SCOPE OF FLORIDA ARBITRATION CLAUSES

FEBRUARY 2013

Although often it is obvious that a particular controversy is arbitrable under the arbitration agreement between the parties, at times the matter is not absolutely clear.  In Florida, typically this issue is raised in the context of a motion to compel arbitration, when the court is required to determine, inter alia, whether an arbitrable issue exists. In deciding whether an arbitration clause covers a particular type of dispute, the court must discern the intent of the parties by examining the language of the agreement.  Episcopal Diocese of Cent. Fla. v. Prudential Secs., Inc., 925 So.2d 1112, 1115 (Fla. 5th DCA 2006).

This question probably arises most often when the dispute is over whether an arbitration agreement covers a particular tort claim as well as a breach of contract claim.  Until recently, the leading Florida case addressing this issue was Seifert v. U.S. Home Corp., 750 So.2d 633, 636 (Fla.1999), in which the court held that the appropriate test was whether “the tort claim, as alleged in the complaint, arises from and bears such a significant relationship to the contract between the parties as to mandate application of the arbitration clause.” Id. at 640.  In other words, a court must compare the contract containing the arbitration clause to the allegations of the complaint to see if there exists a “sufficient nexus” between the two.  In Seifert, the Florida Supreme Court concluded that the tort claim in that case did not have a sufficient relationship to the agreement so as to require submission of the cause to arbitration, because none of the plaintiff’s allegations asserted that the defendant’s duties or obligations arose from or were governed by the contract.

After Seifert, supra, was decided, a conflict developed between Florida District Courts of Appeal over precisely how the foregoing test should be applied.  With respect to a fraud claim, the First District held Shakespeare Foundation, Inc. v. Jackson, 61 So. 3d 1194 (1st DCA 2011), that even thought the contract in question had a broad arbitration clause[1], the fraud claim arose from a general duty established under the general law, not from the contract, that the contract was only “incidental” to the dispute, and that the failure of the contract to provide a remedy suitable for a tort action suggested an intent not to litigate such claims.  On the other hand, the Fifth District in an earlier case involving the same broad arbitration clause, Maguire v. King, 917 So.2d 263 (Fla. 5th DCA 2005), held that the buyer based his fraud and misrepresentation claims on duties created by the contractual relationship between the parties and therefore the dispute was arbitrable.

The Florida Supreme Court took up the matter on review of the Shakespeare Foundation case.[2]  The court sided with the Fifth District, observing in relevant part that

We hold that the action here based on fraud is within the scope of the arbitration provision because it has a clear contractual nexus with, and thus a significant relationship to, the contract. This relationship exists because: (1) the fraud claim is inextricably intertwined with both the circumstances that surrounded the transaction from which the contract emanated and the contract itself; and (2) resolution of the fraud claim requires the construction and consideration of duties arising under the contract.

Specifically, the court held that “a contractual nexus exists between the fraud claim and the contract because the Jacksons allegedly misrepresented facts in the published advertisement concerning the property that was the subject of the contract, and the Shakespeare Foundation allegedly relied on those misrepresentations in entering into the contract.”

In the author’s opinion, the court’s decision establishes several general principles: (1) an arbitration provision that covers disputes “relating to” as well as “arising out of” a contract will be considered a broad clause requiring only some sort of “nexus” between the dispute and the contract (the duty in question need not be created by the contract)); (2) to be covered even by a broad arbitration clause, a tort claim such as fraud must require some reference to or construction of the contract; and (3) a limitation of remedies provision in the arbitration provision or an “as is” provision in the contract may provide the requisite nexus, as their interpretation may be necessary to resolve the dispute.  The court expressly left for another day such issues as whether the limitation of remedies clause may have rendered the arbitration agreement “unconscionable.”

One thing is clear.  In Florida, if an arbitration clause is broad (using “relating to” or similar language), and the dispute will require some reference to or construction of the contract, the claim, even if a tort claim, is likely to be arbitrable.  See, e.g., Burke v. Windjammer Barefoot Cruises, 2008 WL 239071 (Fla. 3rd DCA 2008). (a claim for breach of fiduciary duty by a company against its former CEO was arbitrable under the employment agreement’s arbitration clause, because it was necessary to examine the contract to ascertain exactly what the CEO’s duties to the company were).


[1] “All controversies, claims, and other matters in question arising out of or relating to the transaction or this Contract or its breach . . .”

[2] Jackson v. The Shakespeare Foundation, ___ So. 3d ___ (Fla. 2013).