Arbitration is a private dispute resolution process used by parties as an alternative to resolving disputes in court. The traditional theory is that parties contract for arbitration to avoid the higher costs and longer delays of litigation. In order to achieve these goals, parties to arbitration greatly curtail, or even forego, many of the procedural safeguards of litigation, including motion practice, broad discovery, and appellate review. At the same time, parties do not generally expect that arbitration will be conducted without any regard for background substantive law; “manifest disregard for the law” remains a ground for reversing arbitration awards in many jurisdictions.
There is considerable dispute over whether statutes of limitations defenses are among the procedural safeguards that are potentially lost when parties choose arbitration, or whether they are substantive rights that should apply regardless of the dispute resolution forum. Various courts around the country have held that statutes of limitations do not apply to arbitrations. At the same time, practitioners’ responses to those decisions suggest that some parties often view statutes of limitations as a substantive legal right of a defendant to avoid defending stale claims.
In the spring and summer of 2013, legislation passed by the Washington Legislature and a decision by the Florida Supreme Court illuminated the growing debate over whether statutes of limitations apply in arbitration. In April, the Washington State Legislature passed a bill legislatively establishing the same principle, by effectively overturning the Washington Supreme Court’s decision in 2010, Broom v. Morgan Stanley D.W. Inc., which held that Washington’s statutes of limitations did not apply in arbitration. Similarly, in May, the Florida Supreme Court in Raymond James Financial Services, Inc. v. Phillips reversed a lower court and held that, under state law, Florida’s statutes of limitations apply to arbitration. While the Washington legislation and the Raymond James decision represent a movement to apply statutes of limitations in arbitration, other courts have moved in the opposite direction. Confusion about the applicability of statutes of limitations in arbitration causes difficulties for attorneys drafting contracts, parties evaluating potential claims, and arbitrators attempting to resolve disputes.
Our article explores the confusion regarding this issue and attempts to reconcile the disparate views on this subject. Part II examines three arbitral forums—the American Arbitration Association (AAA), JAMS (formerly Judicial Arbitration and Mediation Services, Inc.), and the Financial Industry Regulatory Authority (FINRA)—and their respective approaches to applying statutes of limitations in their arbitrations. Part III surveys when statutes of limitations apply in arbitration across three scenarios: (A) express provisions in state law, such as in New York and Georgia; (B) agreement of the parties by contract; and (C) implicit provisions in state law. Part IV explores the Washington Supreme Court’s decision in Broom v. Morgan Stanley and the Washington Legislature’s reaction to that decision. Part V similarly analyzes the Florida Supreme Court’s Raymond James opinion. Part VI concludes by arguing that arbitrators should not assume that statutes of limitations apply in arbitration, absent express language in the parties’ agreement or explicit direction from state statutes, in light of courts’ treatment of the issue as one of statutory interpretation.