arbitration

A Party may Not Expand the Scope of Judicial Review of an Arbitration Clause

Posted by David Adelstein on October 14, 2018
Trial Perspectives / Comments Off on A Party may Not Expand the Scope of Judicial Review of an Arbitration Clause

Arbitration is a creature of contract.  This means if you are going to arbitrate a dispute, as opposed to litigating a dispute, there must be an agreement to arbitrate.  However, whether a dispute should be arbitrated pursuant to the terms of the contract is an area that has been heavily litigated for a couple of reasons: 1) a party does not want to arbitrate the dispute and, therefore, files a lawsuit versus a demand for arbitration and 2) an opposing party that has been sued wants to enforce an arbitration provision in a contract.  As a result, an order granting or denying arbitration is an appealable non-final order

In a recent construction dispute between a general contractor and its millwork subcontractor, National Millwork, Inc. v. ANF Group, Inc., 43 Fla.L.Weekly D2207a (Fla. 4th DCA 2018), the subcontractor filed a lawsuit against the general contractor and the general contractor’s payment bond.  The general contractor moved to stay the litigation and compel arbitration pursuant to the arbitration provision in the subcontract.  The subcontractor argued that the arbitration provision was unenforceable, and, therefore, void, because it expanded the scope of judicial review after an arbitrator renders an arbitration award contrary to the Revised Florida Arbitration Code in Florida Statutes Chapter 682 (and, specifically, Florida Statute s. 682.014). 

The arbitration clause in the subcontract empowered the court to address on judicial review any failure by the arbitrator to properly apply the law and if the court or arbitrator failed to properly apply the law then this was subject to appellate review. 

This clause was creating an appellate basis to challenge an arbitration award based on a party’s position that the arbitrator did not correctly apply the law.  However, challenging an arbitrator’s award is very limited to discrete statutory circumstances and a party’s position that the arbitrator did not correctly apply the law is not one of them.   For this reason, the millwork subcontractor claimed the arbitration provision is void against public policy because it expanded the statutory circumstances to challenge an arbitration award set forth in the Revised Florida Arbitration Code.  The appellate court agreed: “A party may not expand the scope of judicial review of an arbitration agreement.”  National Millwork Inc., supra

The contract had a severability clause, an important clause in contracts.  Based on the severability clause, the appellate court remanded the issue back to the trial court to determine whether the unenforceable language in the arbitration clause that expanded judicial review of an arbitrator’s award could be severed from the clause such that the parties are still required to arbitrate without the expanded judicial review.   In other words, the appellate court wanted the trial court to determine whether severing the unenforceable language would still retain the essence of the arbitration clause or whether the entire clause was unenforceable because the offending language was integral to the agreement to arbitrate.  See National Millwork, Inc. supra, citing Obolensky v. Chatsworth at Wellington Green, LLC, 240 So.3d 6 (Fla. 4th DCA 2018).

It would seem that the offending language expanding the scope of judicial review of an arbitration award could be, and should be, severed.  This is the value and point of a severability clause in a contract.  It is uncertain why the appellate court did not make this ruling instead of remanding the matter back to the trial court which could lead to a further appeal.  Severing the offensive language still requires the parties to arbitrate, which is the basis of the arbitration clause, but without the appellate recourse / judicial review of a party challenging the arbitrator’s award based on an incorrect application of law. 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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Equitable Estoppel Circumstances to Allow Non-Signatory to Compel Arbitration

Posted by David Adelstein on June 23, 2018
Appeal, Trial Perspectives / Comments Off on Equitable Estoppel Circumstances to Allow Non-Signatory to Compel Arbitration

Arbitration is a creature of contract, meaning if you want your disputes to be resolved by arbitration through an arbitrator (as opposed to litigation with a judge and/or jury), you need to include an arbitration provision in your contract.   A trial court granting or denying a party’s motion to compel arbitration is a non-final order that is immediately appealableSee Fla.R.App.P. 9.130(a)(3)(C)(iv).

There are times that a non-signatory to a contract with an arbitration provision wants to compel arbitration.  For example, a signatory to a contract (with an arbitration provision) files suit against a non-party and the non-party moves to compel arbitration based on the contract.  A dispute arises because the non-party is not a party to that contract, and thus, it needs a legal basis to compel arbitration under that contract.  That legal basis to allow a non-party to a contract to compel arbitration against a signatory to the contract is equitable estoppel: 

Courts have recognized that this [compelling arbitration] can be appropriate (1) when the signatory’s claims [against the non-party to the contract] allege “substantially interdependent and concerted misconduct” by the signatory and the non-signatory or (2) when the claims relate directly to the contract and the signatory is relying on the contract to assert its claims against the non-signatory

Beck Auto Sales, Inc. v. Asbury Jax Ford, LLC, 43 Fla.L.Weekly D1380a (Fla. 1st DCA 2018).

However, “even when a non-signatory can rely on equitable estoppel ‘to access [the arbitration] clause,’ the non-signatory can compel arbitration only if the dispute at issue ‘falls within the scope of the arbitration clause.’”  Beck Auto Sales, Inc., supra (citation omitted).  Even if one of the above equitable estoppel circumstances apply, the non-signatory still will not be able to compel arbitration if the scope of its dispute falls outside of the arbitration provision.

An example of the first circumstance was raised in Beck Auto Sales where a car dealership sued its former employee and the former employee’s new dealership/employer for a number of theories relating to their concerted effort to prevent the car dealership from winning a contract with a public entity. 

The former employee had an employment agreement with the car dealership that included an arbitration provision.  The trial court granted arbitration between the car dealership and former employee.  The new employer/dealership, a non-signatory to the employment contract, moved to compel the car dealership’s claims against it to arbitration under the employment contract.  It argued that the car dealership’s claims against it and the former employee (a signatory to the contract) allege substantially interdependent and concerted misconduct by the former employee (signatory) and it (non-signatory). The problem for the new dealership/employer, however, was that the arbitration provision in the employment contract was limited to disputes between the parties to the arbitration agreement.  The scope of the arbitration provision would not cover disputes involving the new dealership/employer; hence, it was unable to take advantage of an equitable estoppel argument to compel arbitration as a non-signatory to the employment contract.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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Arbitration is an Appealable Non-Final Order

Posted by David Adelstein on October 14, 2017
Standard of Review, Trial Perspectives / Comments Off on Arbitration is an Appealable Non-Final Order

Arbitration is a creature of contract. If a contract requires arbitration that means the parties are required to arbitrate their disputes as opposed to litigate their disputes. Instead of their being a judge or jury, there will be an arbitrator.

There are three considerations when determining whether a dispute is subject to arbitration:

1) Is there a valid written agreement to arbitrate (such as an arbitration provision in a contract)?

2) Is there an arbitrable issue? And

3) Has the right to arbitrate the issue or dispute been waived?

Chaikin v. Parker Waichman LLP, 42 Fla. L. Weekly D2165b (Fla. 2d DCA 2017) quoting Jackson v. Shakespeare Found., Inc., 108 So.3d 587, 593 (Fla. 2013).

Entitlement to arbitration, and the granting or denying a party’s motion to compel arbitration, is a non-final order that is appealable. Fla. R. App. P. 9.130(a) (3)(C)(iv).  Typically, when a party moves to compel arbitration and that motion is granted or denied, there is an appeal of this non-final order.

An order granting or denying a motion to compel arbitration is reviewed on appeal with a de novo standard of review. Chaikin, supra, quoting Roth v. Cohen, 941 So.2d 496, 499 (Fla. 3d DCA 2006). Whether a party has waived the right to arbitrate “‘is a question of fact, reviewed on appeal for competent, substantial evidence to support the lower court’s findings.’” Chaikin, supra, quoting Green Tree Servicing, LLC v. McLeod, 15 So.3d 682, 686 (Fla. 2d DCA 2009).

For example, in Chaikin (the facts discussed in more detail here), the appellate court reversed the trial court and held that a party waived its right to compel arbitration of a counterclaim by virtue of the party initiating the lawsuit to begin with. By the party filing the lawsuit, they voluntarily relinquished the right to compel the counterclaim – based on the same facts as the complaint — to arbitration.  As the appellate court held, what is sauce for the goose is sauce for the gander — a party cannot compel a counterclaim to arbitration when the same party filed a lawsuit.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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Significant Relationship between Claim and Agreement to Arbitrate

Posted by David Adelstein on March 25, 2017
Trial Perspectives / Comments Off on Significant Relationship between Claim and Agreement to Arbitrate

Just because you have an agreement to arbitrate does not necessarily mean that every conceivable claim, including those unrelated to the agreement, are subject to arbitration.   For instance, if there are separate agreements—one with an arbitration clause and another without—does not mean that a claim related to the agreement without an arbitration clause will be subject to arbitration per the separate agreement.   There needs to be a “significant relationship” between the agreement containing the arbitration provision and the claim, as best explained as follows:

[T]he mere coincidence that the parties in dispute have a contractual relationship will ordinarily not be enough to mandate arbitration of the dispute.” Rather, “there must exist a significant relationship between the claim and the agreement containing the arbitration clause.” The Florida Supreme Court has expanded upon the definition of “significant relationship” as follows:

A “significant relationship” between a claim and an arbitration provision does not necessarily exist merely because the parties in the dispute have a contractual relationship. Rather, a significant relationship is described to exist between an arbitration provision and a claim if there is a “contractual nexus” between the claim and the contract. A contractual nexus exists between a claim and a contract if the claim presents circumstances in which the resolution of the disputed issue requires either reference to, or construction of, a portion of the contract. More specifically, a claim has a nexus to a contract and arises from the terms of the contract if it emanates from an inimitable duty created by the parties’ unique contractual relationship. In contrast, a claim does not have a nexus to a contract if it pertains to the breach of a duty otherwise imposed by law or in recognition of public policy, such as a duty under the general common law owed not only to the contracting parties but also to third parties and the public.

Timber Pines Plaza, LLC v. Zabrzyski, 42 Fla. L. Weekly D587a (Fla. 5th DCA 2017 (internal citations omitted).

An example of this can be found in the Time Pines Plaza case.   Here, an owner of a shopping outlet mall contracted to sell outparcels of land to a buyer.  The contract for sale contained an arbitration provision.   Thereafter, and prior to closing, the owner issued amended deed restrictions on one of the outparcels that required plans for future construction to be submitted to the owner for pre-approval. The buyer signed an acknowledgment of its receipt of the amended deed restrictions. (There was no arbitration clause in this deed restrictions.)

After closing, the owner sued the buyer arguing that the buyer commenced construction without obtaining plan approval as required by the amended deed restrictions.   The buyer counter-sued with a claim asserting that owner breached the contract for sale.   The owner moved to compel this counterclaim to arbitration based on the arbitration provision in that contract.

The issue was whether the owner’s original claim relating to a breach of the amended deed restrictions had a significant relationship to the contract for sale such that it should have been subject to arbitration. If it should have been, there was an argument that the owner waived the right to arbitrate by initiating the lawsuit.

The court found that no significant relationship existed between the contract for sale and the amended deed restrictions. There was no contractual nexus with the argument that the buyer commenced construction without seeking approval and the contract for sale. The contract for sale contained no obligation regarding commencing construction before obtaining prior approval; this issue was only contained in the amended deed restrictions. “Of course, the instant dispute would not exist had the parties not contracted for the purchase and sale of the North Outparcel, but ‘the mere fact that the dispute would not have arisen but for the existence of the contract and consequent relationship between the parties is insufficient by itself to transform a dispute into one ‘arising out of or relating to’ the agreement.’” Timber Pines Plaza, supra (citation omitted).

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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De Novo Standard of Appellate Review for Construction of Arbitration Provision

Posted by David Adelstein on February 10, 2016
Standard of Review / Comments Off on De Novo Standard of Appellate Review for Construction of Arbitration Provision

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Your contract contains an arbitration provision meaning you are required to arbitrate your dispute instead of litigate your dispute (in court).  Nonetheless, your opponent files a lawsuit against you and you move to compel the dispute to arbitration pursuant to the arbitration provision in your contract.  But, the trial court denies your motion to compel arbitration based on its interpretation of the arbitration provision. So, what do you do? You file an interlocutory appeal to appeal this ruling since you want to arbitrate your dispute.  The appellate standard of review for the construction (interpretation) of an arbitration provision is de novo.  See MuniCommerce, LLC v. Navidor, Ltd., 41 Fla. L. Weekly D317b (Fla. 4th DCA 2016) (reversing trial court’s order compelling arbitration based on its construction of arbitration provision).  

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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Arbitration and the Lax Rules of Evidence

Posted by David Adelstein on October 02, 2015
Evidence / Comments Off on Arbitration and the Lax Rules of Evidence

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I’m sure you have heard of arbitration.  Arbitration is a method of dispute resolution.  If parties want to arbitrate their dispute as opposed to litigate their dispute in court, they need to include an arbitration provision in their contract.  This is because arbitration is a creature of contract and you cannot be compelled to arbitrate a dispute that you did not contractually agree to arbitrate as the method of dispute resolution.  (If you are arbitrating your dispute, then you are not litigating your dispute in court.)

In arbitration, the rules of evidence are lax.  For example, Rules 35 and 36 of the Construction Industry Arbitration Rules promulgated by the American Arbitration Association state in relevant portion:

R-35. Evidence

(a)  The parties may offer such evidence as is relevant and material to the dispute and shall produce such evidence as the arbitrator may deem necessary to an understanding and determination of the dispute. Conformity to legal rules of evidence shall not be necessary.

(b)  The arbitrator shall determine the admissibility, relevance, and materiality of the evidence offered. The arbitrator may request offers of proof and may reject evidence deemed by the arbitrator to be cumulative, unreliable, unnecessary, or of slight value compared to the time and expense involved. All evidence shall be taken in the presence of all of the arbitrators and all of the parties, except where: 1) any of the parties is absent, in default, or has waived the right to be present, or 2) the parties and the arbitrators agree otherwise.

(c)  The arbitrator shall take into account applicable principles of legal privilege, such as those involving the confidentiality of communications between a lawyer and client.

R-36. Evidence by Affidavit and Post-Hearing Filing of Documents or Other Evidence

(a)  The arbitrator may receive and consider the evidence of witnesses by declaration or affidavit, and shall give it such weight as the arbitrator deems it entitled to after consideration of any objection made to its admission.

These rules are designed to be much more liberal and flexible than the rules of evidence that govern litigation in court.  These rules give the arbitrator tremendous discretion to weigh the value of the evidence presented and progress the arbitration forward based on his/her understanding of the evidence and issues.  Naturally, with such lax rules of evidence, it is easier to present and admit evidence in arbitration than litigation, especially since arbitration does not require you to conform to the rules of evidence.  Sometimes this is beneficial.  Sometimes it is not.  

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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