In Ruling on Motion to Compel Arbitration, Trial Court Must Determine whether Parties Bound by Arbitration Provision
Arbitration is a creature of contract. This means if you want to arbitrate, instead of litigate, your dispute, you need to include an arbitration provision in your contract. However, this does not mean that parties do not try to avoid arbitration, albeit there being an arbitration provision in the contract, by filing a lawsuit. This leads to parties moving to compel arbitration and, upon the trial court’s ruling, a right to appeal. A party may feel the nature of the dispute will play out better for them in arbitration versus litigation, or there are other important strategic reasons to arbitrate versus litigate the dispute. Therefore, if the opposing party files a lawsuit, the party should immediately move to compel that lawsuit to arbitration pursuant to the arbitration provision in the contract.
“In ruling on a motion to compel arbitration, the trial court must consider three elements: (1) whether a valid written agreement to arbitrate existed; (2) whether an arbitrable issue has been raised; and (3) whether the right to compel arbitration has been waived.” Pestroleous Mexicanos v. Executive MFE Aviation, LLC, 46 Fla.L.Weekly D108a (Fla. 4thDCA 2021).
To illustrate, the case of Pesroleous Mexicanos dealt with an arbitration provision in a purchase agreement involving aircraft. The plaintiff was not a party to the purchase agreement although the defendant contended they are bound by the arbitration agreement because they were a joint venture of the seller of the aircraft or an intended beneficiary of the agreement. The plaintiff argued the purchase agreement terminated once the aircraft was delivered–and it was–and regardless, the monies it is suing for arose from a subsequent oral contract. The plaintiff also argued the defendant waived its right to compel arbitration. The trial court denied the defendant’s motion to compel arbitration. In doing so, the trial court did not make any finding as to whether the plaintiff was even bound by the arbitration provision in the purchase agreement. Instead, the trial court ruled that the purchase agreement terminated—and the arbitration provision did not apply—and the plaintiff’s claims were based on a subsequent oral agreement. The appellate court reversed because the trial court skipped an initial step.
The initial threshold issue is whether the plaintiffs should be bound by the arbitration provision. “If the plaintiffs are bound by the arbitration clauses, and if [the defendant moving to compel arbitration] did not waive its right to compel arbitration, then it is for the arbitrator — not the court — to decide whether the purchase agreements terminated upon delivery of the aircraft or whether the plaintiffs’ claims arose from a subsequent oral agreement rather than the purchase agreements. The question of whether the purchase agreements terminated upon delivery of the aircraft must be arbitrated because it concerns the continued validity of the contract as a whole rather than the validity of the arbitration clause itself. And the question of whether the plaintiffs’ claims arose not from the purchase agreements but from a subsequent oral agreement must also be arbitrated because it is a question of arbitrability, which the parties delegated to the arbitrator under the rules of the American Arbitration Association.
Pesroleous Mexicanos, supra (internal citations omitted).
In other words, if the trial court found the plaintiff was not bound by the arbitration provision to begin with, or that the defendant otherwise waived the right to compel arbitration, then other arguments are moot. On the other hand, if the trial court found that the plaintiff was bound by the arbitration provision and the defendant did not waive its right to compel arbitration, then the plaintiff’s argument that the purchase agreement terminated and the dispute based on a subsequent oral agreement is a question for the arbitrator, NOT the court, to decide.
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