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.

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.

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.

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.

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.

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.

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."

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.

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.

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."

In James Pendergast v. Sprint Nextel Corporation, the Plaintiff complained about approximately $20 in charges incurred between 2004-2006 which he discovered in 2008. The Plaintiff challenged the class action waiver as unconscionable and/or in violation of FDUTPA and, by extension, averred that the arbitration clause is void. There is a non-severability clause.

The 54-page opinion is largely jammed with facts and excerpts from the various versions of Sprint's Terms and Conditions. Suffice it to say, from 2001-2008, there were varying arbitration clauses and class action waivers in the Sprint agreement, which were amended from time to time under a clause which indicated Sprint could do so and the phone customer could consent or withdraw from the contract in 14 days. The customer received the Terms and Conditions on the exterior of boxes as he upgraded phones and/or bought new ones. It was also inside the box, on Sprint's website, and referenced on invoices.

Reading between the lines, the federal court seemed impressed that there was no procedural unconscionability: the Plaintiff had notice of the class action waiver, could have canceled within 14 days, could have used similar but not identical phone providers, and the Plaintiff had not presented evidence as to the alleged cost of the phones if he switched providers. That said, it recognized the ongoing battle among the Florida intermediate appellate courts with the Fourth DCA's home-grown "sliding scale" analysis in Romano vs. the independent analysis of both forms of unconscionability advanced by the Second DCA. We note the Eleventh Circuit politely avoided quoting the Second DCA which "eschews" the Fourth District's approach. We further note that the basis for the "sliding scale" approach, as originally offered in the Romano case, was not as strong as the court suggested (see discussion of "Sliding Scale" on page 47 of this 2005 article).

Substantive unconscionability appears to be an equally difficult decision given the schism among the Florida courts. The Eleventh Circuit held that, while the contract prevented class actions which the Unfair Trade Practice Act specifically provided, the contract did provide other alternatives such as informal resolution, small claims court where Spring paid filing fee (and no lawyer was needed), complaints to government agencies, and individual arbitration which Spring would cover.

Our reading is that the traditionally conservative federal court would likely have upheld compulsion of arbitration and the bar on class actions. At the risk of premature and reckless use of a crystal ball, we expect that the Florida Supreme Court may be more inclined to adopt the Fourth District's approach. We will simply have to watch.

Christiansen proposes a fairly solid pre-suit mediation clause:

Disputes arising under this Agreement must first be mediated by a Supreme Court Certified Circuit Civil Mediator in _________County, Florida. The parties agree that the mediation shall occur within thirty (30) days of the date mediation is requested by either party. The Mediator shall be agreed upon but if the parties are unwilling or unable to agree, the parties agree that a Mediator from __________(insert the name of any legitimate mediation company in the pertinent venue) shall be binding on the parties. The parties agree to abide by the Mediator’s Agreement, pay Mediator fees promptly and share them on an equal basis. Litigation may not be commenced until after mediation has been (i) declared an impasse by the Mediator or (ii) terminated in writing by one or both of the parties. The confidentiality provisions of the “Mediation Confidentiality and Privilege Act” shall attach to any such presuit mediation.

Caveats/details:
1. Homeowner pays none of the mediation costs upfront but can be charged with the costs in the Final Judgment;
2. Only Florida Supreme Court certified mediators will be referred cases;
3. The mediator requirement only applies to cases filed AFTER the order (but I can foresee judges agreeing to a Motion to Compel/Request Mediation in pending matters);
4. Mediation fees are capped at $750;
5. New requirement that lender must prove they hold the note.

I'm told that foreclosure defense often involves slowing the process so that the homeowner can develop alternatives. Without question, adding requirements where the lender has to come up with the paperwork to prove the note and scheduling mediation where someone with authority from the bank must attend would, indeed, assist in that purpose.

Commentary from the South Florida Business Journal is here.

The Florida Supreme Court order is here.

The larger question is whether this was a small step towards more significant anti-arbitration legislation.

Thanks to the Legal Times blog, for catching the story, "Obama Signs into Law Restriction on Arbitration Clauses."

Some interesting video clips from Senator Al Franken's speech are here.

Information on the bill, and our own coverage of related issues, is here.

It appears that the defendant filed a motion to compel which was set (by someone) as an 8:45 a.m. five minute hearing (in many districts, if not all, courts are prohibited from taking evidence at an 8:45). There was a dispute regarding the circumstances surrounding the execution of the document.

The trial court denied the motion on the grounds that it could not grant the motion because, like summary judgment, such motions could not be granted if there is a dispute over material facts.

Actually, no, if there is a dispute over material facts, then there needs to be an expedited hearing.

Arguably, this case has some value since it suggests that if the "first" hearing on the motion to compel arbitration is not an evidentiary one, there can be a "second" hearing.