Alternative Dispute Resolution

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arbitrationIt is no secret that arbitration has become a common alternative to traditional courtroom litigation.  Arbitration clauses are widely employed in domestic and international commercial contracts.  With the advent of the global economy, contracting parties from different countries often rely on arbitration clauses to select a neutral forum and venue for resolving contract disputes.  And, in both the domestic and international context, contracting parties often favor arbitration because they believe it is a more rational process than a jury trial, while also being faster and less expensive than traditional litigation.  (Speed and cost are usually dependent on the particular rules of the arbitration and the nature of the dispute, however.  These are issues which should be discussed with an attorney prior to agreeing to an arbitration provision.)  Arbitration clauses can also be found in all sorts of consumer contracts, from cell phone agreements to the back of ballpark and movie theater admission tickets.

The popularity of arbitration is buoyed by the fact that the United States and most states have enacted legislation encouraging arbitration on public policy grounds and providing for the recognition and enforcement of arbitral awards.  For example, the Federal Arbitration Act, codified as 9 U.S.C. § 1 (available here or here), was enacted in 1925.  The current version of Florida’s arbitration statute, the Revised Florida Arbitration Code, codified as § 682.01, Fla. Stat., et seq., was enacted in 2013 (available here).

But, at its heart, arbitration is a consensual, contractual procedure.  A party cannot be forced to arbitrate unless it has consented to arbitration.  Unsurprisingly, in many disputes there is an initial dispute over whether the parties have in fact agreed to arbitration.  Often, the plaintiff will file a lawsuit in court seeking a jury trial, and then the defendant will file a motion to compel arbitration, asserting the existence of an arbitration agreement.  Thus, a body of law has grown around the threshold question of “arbitrability,” which is the term used to describe the analysis of whether or not a particular dispute is subject to arbitration.  (The Supreme Court undertook such an analysis of applicable federal law in the case of Rent-a-Center v. Jackson, 130 S.Ct. 2772, 2775 (2010), holding that under the Federal Arbitration Act, courts usually determine the threshold question unless the parties have agreed to refer the threshold question to the arbitrator).

Florida Rules For Arbitrability In Arrasola v. MGP Motor Holdings, LLC

Recently, in the case of Arrasola v. MGP Motor Holdings, LLC, Case No. 3D15-381 (3d DCA August 5, 2015), Florida’s Third District Court of Appeal addressed the issue of who decides threshold questions of arbitrability—the court or the arbitrator—under Florida’s Revised Arbitration Code.  The case involved a dispute centering around the sale of an automobile.  The underlying facts of the disputed transaction are not germane to a discussion of the arbitrability analysis, but the case generally involved tort and statutory claims brought by the purchasers against the auto dealer.  The purchase order for the vehicle had an arbitration clause which provided that any dispute would be referred to arbitration, including any dispute about as to “the validity of this [arbitration] provision.”  The purchasers filed their lawsuit in state court and the auto dealer filed a motion to compel arbitration, which was granted.  The purchasers appealed the trial court’s order granting the motion to compel, contending that the purchase order was invalid for a variety of reasons and thus the arbitration provision was not applicable.

The appellate court boiled down the issue to a question of arbitrability, stating that, “The issue … is not whether the Arrasolas may litigate, rather than arbitrate, their substantive claims against [the auto dealer].  The issue is whether there was an agreement to arbitrate the threshold determination of contract enforceability, termination, abandonment, rescission, or unconscionability.”  The appellate court applied the “gatekeeper” provision of Section 682.02 of the Revised Florida Arbitration Code (§ 682.02, Fla. Stat., available here).  Section 682.02 provides that “the court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate,” but “an arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled and whether a contract containing a valid agreement to arbitrate is enforceable.”  This seemingly confusing language relates specifically to the question of arbitrability.

In its review, the appellate court first noted that the trial court correctly determined that the arbitration clause was enforceable because there was no evidence of unconscionability with respect to the arbitration clause (notwithstanding any questions regarding the contract as a whole) and it was undisputed that the parties signed the purchase order.  Then, the appellate court noted the important difference between a challenge to the entire contract versus a challenge to just the arbitration provision included within the contract.  The appellate court pointed to Section 682.02 and the Supreme Court decision of Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444-45 (2006) (which had reversed an earlier decision of the Florida Supreme Court), both of which provide that challenges to the entire contract are questions for the arbitrator, whereas challenges to just the arbitration provision are for the court.  The appellate court agreed with the trial court that the Arrasolas’ additional arguments that the entire contract had been terminated or abandoned should be decided by the arbitrator, and confirmed the trial court’s order compelling arbitration.

The Process May Not Be Intuitive, But It Is Mandated By Law

 The result in Arrasola may seem illogical, in that the trial court was allowed to adjudicate the validity of the arbitration clause, but could not adjudicate the greater question of whether the entire contract (which contained the arbitration clause) was enforceable.  On a purely intuitive level, one would think that a successful challenge to the entire contract would void all the provisions of the contract, including the arbitration clause.  But, there is a legal reason, if not a common sense one, for this difference in who may adjudicate the challenges.  This dichotomy is mandated by the language of the Federal Arbitration Act, which was specifically intended to “overcome judicial resistance to arbitration” and “embod[y] the national policy favoring arbitration.”  (Buckeye Check Cashing, at pp. 443.)  Under the Federal Arbitration Act, “as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.”  (Id., at p. 445.)  This means that, under the law, a contract can be found unenforceable as a whole, but the arbitration clause in the contract will still be enforced so long as the arbitration clause by itself was not the specific result of some sort of improper conduct.  (When might an arbitration provision be subject to challenge, separate from the entire contract, you ask?  Good question.  Examples might include situations in which the arbitration clause was slipped into the final version of an agreement without the other side knowing about it, or the arbitration provision was altered after the agreement was signed, or the provision was buried in fine print or disguised within the agreement so that the party was unaware that the contract contained an arbitration clause.)

Takeaways

The appellate court’s decision in Arrasola is important because it illustrates how courts should apply the new “gatekeeper” language of Section 682.02 of the Revised Florida Arbitration Code, which in turn should make the results of arbitration challenges more predictable.  In particular, Florida law now follows the same analysis as federal law under the Federal Arbitration Act, so challenges to just the arbitration provision will be decided by a trial court, whereas challenges to the validity of the entire contract are referred to the arbitrator.  When considering a contract, or whether to bring a lawsuit or initiate an arbitration to resolve a contract dispute, it is important to consult with an attorney to consider how the arbitration clause, and the contract as a whole, will be reviewed and enforced by the courts or the arbitrator.

Eric A. Bevan is an attorney with the law firm of Fox Rothschild LLP and a member of the firm’s Litigation, Financial Services Industry and Construction practice groups.  He represents clients in the resolution and litigation of complex commercial disputes, including federal and state court litigation as well as alternative dispute resolution methods such as private arbitration and mediation.  You can contact Eric at 561-804-4470 or ebevan@foxrothschild.com.

Enforcing a contractual arbitration provision can often be difficult.  There are many opportunities for a party to seek to be excused from complying with an agreement to arbitrate.  In the case of LTCSP-St. Petersburg, LLC, et al. v. Johnnie Earl Robinson (Fla. 2nd DCA Case No. 2D11-3473), Florida’s Second District Court of Appeal addressed a dispute in which the parties were ultimately required to arbitrate claims asserted under the parties’ initial agreement, but not claims asserted under the parties’ subsequent agreements.

This case stems from a wrongful death action against a nursing home.  The decedent’s estate alleged claims of negligence in connection with the decedent’s repeated visits to the nursing home.  Utilizing a valid Power of Attorney, the decedent’s husband signed various forms, including an arbitration agreement, in connection with the decedent’s initial admission to the nursing home.  Her initial stay at the nursing home ended and the decedent was discharged.

The decedent was subsequently re-admitted to the same nursing home several times.  Each time that she was re-admitted to the nursing home, the decedent signed readmission papers that contained the following provision:

THIS AGREEMENT MUST BE SIGNED BY ALL THE SAME PERSON/S WHO SIGNED THE ORIGINAL ADMISSION AGREEMENT, OR A NEW ADMISSION AGREEMENT MUST BE SIGNED.

In spite of this language, the nursing home did not require the decedent’s husband to sign the re-admission forms and did not require the decedent to sign a new admission agreement.  At the trial court level, the nursing home sought to compel arbitration of the dispute.  The trial court denied the nursing home’s request, apparently finding that the arbitration agreement was substantively unconscionable and, therefore, unenforceable.

The appellate court initiated its analysis by finding that the arbitration agreement was not, in fact, unconscionable.  Then, finding that the agreements at issue should not be construed in favor of their drafter (the nursing home), the Second DCA determined that the parties were required to arbitrate any claims for negligence that allegedly occurred during the initial admission, but not any claims for negligence that allegedly occurred during any of the subsequent admissions.  It was unclear from the Complaint whether the negligence allegedly occurred during the initial admission or during the subsequent readmissions.  However, the parties were left with the following possibilities:

  • If all of the alleged negligence occurred during the first admission, all claims would be subject to arbitration
  • If all of the alleged negligence occurred during subsequent readmissions, all claims could be litigated in court
  • If the negligence allegedly occurred during the first admission and during subsequent readmissions, some claims would be subject to arbitration and others could be litigated in court

Suffice it to say, if you’re going to go through the trouble of having an arbitration provision, make sure that it is enforceable.  The lessons from the LTCSP-St. Petersburg case in this regard are: (1) if you are executing multiple agreements with the same parties and you are going to want to require arbitration of disputes, make sure that each agreement has an arbitration provision; and (2) make sure that all of your agreements are signed by the party against whom you will ultimately want to enforce them.

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David Greene is a partner with the law firm of Fox Rothschild LLP. David represents clients in a variety of commercial litigation matters in State and Federal Courts throughout Florida.  David can be contacted at (561) 804-4441 or dgreene@foxrothschild.com.

We all know how difficult it is to vacate an arbitrator’s award.  The Florida Supreme Court has held that “the standard of judicial review of statutory arbitration awards is extremely limited.” Schnurmacher Holdings, Inc. v. Noriega, 542 So.2d 1327, 1330 (Fla. 1989); see also Boyhan v. Maguire, 693 So.2d 659, 662 (Fla. 4th DCA 1997).  In fact, an arbitration award cannot even be “reversed on the ground that the arbitrator made an error of law.” Schnurmacher Holdings, 542 So.2d at 1330 (citing Cassara v. Wofford, 55 So.2d 102, 105 (Fla. 1951)).

However, the Second District Court of Appeal recently identified a basis for vacating an arbitration award in the case of Quesada v. City of Tampa, 37 FLW D1614 (Fla. 2d DCA Jul. 6, 2012).  Travis Quesada was an employee of Tampa Fire Rescue who was fired after a he tested positive for “suspicious levels of the metabolite 19-norandrosterone,” which suggested that he had taken the anabolic steroid Nandrolone.  Mr. Quesada argued that he had not taken any illegal steroids and that the positive test results were caused by his use of “the legal, over-the-counter supplement 17-Halo-Methyl-Duanadrone” (“17-HD”).  Pursuant to a collective bargaining agreement, Mr. Quesada’s grievance was submitted to arbitration, at which time both sides presented expert testimony about whether “legal supplements such as 17-HD could produce a false positive result on a test for steroids.”  The arbitrator ultimately entered an award in favor the employer, which discussed the findings from her independent research about 17-HD, including information from the internet that “17-HD is just a bunch of herbs with a name that tries to sound like a prohormone or even a potent steroid.”  The trial court denied Mr. Quesada’s request to vacate the arbitration award based upon the fact that the arbitrator had conducted independent research.

On appeal, the Second District Court of Appeal identified the five statutory bases for vacating an arbitration award, as set forth in Fla. Stat. §682.13(1).  The Court determined that the arbitrator’s independent research constituted misconduct that resulted in prejudice to Mr. Quesada.  Based upon that finding of misconduct by the arbitrator, the Court reversed the trial court’s order and vacated the arbitration award.

Florida courts have traditionally been reluctant to vacate an arbitration award and practitioners have often met with limited success in their efforts to overturn arbitration awards.  Accordingly, it is interesting to see the Second District Court of Appeal finding a way to shoehorn an arbitrator’s independent research into one of the statutory categories that allow an arbitration award to be vacated.