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“Transactions Involving Commerce” and “Waiver of Arbitration by Participating in Litigation” (Re: the Federal Arbitration Act) Defined

The First Department, in a full-fledged opinion by Justice Richter, determined that the Federal Arbitration Act applied because the underlying transactions “involv[ed] commerce” within the meaning of the federal statute. The court further determined that the plaintiffs did not pursue litigation to the extent necessary to constitute a waiver of arbitration.  The court explained the criteria for “transactions involving commerce” and waiver of arbitration by participating in litigation:

[The Supreme Court] found the phrase “involving commerce” to be the equivalent of “affecting commerce,” a term associated with the broad application of Congress’s power under the Commerce Clause … .

The Supreme Court reaffirmed this interpretation of “involving commerce” … , stating that “it is perfectly clear that the FAA encompasses a wider range of transactions than those actually in commerce, that is, within the flow of interstate commerce” … . Further, the Court held that individual transactions do not need to have a substantial effect on interstate commerce in order for the FAA to apply … . Rather, as long as there is economic activity that constitutes a general practice “bear[ing] on interstate commerce in a substantial way” … . * * *

Although a party may have a right to arbitrate, the court may determine that a party has waived this right by having participated in litigation … . There is a “strong federal policy [*6]favoring arbitration,” and waiver should not be “lightly inferred” under the FAA … . A party does not waive the right to arbitrate simply by pursuing litigation, but by “engag[ing] in protracted litigation that results in prejudice to the opposing party” … . Cusimano v Schnurr, 2014 NY Slip Op 05702, 1st Dept 8-7-14

 

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