QUICK NOTE: YES, YOU CAN WAIVE THE RIGHT TO ARBITRATE

A party can waive the contractual right to arbitrate.  Waiver is the “voluntary and intentional relinquishment of a known right or conduct which implies the voluntary and intentional relinquishment of a known right.”  Ship IV Harbour Island, LLC v. Boylan, 44 Fla. L. Weekly D831a (Fla. 5th DCA 2019) (citation and internal quotation omitted).  Thus, a party can waive its right to arbitrate a dispute by engaging in conduct inconsistent with the right to arbitrate.  One way a party can act inconsistently with the right to compel a dispute to arbitration is by engaging in discovery in litigation, particularly discovery as to the merits of the case.  See Ship IV Harbour Island, supra (after court ordered limited discovery regarding arbitration, party thereafter waived right to arbitration by engaging in discovery as to the merits of the dispute).    For this reason, if your desire is to preserve the integrity of a contractual arbitration provision, do not do anything inconsistent with this right such that you give the other party the argument that you waived the contractual right to 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.

ARBITRATION PROVISIONS ARE CHALLENGING TO CIRCUMVENT

Arbitration provisions are enforceable and they are becoming more challenging to circumvent, especially if one of the parties to the arbitration agreement wants to arbitrate a dispute versus litigate a dispute.  Remember this when agreeing to an arbitration provision as the forum for dispute resolution in your contract.  There is not a one-size-fits-all model when it comes to arbitration provisions and how they are drafted.  But, there is a very strong public policy in favor of honoring a contractual arbitration provision because this is what the parties agreed to as the forum to resolve their disputes.  

 

By way of example, in Austin Commercial, L.P. v. L.M.C.C. Specialty Contractors, Inc., 44 Fla.L.Weekly D925a (Fla. 2d DCA 2019), a subcontractor and prime contactor entered into a consultant agreement that contained the following arbitration provision:

 

Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be subject to the dispute resolution procedures, if any, set out in the Prime Contract between [Prime Contractor] and the [Owner]. Should the Prime Contract contain no specific requirement for the resolution of disputes or should the [Owner] not be involved in the dispute, any such controversy or claim shall be resolved by arbitration pursuant to the Construction Industry Rules of the American Arbitration Association then prevailing, and judgment upon the award by the Arbitrator(s) shall be entered in any Court having jurisdiction thereof.

 

The prime contract between the owner and prime contractor did not require arbitration.

 

The prime contractor initially hired the subcontractor during the design phase of the project as a consultant.  The consultant agreement contained the aforementioned arbitration provision. Then, during the construction phase, the prime contractor and subcontractor entered into a work order that incorporated the terms of the consultant agreement, meaning the arbitration provision was incorporated into the work order.  

 

A payment dispute arose during the construction phase and the subcontractor sued the prime contractor.  The prime contractor moved to compel the dispute to arbitration per the terms of the arbitration provision in the consultant agreement.  The trial court denied the prime contractor’s motion to compel.   This was reversed on appeal – and it was probably an easy reversal for three main reasons:

 

One:  Florida has a strong public policy in favor of enforcing arbitration provisions, as mentioned above.  Remember this. 

 

Two:  the work order between the prime contractor and subcontractor for the construction phase incorporated the terms of the consultant agreement that contained an arbitration provision.  Thus, the consultant agreement with the arbitration provision had to be interpreted together with the work order.  Remember that a document or contract can incorporate another document or contract. 

 

Three:  the dispute was between the subcontractor and prime contractor.   The owner was NOT “involved” in the dispute because it was not a party to the lawsuit and the payment dispute the subcontractor initiated against the prime contractor did not involve the owner considering the owner did not need to participate in the dispute.   “[O]ne would not ordinarily understand an entity to be ‘involved’ in a dispute where that entity is neither drawn into the dispute nor affected by the dispute. Only an impermissible, strained textual interpretation of ‘involved in the dispute’ would yield a conclusion that HCAA [Owner] would be affected by a financial dispute between Austin [Prime Contractor] and Mims [Subcontractor].”  Austin Commercial, supra.   Remember this that the word “involve,” as this word is used in the arbitration provision, is not going to be read so broadly to render inconsequential the prime contractor’s right to arbitrate disputes with its subcontractor. 

 

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.

 

 

SUPREME COURT HOLDS ARBITRATOR CAN FULLY DECIDE THRESHOLD ARBITRABILITY ISSUE

shutterstock_1018025605The United States Supreme Court recently decided parties to a contract can agree, under the Federal Arbitration Act, an arbitrator, rather than a court, can fully resolve the initial arbitrability question.  Henry Schein, Inc. v. Archer and White Sales, Inc., 2019 WL 122164 (2019).  The arbitrability question is whether the dispute itself is subject to arbitration under an arbitration provision.  Parties that do not want to arbitrate try to circumvent this process by filing a lawsuit and asking the court to determine the threshold arbitrability question.  

 

In Henry Schein, Inc., the contract at-issue provided:

 

This Agreement shall be governed by the laws of the State of North Carolina.  Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property) shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association.  The place of arbitration shall be in Charlotte, North Carolina.

 

The plaintiff in this case asserted a claim for injunctive relief (among other claims) and argued that, therefore, the dispute is not subject to arbitration based on the exception in the provision.  The initial, threshold issue became whether the dispute was subject to arbitration and, importantly, who decides this issue. The Court further looked at whether a trial court can resolve this issue under the “wholly groundless” exception, i.e.,the court can decide the issue if the argument for arbitration is wholly groundless.  

 

The Supreme Court held that, “[w]hen the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract.  In those circumstances, a court possesses no power to decide the arbitrability issue.  That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.” Henry Schein, Inc, supra, at *4.  Through this ruling, the Court rejected the wholly groundless exception that would allow a trial court to rule on an threshold arbitrability question if the argument for arbitration is wholly groundless. 

 

The Court did not rule as to whether the arbitration provision at-issue delegated the arbitrability question to the arbitrator.   However, the American Arbitration Association’s rules provide that arbitrators have the power to resolve such threshold arbitrability questions so there is an argument that the provision through reference to the American Arbitration Association gave this authority to the arbitrator.  But, the best thing to do, as always, is to be clear.   Include language in the arbitration provision that specifically states that an arbitrator is authorized to decide the arbitrability of issues, particularly if it is your arbitration provision and you want disputes resolved by arbitration.  Conversely, if you want the initial, threshold issue of arbitrability to be decided by a court, make sure to specify that in 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.

 

 

 

 

 

DRAFTING A CONTRACTUAL ARBITRATION PROVISION

shutterstock_505551922A recent Florida case discussing a contractual arbitration provision in a homebuilder’s contract discussed the difference between a narrow arbitration provision and a broad arbitration provision.  See Vancore Construction, Inc. v. Osborn, 43 Fla.L.Weekly D2769b (Fla. 5th DCA 2018).   Understanding the distinction between the two types of arbitration provisions is important, particularly if you are drafting and/or negotiating a contractual arbitration provision.

 

A narrow contractual arbitration provision includes the verbiage “arises out of”  the contract such that disputes arising out of the contract are subject to arbitration.  Arbitration is required for those claims the have a direct relationship with the contract.

 

A broad contractual arbitration provision includes the verbiage “arises out of or relating to” the contract such that disputes arising out of or relating to the contract are subject to arbitration.  Arbitration is required for those claims that have a significant relationship to the contract. A significant relationship exists if there is a nexus between the claim and the contract meaning the “claim presents circumstances in which the resolution of disputed issues requires either reference to, or construction of, a portion of the contract.”  See Vancore Construction, Inc., supra, (citation omitted). 

 

When drafting or negotiating an arbitration provision, make sure you understand those claims that will be subject to arbitration and those potential claims that will not.    Typically, if you want a arbitration provision in your contract, you more than likely prefer a broad arbitration provision such that claims arising out of or relating to the contract will be subject to 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.