177 A.D.3d 807
N.Y. App. Div.2019Background
- In 2015 Smith contracted with Nobiletti Builders, Inc. to renovate his Sag Harbor residence; the written contract contained a mandatory arbitration clause.
- In 2016 Smith sued Nobiletti, its owner, and subcontractors alleging breach of contract and a scheme to submit inflated invoices and pay kickbacks.
- Smith opposed Nobiletti’s cross-motion to compel arbitration, arguing the arbitration clause is void under N.Y. Gen. Bus. Law § 399-c (prohibiting mandatory arbitration in consumer/homeowner service contracts). The trial court denied the cross-motion.
- After the cross-motion was decided, appellants relied on a subsequently filed related federal action (in which Smith’s pleadings referenced interstate commerce and the federal court compelled arbitration) as new evidence and moved for leave to renew the state court cross-motion.
- The state court denied leave to renew. The Appellate Division affirmed: appellants did present new facts and justification for not having presented them earlier, but failed to show those facts would change the prior ruling.
- The court held appellants did not prove the transaction affected interstate commerce (local defendants, modest single‑family renovation, out‑of‑state materials alone insufficient), so the FAA did not preempt GBL § 399‑c and the arbitration clause remained void.
Issues
| Issue | Smith's Argument | Nobiletti's Argument | Held |
|---|---|---|---|
| Whether appellants showed new facts and reasonable justification to renew the prior cross‑motion to compel arbitration | The arbitration clause is void under GBL § 399‑c; no renewal warranted | Newly filed federal action and pleadings admitting interstate commerce are new facts that could not have been presented earlier | Appellants did present new facts and justification, but failed to show those facts would change the prior ruling; leave to renew denied |
| Whether the FAA preempts GBL § 399‑c because the transaction affected interstate commerce | GBL § 399‑c applies to homeowner service contracts and bars mandatory arbitration | The disputes affect interstate commerce (per federal pleadings), so FAA preempts the state prohibition | Appellants failed to establish a transaction affecting interstate commerce; FAA does not preempt § 399‑c here; arbitration clause void |
| Whether use of some out‑of‑state materials alone establishes an effect on interstate commerce | Out‑of‑state materials in a single‑family renovation insufficient to show interstate commerce | Sourcing materials from out of state supports FAA preemption | Out‑of‑state materials alone, given local parties and limited scope, are insufficient to establish an effect on interstate commerce |
Key Cases Cited
- AT & T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (state law that outright prohibits arbitration of a particular type of claim is preempted by the FAA)
- Citizens Bank v. Alafabco, Inc., 539 U.S. 52 (U.S. 2003) (FAA preemption applies to transactions affecting interstate commerce)
- Allied‑Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (U.S. 1995) (defining scope of "affecting interstate commerce" under FAA)
- Matter of Diamond Waterproofing Sys., Inc. v. 55 Liberty Owners Corp., 4 N.Y.3d 247 (N.Y. 2005) (considerations for whether activity affects interstate commerce)
- Highland HC, LLC v. Scott, 113 A.D.3d 590 (App. Div. 2d Dept.) (FAA preemption analysis in state appellate context)
- Byrnes v. Castaldi, 72 A.D.3d 718 (App. Div. 2d Dept.) (GBL § 399‑c covers homeowner‑service contracts)