The Supreme Court, Suffolk County recently issued a decision on the applicability of NY General Business Law § 399-c to an arbitration clause in AIA contract. In a Tozzi v. McLoughlin Construction Corporation, Ind. No. 615869/2021, the plaintiff sued his contractor alleging breach of contract, fraud and willful exaggeration of a mechanic’s lien. Plaintiff hired defendant to demolish and reconstruct a beachfront summer home.

Defendants moved to compel arbitration based on the contract. Plaintiff and defendants used contract AIA document a 101–2017, the standard form of agreement between owner and contractor. Article 6 of the agreement contained the “arbitration clause.” Plaintiff opposed the motion stating that the arbitration clause violated New York General Business Law (GBL) § 399–c[1] and that the defendants failed to proceed to mediation as a condition precedent to the arbitration. It has been held that an arbitration clause in a single-family residential construction contract is void as in violation of consumer protection of GBL § 399-c.[2]

In granting the defendants’ motion to compel arbitration, the court noted New York’s long and strong public policy favoring arbitration.[3] It found that GBL 399–c did not apply to this issue since the statute defines a consumer as a natural person residing in New York and the plaintiff is a resident of Wyoming. The court found the arbitration clause to be unambiguous. Finally, the court declined to rule upon whether defendants had to mediate as a condition precedent since that issue was for the arbitrator to decide under the subject arbitration clause.

[1] Full text of GBL § 399-c can be found here.

[2] See Byrnes v. Castaldi, 72 AD3d 718 (2d Dept. 2010).

[3] The court’s decision and Short Form Order and decision can be found here.

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