New York Commercial Division to Tighten Eligibility Requirements For Two Categories of Disputes

Kelley Drye Client Advisory

Parties and counsel involved in disputes arising out of domestic arbitrations or home improvement contracts soon will have to clear heightened eligibility requirements before being able to proceed in the Commercial Division of New York Supreme Court.

The definition of what qualifies as a commercial case” eligible to be heard in the Commercial Division will be amended effective December 1. 2015. One amendment will require disputes involving domestic arbitrations to meet the court’s monetary threshold, which ranges from $50,000 to $500,000 depending on the venue. Those disputes previously were eligible to be heard without regard to the amount in controversy. The narrower definition of commercial case” also will affect disputes arising out of home improvement contracts. Regardless of whether they otherwise satisfy the court’s monetary threshold, disputes relating to home improvement contracts involving residential properties consisting of one to four units, or involving individual units in any residential building, will be deemed non-commercial cases ineligible to be heard in the Commercial Division.

The definitional changes are reflected in amendments to two of the Rules of the Commercial Division -- Section 202.70(b) and Section 202.70(c) of the Uniform Rules of the Supreme and County Courts. The amendments were authorized in an Administrative Order dated October 14, 2015.

Domestic Arbitrations

With respect to arbitrations, Section 202.70(b), titled Commercial cases,” will be amended to provide:

Actions in which the principal claims involve or consist of the following will be heard in the Commercial Division provided the monetary threshold is met or equitable or declaratory relief is sought:
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(12) Applications to stay or compel arbitration and affirm or disaffirm arbitration awards and related injunctive relief pursuant to CPLR Article 75 involving any of the foregoing enumerated commercial cases….
Section 202.70(b)(12) previously provided that such matters were eligible to be heard in the Commercial Division without consideration of the monetary threshold.” The foregoing enumerated commercial issues” language of the amendment refers back to Section 202.70(b)(1) - (11) which list the categories of business disputes eligible to be heard in the Commercial Division subject to meeting the monetary threshold -- disputes ranging from breach of contract and fiduciary duty to corporate dissolutions and commercial banking transactions.

The amendment was proposed by the Commercial Division Advisory Council earlier this year. The Advisory Council studied the eligibility criteria applied to various categories of business disputes and found broad support for applying the monetary threshold to arbitration cases.” According to the Advisory Council, the mere fact that a commercial dispute may be subject to arbitration was not viewed as justification for treating such disputes differently than cases litigated in the courts involving amounts that are below the threshold.”

Significantly, the Advisory Council recommended against modifying the eligibility requirements applicable to international arbitrations, noting that Commercial Division rules governing international arbitrations had only recently been implemented. The Advisory Council expressed concern that, in light of those new rules, any changes affecting the eligibility of international arbitrations might be perceived as a retreat from the policy imbedded in those rules to encourage use of New York courts in international arbitrations.” The Advisory Council favored continuing to exempt international arbitrations from the monetary threshold at least until our courts have more experience under the new international arbitration rules.” This recommendation regarding international arbitrations is reflected in the amendment to Section 202.70(b)(12). A new second sentence of that rule provides:

Where the applicable arbitration agreement provides for arbitration to be heard outside the United States, the monetary threshold . . . shall not apply.

Home Improvement Contracts

Changes to the eligibility requirements for home improvement contract disputes are reflected in amendments to Section 202.70(c). As amended, this Section, titled Non-commercial cases,” will provide:

The following will not be heard in the Commercial Division even if the monetary threshold is met:
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(4) Home improvement contract involving residential properties consisting of one to four residential units or individual units in any residential building, including cooperative or condominium units[.]
This amendment was recommended by the Advisory Council, which reported that disputes arising out of home improvement contracts involving one to four family dwellings and individual units in cooperative or condominium residential buildings are not true commercial cases, even if the amounts in dispute exceed the monetary threshold.” In recommending the amendment, the Advisory Council stated that where the contract(s) at issue concern renovations contracted for by the owner of a rental property, a co-op board or condominium board, and the renovations affect the building generally (e.g. roof replacement), the case should be eligible to be heard in the Commercial Division if it meets the monetary threshold.”

The Advisory Committee’s recommendations with respect to these amendments were outlined in a memorandum dated March 2, 2015, which the Office of Court Administration released for public comment on April 14, 2015.

For more information on this advisory, please contact:

William S. Gyves
(212) 808-7640