DEFERENCE GIVEN TO ARBITRATION PROVISIONS

Posted on August 12, 2013November 8, 2024 by Edward Garber

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.

APPRECIATING THE RISKS OR FRUSTRATIONS OF ARBITRATION

Posted on July 11, 2013November 8, 2024 by Edward Garber

Arbitration, just like litigation, can come with its own risks and frustrations. Once an arbitration award is rendered, the prevailing party will usually file an action or move to compel a circuit court to confirm the arbitrator’s award so that the award is turned into a judgment. However, a party that does not like the arbitrator’s award, will try to move to modify or vacate the award in accordance with Florida’s Arbitration Code (Florida Statutes Chapter 682). Although there are specific statutory grounds in order to move to modify or vacate an arbitrator’s award (and the motion must be filed within a specific window of time – typically, 90 days after delivery of the award), non-prevailing parties will still make an effort to vacate or modify the award with the circuit court within their required time parameters. The bases to modify or vacate an award are different than appellate rights afforded to litigants in court because an arbitration award is not supposed to be vacated or modified if an arbitrator erred as to the law.

The case of Wells v. Castro, 38 Fla. L. Weekly D1509a (Fla. 3d DCA 2013), illustrates certain frustrations. Without going into the factual details of the dispute, an arbitrator entered an award in favor of a claimant (party demanding arbitration) against one respondent (party responding to the demand for arbitration) and against the claimant as to another respondent. All of the parties agreed that the arbitrator is vested with the authority to determine the prevailing party for purposes of being entitled to attorneys’ fees. The respondent that prevailed as to the claimant’s claim wanted to be the prevailing party in order to recover its attorneys’ fees. However, the arbitrator found that neither party was the prevailing party meaning neither the respondent nor claimant would be entitled to recover their attorneys’ fees (as to the claimant’s claim against the prevailing respondent). Notably, under the Florida Supreme Court’s decision in Trytek v. Gale Indus., Inc., 3 So.3d 1194 (Fla. 2009), a court is to look at which party prevailed on the significant issues in the case for purposes of determining the prevailing party and has discretion to determine that there is not a prevailing party; stated differently, there is now uncertainty as to whether a party will be deemed the prevailing party and be entitled to their attorneys’ fees under the “significant issues” standard.

The respondent that prevailed moved the circuit court to essentially modify the arbitration award arguing that the arbitrator erroneously concluded that neither party was the prevailing party and that the respondent should have been deemed the prevailing party because it prevailed as to the claimant’s claims. The trial court granted the motion and deemed the respondent the prevailing party for purposes of being entitled to attorneys’ fees.

On appeal through a petition for a writ of mandamus (in this case, an appeal for the appellate court to order the trial court to confirm the arbitrator’s award), the Third District reversed the trial court maintaining: (a) the parties agreed to have the arbitrator determine the issue of prevailing party for purposes of attorneys’ fees (and need to live by that determination) and (b) an arbitrator’s error of law is not a basis to vacate or modify an award. Thus, if the arbitrator erred in determining the prevailing party under Florida caselaw, the parties need to live with that determination because they agreed to have the arbitrator determine this issue in their arbitration.

While there are certain benefits to arbitration, it can come with its own risks and frustrations. Again, the reasons to modify or vacate the award are limited under Florida statute and not designed to correct an arbitrator’s potential errors in law. Also, if the parties want the arbitrator to determine the prevailing party for purposes of attorneys’ fees (which makes sense since the arbitrator will be the most familiar with the factual nature of the dispute), the parties will more than likely have to live by that determination.

UNDERSTANDING COMMON LAW INDEMNITY

Posted on May 22, 2013November 8, 2024 by Edward Garber

Common law indemnification is a “common” third party claim in multi-party litigation, particularly construction defect litigation. For instance, if a general contractor is sued by an owner for defects, the contractor may third party in the applicable subcontractors and assert a common law indemnification theory against the subcontractors to flow through liability. However, common law indemnity does not have to be asserted as a third party claim, but can be asserted as an affirmative claim after a judgment is entered against a party.

For example, in Diplomat Resorts Limited Partnership v. Tecnoglass, LLC, 38 Fla. L. Weekly D1126a (Fla. 4th DCA 2013), a hotel owner hired a contractor to furnish and install glass shower doors in hotel rooms. The subcontractor, naturally, purchased the glass doors from a fabricator / manufacturer and then installed the doors at the hotel. Unfortunately, many of the glass shower doors spontaneously fractured. The hotel owner obtained a judgment against the contractor in arbitration for the damages it incurred in replacing the doors. However, because the contractor was likely not collectible, the hotel owner took an assignment of the contractor’s claims against the fabricator / manufacturer because the thought was the glass fractured due to a defect in the fabrication process.

The hotel owner, standing in the shoes of its contractor through the assignment, sued the fabricator / manufacturer and asserted a common law indemnification claim which was dismissed with prejudice by the trial court. On appeal, the Fourth District reversed finding that the hotel owner (standing in the shoes as the contractor) properly asserted the following elements of common law indemnification: 1) that the contractor is wholly without fault, 2) the fabricator / manufacturer is at fault, and 3) the fabricator / manufacturer is liable to the contractor because the contractor was vicariously, constructively, derivatively, or technically liable to the hotel owner for the wrongful acts of the fabricator / manufacturer.

One of the challenges with common law indemnification is that there are court decisions that require the party seeking indemnification to be in a “special relationship” with the party it is seeking indemnification from. The Fourth District, however, maintained that a party does not need to specifically plead the existence of a special relationship because this “merely describes a relationship which makes a faultless party ‘only vicariously, constructively, derivatively, or technically liable for the wrongful acts” of the party at fault.” Diplomat Resorts Limited Partnership.

Although the Fourth District’s decision in Diplomat Resorts appears to make a common law indemnification claim easier to prevail on a motion to dismiss, it is still a challenging claim to prove because it requires the party seeking indemnity to be wholly without fault. In other words, if that party is slightly at fault, there is no common law indemnity. Putting this in context, if the contractor is slightly at fault regarding installing the shower doors, it will not prevail on its common law indemnification claim.

In fact, the fabricator / installer in Diplomat Resorts argued that the contractor failed to properly install the glass doors for this very reason; however, there was no finding by the arbitrator that the contractor improperly installed the glass doors. Had there been a specific finding, there likely would be no common law indemnification claim because “a former adjudication against an indemnitee [e.g., contractor], finding the indemnitee’s acts to be wrongful, is binding against the indemnitee and precludes indemnification.” Diplomat Resorts Limited Partnership.

Notably, there are times in arbitration or litigation where parties do not want specific findings of fact. One of those is in a situation where a defendant may look to another for a common law indemnification claim (such as against a manufacturer) because that party does not want a finding that it did anything wrong that would be contradictory to its position that its liability flows 100% from the party it is pursuing the common law indemnification claim against.

CAREFUL DRAFTING OF ARBITRATION PROVISIONS TO ENSURE THE STATUTE OF LIMITATIONS APPLIES TO CLAIMS RESOLVED THROUGH ARBITRATION

Posted on November 27, 2011November 8, 2024 by Edward Garber

Many construction contracts include arbitration provisions as the means to resolve a dispute instead of resorting to litigation. Certain owners prefer to resolve their disputes with contractors through arbitration and certain contractors, likewise, prefer to resolve their disputes with subcontractors through arbitration.

The case of Raymond James Financial Services, Inc. v. Phillips, 36 Fla. L. Weekly D2479a (2d DCA 2011), certified the following question to the Florida Supreme Court:

“Does Section 95.011, Florida Statutes, apply to arbitration when the parties have not expressly included a provision in their arbitration agreement stating that it is applicable.”

While this case was not a construction case, the question certified to the Florida Supreme Court was a fundamental issue that applied to ALL arbitration provisions. Section 95.011 is included in Florida Statutes Chapter 95 (“Chapter 95”) dealing with the statute of limitations for actions. The statute of limitations requires lawsuits to be brought within the specified timeframe set forth in Chapter 95 or else the action is time-barred, meaning it cannot properly be asserted under the law. In this case, however, the Second District found that there was nothing in the arbitration provision at-issue that required actions to be brought within the limitations periods set forth in Chapter 95 and, along these lines, nothing in Chapter 95 clarified that the statutes of limitations for actions was intended to apply to disputes resolved through arbitration.

This decision was crucial because if the statute of limitations is not intended to apply to disputes resolved through arbitration, and nothing in the arbitration provision clarifies that the statute of limitations periods set forth in Chapter 95 are intended to apply, then there is technically NO time period for when a dispute needs to be initiated because they could never be time-barred under the law. The corollary of this is that it could open arbitration floodgates because parties that thought they could no longer bring an arbitration claim under the law could now assert an argument that their claim was never time-barred under the law.

Luckily, the Florida Supreme Court answered the Second District’s certified question in the affirmative holding that the statute of limitations DOES APPLY TO ARBITRATION PROCEEDINGS!!! See Raymond James Financial Services, Inc. v. Phillips, 126 So.3d 186 (2013). This means that the defense of statute of limitations can be raised in an arbitration proceeding as a basis to bar an untimely filed claim.

With respect to construction contractors, parties that utilize the AIA Agreements (promulgated by the American Institute of Architects) that select arbitration as the dispute resolution procedure should still safely ensure the agreement contains a provision to the effect:

“In no effect shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim would be barred under the applicable statute of limitations.”

The AIA standard form agreements usually include this provision almost verbatim. This provision should not be deleted. When drafting or negotiating an AIA agreement that includes an arbitration provision, a party should ensure that language to the effect is included in the agreement and not deleted or substantially manipulated so as to render it ambiguous. Also, parties that do not use an AIA agreement and prefer arbitration need to draft such a provision or mimic one after the provision used in the standard form AIA agreements to ensure the statute of limitations applies to claims / disputes resolved through arbitration no matter what.