In July 1991, Plaintiff, Joseph Francese, Inc., entered into an agreement with Defendant, Enlarged City Sch. Dist. of Troy, to build an elementary school. The agreement included a section entitled "General Conditions of the Contract for Construction," a standard form from the American Institute of Architects. While the general arbitration clause contained in this form was removed, the contract did include, under the heading "Resolution of Claims and Disputes," a statement that disputes arising from the contract were to be "subject to arbitration." The contract included additional references to arbitration.

In 1993, a dispute arose between the parties. Plaintiff filed a timely notice of claim for breach of contract, while the Defendant terminated the contract due to alleged non-performance by Plaintiff. On September 15, 1993, Plaintiff served a demand for arbitration on the Defendant, who moved to stay arbitration. Plaintiff then moved to compel arbitration. The Supreme Court granted Defendant's motion to stay arbitration due to the removal of the general arbitration clause from the contract. The Appellate Division affirmed on November 10, 1994.

On April 20, 1995, Plaintiff sued Defendant for breach of contract. Defendant moved to dismiss for untimeliness. The Supreme court granted the motion, holding that the tolling provision contained in C.P.L.R. 204(b) was not applicable. The Appellate Division affirmed. The Court of Appeals granted leave to appeal.

1. Must a plaintiff invoking the tolling provision of C.P.L.R. 204(b) demonstrate that the demand for arbitration is under a color of right?

1. No. The plaintiff need not demonstrate he or she commenced the arbitration under a color of right, and the court will presume the proceeding was brought in good faith.

State of the Law Before Francese

N.Y. C.P.L.R. 204(b) tolls the period of limitation for a maximum of one year after a demand for arbitration is made and the court has determined that the dispute is not subject to arbitration. The Appellate Division has held that a plaintiff invoking C.P.L.R. 204(b) must show that the demand for arbitration was "under color of right." See Watkins v. Holiday Drive-Ur-Self, 29 A.D.3d 810 (1968).

The Court of Appeals, however, did not impose the "color of right" requirement in a case involving a tolling provision similar to C.P.L.R. 204(b) (Section 405 of the former Code of Civil Procedure, presently C.P.L.R. 205). See Gaines v. City of New York, 215 N.Y. 533 (1915). C.P.L.R. 205 permits the recommencement of an action despite the running of the applicable limitations period within six months of termination of an earlier action not dismissed "on the merits." Siegel, N.Y. Practice § 52, at 68 (3rd ed.). In holding for the plaintiff, Gaines noted that "plaintiff's case is within the letter of the [tolling] statute" and therefore the burden shifts to the defendant to show why plaintiff should not be afforded the protection of a literal reading of the statute. Gaines, 215 N.Y. at 539.

Effect of Francese on Current Law

Francese held the burden is not on Plaintiff to demonstrate that an arbitration proceeding was brought in good faith. The plaintiff's claim is presumptively valid. The Court extended the finality rule of Lehman Bros. to C.P.L.R. 204(b), which states that a party has not been barred from arbitration until all discretionary appeals have been decided.

In dismissing the Watkins rule, the Court reasoned that a literal reading of C.P.L.R. 204(b) entitled Plaintiff to the benefit of the toll. In rejecting Watkins, this Court did not require Plaintiff to demonstrate that an arbitration proceeding was brought in good faith. Finally, the Court applied Lehman Bros., which allows a plaintiff to pursue nondiscretionary appeals until final determination.

In essence, Francese ensures a party's right to pursue dispute resolution through formal court proceedings, once that party has mistakenly tried to resolve the issue in arbitration. The Court sought to preserve arbitration as an efficient and inexpensive alternative to the traditional court system. The Court noted to rule otherwise would discourage parties from pursuing arbitration.

Unanswered Questions

The court abandons the Watkins rule because it risks discouraging Àparties from selecting arbitration as an efficient and inexpensive means of resolving disputes.” Therefore, the Court eliminates the burden on the plaintiff to show a colorable arbitration claim. Does this make it harder for the Court to determine if a plaintiff acted in bad faith?

Would the Court allow a defendant to bring a claim of bad faith in order to prevent the plaintiff¡s benefiting from the toll?

Survey of the Law in Other Jurisdictions

The Francese court¡s liberal construction of C.P.L.R. 204(b), allowing for tolling of the Statute of Limitations unless the defendant can show that the forum was chosen in bad faith, resonates in the approaches of several other jurisdictions. The Mississippi Supreme Court construes their "saving statute" broadly in order to "save one who has brought his suit within the time limited by law from loss of his right of action by reason of accident or inadvertence." J. Holmes Ryan v. Don M. Wardlaw & Shady Grove Presbyterian Church, 1382 So.2d 1078, 1080 (Miss. 1980).

Similarly, the Texas "wrong court" tolling statute places the burden on the opposing party to show an intentional disregard of jurisdiction. In Griffen v. Big Spring Indep. Sch. Dist., 706 F.2d 1983 (5th Cir. 1983), plaintiff improperly pursued state administrative remedies, during which time the Statute of Limitations lapsed. Id. at 647. The U.S. District Court for the Northern District of Texas applied the "wrong court" tolling statue, stating, "we will not constrict the literal terms of a remedial statute intended to be liberally construed so as to deny [plaintiff] an opportunity to be heard." Id. at 657.

However, the Massachusetts Supreme Court, in the absence of any guiding statute, has adopted an even stricter approach than that taken by the Appellate Division in Francese. In Ann H. Shafnacker v. Raymond James & Assoc. 683 N.E.2d 662 (Mass. 1997), after erroneously pursuing her claim under arbitration, plaintiff requested equitable tolling of the Statute of Limitations. Id. at 665. The court refused to toll the statute, stating that equitable tolling should be used "only sparingly," in cases of specified exceptions, such as "excusable ignorance or where defendant affirmatively misled plaintiff." Id. at 665. The court noted that tolling the statute for claims pending in arbitration is particularly inappropriate, as the proper procedure is for a litigant to file a timely complaint in court and have the action stayed pending the result of the arbitration. Id. at 666.