justice Ramos on the statute of limitations issues, that they should not be sent to arbitration. (R. 300). In New York, a party waives its rights in connection with arbitration by manifesting “an affirmative acceptance of the judicial process.” Braun Equip Co. 43 Inc. v. Meli Borelli Assocs., 220 A.D.2d 311, 311 (1st Dept. 1995), Iv. denied 71 N.Y.2d 807 (1988). New York courts have found an affirmative acceptance of the trial court’s determination of issues where “the plaintiff actively participated in [the] litigation by opposing the defendants’ motion to dismiss ... .” Jorge v. Sutton, 134 A.D.2d 573, 573 (2d Dept. 1987). Here, the Respondents chose the Court as the forum for this dispute (after the Nassau County Court twice compelled related actions into arbitration based on the same agreements at issue here). Respondents then submitted the precise statute of limitations issues, they now seek to have arbitrated, to the Court for its determination. (R. 688-692). Respondents also served three Pre-Answer Subpoenas (one of which was served on Bernadette) in the underlying Action, defended a Motion to Quash these Subpoenas, and moved to disqualify the Accountant Defendants’ Counsel arguing a potential conflict of interest because the Accountant Defendants would have to seek indemnification and contribution from Bernard (and Bernadette). (R. 660). “By commencing an action at law involving arbitrable issues, [the Respondents] waived whatever right [they] had to arbitration.” Matter of Waldman v. Mosdos Bobov, Inc., 72 A.D.3d 983 (2d Dept. 2010); quoting Hart .v. Tri-State Consumer, Inc., 18 A.D.3d 610 (2d Dept. 2005). By commencing the Berita Action seeking a dissolution and accounting of Berita and then stating 44 identical claims and relief in Respondents’ Demand for Arbitration and Statement of Claim as amended, Respondents have waived whatever right they had to arbitrate the statute of limitations issues. The mere fact that Bernadette was an intervenor in the Accountant Action does not change the fact that Cusimano’s prior actions constituted a waiver with respect to Bernadette. (R. xlii, fn. 11). The First Department stated that because Bernadette was “not involved in the motion to dismiss, [she] cannot claim prejudice because of the litigation costs involved in the earlier motion, and any waiver claim based solely on this argument is unavailing.” Based on this holding, it is clear that the First Department failed to address the long procedural history between the parties dating back to 2010 in the Berita and FLIP Actions in their analysis on the question of waiver. This misapplication of the facts by the First Department improperly sanctioned Rita’s gamesmanship of leaving Bernard and Bernadette out of the New York Supreme Court action to try to circumvent the Nassau County arbitration orders. * * * Assuming, arguendo, that the FAA applies, “[a]n inquiry into whether an arbitration right has been waived is factually specific and not susceptible to bright line rules.” Cotton v. Slone, 4 F.3d 176, 179 (2d Cir. 1993). The factual 45 determinations upon which a district court predicates its finding of waiver, nonetheless, are ordinarily not reversed unless they are clearly erroneous. Leadertex v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995). Justice Ramos’ ruling on this issue must be given deference and was reversed in error (and without such deference) by the First Department. After digesting all the facts in this Supreme Court, New York County action, as well as the Supreme Court, Nassau County Actions (the Berita Action and the FLIP Action), Justice Ramos acknowledged the Cusimanos continued and consistent efforts to litigate their disputes rather than arbitrate, thereby constituting a waiver. Justice Ramos held: 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. (R. 32). In determining whether a party has waived its right to arbitration by engaging in litigation, the Second Circuit has instructed courts to consider: “(1) the time elapsed from when litigation was commenced until the request for arbitration; (2) the amount of litigation to date, including motion practice and discovery; and (3) proof of prejudice.” La. Stadium & Exposition Dist. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 626 F.3d 156, 159 (2d Cir. 2010). Prejudice is the most 46 important of these three factors. Thysen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 105 (2d Cir. 2002). In the two and half (2 ½) years from the initial filing of the Berita Action, which, from the start, was subject to arbitration, until the time when Respondents filed their Demand for Arbitration, Bernadette was forced to: (1) defend against the Berita dissolution action and move to compel arbitration; (2) brief and argue against the Respondents’ appeal on the initial Warshawsky Order; (3) provide substantial discovery to Rita in connection with the Berita Action by Order of Justice Warshawsky (R. 970-978); (4) move the Second Department to strike portions of Rita’s briefs that dehors the Record; (5) defend against the Renewal Motion filed by Respondents before Justice Bucaria; (6) brief and argue against the Respondents’ Appeal on the Bucaria Order; (7) move to quash the pre-answer subpoena served upon her in the Accounting Action; and (8) move to intervene in the Accounting Action and stay the time barred claims. When assessing waiver, the courts have recognized two types of prejudice: substantive prejudice and prejudice due to excessive cost and time delay. Id.; see also PPG Indus. v. Webster Auto Parts, Inc., 128 F.3d 103, 107 (2d Cir. 1997). Both forms of prejudice are unmistakably present in this case. The Second Circuit has found prejudice where “a party seeking to compel arbitration engages in 47 discovery procedures not available in arbitration, makes motions going to the merits of an adversary’s claims, or delays invoking arbitration rights while the adversary incurs unnecessary delay or expense.” Cotton v. Slone, 4 F.3d 176, 179 (2d Cir. 1993). Here, Respondents did all three. First, Rita engaged in discovery practices by serving subpoenas in both the FLIP Action (R. 408) and New York Supreme Court Action (R. 267, 310-11, 613-617) and making a motion for, and receiving, substantial discovery in the Berita Action from Justice Warshawsky. In fact, Justice Warshawsky issued a directive on October 4, 2010 requiring the production of the books and records of Berita for the period of 2001-2010 for inspection and scanning/copying purposes. (R. 970-978). Commencing on November 4, 2010, Respondents’ Accountant, Louis Chan of H.J. Cohn, LLP spent two days scanning and copying the books and records of Berita pursuant to the directive of Justice Warshawsky. (R. 933). In addition, Appellant Dominic J. Cusimano was also provided copies of Federal and State Tax returns for the periods of 2001-2008 for Berita and the FLIP which were acknowledged by Mr. Cusimano on May 3, 2010 (R. 932, 937-38). Second, Rita made, among other things, her own CPLR § 7502 motion in the FLIP case (R. 688-692), various motions and appeals arguing the applicability and 48 enforceability of the subject agreements under New York law without ever referencing the FAA (R. 420, 437-41, 934-36), and contested the Accountants’ motion to dismiss, which was brought on grounds identical to Bernadette’s ultimate motion to dismiss. These actions not only subjected Bernadette to prejudice, but they also showed a complete lack of disregard for the judicial resources of the Courts in having to rule on all of Rita’s attempts to avoid arbitration for a period of several years, only to see her quickly file for arbitration the moment she was dissatisfied with Justice Ramos’ rulings. Third, Rita waited two and a half years before invoking the FAA and giving up her quest to avoid arbitration. If, on day one, Rita had submitted this dispute to arbitration, Bernadette would not have had to spend a tremendous amount of money in litigation costs and expenses that were incurred to compel this dispute into arbitration and uphold those decisions compelling arbitration on appeal. Also, at many points throughout the contests over the scope and enforceability of the arbitration clauses (i.e., when Rita was arguing that Bernadette’s right to arbitrate had been waived, receiving substantial discovery from Justice Warshawsky on Berita claims, and serving subpoenas), it would have been favorable for Bernadette if the FAA applied. If the FAA does apply, as the First Department has now held, Bernadette has been substantively prejudiced because Rita was able to avoid the 49 FAA in all of the prior litigation on the scope and enforceability of the arbitration clauses (when it suited her) only to invoke it in this action (at the precise moment it benefited Cusimano). This result is abhorrent to the principles of fairness, rewards forum-shopping and gamesmanship, and simply cannot stand. Indeed, Rita could have filed for arbitration after Bernadette filed an Order to Show Cause to compel her to do so in May 2010; or after Justice Warshawsky directed her to do so in March 2011; or after Justice Bucaria again directed her to do so again in April 2012, but she chose not to. She allowed a period of over two years – from May 2010 to September 2012 – to elapse before filing her Demand for Arbitration. This delay, occasioned by the Cusimanos and only the Cusimanos, has caused significant substantive prejudice and tremendous additional costs and expenses to Bernadette and is clearly inconsistent with Respondents’ current claim that they are now entitled to arbitrate the statute of limitations. Tech in P’Ship v. Rudin, 538 Fed. Appx. 38, 39 (2d Cir. N.Y. 2013) (prejudice found when the right to arbitrate was raised some fifteen months after the complaint was filed). The First Department kept their analysis to the confines of this matter (the Accounting Action) to assess prejudice against Bernadette, and erroneously disregarded the previous actions commenced in Nassau County by Rita, including the heavily litigated Berita Action. In doing so, the First Department ignored the 50 fact that Bernadette was only omitted from the New York Accountant Action (after being included in the “Draft Complaint” with a Nassau County Caption) to try to circumvent the arbitration orders of Nassau County. Surely, Respondents cannot be rewarded for forum-shopping their way to New York County before trying to forum-shop their way to arbitration. The First Department refers to Kramer v. Hammond, 943 F.2d 176, 178-179 (2d Cir. 1991), in support of the finding that there was not a waiver by Respondents. However, the Kramer facts support Bernadette’s position here – four years had passed since the filing of the first lawsuit and appeals had been taken prior to filing arbitration – thereby warranting a finding of waiver by the Respondents. The Kramer Court held that allowing the invocation of the arbitration clause at this late date would cause prejudice. Id. at 179. As in Kramer, prior to invoking the arbitration provisions of the underlying agreements, years have passed, during which Cusimano brought an action for dissolution, opposed Bernadette’s application to compel arbitration, appealed that finding, brought a Motion to Renew which also compelled arbitration, appealed that finding and then requested leave to appeal to the Court of Appeals. Moreover, Rita served subpoenas spread across two separate actions and received substantial discovery from Justice Warshawsky in the Berita Action (R. 970-978) before 51 conveniently deciding that the FAA applied. These actions by the Respondents cannot be overlooked, especially since the Berita Action involves many of the same claims that are now raised in arbitration. The facts demonstrate that Respondents spent years opposing arbitration at every turn and only when faced with the Supreme Court’s decision that the statute of limitations applied against their interests – in a forum that they freely chose –did they do an about face and claim that the statute of limitations was for the arbitrators to decide.7 Moreover, the procedural history of the Berita Action must be considered in determining the substantial prejudice that has been suffered by Bernadette due to the Respondents’ conduct here. The First Department erred when it concluded that Respondents had not waived any right they may have had to have the limitations issues determined by an arbitrator. The First Department’s decision should be reversed. 7 During oral argument of the Appellant’s Motion to permanently stay the time-barred claims, Justice Ramos concluded that Respondents “have been playing the forum shopping game to a T, and quite frankly, it’s offensive.” (R. 1165). Further he citied Respondents, stating that they were only “willing to go to arbitration [now] where you can get away from my rulings. That’s obvious… . But it’s so obvious. It’s so obvious. It’s painfully obvious.” (R. 1165-66) 52 CONCLUSION For the foregoing reasons, the First Department’s Decision should be reversed and the judgment of the Supreme Court reinstated8. Dated: Syosset, New York February 5, 2015 Respectfully Submitted, Peter J. Terracciano, Esq. Janine T. Lynam, Esq. JOSEPH, TERRACCIANO & LYNAM, LLP Attorneys for Intervenor-Appellant Bernadette Strianese 2 Roosevelt Avenue, Suite 200 Syosset, New York 11791 (516) 496-0202 8 While Appellant believes that the arguments made herein should result in the reversal of the First Department’s Decision and the reinstatement of the Judgment, Appellant respectfully refers to, and incorporates by reference herein, any additional arguments made in the Brief submitted by co-Appellants. 53 /s/ Janine T. Lynam