QUICK NOTE: DO YOUR HOMEWORK WHEN IT COMES TO SELECTING YOUR ARBITRATOR

imagesMany construction contracts contain arbitration provisions.  Instead of litigating a dispute arising out of the contract, the parties will arbitrate the dispute per the arbitration provision.  There are advantages to arbitration and certain disputes bode well for arbitration.  The key is you want to make sure you select the RIGHT arbitrator or arbitrators.  Do your homework regarding the arbitrator list presented to you by, say, the American Arbitration Association.  Strike out those on the list that either do not have the requisite experience you need to decide the dispute or you believe they are not going to be impartial.  For instance, if you want an arbitrator that you think will specifically follow the letter of the law or the precise terms of a contract, select those on the list that meet this requirement; strike out others that do not.  The same philosophy would apply if you want an arbitrator to have specific factual knowledge or a factual understanding regarding a driving issue in the dispute.  Do not neglect the homework required to select –or try to select — the arbitrator you believe is the most qualified to understand the issues.

 

Now, why is this important?  It is important because you need to arbitrate a dispute with the understanding that the arbitrator’s award (decision) is FINAL.  There are no appellate rights.  None.  Vacating an arbitrator’s award is very challenging and the bases to vacate an award are limited and, most of the time, will NOT apply.

 

In a recent decision, a party tried to vacate an arbitration award.  One of the arguments was that the arbitration panel failed to follow  Florida law.   Well, guess what?  An arbitrator does not necessarily have to comply with Florida law.  Legal error by an arbitration panel is not a basis to vacate an arbitration award.  See Managed Care Ins. Consultants, Inc. v. United Healthcare Ins. Co., 42 Fla. L. Weekly D1599b (Fla. 4th DCA 2017).

 

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.

ARBITRATION PROVISION IN HOMEBUILDER’S WARRANTY AGREEMENT WITH HOMEOWNERS IS UNENFORCEABLE

shutterstock_17206660Buying a new home from a homebuilder is an exciting time.  How could you not be excited about buying and moving into a new home?   It is a big milestone.  When buying a new home from a homebuilder, it is common that you are provided a limited warranty agreement to sign that outlines your rights if there is a “warranty” claim, the length of the warranty period, what constitutes a valid warranty claim, and includes an arbitration provision requiring you to arbitrate claims arising out of the agreement or home.  It is also common that such limited warranty agreement contains important disclaiming language.  Homeowners should always consider what they sign, but the reality is that most homeowners are going to absolutely sign what the homebuilder wants them to sign (and the homebuilder may even be unwilling to sell a home without certain signatures that offsets their risks).   

 

A recent case, Anderson v. Taylor Morrison of Florida, Inc., 42 Fla. L. Weekly D1232a (Fla. 2d DCA 2017), potentially changes certain business practices of a large homebuilder, and perhaps many homebuilders, when the arbitration provision in its limited warranty agreement was deemed void against public policy.  The homebuilder’s limited warranty agreement is likely a standard form agreement that all of its homeowners sign with identical language.  Thus, this ruling impacts not only the enforceability of the arbitration provision in this case, but of any claim by a homeowner that signed the same limited warranty agreement.  This is certainly not what the homebuilder wanted when it thought it was containing disputes to arbitration and not litigation.

 

In this case, homeowners sued the homebuilder years after completion for a defect in the stucco system of their home.  One of the claims was a statutory violation of building code claim.  The homebuilder moved to compel arbitration pursuant to the limited warranty agreement that contained in material portion:

 

This Dispute Settlement provision sets forth the exclusive remedy for all disputes, claims or controversies arising out of, or in any manner related to, this Warranty or any alleged issues in your home or property. All disputes, claims or controversies which cannot be resolved between TM [the Builder] and you shall be submitted by you, not later than ninety (90) days after the expiration of the applicable warranty period, to the American Arbitration Association (“Arbitrator”) for resolution in accordance with the rules and regulations of the Arbitrator. The final decision of the Arbitrator shall be binding on all parties and shall include final decisions relating to enforcement of the terms and provisions of this Warranty. 

***

BUYER AGREES THAT THIS LIMITED WARRANTY SHALL BE THE EXCLUSIVE REMEDY FOR ANY ISSUES IN DESIGN, MATERIALS OR WORKMANSHIP. BUYER HERBY [sic] ASSUMES THE RISK OF ALL OTHER LOSS RESULTING FROM SUCH ISSUES, INCLUDING ANY CLAIMS FOR PROPERTY DAMAGE OR PERSONAL INJURY, AND WAIVE [sic] ALL OTHER CLAIMS, WHETHER IN CONTRACT, TORT OR OTHERWISE.

 

The trial court compelled arbitration per the limited warranty agreement.  On appeal, however, the Second District Court reversed finding that the arbitration provision was unenforceable against public policy because it prohibited the homeowners from pursing a statutory building code violation claim (i.e., that the stucco system was not installed as required by the governing building code).  See Anderson, supra (“The arbitration provision in the Warranty indicates that all issues related to the Warranty, the home, or the property are to be arbitrated. But read in context with other provisions in the Warranty, particularly the disclaimer provision, it is evident that the alleged building code violations cannot be remedied through arbitration because the claims are not covered by the Warranty and all non-Warranty claims are waived… Simply put, the arbitration provision here effectively limits the Andersons’ [homeowner] remedies to Warranty claims, as defined in the documents, and does not just substantially diminish the Andersons’ statutory remedy for a violation of the building code but totally eliminates it.”). 

 

 

Here, the import of the issue, in my opinion, is not necessarily the arbitration provision, but the capitalized disclaiming language that ultimately operates to disclaim liability for latent defects – or defects not readily observable, particularly at the time of closing.  A latent defect is a defect oftentimes discovered beyond the warranty period.  A warranty period really pertains to the period where the contractor or builder agrees to show back up to the property to address post-punchlist related items.  When this period expires (whether it is a contractual warranty period or statutory warranty period in the case of condominiums) does not mean a homeowner no longer has any recourse.  That recourse is based on whether the defect is a latent defect.    The disclaiming language in the limited warranty agreement limits a homeowner’s remedies for certain latent defects.  When this language is read in conjunction with the arbitration provision, the homeowner is waiving rights for claims unrelated to true warranty claims, such as a statutory building code violation claim, while agreeing to arbitrate “permissible” claims under the limited warranty agreement arising out of the home.   This has the effect of preventing homeowners from arbitrating certain, valid claims.

 

It is uncertain how a trial court or appellate court will treat such disclaiming language other than any dispute arising out of the home needs to be litigated and not arbitrated.

 

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.

QUICK NOTE: AIM TO AVOID A STAY TO YOUR MILLER ACT PAYMENT BOND CLAIM

imagesStrategy is important.  This is especially true if you are trying to avoid arbitration.  In a recent federal district court case, a subcontractor sued the prime contractor and the Miller Act payment bond surety.  The subcontractor, however, had an arbitration provision in its subcontract with the prime contractor.  The prime contractor moved to compel arbitration pursuant to the subcontract and moved to stay the subcontractor’s Miller Act payment bond claim.  The last thing, and I mean the last thing, the subcontractor wanted to do was to stay its claim against the Miller Act payment bond.  However, the district court compelled the subcontractor’s claim against the prime contractor to arbitration and stayed the subcontractor’s Miller Act payment bond claim pending the outcome of the arbitration.  See U.S. v. International Fidelity Ins. Co., 2017 WL 495614 (S.D.Al.  2017).  This is not what the subcontractor wanted. 

 

The outcome of this ruling may have been different if the subcontractor never sued the prime contractor and only sued the Miller Act payment bond surety.  The Miller Act payment bond surety did not move to compel the Miller Act claim to arbitration evidently meaning there was nothing in the subcontract that would support such an argument.  Had only the Miler Act payment bond surety been sued, the subcontractor may have likely been able to proceed with its payment dispute against the surety in federal district court without having to worry about arbitrating the same dispute with the prime contractor. 

 

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.

CAN A NON-SIGNATORY INVOKE AN ARBITRATION PROVISION?

imagesAs you know from prior postings, arbitration is a creature of contract.  Hence, if you want your disputes to be resolved through arbitration, as opposed to litigation, make sure to include an arbitration provision in your agreement that covers all disputes arising out of or relating to the agreement

 

Under certain circumstances, a non-signatory to an agreement wants to invoke an arbitration clause in the agreement.   The non-signatory will move to compel a signatory to the agreement (with an arbitration provision) to arbitrate a dispute with the non-signatory.  Can a non-signatory do this?   Yes, under certain circumstances. 

 

This issue was raised by the Eleventh Circuit Court of Appeal’s ruling in Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc., 845 F.3d 1351 (11th Cir. 2017).   In this case, a defendant moved to compel arbitration based on a licensing agreement it was not a party too.  The Eleventh Circuit explained that Florida’s doctrine of equitable estoppel gives a non-signatory an argument in certain circumstances that it can invoke an arbitration provision in a contract it is not a signatory too:

 

Under that doctrine [of equitable estoppel], a defendant who is a non-signatory to an agreement containing an arbitration clause can force arbitration of a signatory’s claims when “the signatory … must rely on the terms of the written agreement in asserting its claims against the nonsignatory.…” A non-signatory, however, cannot invoke the doctrine to compel arbitration of claims that are not within the scope of the arbitration clause. Equitable estoppel does not allow a nonsignatory to an agreement to alter and expand an arbitration clause that would not otherwise cover the claims asserted.

Kroma Makeup, supra, (internal citations omitted). 

 

This ultimately means the non-signatory must show 1) the signatory is relying on the underlying contract (with the arbitration provision) to assert claims and 2) the scope of the arbitration provision in the contract covers the dispute.  The non-signatory news to show both to compel arbitration.

 

In Kroma Makeup, although the defendant was being sued based on issues relating to the underlying contract, the arbitration provision in the contract stated that “the Parties agree that the disputes arising between them concerning the validity, interpretation, termination or performance” of the Agreement will be arbitrated.”  However, the defendant was not a “party” to the agreement; thus, the scope of the arbitration provision did not cover the dispute at-issue.

 

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.

SUBCONTRACTORS MAY (LIKELY) BE REQUIRED TO STAY THEIR MILLER ACT PAYMENT BOND CLAIMS PENDING THE OUTCOME OF THE CONTRACT DISPUTES ACT RESOLUTION PROCESS

UnknownIf you are a subcontractor on federal construction projects, the opinion by the District Court of Alaska in U.S. f/u/b/o Brice Environmental Services Corp. v. Bhate Environmental Associates, Inc., 2016 WL 544406 (D.Alaska 2016),  provides an interesting or not-so-interesting outlook on subcontractors that participate (perhaps by choice) in the request for equitable adjustment (REA) and Contract Disputes Act dispute resolution process.  (See this article for more on this outlook that creates a conflict between a subcontractor’s Miller Act payment bond rights and a prime contractor’s participation in the Contract Disputes Act dispute resolution process.) 

 

In this matter, a soil remediation subcontractor submitted an REA to the prime contractor for approximately $3 Million associated with the prime contractor’s standby and additional work directives.  The subcontractor claimed that most of the REA was unrelated to issues caused by the owner, but rather, caused by the prime contractor.  The subcontractor and prime contractor agreed to a mutual termination of the subcontractor and the subcontractor reduced its REA to approximately $1.1 Million (to include only incurred costs versus anticipated costs).  The prime contractor then submitted a change order request to the federal government.  The subcontractor shortly thereafter sued the prime contractor and its Miller Act payment bond surety.

 

The prime contractor and its Miller Act payment bond surety moved to stay the lawsuit pending the completion a Contract Disputes Act resolution and, if required, completion of arbitration thereafter.  The subcontractor did not oppose staying its Miller Act payment bond claim pending arbitration with the prime contractor, but opposed staying the case pending the resolution of the prime contractor’s Contract Disputes Act claim. However, the subcontractor acknowledged that claims attributable to the federal government are passed through to the government and that the subcontractor shall not maintain any proceeding against the prime contractor with respect to government-related (owner) claims until resolution of Contract Dispute Act claims.  Moreover, the subcontract provided for the completion of the Contract Disputes Act resolution process between the prime contractor and federal government before the subcontractor could maintain any proceeding against the prime contractor in connection with any omission, default, or act by the federal government.   

 

 

Here, the subcontractor could not establish that the federal government’s acts did not contribute to its claims against the prime contractor; and, the prime contractor submitted a change order to the federal government that included the subcontractor’s costs supporting its position that the federal government’s acts were connected to the subcontractor’s claim.  Nonetheless, the subcontractor argued it would be unfair if it had to bear the brunt of waiting for the resolution of any Contract Disputes Act claim between the prime contractor and federal government before the subcontractor could pursue its claim against the prime contractor.  The Court dismissed this argument and stayed the action pending the outcome of the Contract Disputes Act resolution process between the prime contractor and federal government expounding:

 

The economic strain of awaiting resolution of the CDA procedures between Defendant Bhate [prime contractor] and AFCEC [federal government] is, while burdensome, still a reasonably foreseeable event under the Subcontract. Furthermore, denying the Motion to Stay and allowing this matter to proceed would bifurcate the matter, creating parallel proceedings involving many of the same facts and witnesses. Additionally, it could potentially force Defendants [prime contractor and surety] to take inconsistent positions in the simultaneous proceedings, supporting Plaintiff’s claims against AFCEC while defending against them in the arbitration between the parties. An order staying this matter is supported not only by the contract, but also the promotion of judicial economy and efficiency.

Bhate Environmental Associates, supra, at *4. 

 

This is undoubtedly a harsh ruling for a subcontractor that is now forced to wait a potentially long time while the prime contractor participates in the Contract Disputes Act resolution process. While harsh, the subcontractor agreed to bear this risk in its subcontract.  And, from the Court’s rationale, even if the subcontractor did not bear this risk, the Court still found that staying the subcontractor’s claims promoted judicial economy since it prevented the prime contractor from dealing with simultaneous disputes (one with the subcontractor and another with the federal government) and taking inconsistent positions.  

 

From the prime contractor’s perspective, this language that requires the subcontractor to bear this risk and stay any dispute pending the outcome of the Contract Disputes Act resolution process is extremely important language (based on the precise reasoning by the Court quoted above). 

 

From the subcontractor’s perspective, this reinforces the notion that it is imperative for parties to appreciate the risks they are agreeing to in their contracts, particularly as it relates to the resolution of disputes.  Also, this reinforces the risk that a subcontractor performing federal construction work may have to bear irrespective of the subcontract.  

 

Although the subcontractor is now in a wait-and-see mode while the Contract Disputes Act process runs its course, the subcontractor was smart by perfecting its Miller Act payment bond rights by timely filing suit.  Even though the prime contractor’s Contract Disputes Act resolution process may take some time, the prime contractor and its payment bond surety will ultimately have to deal with this dispute if the outcome of its Contract Disputes Act claim does not fully resolve the subcontractor’s claim to the subcontractor’s satisfaction.

 

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.

 

 

STAYING MILLER ACT PAYMENT BOND LAWSUIT PENDING ARBITRATION

imagesIn a prior posting, I discussed how federal courts have discretion to stay a subcontractor’s lawsuit against a payment bond surety pending an arbitration between the subcontractor and general contractor.  This posting did not pertain to a Miller Act payment bond.  However, low and behold, this same rationale would apply to a subcontractor’s lawsuit against a Miller Act payment bond.

 

In U.S. f/u/b/o John Jamar Construction Services v. Travelers Casualty and Surety Co. of America, 2015 WL 757858 (S.D.Tex. 2015), a subcontractor sued the prime contractor’s Miller Act payment bond.  The prime contractor countered that the subcontractor materially breached the subcontract causing it to terminate the subcontractor for default. 

 

The subcontract contained an arbitration provision and the prime contractor served an arbitration demand on the prime contractor.  The surety was not bound by the arbitration provision (as it was not a party to the subcontract) but moved to stay the Miller Act lawsuit pending the outcome of the arbitration between the prime contrator and subcontractor.  The federal district court agreed with the surety and stayed the litigation because the factual and legal issues between the prime contractor and subcontractor substantially overlapped with the subcontractor’s claims against the Miller Act payment bond surety.

 

Accordingly, if you are a prime contractor and involved in a dispute with a subcontractor where your subcontract contains an arbitration provision–such as in this case where the prime contractor terminated the subcontractor for default–there is little downside in demanding arbitration pursuant to the subcontract.  If the subcontractor initiates a Miller Act lawsuit, there is authority that the lawsuit will be stayed pending the outcome of the arbitration.

 

Conversely, if you are a subcontractor and involved in a dispute with a prime contractor where your subcontract contains an arbitration provision, there is upside in moving forward with the Miller Act lawsuit to ensure the lawsuit is filed within the one-year limitations period.  However, if there is concern the prime contractor will move to demand arbitration under the subcontract (as a means to stay the Miller Act litigation), you may want to consider simultaneously moving to demand arbitration against the prime contractor to preserve your status as the claimant (plaintiff) in the arbitration.

 

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.

 

 

 

BE CAUTIOUS WHEN FILING YOUR LAWSUIT IF YOU REALLY WANT TO ARBITRATE

Lawsuit If you really want to arbitrate your construction dispute pursuant to your contract, DO NOT file a lawsuit without at least contemporaneously moving to stay the lawsuit and compel arbitration.  Otherwise your right to arbitration will be waivedThe determination as to whether a party waived their right to arbitrate is a determination for the court (not the arbitrator) as demonstrated in the non-construction case of Cassedy, Jr. v. Hofmann, 39 Fla. L. Weekly D2450a (1st DCA 2014).

 

In this case, the plaintiffs filed a lawsuit against their stockbroker that they voluntarily dismissed without prejudice years later.  The plaintiffs then initiated arbitration with the Financial Industry Regulatory Authority.  The defendant filed a lawsuit to prevent the arbitration from going forward arguing that the plaintiffs waived their right to arbitration by initiating the lawsuit that they subsequently dismissed.  The First District Court of Appeals held the trial court must conclude whether a party waived their right to arbitrate by acting inconsistently with the right to arbitrate a dispute. The First District did not decide whether the right to arbitration had been waived; however, considering the plaintiffs filed the very lawsuit that they subsequently dismissed, it would appear that this right was waived or should be deemed waived.  If the plaintiffs really wanted to arbitrate, they should not have first filed a lawsuit without preserving their right to arbitrate through a contemporaneous motion to stay the lawsuit and compel arbitration.

 

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.

DOWNSIDE OF A BROAD ARBITRATION PROVISION

imagesIn Sunsplash Events Inc. v. Robles, 39 Fla. L. Weekly D2368a (Fla. 4th DCA 2014), the plaintiff entered into an employment agreement with the defendant. The employment agreement contained an arbitration provision that read, “[T]he Parties hereby agree and specifically stipulate that all differences, claims or matters of dispute relating to the performance of duties and/or benefits arising between the Parties to this Agreement contained herein shall be submitted to a mutually acceptable arbitrator….” Contemporaneously with the execution of the employment agreement, the parties entered into a bill of sale agreement regarding the plaintiff’s existing business whereby the plaintiff sold the inventory and goods of that business to the defendant.  This separate bill of sale agreement did not contain an arbitration provision.

 

Plaintiff thereafter sued the defendant relating to the bill of sale agreement (that did not contain an arbitration provision) and the defendant moved to compel arbitration based on the arbitration provision in the employment agreement. The plaintiff’s claims were interrelated to the employment agreement.

 

The Fourth District Court of Appeal held that the arbitration provision in the employment agreement included plaintiff’s claims relating to the bill of sale agreement because the claims fell within the ambit of the employment agreement’s broad arbitration provision:

 

“[T]he plaintiff’s claims relating to the bill of sale agreement have a significant relationship to the claims relating to the employment agreement. According to the second amended complaint, the numerous misrepresentations alleged to have been made by the company president to induce the plaintiff into entering the bill of sale agreement are the same misrepresentations alleged to have been made to induce the plaintiff into entering the employment agreement. As a result, the claims relating to the bill of sale agreement are inextricably intertwined with the transaction from which the employment agreement emanated and the employment agreement itself.”

 

 

This case contains an important holding–a broad arbitration provision can compel parties to arbitrate a dispute under a separate agreement that does not contain an arbitration provision.  Thus, this goes back to the fundamental premise that parties should not include an arbitration provision if they do not want to arbitrateAnd, if an arbitration provision exists in one agreement and not a separate agreement (whether simultaneously executed or executed on a subsequent date), that separate agreement should clarify it is not subject to the arbitration provision in the earlier agreement.

 

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.

INCLUDING IN YOUR ARBITRATION CLAUSE THAT ARBITRATION WILL BE CONDUCTED BY THE AMERICAN ARBITRATION ASSOCIATION

imagesThe American Arbitration Association (known as “AAA”) is a well-recognized organization that administers binding arbitration.  AAA has its own set of developed arbitration rules and procedures that must be followed in a construction arbitration referred as the Construction Industry Arbitration Rules and Mediation Procedures.  (This is no different than a dispute proceeding in federal or state court where a party must follow a governing rule of civil procedures.)

 

Parties that incorporate a binding arbitration provision often include language that the arbitration must be conducted by AAA and/or pursuant to AAA’s Construction Industry Arbitration Rules.   Sometimes when a dispute occurs, a party wants to challenge the scope of the arbitration provision because they prefer that their dispute gets resolved through litigation instead of arbitration.  But, as illustrated by the Eleventh Circuit decision in U.S. Nutraceuticals, LLC v. Cyanotech Corp., 2014 WL 5471913 (11th Cir. 2014), this is not an easy accomplishment.

 

In this case, the buyer and seller entered into two contracts with the second contract succeeding the first contract. Both contracts contained a confidentiality provision; however, the second contract provided that a party can enforce the confidentiality provision in court. Both contracts also contained an arbitration provision for dispute resolution that required the arbitration to be conducted “under the auspices of the American Arbitration Association.”  The second contract, though, excluded from arbitration disputes relating to a breach of the confidentiality provision. (Under the first contract, disputes relating to the breach of the confidentiality provision would be subject to arbitration.)

 

A dispute arose and the buyer sued the seller for claims associated with the breach of the confidentiality provision.  Based on the allegations in the buyer’s lawsuit, it was unclear whether the first contract, the second contract, or both, were implicated by the dispute.  The seller moved to compel the dispute to arbitration pursuant to the first contract that did not carve out an exception for breaches of the confidentiality provision.  The district court denied the motion, but the Eleventh Circuit reversed ruling that the district court should have compelled arbitration.  The reason was that the arbitration provisions incorporated the rules of the American Arbitration Association.  Once the parties did this, they agreed that the arbitrator would decide whether a particular dispute was subject to the arbitration provision.  Hence, questions as to the scope or arbitrability of a dispute would be determined by the arbitrator and not the court.

 

The arbitration clause in this case that required the arbitration to be conducted “under the auspices of the American Arbitration Association” is not language atypical to a construction contract.  This language, however, was enough for the Eleventh Circuit to deem AAA’s applicable rules and procedures incorporated into the arbitration clause.   In a construction dispute, Rule 9 of the Construction Industry Arbitration Rules (set forth below) authorizes the arbitrator to rule on the scope or arbitrability of a dispute, which is not ideal for a party that wants the court versus the arbitrator to have this power.  It is important that parties that want to carve out exceptions to the arbitration clause to clearly convey these exceptions in the clause.  Further, if parties want the court instead of the arbitrator to determine the scope or arbitrability of a particular claim, this should also be clearly conveyed in the clause.  Otherwise, this determination will be made by the arbitrator.

 

 

R-9. Jurisdiction

(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.

(b) The arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part. Such an arbitration clause shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitrator that the contract is null and void shall not for that reason alone render invalid the arbitration clause.

(c) A party must object to the jurisdiction of the arbitrator or to the arbitrability of a claim or counterclaim no later than the filing of the answering statement to the claim or counterclaim that gives rise to the objection. The arbitrator may rule on such objections as a preliminary matter or as part of the final award.

 

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.

 

 

 

 

 

THE CONTRACTUAL RIGHT TO ARBITRATE CAN BE WAIVED

imagesArbitration is a form of dispute resolution that emanates from your contract.  Hence, if your contract requires arbitration, then arbitration, as opposed to litigation, is the method of dispute resolution.  But, the contractual right to arbitrate can be waived if a party actively participates in litigation or takes a position in litigation that is wholly inconsistent with their contractual right to arbitrate Remember, if you negotiated arbitration as the form of dispute resolution in your contract, and you want to arbitrate a dispute, then take action consistent with this right. Otherwise, you risk waiving this contractual right to arbitrate—a right that you negotiated on the front-end in your contract.

 

However, just because you file a lawsuit or counterclaim does not mean that you automatically waive your right to arbitration.  The key is that if you want to arbitrate to file a motion to compel arbitration simultaneously with the lawsuit / counterclaim moving the court to compel the dispute to arbitration pursuant to an arbitration provision in your contract.  For instance, in Andre Franklin, Inc. v. Wax, 2014 WL 5002130 (Fla. 2d DCA 2014), a contractor recorded a lien on a residential project prompting the owner to file a lawsuit against the contractor to, among other things, discharge the construction lien.  The contractor filed a counterclaim moving to foreclose the lien and for breach of contract and simultaneously moved to compel arbitration; the contractor also moved to dismiss or abate the lawsuit.  At a hearing, the trial court granted the motion to dismiss and allowed the owner to amend the complaint.  When the owner amended the complaint, the contractor renewed its motion to compel arbitration and simultaneously  answered the amended complaint. The owner argued that the contractor waived the right to arbitrate by filing the counterclaim and arguing the motion to dismiss and abate; the trial court agreed.

 

On appeal, the Second District held that the contractor never waived its right to arbitration. The Second District explained:

 

A party may waive its contractual right to arbitrate by actively participating in a lawsuit or taking action inconsistent with that right.

***

[But,] we conclude that Franklin [contractor] did not waive its contractual right to arbitrate by filing a counterclaim simultaneously with its motion to compel arbitration, motion to dismiss, and motion to abate.  Franklin did not implement discovery.  Franklin’s filing of the counterclaims and motion to dismiss at the same time as a motion to compel arbitration is filed, without more, does not waive the contractual right to arbitrate.

Andre Franklin, Inc., supra, at *1, 2.

 

 

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.