Connecticut State Flag

Your client’s boilerplate arbitration clause may be hiding a nasty surprise. Connecticut’s statutes of limitation—with limited exceptions—do not apply in arbitration. The practitioner who simply assumes that Connecticut’s default statutes of limitation will apply in arbitral proceedings has erred, and the consequences can be significant.

The problem is relatively straightforward. Connecticut’s statutes of limitation generally preclude commencement of an “action” once the limitations period has elapsed. It is well settled, however, that an arbitral proceeding is not an “action” under Connecticut law. Accordingly, as a matter of simple statutory construction, Connecticut’s statutes of limitation will not ordinarily apply in arbitrations. Armed with this knowledge, transactional counsel can take specific steps to protect their clients against stale claims. For litigators, both opportunity and danger abound.

Connecticut’s Statutes of Limitation Generally Preclude ‘Actions’ Statutes of limitation in Connecticut generally bar commencement of “actions” following the expiration of the limitations period. That is the rule for breach-of-contract claims (see Conn. Gen. Stat. §52-576(a): “No action … on any simple or implied contract, or on any contract in writing, shall be brought but within six years after the right of action accrues …”; also Conn. Gen. Stat. §52-581(a): “No action founded upon any express contract or agreement which is not reduced to writing … shall be brought but within three years after the right of action accrues”; Conn. Gen. Stat. §52-596: “No action for the payment of remuneration for employment payable periodically shall be brought but within two years after the right of action accrues …”; Conn. Gen. Stat. §4a-2-725(1): “An action for breach of any contract for sale [of goods] must be commenced within four years after the cause of action accrues”). It also applies to most tort claims (see, e.g., Conn. Gen. Stat. §52-577: “No action founded upon a tort shall be brought but within three years from the date of the act or omission complained of”).

There are, however, exceptions. Connecticut’s statute of limitations for claims against architects, engineers and surveyors states that it applies to any “action or arbitration, whether in contract, in tort or otherwise….” See Conn. Gen. Stat. §52-584a. And just last year, when the Legislature adopted a new statute of limitations for construction claims brought by the state, the language chosen unambiguously includes both “actions” and other forms of dispute resolution. See Conn. Gen. Stat. §52-584c (applying to any “action or claim, whether in contract, tort, or otherwise….” These exceptions effectively prove the rule. Both arise in the construction context, where mandatory arbitration is frequently employed. The broad language used in each statute is therefore indicative of the Legislature’s understanding that Connecticut courts have consistently interpreted the term “action” to exclude arbitral proceedings.

An Arbitration Is Not an ‘Action’ Under Connecticut Law Fifty-five years ago, the Hartford Superior Court (Klau, J.) held that “the institution of arbitration proceedings is not the bringing of an action under any of our statutes of limitation.” See Skidmore, Owings & Merrill v. Conn. Gen. Life Ins., 25 Conn. Supp. 76, 84 (Conn. Super. Ct. 1963). As Judge Klau observed after an exhaustive survey of the existing law across multiple jurisdictions, “there appears to be no sound reason, in the absence of an express statutory provision, for including an arbitration proceeding within the type of actions intended to be encompassed within the bar of the Statute of Limitations.” Id. at 86.

Klau’s reasoning was adopted by the Connecticut Supreme Court 20 years later in Dayco v. Fred T. Roberts & Co., which held that the term “action” in Connecticut’s partnership statutes did not encompass arbitral proceedings. See 192 Conn. 497, 502-03 (noting that “an arbitration proceeding is not an action for the purposes of §§52-112 and 52-57(d)” because it is “a contractual matter” undertaken by the parties).

More recently, the Appellate Court concluded that an arbitration is not an “action” for purposes of Connecticut’s accidental failure of suit statute. See Arute Bros. v. Dep’t of Transp., 87 Conn. App. 367, 372-74 (2005) (“Although the term action is not defined [in the statute,] we have generally defined the term as the lawful demand of one’s right in a court of justice. … An arbitration demand … does not meet the straightforward statutory summary of the contents of a civil action.”)

Connecticut courts have not recently revisited the specific question that was addressed in Skidmore more than half a century ago: whether the term “action” as used in Connecticut’s statutes of limitation includes arbitrations. But there is little reason to think that they would reach a different result today.

Connecticut’s history of treating arbitral proceedings as distinct from “actions” is broadly consistent with case law in other jurisdictions. For example, in the oft-cited Son Shipping v. Defosse & Tanhe, the Second Circuit held that the one-year limitations period to commence a “suit” under the Carriage of Goods by Sea Act did not apply because the claimant’s arbitration was not a “suit” (see 199 F.2d 687, 689 (2d Cir. 1952): “It is true that the demand was not made within the one-year limitation upon suits contained in [COGSA], but there is, nevertheless, no time bar because arbitration is not within the term ‘suit’ as used in that statute. Instead, it is the performance of a contract providing for the resolution of controversy without suit”).

Similarly, in the context of UCC Article 2, which provides that any “action” for breach of contract is subject to a four-year limitations period, the commentators had this to say: “An arbitration proceeding is not subject to U.C.C. §2-725 as U.C.C. §2-725 applies only to an ‘action,’ which, by definition, is a judicial proceeding, while arbitration is a proceeding out of court or a nonjudicial proceeding” (see 4B Anderson on the Uniform Commercial Code §2-725:38 (3d ed. 2016), citing Cameron v. Griffith, 91 N.C. App. 164, 165, 1988). Against this backdrop, and given the existence of Connecticut statutes expressly applying to both actions and arbitrations, there is no reason to believe that a Connecticut court would depart from the settled practice of treating arbitral proceedings as distinct from “actions” for purposes of statutory construction. Any change to the law in this area would therefore need to come from the Legislature.

Additional Considerations An additional reason that Connecticut’s statutes of limitation may not apply in arbitration is that statutes of limitation are generally considered part of our state’s procedural law (see, e.g., Baxter v. Strum, Ruger & Co., 230 Conn. 335, 339-40, 347 (1994), holding that statutes of limitation are procedural where the right on which the action is based existed at common law). Since arbitral proceedings are not governed by Connecticut’s rules of procedure, but rather by the rules that the parties select, procedural statutes of limitation are inapplicable (see Dayco, 192 Conn. at 503, noting that the rules of the American Arbitration Association applied pursuant to the parties’ agreement, and that the very purpose of arbitral proceedings is to “avoid the formalities, the delay, the expense and vexation of ordinary litigation”).

Where the parties’ contract includes a choice-of-law clause, it is deemed to incorporate only the substantive law of the chosen jurisdiction (see, e.g., Conn. Gen. Stat. §50a-128: “Any designation of the law … shall be construed … as directly referring to the substantive law of that country, or political subdivision thereof”). Accordingly, the presence of a choice-of-law clause selecting Connecticut law will not—as a general rule—incorporate Connecticut’s statutes of limitation.

But where the relevant statute of limitations is considered substantive under Baxter, there is a powerful argument that it has indeed been incorporated into the parties’ contract. At that stage the challenge is deciding what to do about a substantive limitations period that is incorporated by reference, but which may still apply only to “actions.” There are arguments to be made on both sides, and little definitive guidance on how the issue should be resolved.

For Transactional Attorneys: Containment Strategies and Potential Pitfalls The problem is therefore clear. Connecticut’s statutes of limitation are not applicable by default, and a Connecticut choice-of-law clause will not ordinarily be enough to incorporate them by reference. Without any applicable statute of limitations, claims that were assumed to have expired long ago may be asserted. The same concerns which underlie statutes of limitation are implicated here: the potential lack of available evidence and witnesses, and the parties’ need for finality. It also presents serious challenges for insurers and risk managers, who rely on the certainty that statutes of limitation traditionally afford.

The simplest solution is clear: careful draftsmanship. Parties can—and should—set specific limitations periods for bringing claims under any contract that contains an arbitration clause. The instinct to simply incorporate the statutes by reference should be resisted, because that may not be enough. As noted above, by their terms Connecticut’s statutes of limitation generally apply only to “actions.” Could an arbitrator conclude that the statutes—even though incorporated by reference into the parties’ arbitration agreement—still don’t apply because an arbitration is not an “action” (i.e., that the parties incorporated statutes that are simply inapplicable)? That is not a question that should be left to chance. Specific limitations periods and/or sunset provisions are strongly recommended.

For Litigators: Dealing With Stale Claims in Arbitration The inapplicability of Connecticut’s statutes of limitation in arbitral proceedings does not mean that arbitrations are a free-for-all for stale claims. There remain a number of tools available to defense counsel facing claims that would otherwise be time-barred. In Son Shipping, for example, the Second Circuit indicated that where a specific limitations period is inapplicable, the demand for arbitration must still be made within a reasonable time (199 F.2d at 689: “[U]nless they see fit to condition their agreement by an express time limitation, a demand within a reasonable time, as here, is not barred”).

It is therefore possible to defend against an otherwise time-barred claim using such equitable principles as laches. And because arbitration is fundamentally contractual in nature, the full panoply of contract-based defenses to stale claims (e.g., waiver, estoppel, account stated, etc.) are available to defense counsel.

Litigation concerning the applicability of Connecticut’s statutes of limitation is therefore just the starting point. Even if the statutory periods do not expressly apply for the reasons discussed above, there are no shortage of arguments to be raised for dismissal of a claim that would otherwise be time-barred in a Connecticut court.