E-Alert Case Updates

Maryland Court of Appeals Affirms that Non-Binding Arbitration Provisions Will Not Toll the Relevant Statute of Limitations

Kumar v. Dhanda
Court of Appeals of Maryland, No. 47 (Md.) (May 2, 2012)
by Wayne Heavener, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

In Kumar v. Dhanda, Judge Green of the Maryland Court of Appeals held that a non-binding arbitration clause will not toll the relevant cause of action’s statute of limitations. The Court rejected Dr. Shailendra Kumar’s (“Petitioner’s”) argument that the three-year statute of limitations for his breach of contract claims against Dr. Anand M. Dhanda (“Respondent”) did not begin to “accrue” until after the completion of mandatory arbitration. See MD. CODE ANN., CTS. & JUD. PROC. § 5-101. Rather, the Court affirmed the Circuit Court for Montgomery County’s decision to dismiss the action because arbitration did not serve to toll the statute of limitations on Petitioner’s claims, despite being a contractual condition precedent to litigation.

Petitioner’s claims against Respondent stemmed from a single employment agreement (“the contract”). Both parties entered into the contract on August 29, 2001, in which Respondent agreed to work as a doctor in Petitioner’s urology practice through August 31, 2002. Additionally, the contract provided a non-compete clause prohibiting Respondent from practicing near Petitioner or accepting Petitioner’s patients until August 2005. The contract also included a mandatory, non-binding arbitration clause.

When the contract terminated on August 31, 2002, neither party sought to renew the contract. Shortly thereafter, Respondent filed suit against Petitioner for breach of contract. On February 26, 2003, Petitioner filed a Motion to Compel arbitration, which was granted on April 24, 2003. For two (2) years the parties took no action against each other, until Petitioner filed in the Circuit Court for Baltimore City to compel arbitration and appoint an arbitrator. Petitioner included substantive claims for breach of contract and breach of the non-compete provision, but agreed to withdraw the substantive claims if the Court compelled arbitration. The Circuit Court simply dismissed the claims and refused to compel arbitration.

On August 20, 2006, the Circuit Court for Baltimore City granted Petitioner’s previous petition to compel arbitration. After the arbitrator denied any relief to Petitioner, he waited almost one year—until March 16, 2009—to bring an action for breach of contract that occurred between 2002 and 2005. The Circuit Court for Montgomery County dismissed Petitioner’s action as barred by the three-year general statute of limitations. CTS. & JUD. PROC. § 5-101. The Court of Special Appeals affirmed the Circuit Court’s decision. Kumar v. Dhanda, 198 Md.App. 337, 17 A.3d 744 (2011).

Petitioner argued that the three-year statute of limitations did not begin to accrue until the arbitration award was issued on June 20, 2008. Therefore, Petitioner argued, he had until June 20, 2011 to file his action. Respondent countered that the statute of limitations began to accrue at the time of the alleged breaches. Under Respondent’s reasoning, the latest possible date for accrual was the contract’s termination date, August 31, 2005. Therefore, Respondent argued, Petitioner’s action was barred when he filed on March 16, 2009, more than three years after August 31, 2005.

In his opinion, Judge Green agreed with Respondent that Petitioner’s claims were barred by the statute of limitations. Affirming the Court of Special Appeals’ decision, the Court of Appeals found that mandatory, non-binding arbitration did not toll the statute of limitations, despite being a contractual condition precedent to litigation. Particularly important to the Court was the fact that Petitioner was not precluded by the contract’s language from filing an action and seeking a stay pending arbitration. Judge Green observed that the Maryland Uniform Arbitration Act specifically allows for stays of court proceedings pending arbitration. MD. CODE ANN., CTS. & JUD. PROC. § 3-209. The Court also emphasized that while arbitration may not toll the statute of limitations, mandatory arbitration provisions must, nevertheless, be enforced as a term agreed upon by the parties.

In applying the statute of limitations to the facts at hand, the Court found that Petitioner’s cause of action accrued more than three years prior to filing. In addition, the Court found no applicable exception that would toll the statute of limitations in this case. Judge Green interpreted this statutory silence regarding a relevant exception as indicative of the Legislature’s intent not to toll statutes of limitations for arbitration. Therefore, Petitioner’s claims were dismissed, and his argument was rejected as contrary to legislative intent.