New York Residential Construction Alert
Two New York courts have ruled that mandatory arbitration agreements in residential home improvement contracts are unenforceable.
In Ragucci v. Professional Construction Services (25 A.D.3d 43, 2005), the Appellate Division, 2nd Department, held that a contract for architectural services to build a home involved "consumer goods" within the meaning of § 399-c of the New York General Business Law (GBL), which makes makes mandatory arbitration agreements in contracts for "consumer goods" null and void. section § 399-c defines consumer services to include "services purchased or paid for by a consumer, the intended use or benefit of which is intended for the personal family of household purposes of such consumer." This broad definition, said the court, "compels the conclusion that the subject contract is a contract for the purchase of consumer goods." It also noted that the consumer was not on an "equal footing in bargaining."
A New York trial court in Nassau County held on April 11, 2006, in Baronoffv. Kean Development Co. [2006 WL 948119], a case of apparent first impression, that the Federal Arbitration Act does not preempt GBL 399-c. The court also extended the holding in Ragucci to residential construction contracts.
The dispute arose out of two construction contracts that the Baronoffs entered into with Kean Development to renovate their Long Island and Manhattan residences. Both contracts contained an arbitration clause. When the Baranoffs terminated the contracts, the contractor served an arbitration demand seeking to recover on some unpaid invoices. The Baranoffs served an answer and later filed an order to show cause seeking a permanent stay of arbitration. The court found that the homeowners' stay motion was untimely under state law because it was not made within 20 days of receipt of the demand. However, under New York case law, this rule would not preclude the court from granting a stay if it found that the parties' agreement was illegal on its face. …