DOES ARBITRATION APPLY TO CONTEMPORANEOUSLY EXECUTED CONTRACTS (WHEN ONE OF THE CONTRACTS DOES NOT HAVE AN ARBITRATION PROVISION)?

shutterstock_572312269Binding arbitration is an alternative to litigation.  Instead of having your dispute decided by a judge and/or jury, it is decided by an arbitrator through an arbitration process.  Arbitration, however, is a creature of contract, meaning there needs to be a contractual arbitration provision requiring the parties to arbitrate, and not litigate, their dispute.  Just like litigation, there are pros and cons to the arbitration process, oftentimes dictated by the specific facts and legal issues in the case.

 

What happens when a person executes two (or more) contemporaneous contracts, one with an arbitration provision and one without?  Are the parties required to arbitrate the dispute arising out of the contract that does not contain the arbitration provision?

 

The reality is that this has become an unnecessary over-complicated situation that should be avoided by specifically incorporating all of the contracts into an operative contract or, conversely, expressing the intent in each contract whether arbitration applies.  Being specific will avoid the over-compilation of this issue.

 

In an example of what really amounts to an over-complicated opinion regarding an arbitration provision, the case of Lowe v. Nissan of Brandon, Inc., 43 Fla. L. Weekly D103b (Fla. 2d DCA 2017) dealt with a consumer automobile transaction where a consumer challenged the sale price of an automobile.  The consumer purchased a car and signed three contemporaneous contracts: a purchase agreement, an installment sale contract (i.e., the purchase was subject to the condition that the installment contract would be accepted by a financing institution), and an arbitration agreement.  The purchase agreement incorporated the arbitration agreement.   The arbitration agreement incorporated the installment contract.  The installment contract (quite confusingly, in my opinion), however, did not incorporate the arbitration agreement or the purchase contract.

 

The consumer claimed that because the installment contract did NOT incorporate the arbitration agreement, arbitration did not apply to disputes involving the installment contract.  Notwithstanding, the trial court compelled arbitration. The appellate court affirmed.

 

The general contract principle regarding construing contemporaneously executed documents together has been reiterated in many casesSee, e.g.Dodge City, 693 So. 2d at 1035; Phoenix Motor Co., 144 So. 3d at 696 (quoting Collins, 641 So. 2d at 459). But if the parties execute ‘two separate contracts and only one contract contains an arbitration clause, the parties cannot be compelled to arbitrate disputes arising from the contract that does not call for arbitration.’ ” Phoenix Motor Co., 144 So. 3d at 696 (quoting Lee v. All Fla. Constr. Co., 662 So. 2d 365, 366 (Fla. 3d DCA 1995)). The exception is where the contract with the arbitration clause incorporates by reference the contract which does not contain an arbitration clause, such that the latter could be “interpreted as part of the [former] contract.” Id. at 697 (citing Affinity Internet, Inc. v. Consol. Credit Counseling Servs., Inc., 920 So. 2d 1286, 1288-89 (Fla. 4th DCA 2006)).

To incorporate by reference a collateral document, the incorporating document must (1) specifically provide “ ‘that it is subject to the incorporated [collateral] document’ ” and (2) the collateral document to be incorporated must be “ ‘sufficiently described or referred to in the incorporating agreement’ ” so that the intent of the parties may be ascertained. Kantner v. Boutin, 624 So. 2d 779, 781 (Fla. 4th DCA 1993) (quoting Hurwitz v. C.G.J. Corp., 168 So. 2d 84, 87 (Fla. 3d DCA 1964)). The [s]upreme [c]ourt set forth the second requirement for incorporation by reference in OBS Co. v. Pace Construction Corp., 558 So. 2d 404, 406 (Fla. 1990): “It is a generally accepted rule of contract law that, where a writing expressly refers to and sufficiently describes another document, that other document, or so much of it as is referred to, is to be interpreted as part of the writing.

Lowe, supra.

 

Here, there was no dispute regarding the contemporaneous execution of the contracts.  The appellate court found that while the installment contract did not incorporate the arbitration provision, this contract was a condition precedent to the purchase agreement.  Thus, once the installment contract was accepted by a financing institution, the purchase agreement with the arbitration provision became the operative contract without any conditions precedent. (The case actually has a more complicated legal analysis to affirm the trial court’s ruling that the parties should be compelled to arbitration).

 

In my opinion, this is nothing more than a basis to compel the parties to arbitrate when the installment contract that was sued upon did not contain an arbitration provision or incorporate the arbitration agreement or purchase agreement.  All of this could have been avoided had specificity occurred in the installment contract or had the purchase agreement specifically incorporated the installment contract.  But, if arbitration is a creature of contract, and the dealership prepared (which it did) the contracts it wanted the consumer to contemporaneously execute, compelling the parties to arbitrate based on what is perceived to be the “operative contract” seems to go against the grain that parties cannot be compelled to arbitrate disputes arising from a contract that does not contain an 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.

 

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.

DON’T INCLUDE AN ARBITRATION PROVISION IN YOUR CONTRACT IF YOU DON’T WANT TO ARBITRATE!

images-1Arbitration as the method of dispute resolution is based on your contract.  If you don’t want to arbitrate, do not (I repeat, do not) include an arbitration provision.  If you ultimately have no choice and need to agree to a contract that includes an arbitration provision, understand that this provision will be enforced unless the parties agree to waive it.

 

The recent case of Bari Builders, Inc. v. Hovstone Properties Florida, LLC, et al., 39 Fla. L. Weekly D1648a (Fla. 4th DCA 2014), exemplifies what happens if you include an arbitration provision.  In this case, a condominium association sued the developer for construction defects.  The developer (that may have also served as the general contractor / home builder) third-partied in its subcontractors.  However, there was a binding arbitration provision in the subcontract.  Subcontractors, therefore, moved to compel arbitration of the developer’s claims against them.  The developer, naturally, did not want to arbitrate its third-party claims against subcontractors when it was being sued by the condominium association.  It makes more sense to wrap up the disputes in one matter.  The developer tried to argue around arbitration by arguing that the arbitration provision in its contract was ambiguous because another place in the contract said, “In all actions the parties waive the right to jury and agree to determination of all facts by the court.”   The Fourth District Court of Appeal disagreed with the developer’s ambiguity argument and reconciled this language:

 

[T]he jury waiver language in the subcontract does not render the arbitration provision ambiguous, as the two provisions can be reconciled in favor of arbitration.  Read together, the provisions provide that the parties agree to submit any ‘controversy or claim’ to arbitration and, thereafter, any award may be reduced to judgment in court without the right to a jury trial.  Additionally, in the event that the parties choose to waive their right to arbitration, the clause provides that any ‘action’ in court will be in the form of a bench trial.

Bari Builders, supra.

 

As shown in this case, courts will favor arbitration when there is an arbitration provision in the contract.  If parties prefer arbitration, and specifically if arbitration is preferred by a general contractor, the contract should include language that in the event the general contractor is sued by the developer or association (or any third-party), the general contractor, at its sole discretion, can waive arbitration and the parties are bound to the forum governing the dispute against the general contractor.  In other words, the general contractor has the authority to join in the subcontractor to any dispute it is involved in irrespective of the 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.

DEFERENCE GIVEN TO ARBITRATION PROVISIONS

arbitration[1]The recent case of Pulte Home Corp. v. Bay at Cypress Creek Homeowner’s Association, Inc., 38 Fla. L. Weekly D1705a (Fla. 2d DCA 2012) involves a dispute by a homeowner’s association against its developer / homebuilder. In this case, the association sued the developer / homebuilder for building code violations under Florida Statute s. 553.84. The association did this in order to try to circumvent an arbitration provision in the developer / homebuilder’s limited warranty given in favor of initial purchasers. The developer / homebuilder moved to compel arbitration which was denied by the trial court. On appeal, the Second District Court of appeals reversed the trial court finding that statutory claims were covered by the arbitration provision.

 

The issue to remember is that deference is given to arbitration provisions and that statutory claims, breach of contract claims, warranty claims, and tort claims are all claims that may be submitted to arbitration pursuant to an arbitration provision. In Pulte Home, the association, for strategic reasons, did not want to arbitrate and tried to pursue a claim that did not subject it to arbitration.  Although the Second District did not recite the arbitration provision in the opinion, the Court maintained that the agreement to arbitrate in the limited warranty given to initial purchasers covered statutory claims.

 

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.