Ordеr, Supreme Court, New York County (Barry Cozier, J.), entered on or about February 14, 1997, which, to the extent appealed from, deniеd petitioners a permanent stay of arbitration as to those claims asserted in the arbitration that were not raisеd in the prior action, unanimously reversed, on the law, without costs, and a permanent stay of arbitration granted to pеtitioners as to all of respondents’ claims.
Respondents, residents of Connecticut and other States, purchased limitеd partnership interests from petitioners in May, June and July 1987, based on an offering memorandum dated March 9, 1987. The purpose of the venture was to construct and operate a housing complex in New Hampshire. The project failed and Flеet Bank foreclosed.
In October 1991, respondents commenced an action in Connecticut Superior Court against petitioners and others, seeking to recover their investments. Respondents asserted causes of action for frаud, breach of fiduciary duty and negligent misrepresentation. Petitioners, as defendants, moved for summary judgment on Statute of Limitations grounds, and the motion was granted on June 25, 1993. Respondents did not appeal.
One year later, respondents filed for arbitration against petitioners with the National Association of Securities Dealers (NASD), asserting essentially the same claims аs in Connecticut action plus new claims based on the Racketeer Influenced and Corrupt Organizations Act, State аnd Federal securities law, and NASD rules. This arbitration was based on the same real estate transaction as was the Connecticut action.
Petitioners moved in Connecticut Superior Court to stay the arbitration on the ground that respondents had waived their
Accordingly, petitioners commenced this proceeding in the New York Supreme Court, seeking a permanent stay of arbitration as to all claims. Finding that under the Federal Arbitration Act respondents had not automatically waived their right to аrbitrate by bringing an action, the IAS Court granted a stay only as to the claims that had previously been asserted in the Connecticut action, on the grounds that petitioners would be prejudiced if respondents had a second chance to assert those claims. However, it held that petitioners could not be prejudiced by arbitration of new claims that had never been before the Connecticut courts. This issue of res judicata and the Statute of Limitations issues were left to the arbitrator.
Petitioners argue that once the IAS Court found that respondents waived their original claims due to the filing of the Connecticut action, it should have found that they waived all claims arising from the same transaction, regardless of the legal descriрtion in the arbitration claim. Alternatively, they maintain that the arbitration should have been stayed on Statute of Limitations, res judicata or collateral estoppel grounds.
The IAS Court should have granted a stay as to all of respondents’ claims. The Federal Arbitration Act (9 USC § 1 et seq.) requires courts to enforce arbitration agreements in contracts involving interstate commerce. Generally, doubts concerning the scope of arbitration should be determined in favor of arbitration (Cone Hosp. v Mercury Constr. Corp.,
In deciding whether the right to arbitration was waived, the court should consider fаctors such as the time elapsed from the commencement of the litigation to the demand for arbitration; the extеnt of the litigation so far; and the proof of prejudice to
By this standard, respondents waived their right to arbitrate. They made the strategic decision to institute the Cоnnecticut action so that they could include parties who were not subject to arbitration, thereby resolving all issues in оne forum. Petitioners expended time and resources defending themselves in that action. Respondents did not seek arbitrаtion until the action was concluded by a judgment in their opponents’ favor. In effect, respondents seek to relitigate issues that were already decided against them when a final judgment was issued in the Connecticut action, and this should not be allowed.
Contrary to the IAS Court’s determination, respondents’ waiver encompassed not only the claims that they had actually asserted in the Connecticut Superior Court, but also all other potential claims arising out of the same transaction (Burka v New York City Tr. Auth.,