Scope of Court Proceedings Limited By Parties’ Agreement

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Posted on: Apr 2 2025

In Idi v. Sela, 2025 N.Y. Slip Op. 01890 (1st Dept. Apr. 1, 2025) (here), the Appellate Division, First Department addressed an issue of contract interpretation that this Blog often examines: enforcing written agreements that are complete, clear, and unambiguous on their face.

Under New York law, written agreements are construed in accordance with the parties’ intent. “The best evidence of what parties to a written agreement intend is what they say in their writing.”[1] As such, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.”[2] “Courts may not ‘by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.’”[3]

“‘Whether an agreement is ambiguous is a question of law for the courts … Ambiguity is determined by looking within the four corners of the document, not to outside sources.’”[4] “The entire contract must be reviewed and ‘[p]articular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought.’”[5] “Where the language chosen by the parties has ‘a definite and precise meaning,’ there is no ambiguity.”[6]

Evidence outside the four corners of the agreement – parol evidence – is admissible only if a court finds an ambiguity in the contract. As a general rule, extrinsic evidence is inadmissible to alter or add a provision to a written agreement. This rule gives “stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses … infirmity of memory … [and] the fear that the jury will improperly evaluate the extrinsic evidence.”[7]

Idi v. Sela

Overview

Idi involved a dispute arising from a business partnership and real estate transactions between two close friends. As discussed below, plaintiff accused defendant of financial wrongdoing and other wrongful activities in the conduct of the two businesses and the sale of the subject property. The parties initially agreed to arbitrate their dispute on February 8, 2016, pursuant to a private agreement to arbitrate, and thereafter filed statements of claim with the arbitrators on July 1, 2016. Neither party was given the opportunity to file an answer to the other’s claims or to assert affirmative defenses.

During the arbitration, the parties conducted and completed discovery, which included document exchanges, documents subpoenaed from third parties, depositions and the exchange of expert reports. In connection with the exchange of discovery, defendant put plaintiff on notice that he would be relying on a statute of limitations defense.

Thereafter, the parties agreed to move the matter to court. Pursuant to the parties’ stipulation, the parties agreed that the court proceeding would be limited in scope by the arbitration agreement, the statements of claim, and any prior rulings of the arbitrators.

On October 22, 2022, plaintiff filed a motion for summary judgment seeking judgment on both his claims and defendant’s counterclaims and affirmative defenses. Plaintiff argued that defendant’s counterclaims and affirmative defenses should be summarily dismissed because defendant failed to assert the affirmative defenses in the arbitration. Plaintiff also argued that defendant’s second counterclaim was beyond the scope of the arbitration and the stipulation.

Also on February 22, 2023, defendant filed a cross-motion for summary judgment, as well as his opposition to plaintiff’s motion, seeking dismissal of each cause of action in plaintiff’s complaint. Defendant argued that dismissal was warranted because, inter alia, the statute of limitations applicable to plaintiff’s claims had expired, thereby barring all of plaintiff’s claims.

The motion court granted defendant’s cross-motion for summary judgment, dismissing plaintiff’s complaint based primarily on statute of limitations grounds. The motion court also denied plaintiff’s summary judgment motion in its entirety.

Facts

The parties were equal owners in two entities, including 1961 7th Avenue, Inc. (“1961 Inc.”), which acquired a property that it sold in February 2011. Following the February 2011 sale, the parties had a dispute over distribution of the proceeds of the sale, causing plaintiff to allegedly make repeated requests for access to the books and records of their companies. The parties did not speak for the next four years until the Internal Revenue Service contacted plaintiff about an audit of 1961 Inc., which prompted plaintiff to call defendant.

In February 2016, the parties agreed to submit their disputes concerning the operation and sale of the property to arbitration before two lawyers. Both parties submitted statements of claim in June 2016. No applicable arbitral rules required the parties to file answers or responses to the statements of claims, which were deemed denied. During discovery, in July and October 2016, defendant objected to document requests to the extent they sought “information relating to claims for which the applicable statute of limitations has expired” and “without waiver” of his objections.

In 2022, the parties moved their dispute to court pursuant to a stipulation in which they agreed that the complaint and answer in the action would be “limited in scope” by the arbitration agreement, the statements of claim, and any prior rulings of the arbitrators. Further, the parties agreed that “the claims and counterclaims interposed shall be deemed filed as of the date they were filed in the arbitration,” except to the extent they exceeded the scope of the claims asserted in the arbitration.

Plaintiff filed a complaint asserting claims for an equitable accounting, breach of fiduciary duty, unjust enrichment, fraud (based on misrepresentations concerning use of construction loan proceeds), and constructive trust. Defendant answered, asserting affirmative defenses, including that the claims were barred by the statute of limitations, and counterclaims related to plaintiff’s position that he was not required to pay a proportionate share of any tax liability. After completion of discovery, the parties moved for summary judgment; defendant argued that plaintiff’s claims were barred by the applicable three-year statute of limitations.

The First Department’s Ruling

The Court unanimously modified the motion court’s order by denying defendant’s motion for summary judgment and reinstating plaintiff’s complaint, with the exception of plaintiff’s fourth cause of action for fraud.

The Court held that “if defendant truly believed [that] plaintiff’s claims were time-barred,” he should have “made an application to the court to determine the threshold statute of limitations issue within 20 days of the commencement of the arbitration,” before participating in the arbitration.[8] The Court found that “[d]efendant never made such an application.”[9]

“Nonetheless,” said the Court, “defendant could have still raised this defense for the arbitrators to decide in their ‘sole discretion’”[10] The Court explained that “[w]hile defendant had stated in discovery responses during the arbitration that he objected to producing documents related to claims that may be time-barred, he never asserted a statute of limitations defense in his statement of claim or sought any ruling or stipulation from the arbitrators on the issue during the ensuing six years.”[11] “Thus,” concluded the Court, “according to the reasonably plain language of the parties’ agreement, there was no statute of limitations issue within the scope of issues to be litigated in court.”[12]

Apart from the plain language of the stipulation, the Court found that defendant waived the statute of limitations defense before the arbitrators.[13] Having done so, the Court held that “defendant should not be able to have it decided by the court now.”[14] Moreover, noted the Court, “it would be unfair to allow defendant to raise the defense at this late date when the parties have spent considerable time and money on discovery, including extensive accountants’ reports, and the case is now trial ready.”[15]

Regarding the fourth cause of action for fraud, the Court held that the claim did not fall within the scope of the parties’ agreement for moving the dispute to court:

[U]nder the stipulation taking the matter out of arbitration, the parties agreed that the scope of this action would be limited to the statements of claim from arbitration, the arbitration agreement, and any prior rulings or stipulations in the arbitration. Plaintiff’s statement of claim made no independent claim of actual fraud, nor does plaintiff point to language in the statement of claim, the arbitration agreement, or any other ruling or stipulation that would form the basis of an independent fraud cause of action. Thus, plaintiff is precluded from asserting an independent fraud claim in this action.[16]

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] Greenfield v. Philles Records, 98 N.Y2d 562, 569 (2002) (internal quotation marks and citation omitted).

[2] Id. This Blog has frequently written about cases in which the courts have underscored the point that words in a contract have meaning. See, e.g., here, here, here, here, and here.

[3] Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 404 (2009) (quoting Reiss v. Financial Performance Corp., 97 N.Y.2d 195, 199 (2001)).

[4] Id. at 404 (quoting Kass v. Kass, 91 N.Y.2d 554, 566 (1998)).

[5] Id. at 404 (quoting Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519, 524 (1927)).

[6] Id. at 404 (quoting Greenfield, 98 N.Y.2d at 569).

[7] W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990) (internal quotation marks and citation omitted).

[8] Slip Op. at *1-*2 (citing CPLR 7503(b), (c)).

[9] Id. at *2.

[10] Id. (citing CPLR 7502(b)).

[11] Id.

[12] Id.

[13] Id.

[14] Id. (citing Matter of Tilbury Fabrics v. Stillwater, Inc., 56 N.Y.2d 624, 626 (1982) (statute of limitations defense waived by failure to raise it in a motion to stay arbitration or before the arbitrators); Matter of Jewish Ctr. of Forest Hills W., Inc. v. Goldberg, 160 A.D.3d 644, 645-646 (2d Dept. 2018)).

[15] Id. (citing Cseh v. New York City Tr. Auth., 240 A.D.2d 270, 271-272 (1st Dept. 1997)).

[16] Id.