Arbitration Agreements Not Subject to the Statute of Limitations
April 29, 2022 By Lauren N. Rutkowski
In a unanimous decision, the Maryland Court of Appeals ruled that the Statute of Limitations does not apply to arbitration agreements. Maryland’s Statute of Limitations states that “[a] civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced.” See Maryland Courts and Judicial Proceedings Section 5-101.
In Park Plus, Inc. v. Palisades of Towson, LLC, the Court of Appeals explained that an “action” as set forth in Md. Cts. & Jud. Proc. Section 5-101, only relates to activities that take place in court. Arbitration is a proceeding outside the realm of the court, and as such, the Statute of Limitations does not apply. Maryland Courts, therefore, are able to consider and grant petitions to compel arbitration by parties to a contract regardless if the petition is brought more than three years after the dispute arose. The Court noted that parties are free to specify in their agreements the time limitations for filing to compel arbitration.
The Contract in Park Plus originated in 2009 wherein Park Plus, Inc. agreed to furnish and install an electro-mechanical parking system in an apartment building owned by Palisades. This Contract also included a one-year warranty period for Park Plus to perform repairs and maintenance without charge. The Contract’s Arbitration Clause stated that “all disputes between the parties shall be resolved by arbitration.” Issues with the parking system arose promptly after installation and continued past the one-year warranty term which expired on July 31, 2011. The parking system continued to malfunction through February 2012, however, after September 2011, Park Plus, Inc. disclaimed any duty to resolve or repair issues with the parking system and advised Palisades would be charged for any further repairs or maintenance. Palisades initially sent a written demand for arbitration for issues related to the parking system in September 2014 and later filed an initial Petition to Compel Arbitration in the Circuit Court for Baltimore County. This Petition was ultimately dismissed for lack of service. In February 2016, Palisades filed a second Petition to Compel Arbitration which Park Plus objected to based on the Petition being filed outside the three year statute of limitations. This objection was overruled and arbitration was compelled.
The Court of Appeals stated that where a contract includes an arbitration agreement, the Court’s role in the proceeding is limited. The Court’s primary function is to determine if there is a right to arbitration under the contract, nothing more. In Park Plus, the Court did not find that the choice of law section of the Contract, adopting Maryland law, required the preclusion of arbitration based on the Statute of Limitations. It likewise did not agree that the enforcement of the arbitration clause was essentially rewriting the contract to include a waiver of a statute of limitations defense. Thus, if a party wishes to limit the time when arbitration can be compelled, that time limit must be explicitly stated within the arbitration clause of the contract.
Contracting parties should take heed of this case. Terms of arbitration should be clearly spelled out and contained within the arbitration section of any contract. Parties should consider what terms they wish to have included within the arbitration clause including, but not limited to, time limits for a party to demand arbitration, how demands for arbitration must be sent, and time limits for when a party can file a petition to compel arbitration.