Amending Complaint/Claims Will Not Afford New Hearing to Dispute Arbitration or Limitation Clauses

A recent case from the Third District includes some hazy, if not heady, arbitration issues involving class action waiver and unconscionable liability limitations. The Panel, however, safely dodged stepping into those issues by holding that challenges to arbitrability should be “resolved at the outset [of the case] and, presumably, once.”

In the case of Eventys Marketing and Products, Inc. v. Comcast Spotlight, Inc., the parties disputed rights and obligations in a tv advertising contract which also included an arbitration agreement, limitation of remedies, and waiver of the right to bring consolidated or class action claims.

At first, the suit involved a single breach of contract claim. At the hearing, the Plaintiff did not dispute the agreement as unconscionable or against public policy. However, as the case progressed, the Plaintiff added a FDUPTA claim and class action claim and then disputed the contract provisions.

The court agreed with cases holding that the issue of arbitrability should be determinned at the threshold of a case and that artful pleading (addition of new claims) should not afford another bite at the apple. The court further held that these challenges could not be raised just because the Plaintiff amended the claim and now seeks to raise additional grounds to dispute arbitration.

For a similar overview from a class action perspective, see the Carlton Fields' blog.

The Third District issued a fact-dense opinion regarding a real estate development project which involved a non-signatory to a contract invoking an arbitration clause. Florida courts have not addressed "equitable estoppel" in this context since late 2007.

In Debra Sinkle Kolsky v. Jackson Square, LLC (Shepherd, Suarez and Lagoa), various individuals and business entities find themselves enmeshed in a development project where there are several contracts among the various parties, the key one being an amended operating agreement which states, "in the event any dispute arise between the Members... all parties to this Operating Agreement agree that such disputes will be referred to binding arbitration..." Note, in particular, the "any dispute arise between the Members" language.

A member brought suit against another member as well as individuals and entities who are involved in the project but who were not signatories, claiming that there was fraud.

The court set forth that "equitable estoppel is warranted when the signatory to the contract containing the arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the non-signatory and one or more of the signatories" (interestingly, the state court cited federal 11th Circuit authorities relating to "inherently inseparable" acts and "same factual allegations"). Applied to the (dense) facts, the panel held that there was a sufficient nexus in this case and arbitration was compelled.

Political season is upon us and we pick up the thread of the enforceability of parental liability waivers signed on behalf of their children who participate in commercial activities. Florida's legislative session begins this week.

Fourteen months ago, in January 2009, the Florida Supreme Court rocked the state's entertainment industries by ruling that parents do not have the authority to sign liability waivers / release-of-negligence forms on behalf of their children who want to participate in commercial (entertainment or sporting) activities. This includes everything from motorcross, theme parks, fishing trips, almost any racing, and even safaris. The landmark case was Kurton v. Fields.

Since that time, there has been little to no appellate law in the area and the courts seemingly have fallen silent. Still unclear is what happens with non-commercial activity liability waivers and a clear indication as to what is or is not "commercial." Riding that line would be activities such as summer camps.

Still untested is our legal theory of how (your?) business can draft contracts which parents can sign waivers which serve the same, or similar, purpose.

Some business-oriented state legislators tried to wrest the issue away from the courts by presenting bills to the Florida legislature which empowered parents and guardians with that legal authority. At the end of 2009, however, those efforts failed.

But the issue is not forgotten. According to the Orlando Sentinel, "Theme Park Industry Again Seeks Parental Waivers." According to the article, some smaller tourism outfits have stopped serving minors (such as dive shops) while the larger theme parks have not changed policies.

Following that article, reporter Jason Garcia penned another piece, "Race Track Operator at Disney Says It May Raise Age Limits if Legal Waivers Aren't Reinstated." Previously, the Richard Petty Driving Experience lowered its age limit from 16 to 14 which opponents charged was an example that the Fields case was not a significant change.

I'm expecting we will see proposed bills by the end of March 2010.

We travel to Colorado for this state supreme court case in yet another nursing home arbitration / agreement-signed-by-adult-children case.

In Moffett v. Life Care Centers of America, the adult son of a nursing home resident signed the admission agreement and a separate arbitration agreement two days after the resident was admitted to the facility. He had both a power of attorney and a medical durable power of attorney. A dispute arose about the quality of care.

In disputing arbitration, the family argued that Colorado's Health Care Availability Act would only validate arbitration agreements between the provider and "the patient" -- not the patient's POA. Moreover, the family claimed that the Act was violated because the son stated in an affidavit that he was told he had to sign the arbitration agreement to gain his mother's admission.

In short, the family's argument would essential prevent an attorney in fact from signing health care documents for an incapacitated patient (recognizing that so many health care providers use arbitration in their agreements).

The Colorado Supreme Court held that a person possessing a POA is permitted to agree to arbitrate on behalf of an incapacitated patient under the Act, as long as there is no restriction or limitation on authority in the POA documents.

In its analysis, the court held that the family's argument was "illogical" and employed an interpretation which "frustrates the purpose of the HCAA, Colorado's public policy favoring arbitration, and the right of an individual to authorize [a power of attorney]."

Quick notes:

Arbitration clause at issue: "..any claims, including but not limited to, any claim that medical services... were improperly, negligently, or incompletely rendered or omitted... [and] all disputes... arising out of or in any way related or connected to the resident's stay and care provided at the Facility..."

The paperwork contained a "comprehensive explanation of arbitration" and "makes explicit that 'the execution of [the Agreement] is voluntary and not a precondition to receiving medical treatment at or for admission to [facility]."

The last section of the agreement provided a 90-day rescission period: "You have the right to seek legal counsel and you have the right to rescind this agreement within ninety days from the date of signature of both parties."

The matter was remanded to the trial court for an evidentiary hearing over the family's claim that the son was told he had to sign the agreement. Likely as not-so-subtle guidance to the trial judge on remand, the court gratuitously pointed out (1) the son signed the documents AFTER admission, (2) the paperwork is contrary to the affidavit, and (3) the paperwork references getting legal counsel and rescinding in 90 days.

We note that Life Care recently made pro-arbitration law in two Florida appellate courts: the Second and Fifth Districts both agreed that the AAA's refusal to hear matters based upon pre-dispute health care arbitration agreements does not prevent arbitration when the agreement referred disputes to the AAA (the cases are Perez v. Life Care and Life Care v. Stern). On the flip side, see this Georgia case with a slightly different set of facts and an inopposite outcome.

The Third DCA issued a fairly obvious and non-groundbreaking decision in Francisco F. Galvez Lopez v. Atlas Financial Group, LLC (Ramirez, Rothenberg, and Schwartz) -- although the case may hold the interest of those in investments and/or parties seeking to employ "third party beneficiary" status as a means to invoke arbitration as a non-party to the arbitration agreement.

An individual investor (the plaintiff) claimed that the defendant investment advisor mismanaged account #1. The documents relating to that account do not include an arbitration clause.

The individual investor had also opened account #2 with another institution (a "clearing broker") where the defendant-advisor was the "introducing broker." That account included an arbitration clause; the defendant-advisor signed as the "introducing broker" but was not deemed a party to the contract because of its limited role.

The defendant convinced the trial court that the arbitration clause relating to account #2 applied to account #1. The Third DCA was not so convinced, pointing to an old Fifth Circuit case and the instant facts, circumstances, and wording of the arbitration agreement in account #1.

Looks like the U.S. Supreme Court is going to do some weeding in the garden of arbitration cases. Will they clarify issues to the point that they put a lowly blog like us outta business? I doubt it. But we've got an interesting Spring to look forward to.

SCOTUS took up the case of Rent-A-Center West, Inc. v. Jackson, on an expedited briefing schedule (see SCOTUS docket here), which comes out of this September 9, 2009 Ninth Circuit opinion.

Previously we mentioned the Stolt-Nielsen v. AnimalFeeds case which involves the question of what to do when an arbitration clause is silent as to a class action claim.

In Rent-A-Center, the arbitration clause gives the arbitrator the ability to decide "any dispute relating to the interpretation, applicability, enforcement or formation of this Agreement..." The situation involves a discrimination claim in the employment context. The plaintiff-employee claims that the agreement is procedurally and substantively unconscionable and wants the court to decide. The Ninth Circuit agreed.

First stop in the analysis was the fact that Buckeye Check Cashing, Inc. v. Cardegna calls for challenges to the whole contract to go to the arbitrator whereas challenges to the arbitration clause goes to the court. The rationale is that, where parties agree there is a contract, a party still can't be compelled to arbitration without a court determining there is a duty to arbitrate.

This arises from 9 U.S.C. 4, which says that a court can't compel arbitration until the court is satisfied that the making of the arbitration is not at issue.

We talked about these very issues in this post regarding Life Receiveables Trust v. Goshark and (in Florida) Jaylene v. Steuer.

So says Judge Cohen in a special concurrence in George T. Andrews v. Thomas J. and Sandra R. McPartland (5th DCA, Per Curiam).

In an auto accident where defendant-driver was sued as was the (purely vicarious) auto owner, the plaintiff made the mistake of serving an undifferentiated Proposal for Settlement on two defendants.

Under Florida Supreme Court precedent, it fails (although the special concurrence suggested that it should not apply to cases involving undisputed pure vicarious cases).

As we've previously mentioned, the Third and Fourth DCAs have shot down Proposals for this shortcoming -- just within the last year.

A donut franchise dispute erupted into an arbitration, then trial de novo, and then an appeal. The extensive dispute concluded... over the interpretation of civil procedure rules and the nettlesome Chapter 44.

The case is Dunkin' Donuts Franchised Restaurants, LLC v. 330545 Donuts, Inc. (Gross, Taylor, and May). Of note, the Fourth DCA last addressed Chapter 44 back in September 2009 in this case.

Several corporations and at least one individual sued as plaintiffs in a franchise dispute and won, at arbitration, $90,000. The Plaintiffs determined that they may do better at trial and sought trial de novo under F.S. 44.103(5). Note, we're presuming that the parties were sent to arbitration (or agreed) post-dispute since that is typically not an option under most pre-dispute arbitration clauses.

Leading up to trial, the individual plaintiff was dismissed via a signed stipulation of dismissal where both sides would bear their own fees and costs. The pleadings were also amended and, at trial, it was one plaintiff and one defendant.

Upon a defense verdict, the defendant sought fees under F.S. 44.103(6) against both the remaining plaintiff and the (dismissed) individual. As the Panel put it, "section 44.103(6) is directed at the miscalculation of the strength of a case after an arbitration award; the purpose of the statute is to encourage acceptance of the arbitration award, not to punish litigation misconduct."

The trial and appellate court agreed that this would not work and that fees were only assessable against the remaining plaintiff. Under Florida Rule of Civil Procedure 1.420(a)(1), a voluntary dismissal removes the court's ability to enter an order (equivalent to lacking jurisdiction). Nontheless, the court could retain jurisdiction under Rule 1.540, but that jurisdiction is limited.

Because of the stipulated dismissal under Rule 1.420, the former individual plaintiff was no longer a "party." Chapter 44 involves assessing fees against a "party." Thus, the court has no jurisdiction.

A dispute over whether a home construction case should be sent to arbitration or litigation turned on the wording of the arbitration clause. Home buyers and builders may want to check the wording of their contract, since this arbitrable matter was distinguished from two DiVosta Homes cases which failed due to "non-specifically worded" clauses. While this particular dispute involves mold infestation / exposure, the precedent applies to all construction defects.

The case is Jose and Lorena Rodrigues v. Builders FirstSource - Florida, LLC, Boyton Beach Associates, XVI, LLLP, Boyton Beach XVI Corporation, and G.L. Homes of Florida, Inc. (Ciklin, May, and Damoorgian).

At first blush, the opinion seems to be over-thought since the arbitration clause (paragraph H.19) is suitably broad ("all post-closing claims, disputes and controversies between Purchaser and Seller will be resolved by binding arbitration...") as well as specific ("including without limitation any claimed defect in the home... any claims for personal injury...).

The Panel cited a prior Fourth DCA case, Engle Homes, Inc. v. Jones, as controlling precedent since it involved a similar mold infestation of a new house claim and a broad arbitration clause, "..any and all unsettled claims or disputes regarding the construction of Residence arising after closing shall be settled by binding arbitration..."

In avoiding arbitration, the Plaintiff cited Oberstar v. DiVosta Homes, L.P. and Kaplan v. DiVosta Homes, L.P., where the courts recently declined enforcement of arbitration.

However, those arbitration clauses both referenced disputes which were "arising out or or relating to this Contract or the Purchase of the Unit..." In those cases, the courts held that the parties did not need to rely on the contract to prove or disprove a tort claim, much like the Seifert v. U.S. Home decision.

Thus, if the arbitration clause is broad (any and all claims), the courts seem to contemplate just that... any and all claims. If the clause limits itself to the contract, some claims (such as torts) are not arbitrable. In short, the reference to "the contract" in the arbitration clause will curtail the scope of the arbitration clause.

BUT, be careful, as this instant case relied upon the fact that "the arbitration clause [here and in Engle] specifically related to problems with the actual construction..." which may suggest that the courts are looking both for a broad clause (any and all claims) but also reference to tort claims as a specifically cited example.

A best practice certainly includes a broad arbitration clause. Whether that needs to be followed by an "e.g., any personal injury, statutory or any other claim of any kind" remains to be seen.

Questions about your arbitration clause? Give me a call or email.

The parties in Premier Real Estate Holdings LLC v. Park I. Butch, Atlantic Melbourne, Inc., and Melbourne Properties, LLC (Polen, May, and Gerber) had a fairly standard contract with an arbitration clause -- but they failed to fill in the blank about which rules apply to arbitration and who administers it. Does that void the agreement to arbitrate?

Consistently, Florida intermediate appellate courts are saying, "no." Herein, the failure to designate the rules underwhich arbitration would be governed did not invalidate the arbitration clause. This holding is premised on Florida Statute 682.02, which provided "gap filler" terms in situations where the court can settle these types of questions.

Although the Fourth DCA did not cite the cases, the same court had issued similar rulings in 2009.

The Fifth District concluded 2009 with an opinion finding that an exculpatory clause in a dog show's contract was not sufficiently clear and unambiguous in Marie and Charles Tatman v. Space Coast Kennel Club, Inc. et al. (Monaco, Lawson, Jacobus).

As we've discussed before, exculpatory clauses in Florida receive strict analysis and must have only one clear interpretation to be valid.

In this case, the plaintiffs were owners of a dog and signed a form contract to show the dog. It was noted in the opinion that, during dog shows, the owners often do not personally show the dogs and may not even attend. The contract, in one paragraph, noted that the owner confirmed they owned the dog and that the dog was not hazardous. In the next sentence, it said, "I agree not to hold [dog show] liable for any accident or injury."

In this case, the owner was at the show and was injured when bitten by another dog. The owner sued the dog show and, as a defense, the hosts used the contract as a defense. The appellate court ruled that the sentence was ambiguous since it was unclear whether it was referring to just the dog or to the dog and the owner. Thus, with two reasonable alternative interpretations of the exculpatory clause, it was deemed void.

Tip: broad waiver clauses should be in their own paragraph so as to avoid being limited by prior/subsequent sentences.

In late 2009, the Fourth District held in Grant v. Lyons that there were certain "usual terms" to a general release and the inclusion -- or suggestion of inclusion -- may not be a counter offer.

The First District faced a similar issue in Roger J. Gonzalez v. Dawn Elizabeth Claywell and ended up with a split panel (Padovano, Wolf, and Thomas (dissenting)).

In Gonzalez, Plaintiff's counsel sent to Defendant's insurer a $26k settlement demand with the instruction that settlement would not include indemnification. The insurer agreed and sent a proposed release... which included indemnification language. The Plaintiff rejected it and the insurer reported that they included that term in error and sent back a proposed release which did not have the offending language. The Plaintiff refused.

The majority held that Plaintiff's offer was specific, the insurer's response was a counter-offer, and there was no agreement. The majority noted that some cases may suggest that including an insurer on the release is commonplace however none of those cases involved offers where such terms were expressly rejected.

The dissent suggested that the insertion of a meaningless term had no legal consequence and further hinted that it was part of the "usual settlement documents."

The American Association for Justice, the lobbying organization for plaintiff lawyers, voiced its agenda for 2010 earlier this week, indicating that eradicating arbitration clauses, specifically those in nursing home agreements, will be a primary focus for this year.

Proposed federal legislation to eliminate consumer and nursing home arbitration clauses has been kicking around for some time with little success.

But the calculus for bill passage may have changed in recent months with the enactment of a narrow anti-arbitration law which may have cracked upon a fissure of forthcoming anti-arbitration legislation. H.R. 3326, which prohibits military contractors from using clauses which require arbitration of certain claims in employment contracts, was fueled primarily by a former employee/plaintiff who claimed she was raped -- and that her ability to recover was hampered by a star chamber arbitration panel. Many who watched the bill's progress (including us), predicted that (1) the military contractor bill would pass and (2) it would become a stepping stone of forthcoming bills to broaden the initial success.

Needless to say, that latter "prediction" was not much of a leap, considering this Law.com article ("Next Target for Plaintiff's Bar: Nursing Homes?") indicates that the AAJ has now openly acknowledged its intentions to build upon HR 3326's success. We assume lobbyists will continue the same strategy and attack a specific industry -- nursing homes -- first and then move on to lobbying for even broader consumer anti-arbitration laws thereafter. Probably a good strategy.

We've covered prior stories about major credit card companies/banks dropping arbitration clauses from their customer agreements (see our post last month re: JP Morgan and Bank of America).

A website, Legal X, recently ran a story suggesting that the banks' voluntary decisions may actually be due to "pressure of a pending class action lawsuit filed by Philadelphia-based Berger & Montague." Apparently the allegation in that case was that lenders were colluding on arbitration terms and that there were still several defendants in that case including The National Arbitration Forum, Discover Financial Services, Citibank, and HSBC.

In a related news story, it was reported that "[u]nder the tentative settlement, Bank of America will drop the arbitration clause and class action ban from its consumer and small business credit card agreements for at least 3-1/2 years beginning in 2010. Bank of America will also immediately stop enforcing the existing arbitration clauses against cardholders."

The AP ran a similar story regarding Capitol One's actions, although that DC-area based lender denied that their actions were related to the lawsuit.

Since 2007-2008, there has been a rash of cases interpreting what is, and is not, a broad durable power of attorney. This issue had laid dormant for eons until nursing home counsel nosily rattled the POA cage in the ongoing dispute over enforcement of arbitration clauses in long term settings. Slowly an answer about how to interpret POA's is emerging with some convergence among the intermediate appellate courts -- with the exception of the Second District's vague and errant decision in McKibbin v. Alterra, which (erroneously) hinted that POAs had to specify their powers.

If you need a refresher, McKibbin and a string of subsequent cases leading up to the 2008 case of Jaylene v. Moots is here. Jumping ahead to February 2009, we covered Five Points v. Mallory, where the First District aligned itself with the Second in favor of finding broad granting of powers in POAs (tilting against the inferences found in the McKibbin decision). This issue re-occurred in Carrington v. Milo (Second DCA March 2009), Sovereign v. Huerta (Second DCA May 2009), Carrington v. Hicks (Second DCA December 2009), and Jaylene v. Steuer (Second DCA December 2009).

Enter the Fifth District Court of Appeal with the case of Estate of Ellen Lucille Smith et al. v. Southland Suites of Ormand Beach, LLC et al., favorably citing the foregoing First and Second DCA cases as well as conjuring up the 2006 Fourth DCA case, Alterra v. Bryant.

The Fifth DCA offers this concise take-away message from Florida Statute 709.08(6), "unless otherwise stated in the durable power of attorney, the durable power of attorney applies to any interest in property owned by the principal, including... all other contractual or statutory rights or elections." The court specifically disagreed with the challenger's perspective that a POA needed to expressly list "arbitration" as a type of agreement in the attorney-in-fact's abilities. Instead, it held the opposite. Given the string cite which includes recent cases from the First, Second, and Fourth DCAs, we're going to call this issue closed.

This short case also ends the McKibbin mystery as to why it appears to stand alone. In that case, the McKibbin court painted with a broad brush but failed to provide the specific POA language at issue. The Fifth DCA in the Smith case was able to cure that problem since counsel before it had the McKibbin language. In McKibbin, it appears, the POA provided an exclusive list of powers limited to taxes, trusts, real estate, and personal property. The Fifth concurred that it was a limited POA and agreed with the holding of McKibbin -- thereby unleashing McKibbin from marring a clear precedent that all-encompassing (yet vague) POAs should be treated broadly.

Note, at least in the version available over the January 8-10 weekend, the Fifth DCA's opinion mis-spells the Steuer case, cited above, as "Steur."