Agreement to Arbitrate Assignable, but Subject to Statute of Limitations

Construction of an apartment building was completed in 2005, under a contract with an arbitration clause. The building was sold in 2015, and the seller assigned its rights under the construction contract to the buyer.

In 2018, one or more balconies on the building collapsed. Subsequent investigation showed that waterproofing and flashing for some of the framing members had never been installed.

The buyer started arbitration with the original contractor, and the contractor sought a court injunction against the arbitration. The contractor argued that the right to arbitration could not be assigned absent its consent, and the claim was too late, anyway. The buyer argued, on the other hand, that the right to remedies under the completed construction contract could be assigned without consent, and that the contractor’s “fraudulent” failure to properly perform the work, discovered only recently, resulted in a different statute of limitations analysis.

The trial court held that the right to pursue contract remedies after completion of the project could be assigned. And since that right was subject to an arbitration clause, the buyer/new owner could pursue any timely claim in arbitration.

But the real issue was timeliness of the claim. First, the court held that the allegations concerning the original construction were allegations of breach of contract. Efforts to dress the claim up as one for “fraudulent construction” would not extend the statute of limitations. Second, the statute of limitations for a contract claim (six years) had long since passed. Further, there was some evidence that the original owner knew about water damage to the framing before the property had been sold, and any investigation by the buyer should have uncovered that condition, unless the original owner had already repaired it.

Since the statute of limitations had passed, the court granted a permanent stay against any arbitration between buyer and contractor. The case is Matter of Turner Constr. Co. v Mount Auburn LLC, 2020 N.Y. Misc. LEXIS 25 (Jan. 2, 2020) (subscription required).

About Stan Martin

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Stan Martin holds a law degree and an undergraduate degree in architecture. He has been involved with the construction industry for more than 45 years, working in construction prior to law school and beginning his construction law practice. Over the course of his career, he has served on boards and committees for organizations including the Associated General Contractors of Massachusetts, the Boston Society of Architects, and the Massachusetts Building Congress.

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