By: Alexander S. Beck, Esq., Stearns, Roberts & Guttentag, LLC
Arbitration is an alternative to litigation in the court system. There are pros and cons to both forms of dispute resolution. Arbitration can be a quicker and cheaper process though this is less the case in large complex disputes. Litigation allows for more thorough fact discovery and for review of a court’s decision (by appeal), which is severely limited in arbitration. Arbitration can offer the benefit of having the person who decides your dispute be a person with knowledge regarding your industry rather than a judge or jury that may have no familiarity with construction.
The disputes that are subject to arbitration depend on the issues the parties to the arbitration agreement agree to submit to arbitration. In The Village at Dolphin Commerce Center, LLC v. Construction Service Solutions, LLC, 2014 WL 2116361 (Fla. 3rd DCA 2014), the issue of the enforceability of a contract was submitted to an arbitration panel pursuant to the parties’ agreement. One of the issues on appeal was whether a trial court was permitted to revisit the arbitration panel’s determination of the enforceability of the contract.
In Village at Dolphin Commerce Center, LLC, the property owner (“Owner”) and Contractor entered into a contract for the construction of a warehouse. The construction did not go as planned and the Contractor filed a demand for arbitration of its claims against the Owner. During the arbitration proceeding, the Owner asserted the defense that the contract was unenforceable because the Contractor was allegedly unlicensed. Neither party objected to the arbitration panel’s jurisdiction to hear the issue of the enforceability of the contract. The arbitration panel issued an award in favor of the Contractor, which was confirmed by the trial court. On appeal, the Owner argued that the trial court made an error in confirming the arbitration award because doing so resulted in the enforcement of an illegal contract, and the award should be vacated (thrown out).
The appellate court rejected the Owner’s argument, holding that the determination of the legality of the contract was a decision for the arbitrators, and the trial court was not permitted to revisit the determination of that issue. To ask the trial court to revisit the issue would require the court to step into an appellate position, which is not permitted under the Florida Arbitration Code. The court explained that what is arbitrated by an arbitration panel depends on what the parties to the arbitration agreement agree to arbitrate, and in this case, neither party objected to the issue of enforceability being submitted to the panel. The appellate court also relied on case law holding that the issue of the legality of a contract is to be determined by the arbitrators and not the court.
A court’s authority to vacate an arbitration award is limited to the following grounds: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality, corruption or misconduct by an arbitrator; (3) the arbitrator is guilty of misbehavior which prejudiced the rights of a party to the arbitration; (4) the arbitrator exceeded his powers; (5) there was no agreement to arbitrate; or (6) the arbitration was conducted without proper notice. In this case, the appellate court concluded that the Owner’s argument that the arbitrators exceeded their powers by deciding the enforceability of the contract failed because the enforceability issue was submitted to arbitration pursuant to the parties’ agreement. Thus, the trial court was correct in confirming the arbitration award in favor of the Contractor.
This case demonstrates that a trial court is not permitted to revisit the arbitration panel’s decision regarding the enforceability or legality of a contract, if such issue was submitted to the arbitration panel for determination pursuant to the parties’ agreement.
About the Author: Alexander S. Beck is an associate with Stearns, Roberts & Guttentag, LLC. Mr. Beck in construction law including construction lien claims, payment and performance bond claims, bid protests, construction contract preparation, and construction and design defect claims He can be reached for consultation at [email protected].