Maryland Court Unanimously Holds That Statute Of Limitations Does Not Preclude Arbitration Claim For Breach Of Contract

In Park Plus, Inc. v. Palisades of Towson, LLC, the Maryland Court of Appeals held that the three year statutory period for suing for breach of contract did not bar the assertion of the contract claim in an arbitration proceeding contemplated by the parties’ agreement. As the court explained,

“Statutes of limitations have historically been considered procedural, not substantive defenses, and are generally understood to extinguish the remedy for enforcing a right, not the right itself… So, if Park Plus and Palisades had not included the arbitration provision in the contract, then Palisades could have filed a complaint seeking monetary damages in the circuit court instead of a petition to compel arbitration. In that scenario, the statute of limitations could have extinguished the remedy of a circuit court action, resulting in its dismissal.

“But because the parties did include an arbitration provision and given the limited nature of our role, the only substantive right we are concerned with here is the contractual right to arbitrate, not Palisades’ contractual right to a functioning parking system. Based on our traditional understanding of statutes of limitations, the expiration of the statute of limitations did not extinguish Palisades’ right to arbitrate.“

The court further held that compelling arbitration was consistent with the parties agreement:

When Park Plus and Palisades executed the contract with a binding arbitration clause, they agreed to the limitations imposed by Maryland law on the nature and scope of the court’s involvement over arbitrable disputes. As discussed above, when faced with a petition to compel arbitration, the court’s only function is to decide whether an agreement to arbitrate the dispute exists, and, if so, to enforce it with an order compelling arbitration. Also, [the statute of limitations] applies only to civil actions at law, therefore it does not apply to petitions to compel arbitration. Thus, our holding honors the parties’ agreement and applies Maryland law precisely as the General Assembly intended.