Arbitration is a form of alternative dispute resolution in which the parties agree to resolve their case outside of a traditional courtroom by going before an arbitrator who will hear the dispute and issue a binding decision.  In most cases arbitration is quicker and less financially costly than litigation, and the proceedings can be kept private.  More and more, businesses are choosing to include arbitration agreements within their contracts in order to take advantage of the many benefits.

Unfortunately, the inclusion of an arbitration agreement within a contract has not kept opponents from challenging the validity of the arbitration agreements in an attempt to preclude the transfer of a claim from the courtroom to the arbitrator.  It is an axiom of federal and Florida law that written agreements to arbitrate are binding and enforceable.  A court must compel arbitration if an arbitrable issue exists.^[1]  Although there are various reasons upon which an opponent may challenge the enforceability of an agreement to arbitrate, any doubt about the scope of the arbitration clause should be resolved in favor of arbitration.^[2]

Two recently published opinions from Florida’s Fourth District Court of Appeal (DCA) deal with the enforceability of arbitration agreements and the parties’ attempts to enforce or avoid the language contained in the agreement.

Delegation Clause

The first opinion, Darden Restaurants, Inc. et al v. Wilfred Ostanne^[3] is a case that highlights the importance and relevance of a delegation clause in an arbitration agreement.  A delegation clause is a provision within an arbitration agreement that delegates the determination of gateway issues, such as validity and enforceability of the Agreement to an arbitrator.

In Darden, the parties (an employee and employer) signed a stand-alone agreement titled Dispute Resolution Process (“DRP”), which was not part of the employment contract.  The DRP provided for various alternative dispute resolutions and advised if a dispute between the parties involves a legal claim, either the employee or the company can submit the matter to binding arbitration. Importantly, the DRP contained a delegation clause which delegated the jurisdiction to determine the arbitrability of a dispute to an arbitrator.  The clause stated, “[t]he arbitrator has the sole authority to determine the eligibility of a dispute for arbitration and whether it has been timely filed.”

The employee sued the company and two company employees related to employment discrimination.  The company moved to stay the proceedings and compel arbitration based on the DRP.  The employee made a number of arguments against compelling arbitration, but never challenged the delegation provision.  At the hearing on the motion to compel arbitration, the company argued in circumstances where an arbitration provision has a delegation clause a party opposing arbitration must specifically challenge the delegation provision (not just the arbitration provision itself), or “the delegation provision remains enforceable as a matter of law.”^[4]   Despite the existence of the delegation clause and the case law supporting the company’s argument, the trial court summarily denied the motion to compel.

On appeal, the Fourth DCA acknowledged it had to reverse the trial court’s denial, specifically because the parties agreed to delegate the issue of arbitrability to the arbitrator and the delegation clause was not challenged.  The Court of Appeal stated, “[a]bsent a direct challenge, we must treat the delegation provision as valid and allow the arbitrator to determine the issue of arbitrability.”^[5]

Severability Clause

In National Millwork, Inc. v. ANF Group, Inc., et al.,^[6] the Fourth DCA remanded a trial court’s order granting a motion to stay litigation and compel arbitration because the trial court did not address the severability of potentially offending portions of an agreement between the parties.

In this case, National Millwork entered into a subcontract with ANF to provide doors for construction of an assisted living facility.  Claiming there was over $100,00 due on the subcontract, National Millwork filed suit against the defendants.  The defendants moved to compel arbitration and stay the litigation relying on an arbitration clause in the subcontract, which stated “[a]ny claim, dispute or other matter in question arising out of or related to this Subcontract Agreement shall be subject to arbitration.”

In response to the defendants’ motion to compel arbitration, National Millwork argued a provision in the arbitration clause rendered it void and unenforceable because it conflicted with the Revised Florida Arbitration Code.^[7]   The trial court granted the motion to compel arbitration and National Millwork subsequently appealed.

In reviewing the allegedly offensive provision, the Fourth DCA agreed with National Millwork and found the challenged provision did seek to expand the scope of judicial review of an arbitration agreement, which is prohibited by, and in conflict with, the Revised Florida Arbitration Code.  However, instead of simply reversing the trial court, and holding the entire arbitration agreement invalid, the Court recognized the defendants’ argument that even if the Court finds the provision unenforceable, the unenforceable provision can be severed from the rest of the subcontract, while the enforceability of the arbitration clause is maintained.

Regarding questions of severability in contracts, the intent of the parties determines severability.^[8]  In National Millwork, the Fourth DCA recognized there was a detailed severability clause, that it found was certainly relevant to the severance analysis.^[9]  The Court did not address nor rule on the issue of severability because the trial court below did not do so.  Instead, it remanded the case back to the trial court and advised the trial court must determine whether the offending portions of the subcontract were integral to the agreement to arbitrate.^[10]

Takeaway

For businesses, entities, or individuals who are contemplating including arbitration agreements within their contracts, or who may be evaluating the enforceability of such agreements, the two opinions discussed above offer some instructional value when it comes to the additional provisions that can be included in the agreement in order to strengthen the potential for enforcement.  The Court’s opinion in Darden re-affirmed a delegation clause contained in an arbitration agreement operates to ensure questions of enforceability will go to the arbitrator unless the delegation clause itself is challenged by the opponent.  The opinion in National Millwork reminds us even if a portion of the arbitration agreement is offensive or contrary to Florida law, a well-crafted severability clause may still ensure the enforcement of an arbitration agreement entered into between the parties.

[1] KFC Nat. Management Co. v. Beauregard, 739 So. 2d 630, 631 (Fla. 5th DCA 1999) (“Public Policy favors arbitration as an efficient means of settling disputes, because it avoids the delays and expenses of litigation.”).

[2] BKD Twenty-One Management Company, Inc. v. Delsordo, 127 So. 3d 527 (Fla. 4th DCA 2012).  Federal Vending, Inc. v. Steak & Ale, 687 So. 2d 1366, 1367 (Fla. 4th DCA 1997); see also Advantage Dental Health Plans, Inc. v. Beneficial Administrators, Inc., 683 So. 2d 1133 (Fla. 4^th DCA 1996) (reversing trial court for failing to order arbitration where scope of arbitration agreement was unclear; doubt as to scope of clause should be resolved in favor of arbitration); Beaver Coaches, Inc., v. Revels Nationwide R.V. Sales, Inc., 543 So. 2d 359, 362 (Fla. 1st DCA 1989) (quoting AT&T Technologies, Inc. v. Communications Workers of American, 475 U.S. 643 (1986)).

[3] 43 Fla. L Weekly D2251a (Fla. 4th DCA October 3, 2018).

[4] See e.g. Allied Prof’l Ins. Co. v. Fitzpatrick, 169 So. 3d 138, 141-42 (Fla. 4th DCA 2015) (citing e.g. Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 72 (2010) (unless the plaintiff “challenged the delegation provision specifically, we must treat it as valid … leaving any challenge to the validity of the [arbitration] [a]greement as a whole for the arbitrator.”)).

[5] Newman for Founding Partners Stable Value Fund, LP v. Ernst & Young, LLP, 231 So. 3d 464, 467 (Fla. 4th DCA 2017) (quoting Angels Senior Living at Connerton Ct., LLC v. Gundry, 210 So. 3d 257, 258 (Fla. 2d DCA 2017).

[6] 43 Fla L. Weekly D2207a, (Fla. 4th DCA September 26, 2018)

[7] The provision stated that on review of an arbitration award, “the court shall be empowered to address on review any failure by the arbitrator(s) to properly apply Florida la[w] to the dispute. To the extent the arbitrator(s) or the court fail to apply the law properly, the Award of the arbitrator(s) is subject to further review through the Florida appellate process.”

[8] See Shotts v. OP Winter Haven, Inc., 86 So. 3d 456, 475 (Fla. 2011); Gessa v. Manor Care of Fla., Inc., 86 So. 3d 484, 496-97 (Fla. 2011) (Polston, J., dissenting) (citation omitted) (“Severability has long been recognized in Florida’s law of contracts and is determined by the intent of the parties.”).

[9] See Betts v. FastFunding The Co., Inc., 60 So. 3d 1079, 1082 (Fla. 5th DCA 2011) (citing Fonte v. AT&T Wireless Servs., Inc., 903 So. 2d 1019, 1024 (Fla. 4th DCA 2005)); VoiceStream Wireless Corp. v. U.S. Commc’ns, Inc., 912 So. 2d 34, 37 (Fla. 4th DCA 2005) (footnote omitted) (“[W]here the [ ] agreement includes a severability clause, the presence of certain unenforceable provisions in the contract does not require a finding that the arbitration agreement is unenforceable.”).

[10] Citing Obolensky v. Chatsworth at Wellington Green, LLC, 240 So. 3d 6, 11 (Fla. 4th DCA 2018); Gessa, 86 So. 3d at 498 n.12 (Polston, J., dissenting) (citing Gold, Vann & White, P.A. v. Friedenstab, 831 So. 2d 692, 695-97 (Fla. 4th DCA 2002); Harrison v. Palm Harbor MRI, Inc., 703 So. 2d 1117, 1119 (Fla. 2d DCA 1997)).

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