Divided Florida Appellate Opinion Rejects Contractual Reference To AAA Rules As Predicate For Compelling Arbitration

By a 2-1 decision, Florida’s Fourth District Court of Appeal has reversed a lower court’s order compelling arbitration of claims brought by investors against investment company-related defendants. In Fallang Family Limited Partnership v. Privcap Companies, LLC, the parties’ agreement, materially similar to countless others, provided as follows:

12.10 Arbitration. In the event of any dispute under this agreement the parties agree to submit to binding arbitration in the state of Florida with a panel of one arbitrator. The arbitrator shall be chosen by the AAA and the AAA rules and procedure shall apply, and the arbitration will be governed by the law of the state of Florida.

In furtherance of this language, the lower court, considering the investment companies’ motion to compel arbitration of sixteen claims between parties to the agreement, granted the motion as to fourteen of the claims, holding that, at least superficially, they were arbitrable because “they are eitherwholly related to the Operating Agreement or tangentially related to the Operating Agreement through the Servicing Agreement between [FFLP] and Privcap Funding.” The court held that the arbitrator was authorized to make more specific determinations of arbitrability based on facts to be presented by the parties.

Thus, the lower court appeared to be following United States Supreme Court guidance, most recently expressed in Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524 (2019), when it held that under the Federal Arbitration Act “parties may delegate threshold arbitrability questions to the arbitrator, so long as the parties’ agreement does so by ‘clear and unmistakable’ evidence,” and that “[w]e must interpret the Act as written, and the Act in turn requires that we interpret the contract as written. When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract.”

On appeal, however, the Fourth District concluded otherwise, holding that the lower court decision ignored “’gatekeeper’” provisions embodied in Florida statutory law, requiring the court to decide “what controversies are subject to an arbitration agreement,” unless the parties “by contract” have “shift[ed] that authority to the arbitrator.”

Seizing on language from Henry Schein and other U.S. Supreme Court precedent, the court held that “the contract language shifting the authority to decide what controversies are arbitrable from the court to the arbitrator must provide ‘clear and unmistakable evidence’ of that intent, and ambiguity as to ‘who decides’ reverses the usual presumption from the arbitrator to the court.”

For the majority of the appellate panel, the parties’ arbitration provision calling for the applicability of the AAA rules–no different than that contained in countless commercial contracts–was insufficient to constitute the requisite evidence of the parties’ intent that the arbitrator determine arbitrability. Even though AAA commercial rule specifically addresses jurisdiction, providing that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim,” the appellate panel held this was not enough. According to the court, the contract’s “general reference to ‘AAA rules’ did not ‘clearly and unmistakably’ supplant the trial court’s authority to decide what is arbitrable,” and that “the general reference to the ‘AAA rules’ in this case left ambiguity as to whether the arbitrator has authority to decide arbitrability to the exclusion of the trial court.”

Takeaways, at least for Florida practitioners: (a) wait to see if the Florida Supreme Court accepts or rejects the holding of this divided appellate panel, (b) revisit the contractual invocation of arbitration that has guided contracting lawyers for decades to more specifically reference the applicable AAA rules, (c) be content to have a court determine the scope of arbitrability, at the risk of layering disputes with additional litigation costs.

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