Opinion
No. 103091/10.
2010-07-2
424 WEST 33RD STREET, LLC, Petitioner, v. PLANNED PARENTHOOD FEDERATION OF AMERICA, INC., Respondent.
Edgar C. Gentry, Jr., Esq., Celia R. Clark, PLLC, Bruce S. Kaplan, Esq., Ricardo Solano, Jr., Esq., Friedman, Kaplan, Seiler & Adelman, LLP, New York, for Petitioner. J. Greg Robinson, Esq., Hunter T. Carter, Esq., Arent Fox LLP, New York, for Respondent.
Edgar C. Gentry, Jr., Esq., Celia R. Clark, PLLC, Bruce S. Kaplan, Esq., Ricardo Solano, Jr., Esq., Friedman, Kaplan, Seiler & Adelman, LLP, New York, for Petitioner. J. Greg Robinson, Esq., Hunter T. Carter, Esq., Arent Fox LLP, New York, for Respondent.
ALICE SCHLESINGER, J.
Petitioner 424 West 33rd Street, LLC (Landlord) commenced this proceeding seeking a stay of arbitration in a dispute with respondent Planned Parenthood Federation of America, Inc. (PPFA), its tenant. Landlord initially based its argument in favor of a stay solely on procedural grounds but later, in an amended petition
, adopted a new argument premised on an implausible reading of the arbitration clause in its lease with respondent. There it asserted that the arbitration demand was time-barred pursuant to CPLR § 213, which imposes a six-year time limit for actions based on a contract. (A copy of the subject lease is attached to petitioner's Affidavit in Support of Amended Petition as Exhibit 1).
The amended petition was originally filed without leave of court, but this Court ultimately accepted the amended petition and allowed an amended answer to give all parties a full opportunity to be heard.
PPFA opposed the petition to stay arbitration and cross-moved to compel arbitration based on the same lease clause. Background
On April 16, 2002, PPFA entered into a lease agreement with Landlord to rent several floors of a commercial building in Manhattan, and PPFA has been a tenant there ever since. The lease contains a provision that gave PPFA the option to purchase the space it is renting, but the terms of the potential purchase were not made firm or included in the lease itself. Rather, and presumably in the interest of time, as both parties wanted to execute the agreement quickly, the lease dictated that petitioner and respondent were to draft a contract of sale shortly after the lease was signed. Specifically, ¶ 27.1(a) of the lease instructs that the parties are to “promptly commence to draft the form of contract of sale governing the conveyance of [PPFA's rented space] which will govern if [PPFA] exercises [its] purchase option.”
A companion arbitration clause at ¶ 27.4 states that “[i]f the parties have not agreed on the contents of the Contract or the Condominium Documents by the first anniversary of the date of this Lease, the parties shall select as arbitrator of the disagreement a law firm real estate partner who has substantial experience”. The same paragraph further states that the decision of the arbitrator will be final and binding. The lease dictates that any arbitration, if required, shall be conducted in accordance with the rules of the American Arbitration Association (AAA).
Petitioner and respondent did not proceed as their lease contemplated; instead of completing a contract regarding the potential sale within a year of executing the lease, they entered into continuing and long-standing negotiations over the course of the next seven years. Nevertheless, the parties were unable to reach an agreement regarding a resolution of the terms of a contract of sale.
The parties engaged in discussion and negotiation throughout 2003, the year after they signed the lease. In December of 2004, the parties signed a non-binding letter of intent. Nevertheless, in the following month, January 2005, negotiations came to a halt and Landlord withdrew from that round of negotiations. It appears that earnest negotiations between the parties did not begin again until 2009.
It was in October of that year that PPFA first sent a notice to Landlord requesting arbitration, but Landlord rejected that request and instead resumed negotiations. Those negotiations continued but broke down again shortly thereafter. On January 21, 2010, Landlord sent PPFA an ultimatum letter stating that PPFA could either accept Landlord's latest offer or forgo purchasing the space it was renting. That letter prompted a filing by PPFA of a Demand for Arbitration with the AAA on February 16, 2010. On February 17, Landlord sent PPFA a letter stating that PPFA had waived its right to purchase the space it was renting because it had not acceded to Landlord's final offer. Meanwhile, PPFA amended its Demand for Arbitration on February 17, March 13, and April 16 to account for minor clerical errors. This proceeding was commenced by filing on March 9, 2010. Discussion
Landlord's initial petition to stay arbitration was based solely on clerical defects in PPFA's notice of arbitration. Landlord alleged that PPFA had listed the wrong name in its initial notice: it had listed “424 West 33rd St. Associates, LP” rather than 424 West 33rd St. LLC.” Landlord further alleged that PPFA had sent the notice to the wrong address; i.e., Landlord's address at the time the parties executed the lease rather than the current office address. Additionally, PPFA had listed the date of the arbitration agreement as April 4, 2002 rather than April 16, 2002, which was the date the parties had executed the lease. As noted above, PPFA amended its notice of arbitration several times to correct these clerical errors.
In its opposition to the petition to stay arbitration and in support of its cross-motion to compel, PPFA correctly pointed to the three threshold issues that courts may determine when considering motions to stay arbitration: 1) whether the parties, in the first instance, made a valid agreement, 2) whether the parties complied with the agreement, and 3) whether the claim sought to be arbitrated is timely, i.e. not barred by the Statute of Limitations. Cooper v. Bruckner, 21 A.D.3d 758, 801 N.Y.S.2d 19 (1st Dep't 2004). PPFA pointed out that the clerical errors Landlord raised do not fall within any of the categories mentioned in Cooper and therefore should not be cause for this Court to stay arbitration.
Landlord responded to this argument by filing an amended petition without permission of the Court in which it, apparently, borrowed an idea from its adversary. Although Landlord had made no mention of a potential problem with the Statute of Limitations in its initial petition (nor at any point in its many years of negotiations with PPFA), it seemingly awoke to that potential argument when it was reminded of the third prong of the Cooper analysis cited in PPFA's opposition. PPFA, meanwhile, summarily dismissed any Statute of Limitations issue in its opposition because it had not been raised in the original petition.
In its amended petition, Landlord offers a novel but unconvincing interpretation of the arbitration clause at issue. That interpretation overemphasizes the portion of the clause that indicates the parties' intention to complete the contract of sale within a year and ignores altogether the portion of the clause-and the parties' clear intent-that states that arbitration will commence only after the parties reach a disagreement. Specifically, the relevant portion of the ¶ 27.4 arbitration clause reads as follows:
If the parties have not agreed on the contents of the Contract or the Condominium Documents by the first anniversary of the date of this Lease, the parties shall select as an arbitrator of the disagreement a law firm real estate partner who has substantial experience with commercial sales and acquisitions, drafting commercial condominium documents, and establishing and advising commercial condominiums. (Emphasis added.)
Landlord asks the Court to interpret this clause to mean that the parties had to initiate arbitration one year after the lease agreement was signed on April 16, 2002, regardless of whether a disagreement existed and arbitration was called for at that point. They essentially argue that the first anniversary of the date of the lease, April 16, 2003, starts the running of the six-year Statute of Limitations period under CPLR § 213.According to this view, Landlord argues that the Court should see the situation as follows. Since the parties did not finalize a contract of sale by April 16, 2003, as the lease contemplated, and since the lease required that a notice of arbitration be filed thirty days thereafter, PPFA had to demand arbitration by May 16, 2003, thirty days after the April 16th date. Because CPLR § 213 imposes a six-year limitations period regarding a cause of action based on a contract, PPFA's had to demand arbitration by May 16, 2009, six years after the May 16, 2003 date. Because PPFA did not make a demand for arbitration until February 16, 2009, which was nine months after the expiration of the six-year period, this Court should permanently stay arbitration of this dispute as time-barred.
There are three separate and equally compelling reasons why this strained interpretation fails to persuade the Court. First, Landlord's narrow reading of the arbitration clause ignores the larger context of the lease. Landlord construes the arbitration clause to mean that the parties intended to arbitrate all disputes related to the lease's purchase agreement option that arose during the period one year through six years after the signing of the lease, but not six years and one day (nor six years and nine months), after the lease was executed.
Although it is true that the arbitration clause suggests that the parties would draft and sign a contract within a year after they executed the lease, other sections of the lease clearly suggest a much longer time frame. In particular, the ¶ 27.2(d) Closing Date clause contemplates a closing date of the purchase “between the 9th and 12th anniversaries and no later than the13th anniversary of the date of this lease.” Landlord fails to offer any reason why the parties would intend to arbitrate disputes that arose in the first seven years of their effort to close on a purchase but not the last six. It is more logical, based on this context, to construe the arbitration clause as intending to protect the entire time period of the eight-to-thirteen year purchase option than to construe it so narrowly as to vitiate the arbitration portion of the agreement.
Second, and as PPFA rightly points out in its reply to Landlord's amended petition, the petitioner's interpretation ignores the fact that a disagreement is a precondition to arbitration. Landlord ignores the above-quoted portion of the arbitration clause that calls for arbitration if and only if a disagreement between the parties occurs (“the parties shall select as an arbitrator of the disagreement ”). This read would require the parties to engage in arbitration a year after the parties executed the lease (or at some point six years thereafter) even if they were continuing to negotiate in good faith. According to this interpretation, the right to enter into arbitration might accrue and expire before there was any disagreement for an arbitrator to decide. This construction of the lease makes no sense and fails to give meaning to all the words in the arbitration clause.
The above scenario is very close to what Landlord claims happened in this case. The parties were engaged in meaningful negotiations for seven years, but because their negotiations did not break down and their disagreement become clear until a few months after the seven-year anniversary of the lease execution had passed, petitioner claims that PPFA is time-barred. This analysis would only make sense if, again, the Court were to disregard some of the language in the arbitration clause, specifically that part referring to a disagreement.
The arbitration clause here, like any contractual clause, must be read as a whole, neither ignoring nor overemphasizing individual words, to determine its meaning. “It is a primary rule of construction of contracts that when the terms of a written contract are clear and unambiguous, the intent of the parties must be found within the four corners of the contract, giving a practical interpretation to the language employed and the parties' reasonable expectations'.” In re Mataco–Norca, Inc. 22 A.D.3d 495, 496, 802 N.Y.S.2d 707 (2nd Dep't 2005), quoting Weisberger v. Goldstein 242 A.D.2d 622, 623, 662 N.Y.S.2d 544 (2nd Dep't 1997). Here, a plain reading of the arbitration clause makes it clear that a disagreement between the parties is a necessary condition before arbitration is triggered. Landlord's interpretation illogically ignores this precondition.
Finally, and most fundamentally, the Statute of Limitations has not expired. CPLR § 213(1) sets a six-year limitations period for causes of action based on a contract clause that does not otherwise specify a time limit, and the arbitration clause at issue here is just such a provision. The Statute of Limitations does not, however, automatically begin to run immediately. Instead, “[t]he time within which an action must be commenced ... shall be computed from the time the cause of action accrued to the time the claim is interposed.” CPLR § 203(a). The statute begins to run “when all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court.” Aetna Life & Cas. Co. v. Nelson, 67 N.Y.2d 169, 175, 501 N.Y.S.2d 313, 492 N.E.2d 386 (2nd Dept 1986); see also, Blakeley v. Agency of Can. Car & Foundry Co., 73 N.Y.S.2d 573 (Sup.Ct. N.Y. Co.1947) (where a cause of action depends on a contingent event, the Statute of Limitations begins to run from the date the event happens).
In Aetna Life, the defendants were injured in a one-car accident on a state highway and compensated twice for the same medical expenses and lost earnings; first by their own insurance company under the No Fault Law and subsequently by the State in a settlement of a suit brought in the Court of Claims. 67 N.Y.2d at 171, 501 N.Y.S.2d 313, 492 N.E.2d 386. The insurance company sought to recoup the compensation it had paid to the defendants, and the defendants raised a Statute of Limitations defense.
The issue was whether the Statute of Limitations had begun to run immediately at the time of the accident, in which case the insurance company's claim would be time-barred based on the three-year Statute of Limitations for such claims under CPLR § 214, or whether the subsequent settlement between the defendants and the State qualified as a contingent event, in which case the insurance company's claim was timely. The Court found in favor of the insurance company and held that its “action for recoupment accrued when the defendants' suit against the State was finally settled, and not when the judgment was entered.” Id. at 173, 501 N.Y.S.2d 313, 492 N.E.2d 386.
Blakeley v. Agency of Canada Car & Foundry Co. (73 N.Y.S.2d 573) also turned on the presence of a contingent event. The plaintiff brought an action to recover compensation for services rendered by the plaintiff's testator based on “an agreement to pay for such services out of the award for damages arising from the destruction of [the defendant's] plant and business by agents of the German government in 1917, when, as and if' such award was made. [The award] was actually made in 1941, and [the plaintiff's] action was started in 1944.” Id. at 574. The issue was whether the statue of limitations began to run in 1917, when the defendant's plant and business were destroyed, or whether it began to run in 1941, when the defendant was compensated for that loss.
Like in Aetna Life, the court in Blakeley held that “where the right of action depends upon a contingent future event, the cause of action accrues and the statute begins to run only from the time when the event happens.” Id. at 575. Because the plaintiff could not recover his fees until the defendant received compensation for his loss, the court found that the action was not time-barred and denied defendant's motion to dismiss the complaint.
The matter before this Court is analogous to Aetna Life and Blakeley. PPFA's right to seek arbitration is contingent on a breakdown of its negotiations with Landlord-that is the “disagreement” to which the arbitration clause refers. It is undisputed that these negotiations continued until February 17, 2010 when Landlord sent its letter claiming that PPFA had waived its right to purchase because it had failed to accede to Landlord's ultimatum. Accordingly, the Statute of Limitations began to run then, once the contingent event occurred, not in 2002 when the parties executed the lease, nor in 2003, the first-year anniversary of the lease, as Landlord claims. Thus, PPFA is not time-barred from seeking to arbitrate this dispute.
The cases that Landlord cite in support of its Statute of Limitations argument are distinguishable. In Schlaifer v. Kaiser, 84 Misc.2d 817, 377 N.Y.S.2d 356 (Sup.Ct., N.Y. Co.1975), Kaiser had entered into a two-year employment agreement with Schaefer and Company to serve as director and Vice–President of the company. As part of his compensation, and executed contemporaneously with his employment contract, Kaiser and Schaefer entered into a stock subscription agreement which stipulated that Schaefer would issue Kaiser 15 voting shares of stock out of a total of 200 shares at a price of one dollar per share at the end of Kaiser's two-year employment contract. Kaiser's employment did not terminate at the end of two years. Instead, he worked for the company for an additional eight years before resigning. No other written employment contract nor stockholder's subscription agreement was entered into in the intervening years. Then, when he left the company ten years after entering into the stockholder's agreement, Kaiser asserted his alleged right to 15% of Schaefer and Company based on that same agreement.
The court found that the object of the stock subscription agreement was to “create and measure a form of deferred compensation [but that it] did not intend that the stock be held after termination of the employee's employment.... In effect the agreement entitled Kaiser to what amounted to 15% of the profits, if any, collectible only, however, at the end of the two-year employment period.” Id. at 820, 377 N.Y.S.2d 356.
There, unlike here, the employment contract and stock subscription agreements were short-term-they only covered a period of two years and indicated that the value of the stock was to be set at the end of the two-year period. In contrast, the arbitration clause at issue before the Court here was part of a long-term purchase agreement, as discussed above. In Kaiser, Kaiser attempted to assert his claim beyond the contemplated period of the agreement at issue. Here, in contrast, the breakdown in negotiations occurred and PPFA demanded arbitration well within the time frame contemplated by the purchase agreement section of the long-term commercial lease between the parties.
Landlord also cites Goldman v. R.E. Turner, 858 F.Supp. 49 (S.D.N.Y.1994), in support of its Statute of Limitations argument. There, Turner made a written promise to pay Goldman, his business associate, $1,000,000 when Turner achieved a net worth of $400,000,000. Goldman sought to enforce the contract and Turner raised a Statute of Limitations defense. The court held that “[s]ince the obligation to pay depends on the happenings of a contingent future event, Mr. Turner becoming worth 400 million dollars, the Statute of Limitations began to run when that condition was fulfilled.” Id. at 50. Newspaper articles, Forbes Magazine's “Forbes 400 List,” and other documents established that Turner's personal net worth exceeded $400,000,000 more than six years before Goldman's action commenced. Therefore, the district court found Goldman's claim to be time-barred as a matter of law.
Unlike in Goldman, the contingent event in the matter before this Court did not take place more than six years before the action was commenced. Here, in fact, the contingent event—the breakdown of negotiations—happened in the winter of 2010, just months before the action was commenced on March 9, 2010. The Statute of Limitations, therefore, does not bar PPFA from proceeding to arbitration to settle its dispute.
Accordingly, it is hereby
ADJUDGED that the petition (seq 001) and the amended petition (seq 2002) to stay arbitration are denied in all respects, and the proceeding is dismissed, with costs and disbursements to respondent; and it is further
ORDERED that respondent's cross-motion to compel the arbitration (seq 001) is granted; and it is further
ADJUDGED that the parties shall proceed to arbitration forthwith and respondent's counsel shall serve a copy of this judgment upon the arbitral tribunal; and it is further
ADJUDGED that respondent, having an address c/o Arent Fox LLP, 167 Broadway, New York N.Y. 10019–5820, does recover from petitioner, having an address c/o Friedman Kaplan Seiler & Adelman LLP, 1633 Broadway, New York, N.Y. 10019–6708, costs and disbursements in the amount of $____________ as taxed by the Clerk upon respondent's submission of a bill of costs, and that respondent shall have execution therefor.