Wednesday, November 23, 2011

Florida Supreme Court Holds Court Not Arbitrator Determines Whether Agreement Violates Public Policy

In Shotts v. OP Winter Haven, Inc. (SC08-1774), the Florida Supreme Court held:
  1. "That the district court below erred in failing to rule that the court, not the arbitrator, must decide whether the arbitration agreement violates public policy.";
  2. "That the district court below erred in failing to rule that the limitations of remedies provisions in this case violate public policy, for they directly undermine specific statutory remedies created by the Legislature.";
  3. "That the district court below erred in ruling that the limitations of remedies provision that calls for imposition of the AHLA rules is severable."; and
  4. "Finally, we conclude that the United States Supreme Court's recent decision in Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (2010), is inapplicable here."
Justice Perry wrote the majority opinion which was joined by Justice Lewis, Justice Quince and Justice Labarga. Justice Pariente concurred in result. Justice Polston wrote a dissenting opinion which was joined by Chief Justice Canady. This is one of two arbitration opinions released today. The other, Gessa v. Manor Care of Florida, Inc. (SC09-768), is discussed HERE.

In this case, "Edward Clark was involved in an automobile accident in 1977, and he sustained brain damage. For many years, Clark's care was provided by his niece, Gayle Shotts, in her home. Eventually, Clark was admitted to OP Winter Haven, Inc., a nursing home in Florida. He remained there until his death in 2003, at which time Shotts, as his personal representative, filed a complaint against OP Winter Haven alleging negligence and breach of fiduciary duties. OP Winter Haven moved to compel arbitration based on an agreement Shotts had signed on Clark‟s admission. The agreement contained the following 'limitations of remedies' provisions: (i) the arbitration will be conducted in accordance with the American Health Lawyers Association (AHLA) rules; and (ii) the arbitrators will have no authority to award punitive damages. The agreement also stated that its terms were severable. At the hearing on the motion to compel, Shotts argued that the agreement was unenforceable because it was unconscionable and violated public policy. The trial court granted the motion, and the district court affirmed. Shotts sought discretionary review, which we granted."

The majority stated:
This Court in Seifert v. U.S. Home Corp., 750 So. 2d 633 (Fla. 1999), held that, in a hearing on a motion to compel arbitration, the inquiry follows the same three-step process regardless whether the inquiry is conducted under the FAC or the FAA: Under both federal statutory provisions and Florida's arbitration code, there are three elements for courts to consider in ruling on a motion to compel arbitration of a given dispute: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived. Seifert, 750 So. 2d at 636.....
With respect to which contract defenses—besides “fraud, duress or unconscionability”—constitute “generally applicable contract defenses” for purposes of section 2, we conclude that public policy clearly is such a defense, for if an arbitration agreement violates public policy, no valid agreement exists. “[T]he rights of access to courts and trial by jury may be contractually relinquished [via an arbitration agreement], subject to defenses to contract enforcement including voidness for violation of the law or public policy, unconscionability, or lack of consideration. . . . No valid agreement exists if the arbitration clause is unenforceable on public policy grounds.” 
[emphasis from the Court].

Public Policy Challenge - Court or Arbitrator

As to the issue framed above, the Court stated: "Although this Court has not confronted the specific issue of whether the court or the arbitrator must decide whether an arbitration agreement violates public policy, the Court in Seifert has ruled that it is for the court, not the arbitrator, to decide 'whether a valid written agreement to arbitrate exists.'”
...this Court in Seifert held that it was for the court, not the arbitrator, to determine “whether a valid written agreement to arbitrate exists,” Seifert, 750 So. 2d at 636 (emphasis added), and we later explained the meaning of the term “valid” in this context, with respect to arbitration and public policy: “No valid agreement exists if the arbitration clause is unenforceable on public policy grounds.” Global Travel, 908 So. 2d at 398. Thus, under Siefert and Global Travel, it is incumbent on the court, not the arbitrator, to determine whether an arbitration agreement violates public policy. This conclusion is consistent with the vast weight of authority in Florida, as discussed above.
[emphasis is mine].

Limitation of Remedies

On the issue of limitation of remedies, the court stated: "the arbitration agreement in the present case contains the following limitations of remedies provisions: (1) “[t]he arbitration shall be conducted in accordance with the American Health Lawyers Association (“AHLA”) Alternative Dispute Resolution Service Rules of Procedure for Arbitration”; and (2) “the arbitrators shall have no authority to award punitive damages.” The district court below did not decide whether these provisions violate public policy, but rather left that matter for the arbitrator to determine." The court concluded:
Based on the foregoing, we conclude that the limitations of remedies provisions in the present case violate public policy, for they directly undermine specific statutory remedies created by the Legislature. See §§ 400.022, 400.023, Fla. Stat. (2003)....In light of the recognized need for these remedies and the salutary purpose they serve, we conclude that any arbitration agreement that substantially diminishes or circumvents these remedies stands in violation of the public policy of the State of Florida and is unenforceable. In this respect, we find the rationale of the Fourth District Court of Appeal in Blankfeld and Romano cogent and compelling. Under the above standard of review, we hold that the district court below erred in failing to rule that the limitations of remedies provisions in the present case violate public policy.
Serverability

"In this claim Shotts contends that the district court below erred in ruling that the limitations of remedies provisions in the present case are severable.The trial court below held that the provisions were not severable. The district court reversed. The district court held that, if the arbitrator were to conclude that these provisions violate public policy, they are severable. Shotts contends that the district court erred in so ruling—she contends that these limitations of remedies provisions violate public policy and are not severable. We agree." The court concluded: "Based on the foregoing, we conclude that the limitations of remedies provision in the present case that calls for the imposition of the AHLA rules is not severable from the remainder of the agreement. Although the arbitration agreement in this case contains a severability clause, the AHLA provision goes to the very essence of the agreement. If the provision were to be severed, the trial court would be forced to rewrite the agreement and to add an entirely new set of procedural rules and burdens and standards, a job that the trial court is not tasked to do."

Rent-A-Center v. Jackson

"Approximately two weeks after this Court heard oral argument in the present case, the United States Supreme Court issued its decision in Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (2010)....[and] held that, where there has been no specific challenge to the delegation provision, the arbitrator, not the court, must decide the issue."

The Florida Supreme Court concluded that: "In the present case, because the arbitration agreement contained no delegation provision, there was no such provision for Shotts to challenge. Instead, she challenged the arbitration agreement itself. This was the proper course of action under the section 2 template, for unlike the situation in Jackson, the entire arbitration agreement in the present case operated as the “written provision . . . to settle by arbitration a controversy,” in the section 2 lexicon."

The Dissent

The dissent began "Because the majority's opinion seriously violates the Federal Arbitration Act and its accompanying federal substantive law, I respectfully dissent....Once again, this Court erroneously applies Florida law to invalidate an arbitration agreement in violation of the Federal Arbitration Act. See Cardegna v. Buckeye Check Cashing, Inc., 894 So. 2d 860 (Fla. 2005) (applying Florida law to hold that Florida courts rather than an arbitrator should make determination), rev'd, Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 446 (2006) (rejecting “the Florida Supreme Court's conclusion that enforceability of the arbitration agreement should turn on „Florida public policy and contract law,‟ 894 So. 2d at 864”). As provided by the Federal Arbitration Act (FAA), the arbitration agreement should be enforced as agreed by the parties, not stricken at the whim of this Court." [emphasis is mine]. 

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