COVID-19 and the Tolling Of Statutes of Limitations: Impact on Arbitrations Seated in New York

On March 20, 2020, in response to the COVID-19 pandemic, Governor Andrew Cuomo issued Executive Order 202.8 directing that all non-essential businesses in New York cease operations, and tolling the time limits “for the commencement, filing, or service of any legal action, notice, motion or other process or proceeding, as prescribed by the procedural laws of the state, including…the civil practice law and rules” until April 19, 2020.[1]

Unlike Executive Orders with respect to filing deadlines issued in prior crises, the COVID-19 order will impact the timeliness of legal proceedings commenced for years to come.  That is because after 9/11 and Hurricane Sandy, the executive order issued merely extended the filing time for claims whose limitations period otherwise would have lapsed during the states of emergency.[2]  E.O. 202.8 does not merely provide an additional 30 days to file claims that were on the verge of becoming time-barred when the COVID-19 pandemic struck New York, but instead adds 30 days (and more if it is extended) to every limitations period that had begun to run as of March 20, 2020.  Accordingly, the limitations period for the breach of a contractual obligation on March 15, 2020 subject to a six-year limitations period under CPLR 213(2), would lapse not on March 15, 2026, but on April 14, 2026 due to the 30-day toll or suspension established by E.O. 202.8.

Although E.O. 202.8 clearly applies to litigation filed in New York courts, the order by its terms is silent with respect to other forms of dispute resolution and thus raises the question what impact this order has on arbitration proceedings with their seat in New York, in which the issue could arise anytime over the next six or more years.  The applicability of E.O. 202.8 and its 30-day toll to New York-seated arbitrations is in doubt and, interestingly, it is conceivable that no court will ever be in a position definitively to rule on that question due to a confluence of factors.  Accordingly, practitioners are advised not to assume the availability of a toll of currently running limitations periods when deciding to initiate an arbitration seated in New York.

Applicability of E.O. 202.8 to New York-Seated Arbitrations

The reason there is doubt as to the applicability of E.O. 202.8 in a New York-seated arbitration stems from the fact that it not clear that the time limits “for the commencement . . . of any legal action . . . or proceeding, as prescribed by the . . . the civil practice law and rules [CPLR]” apply to private arbitration proceedings at all.  The time limits contained in Article 2 of the CPLR apply to an “action,” which is understood to refer to plenary suits and special proceedings filed in a court of the State of New York.[3]  An arbitration proceeding is not an “action” under the terms of the CPLR.  The CPLR nonetheless addresses the timeliness of the commencement of an arbitration in creating a right to commence a special proceeding – in circumstances addressed below – to have a New York court determine whether an initiated or threatened arbitration is timely under the state statute of limitations.  Specifically, CPLR 7502(b) authorizes a respondent in an arbitration to commence a special proceeding in the Supreme Court to obtain a judicial determination that a “claim sought to be arbitrated would have been barred by limitation of time had it been asserted in a court of the state.”[4] When a court hears an application under CPLR 7502(b),  the court is expressly applying New York’s statutes of limitations to the claims asserted in the arbitration and, therefore, E.O. 202.8 would apply and provide a toll of limitations.[5]  The decision of the court is effectively final because either the court will find the claim timely, dismiss the special proceeding and the issue will have been resolved as between the parties, or the court will find the claim untimely and enjoin the arbitration from proceeding.

However, CPLR 7502(b) continues: “The failure to assert such [statute of limitations] bar by such application [to the court] shall not preclude its assertion before the arbitrators, who may, in their sole discretion, apply or not apply the bar.”[6] The fact that the CPLR recognizes that arbitrators in New York may or may not “in their sole discretion” apply the CPLR limitations period as a bar strongly supports the conclusion that such statutory limitations periods do not formally apply in private arbitrations in New York.   This is why the Appellate Division observed that “[i]n resorting to arbitration, where so provided by contract, CPLR 7502 (subd. [b]) to the contrary notwithstanding, litigants may have resolved by arbitration what they could be timebarred from having adjudicated at law.”[7]

Courts holding that arbitrators are not bound in the way a judge is by state limitations periods have found that an arbitral tribunal need only decide that a claim was brought within a reasonable time considering all the facts and circumstances of the case.[8]  Although in many cases a “reasonable time” standard suggests a loosening of the formalities and affording claimants greater rather than less time to initiate arbitration, that need not always be the case.   As of this writing, whereas New York courts have announced that they are no longer accepting non-essential filings, including of complaints that interrupt the running of limitations,[9] arbitral institutions are still accepting electronic filings.  As of March 25, 2020 the major arbitral institutions administering New York arbitrations, such as AAA/ICDR,[10] JAMS,[11] CPR,[12] and the ICC[13] are all still accepting electronic filings, even if some of these institutions have closed their physical offices.  Given that parties can still file claims to initiate arbitral proceedings, there may not be the same need as there is in state court for a complete tolling of all statutes of limitations. Similarly, in choosing to arbitrate claims, parties are intentionally opting out of the court system, so they may not have the expectation that they will receive the benefits or suffer the consequences of the global stay in court proceedings.  Accordingly, it is conceivable that years from now, an arbitrator could well conclude that it was not reasonable for a claimant, invoking E.O. 202.8, to have waited six years and 30 days (or, in arbitrations governed by the N.Y. U.C.C., four years and 30 days) to have filed a request for arbitration given how much time had passed since the end of the state of emergency. 

It Is Unlikely that a New York Court Will Ever Be Asked to Rule on  E.O. 202.8’s Application to Arbitrations

So, given the availability of the statutory procedure for having a New York court assess at the outset the timeliness of the initiation of an arbitration commenced in the State, why is that no court may ever be in a position definitively to rule on the applicability vel non of E.O. 202.8 to toll the time within which a claimant must file for arbitration in New York?  The answer turns on two factors: (1) the nature of the ruling a New York court would make under CPLR 7502(b), and (2) the limited universe of arbitrations to which the procedure applies.

First, CPLR 7502(b) directs the New York court to determine whether the “claim sought to be arbitrated would have been barred by limitation of time had it been asserted in a court of the state.”  That means applying the statute of limitations as provided for in Article 2 of the CPLR taking into account any toll recognized by law.  Accordingly, where the respondent in an arbitration wants to argue the claim was brought too late and the claimant invokes E.O. 202.8 to assert the proceeding was timely commenced, perversely, the respondent may be prejudiced by commencing a special proceeding under CPLR 7502(b) to have the court decide.  That is because the court would technically be deciding whether the claim were timely in the counterfactual that it had been filed in a court, not whether the arbitration was timely commenced (in which case, a claim filed within the 30-day extended period would be timely).  Since there can be little doubt that E.O. 202.8 applies in special proceedings and other court actions, applying to the court under CPLR 7502(b) could backfire on the respondent.  The respondent, therefore, will likely prefer to fight the issue out before the arbitrator, where the respondent may argue that E.O. 202.8 does not apply.

Second, even if one could argue that under CPLR 7502(b), the court is supposed to decide the timeliness of the commencement of the arbitration strictly applying the CPLR’s limitations periods and tolling provisions, there are only a limited set of commercial arbitrations to which CPLR 7502(b) applies and is available to parties. 

With respect arbitrations seated in New York, there are two sometimes competing, sometimes complementary legal regimes that apply:  the Federal Arbitration Act (“FAA”) and New York’s CPLR Article 75.[14] The FAA generally applies when the contract at issue in an arbitration affects interstate commerce, which has been broadly interpreted by U.S. courts.[15]  In the narrow set of cases where the contract affects purely intrastate commerce, the FAA does not apply and CPLR Article 75 applies exclusively.[16]  However, even for contracts involving interstate commerce, CPLR Article 75 can apply if the parties choose to have New York arbitration law apply to their arbitration either expressly or implicitly.[17]  Express adoption occurs when the parties choice-of-law provision expressly adopts the arbitration laws of New York.[18]  On the other hand, implied adoption occurs when, as the New York Court of Appeals has held, the choice-of-law provision in the contract provides not only that the contract will be governed by and interpreted under New York law, but also “enforced” under New York law.[19]  The inclusion of enforcement in the choice-of-law clause implies the adoption of New York arbitration law and the right to invoke CPLR 7502(b) to obtain a judicial determination of the timeliness of an arbitration proceeding in the first instance and before the arbitrators have had a chance even to consider the issue.[20] 

By contrast, where the parties have agreed to arbitrate a dispute affecting interstate commerce in New York but have not expressly or impliedly incorporated New York arbitration law, CPLR 7502(b) is not available to the parties.  That is because under the FAA, it is for the arbitrators to decide the issue of timeliness in the first instance and there is no mechanism for applying to a court for judicial intervention before the arbitral award is issued.[21]   Accordingly, for virtually all complex commercial disputes (and certainly all international ones), whether recourse to CPLR 7502(b) is available at all depends on the wording of the choice-of-law clause and in many instances would deprive many a respondent of the opportunity to seek judicial intervention at the outset of the arbitration.

Finally, although it is true that a respondent can seek judicial review of an arbitral award once issued, under the FAA (as well as under New York arbitration law), a legal error such as the failure to dismiss a time-barred claim, is not a grounds for challenging an award.  As Professor Vincent C. Alexander notes in his Commentary on the CPLR once an arbitrator decides limitations, “the scope of judicial review is virtually nonexistent.”[22]

Conclusion