DISPUTES WILL NOT BE SUBJECT TO ARBITRATION PROVISION IF THERE IS NO “SIGNIFICANT RELATIONSHIP”

As you know from prior articles, arbitration is a creature of contract.  This means if you want your disputes to be resolved by binding arbitration, as opposed to litigation, you want to make sure there is an arbitration provision in your contract.  If there are certain types of disputes you do not want subject to arbitration, you want to specify those types of disputes/claims in your arbitration provision.  If you are not sure, make sure to discuss the pros and cons of arbitration with your counsel when drafting and negotiating the contract.  However, even with a broad arbitration provision, there are times where a dispute may still fall out of the scope of the arbitration provision, i.e., the dispute is not arbitrable. If this occurs, such dispute will be resolved by litigation.  Parties that have buyer’s remove and do not want to arbitrate their dispute may try to make this argument that the dispute is not subject to the scope of the arbitration provision.  There are times this argument carries weight because the dispute has no significant relationship to the agreement with the arbitration provision, as shown below.

In Deweees v. Johnson, 46 Fla. L. Weekly D2356b (Fla. 4th DCA 2021), a plaintiff purchased a home in a private residential community.  The purchase contract with the developer contained a broad arbitration provision that materially provided that, “all post-closing claims, disputes, and controversies…between purchaser and seller will be resolved by binding arbitration except those arising under section G.5 and G.6 above.”  Dewees, supra.  Sections G.5 and G.6 provided that the purchaser will not interfere in the sales process with other purchasers and will not interfere with workmen during the construction process.   There was also a workmanship and structural defect warranty for the dwelling that also contained an arbitration provision.

A year-and-a-half after the plaintiff entered into the purchase contract, she injured herself while riding her bicycle in the community.  The roads were still under construction and were uneven, which caused the bicycle accident.

The plaintiff sued the developer, the contractor hired to construct the road, and the general contractor.  The claims against the developer sounded in negligence for the developer’s failure to ensure the roads were safe for bicyclists, failing to warn bicyclists using the road of known hazards, and breach of the nondelegable duty to maintain the premises in a safe and reasonable manner.   The developer moved to compel the dispute to arbitration, which the trial court granted.

Deciding whether a particular claim is covered by a broad arbitration provision requires a determination whether a significant relationship exists between the claim and the agreement containing the arbitration clause, regardless of the legal label attached to the dispute. [A] significant relationship is described to exist between an arbitration provision and a claim if there is a ‘contractual nexus’ between the claim and the contract.

A contractual nexus exists between a claim and a contract if the claim presents circumstances in which the resolution of the disputed issue requires either reference to, or construction of, a portion of the contract. More specifically, a claim has a nexus to a contract and arises from the terms of the contract if it emanates from an imitable duty created by the parties’ unique contractual relationship.  In contrast, a claim does not have a nexus to a contract if it pertains to the breach of a duty otherwise imposed by law or in recognition of public policy, such as a duty under the general common law owed not only to the contracting parties, but also to third parties and the public.

Dewees, supra (quotations and citations omitted).

For plaintiff’s claims to be subject to the arbitration provision in the purchase contract, they must not only arise from the purchase contract, but also have a significant relationship to the purchase contract.  But here, plaintiff’s claims against the developer do NOT have a significant relationship to the purchase contract.  For this reason, the appellate court reversed the trial court’s order compelling the dispute to binding arbitration.  Plaintiff’s claims “do not refer to or implicate contractual duties created or governed by the Purchase Contract or Dwelling Warranty but concern duties generally owed to the public, including all invitees using the roadways in [the community].  None of the allegations in the complaint require reference to or construction of any portion of the Purchase Contract or Dwelling Warranty.  The allegations instead rely on obligations that would extend to anyone who might be injured by the developer’s tortious conduct.”  Dewees, supra.     There was no contractual nexus between the purchase contract and the plaintiff’s dispute against the developer.

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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