Special Considerations Regarding Arbitration Provisions

SPECIAL CONSIDERATIONS REGARDING ARBITRATION PROVISIONS

By: Larry R. Leiby, Esq. and Robert S. Tanner, Esq.

In Roman v. Atlantic Coast Construction and Development, Inc., 2010 WL 3655791 (Fla. 4 th DCA Sept. 22, 2010), Paul Roman and Carmela Roman (the "Romans") contracted with Atlantic Coast Construction and Development, Inc. ("Contractor") to build three homes. More than three years later, the homes were not constructed and Contractor had not returned the Romans' deposit. The Romans sued Contractor, its qualifying agent, and its president. The claims against the qualifier and president were in Count II, which asserted breach of fiduciary duty against the president for allegedly failing to maintain the deposit as required by the contract; Count III was for "civil remedy for theft" seeking triple damages against all three defendants for the alleged violation of Florida Statute, section 489.126, which prohibits a contractor who receives money for construction of a residential real property from failing or refusing to perform any work for a period of 90 days with the intent to defraud the owner; and in Count IV, where the Romans sought damages against Contractor and its president for violation of a statute governing a building contractor's responsibilities regarding escrow of deposits.

The defendants asked the trial court to compel the Romans to arbitrate their claims pursuant to an arbitration provision contained in the underlying contracts. The contract, signed by Contractor, clearly required the Romans to arbitrate the claims asserted against Contractor. However, the Romans sought to avoid arbitration of the claims against the qualifier and president. Nevertheless, the trial court required the Romans to arbitrate the claims. The Romans appealed.

Generally, a person who is not a party to the contract containing the arbitration clause has no basis for enforcing the arbitration clause. So, the Romans argued that because the qualifier and the Contractor's president were not parties to the contracts that contained the arbitration clauses, the qualifier and the president had no legal connection with the Romans to force the claims to be arbitrated. However, there are exceptions when a person who was not a party to the contract may nevertheless enforce the arbitration provisions in it against someone who was a party to it. A person who did not sign an agreement to arbitrate can nevertheless compel arbitration when, first, the claims relate directly to the contract and the person who did sign the contract is relying on the contract to assert its claims against the person who did not sign the contract. Second, the non-signatory can compel a signator to arbitration when there are allegations of concerted action by both the person who did not sign the contract and one or more of the persons who did sign the contract. Because the Romans' claims against the qualifier and the president fit into those exceptions, the appellate court agreed with the trial court that the qualifier and the president could force the Romans to arbitrate the claims against them.

The Romans also argued that the arbitration provisions in the contracts were void and unenforceable because they deprived them of meaningful relief for the statutory violations. An arbitration provision that impermissibly limits a plaintiff's remedies is invalid, and it is for courts, not arbitrators, to determine if an arbitration provision impermissibly limits a plaintiff's remedies. On the other hand, if the provision that allegedly impermissibly limits remedies is outside of the arbitration provision (it's just somewhere else in the contract), then the validity of the contract or allegedly invalid contract provision is for the arbitrator(s) to determine.

About the Author: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at leiby@mkpalaw.com. For more information, please visit www.mkpalaw.com.

The appellate court reviewed the arbitration provisions and found that they were silent on the subject of (and therefore did not limit) the Romans' statutory rights or claims. Accordingly, the appellate court found that if other provisions of the contract somehow improperly violated the Romans' right to assert the statutory violations, then it was for the arbitrator(s) not the Court to decide. As a result, the Romans were not successful on appeal and all of the claims were referred to arbitration.

Arbitration can be a means of resolving disputes more quickly than if they wind their way through the courts. Thus, arbitration can also be a means of controlling attorney's fees in connection with disputes. Additionally, frequently arbitrators are experts in the area of the dispute and therefore might be expected to "get it right" more frequently than judges who may not have significant background in the area of the dispute. As with any other contract provision, it is best to understand the ramifications of an arbitration provision before signing a contract that has one.