severability clause

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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Value of Severability Clause

Posted by David Adelstein on June 16, 2018
Trial Perspectives / Comments Off on Value of Severability Clause

 

 

 

Severability clauses have become fairly commonplace in contracts.  Cut and paste provisions.  However, these clauses can provide tremendous value.  A sample of a severability clause is as follows:

If any provision of this Agreement, the deletion of which would not adversely affect the receipt of any material benefit by or in favor of any party or substantially increase the burden of any party to this Agreement, shall be held to be invalid or unenforceable to any extent, the same shall not affect in any respect whatsoever the validity or enforceability of the remainder of this Agreement.

There are numerous ways to draft this type of clause with the essence being that if anything in the contract is deemed invalid or unenforceable, the balance of the provision and contract shall remain in full force and effect.  Such a provision, regardless of how it is worded, is known as a severability clause. 

An example of the application of the severability clause can be found in Premier Compounding Pharmacy, Inc. v. Larson, 43 Fla. L. Weekly D1340a (Fla. 4th DCA 2018), dealing with a non-compete agreement between a pharmacy and pharmacist. 

The non-compete agreement in the case contained language that the pharmacy (employer) could obtain injunctive relief without posting an injunction bond.  Requiring a temporary injunction to be posted without a bond is contrary to Florida Statute s. 542.335(j) which states in relevant part, “No temporary injunction shall be entered unless the person seeking enforcement of a restrictive covenant gives a proper bond, and the court shall not enforce any contractual provision waiving the requirement of an injunction bond or limiting the amount of such bond.”

Based on this statute, the language in the non-compete agreement that allowed the employer to move for a temporary injunction without posting a bond was not legal. 

Without going into all of the details of the case, the appellate court maintained that the language in the non-compete agreement that allowed the employer to move for a temporary injunction without posting a bond can be eliminated from the provision, with valid legal obligations remaining in the agreement, i.e., the temporary injunction can be  issued while requiring the employer to post a bond pursuant to Florida law.  

Additionally, the provision also allowed the employer to recover attorney’s fees in obtaining the injunctive relief.  The trial court denied the employer’s request for fees (although the injunction was entered) finding the provision unenforceable because of the preceding invalid sentence that allowed the employer to obtain an injunction without posting a bond.  No different than the appellate court eliminating the “without a bond” from the provision, the court held that, “because the extent of unenforceability of the provision goes solely to the ‘no bond’ requirement of the injunction, the remainder of the provision and the agreement is still enforceable, including the attorney’s fees provision.” Premier Compounding Pharmacy, Inc., supra.

Hence, while the provision at-issue was contrary to Florida law, the severability provision provided value in simply eliminating the invalid language and enforcing the remainder of the 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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