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.

Court “Makes Rare Finding Against Arbitrability where Arbitration Clause is Present in Contract”

Jennifer Smith Thomas of Rumberger Kirk has this article, available in JD Supra, discussing the Florida Court of Appeal decision in City of Miami v. Ortiz, which she describes as “a rare finding against arbitrability where an arbitration clause was present in a contract,” and urging “contractors, vendors, and consumer service providers who seek to enforce arbitration to examine the terms of their arbitration provisions.”

“SCOTUS Finally Agrees to Address Discovery for Use in Foreign Arbitration”

International arbitration practitioners who have been monitoring the split among the United States federal circuits as to the applicability of 28 U.S.C. § 1782 to permit discovery may be interested to know that the Supreme Court, having granted certiorari in a Seventh Circuit case, will decide the issue. As summarized in this National Law Review article authored by Shin Hahn and Neil Popovic of Sheppard Mullin, “[t]he Supreme Court’s decision should resolve the current circuit split on the question of whether Section 1782 can be used for private international arbitration, which has been an ongoing topic of interest among international arbitration practitioners and scholars.” The Court’s decision either “will open up U.S.-style discovery, which has typically been perceived to be expansive and broader than what is permitted in international arbitration, to litigants in private foreign arbitration proceedings,” or will foreclose litigants from “tak[ing] advantage of Section 1782 to assist them with gathering evidence and testimony from parties and witnesses located in the U.S.”

“Client Alert: S.C. Supreme Court finds Arbitration Agreement Executed by POA Unenforceable”

G.P. Diminich, Laura Johnson Evans, Mary B. Ramsay and Lisa T. Thomas of Shumaker Loop & Kendrick have this article in Lexology, discussing the South Carolina Supreme Court’s decision in Arrendondo v. SNH SE Ashley River Tenant, LLC, holding that an arbitration agreement with an assisted-living facility signed by the attorney-in-fact/agent of a resident of the facility was unenforceable because the power of attorney was not sufficiently broad to empower its holder to agree to arbitration.

Third Circuit Holds Uber Cannot Force Arbitration Of Discrimination Claims

In O’Hanlon v. Uber Technologies, Inc., the Third Circuit framed the issue as follows:

As Uber would tell it, when Plaintiffs filed their disability-discrimination suit in federal court, they wound themselves in a Gordian knot: They do not have standing to sue unless they would agree to Uber’s Terms of Use, but those terms would require Plaintiffs to arbitrate their claim instead of litigating it in federal court.

In a case brought by motorized wheelchair users, plaintiffs alleged that Uber violated the Americans with Disabilities Act by not offering a “wheelchair accessible vehicle” in the Pittsburgh area. Uber moved to compel, asserting that “even though Plaintiffs had never registered for an Uber account or accepted its Terms of Use, they were nevertheless bound by the mandatory arbitration clause of that agreement.”

Both the lower court and the Third Circuit on interlocutory appeal rejected Uber’s claim that, by not downloading and agreeing to Uber’s terms of use–which included an arbitration provision–plaintiffs lacked standing. Likewise, the courts rejected Uber’s contention that, even though plaintiffs had not agreed to the terms of use, they were equitably estopped from avoiding the obligation to arbitrate.

“Court Finds Pre-Hearing Nonparty Deposition Subpoenas Permitted by FAA, and Rule 45 Territorial Limit Not a Bar for Virtual Deposition”

JD Supra has published this article by Alex Silverman of Carlton Fields, discussing the District Court of Minnesota’s recent decision in International Seaway Trading Corp. v. Target Corp., disagreeing with decisions from other circuits and holding that Eighth Circuit precedent permitting a pre-hearing document subpoena also authorizes pre-hearing deposition subpoenas. According to the court, “[t]he same interest in efficiency [warranting pre-hearing review of documents] supports the Court’s conclusion here: implicit in an arbitrator’s power to subpoena a witness to testify before him or her at a hearing is the power to order the witness to testify at a pre-hearing deposition so that the parties may review and digest the relevant testimony before the hearing occurs.”

“New Jersey Appellate Court Rules Judgment Creditor Not Subject to Mandatory Arbitration Provision in Insurer’s Policy”

Goldberg Segalla attorneys Christian A. Cavallo, Marci Goldstein Kokalas, David L. Brown and Jeffrey L. Kingsley have authored this article, available at Lexology, discussing the New Jersey Appellate Division’s decision in Crystal Point Condo. Assoc., Inc. v. Kinsale Insurance Co., ruling that a condominium association seeking to recover a default judgment obtained against insureds under an architects and engineers professional liability policy, could sue the insurer directly without being subject to the arbitration provision contained in the policy. Acknowledging that the condominium association was a third party beneficiary, the court nonetheless held that it was not required to arbitrate because the insurer failed to attempt to resolve the coverage dispute directly with the association, instead requiring it to prosecute the coverage claims.

Ninth Circuit Vacates Labor Arbitration Award, Finding That “Following The Presentation Of Evidence, Matters Took A Bizarre Turn”

A Ninth Circuit panel, by a 2-1 vote, vacated a labor arbitration award entered in favor of the employee, holding that “the proceedings violate[d] the rule of fundamental fairness.” In Costco Wholesale Corporation v. International Brotherhood of Teamsters, Local No. 542, the court recounted the events that supported its decision of vacatur:

The arbitrator engaged in “extensive post-hearing ex parte communications with Diaz and the Union,” including an unauthorized $6,000 settlement offer to Diaz of which Costco was unaware. The arbitrator rendered his decision via a vague and bizarre email only sent to the Union and reading: “The above named grievant prevails in his grievance. The Union’s arguments as to double jeopardy were correct. Union remedy is adopted. So that I can look at myself in the mirror, my resignation is effective today.” The arbitrator resigned after rendering his email judgment, thereby preventing Costco from obtaining clarification of his decision. Costco requested that the arbitrator email a copy of the completed Board of Adjustment Decision form, but never received the form. A copy of the form was filed in the district court and stated with no elaboration: “Double Jeopardy was proved by preponderance of evidence presented. Employee to be made whole.” Because the arbitrator failed to provide a reasoned decision, Costco was left with uncertainty as to the parameters of the remedy ordered by the arbitrator. “Based on the facts of the case before us, we simply cannot conclude that [Costco] received a fundamentally fair hearing,” and Costco “is entitled to vacatur.”

Rejecting the dissenter’s opinion that “the arbitrator’s decision drew its essence from the collective bargaining agreement,” the majority found that “there was no essence of the decision because there was no decision rendered, and no reasoning proffered. For all we know, the arbitrator flipped a coin, consulted a ouija board, or threw darts at a dartboard to determine the outcome. He certainly gave no explanation to the parties of his decision despite a request from Costco that he do so.”

Concluding that the arbitrator’s “ex parte communications and an unauthorized settlement offer reflect consummate bias and lack of commitment to a transparent proceeding,” the majority of the appellate panel vacated the award.

Arbitrability Of Rideshare Driver Claims

A couple of days ago, I noted the Southern District in MD Islam v. Lyft recently determined that rideshare drivers are engaged in interstate commerce, thereby falling within an exception to the Federal Arbitration Act and rendering an arbitration provision in their agreement to be unenforceable under federal law. Nonetheless, the court held that arbitration was appropriate under New York state law.

Dave Reif in his superb blog provides a more detailed discussion of the Islam decision, as well as two other recent rideshare decisions. Those interested in the current state of the law regarding arbitrability of such claims would do well to review Dave’s post, available here.

“6th Circuit: Delegation clause in arbitration agreement keeps case out of court”

The Sixth Circuit’s recent decision in Swiger v. Rosette is the subject of this article by the Buckley law firm, available at Lexology. As the article explains, “[o]n remand, the 6th Circuit stated that its decision does not bear on the merits of the case but merely addresses who resolves the plaintiff’s challenges to the arbitration agreement.”