ARBITRATION IS A MATTER OF CONTRACT
By: Michael E. Stearns, Esq., Stearns, Roberts & Guttentag, LLC
Arbitration is an alternative to litigation in the court system. There are two sides to the arbitration v. litigation debate and 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 at all with construction.
Since arbitration is only available by agreement of the parties to the dispute, it is a matter of contract and you must include in your arbitration agreement the rules by which you will arbitrate and the types of disputes that will be subject to arbitration. Defining the rules of arbitration is most often done be incorporating the rules of a specific arbitration association such as the American Arbitration Association. Defining what disputes between the contracting parties will be subject to arbitration is a matter of contract drafting. If you want any possible dispute to go to arbitration then language such as “any and all disputes arising out of or relating to the subject matter of the contract” can be used. Sometimes parties only want to arbitrate certain types of disputes while leaving the resolution of other disputes to the court system. Jewelry Repair Enterprises v. Ajani, 2010 WL 1779923 (Fla. 4 th DCA) involved the latter type of arbitration clause.
In that case, a franchisor and franchisee entered into a franchise agreement that called for arbitration of disputes relating to any termination of the franchisor/franchisee relationship. The arbitration provision, however, contained an exception that provided that the arbitration provision was not applicable to the noncompetition provisions in the agreement. When the franchisor learned that the franchisee was involved in another business in completion with the franchise business it declared the franchisee in default. The franchisee responded within the contractual ten day cure period that it was giving up the competing business. The franchisor, however, did not believe that the franchisee had given up the competing business and so brought suit for breach of the franchise agreement and sought injunctive relief prohibiting the franchisee from continuing to operate the franchise business.
The franchisee responded to the lawsuit with a motion to compel the dispute to be arbitrated rather than litigated. The court granted that motion and ordered the parties to resolve their dispute in arbitration and the franchisor appealed the decision. The appellate court correctly reversed the trial court’s decision finding that the plain language of the franchise agreement specifically excluded the present dispute from the mandatory arbitration provision because it was a dispute involving the noncompetition provisions of the franchise agreement. Arbitration agreements are contracts and absent an ambiguity (which will almost always be resolved in favor of arbitration) courts are bound to interpret these agreements in accordance with their plain language.
Here, the trial court incorrectly decided the legal issue of whether the claim should be arbitrated and the disappointed party exercised its right to appeal the court’s decision. A decision by an arbitrator, on the other hand, that incorrectly decides a legal issue is not subject to reversal for failing to follow the law. An arbitrator’s decision is expressed in an “award” and is not subject to reversal, per se. It is only subject to being “vacated” (thrown out) by a court and only where the award was 1) procured by corruption, fraud, or undue means; 2) where there was evident partiality or corruption in the arbitrator; 3) the arbitrator is guilty of misbehavior which prejudiced the rights of a party to the arbitration; or 4) where the arbitrator exceeds his powers. Where an award is vacated, the parties start the arbitration process anew.
About the Author Michael E. Stearns has practiced exclusively in the area of Construction Law since 1996 and was designated as a Board Certified expert in construction law by the Florida Bar in 2005, the first year this designation was available. Mr. Stearns is “AV” rated by Martindale Hubble – the highest professional peer rating for legal ability and ethical standards. He is listed among the “Best Lawyers In America”, “Florida Super Lawyers” and “South Florida’s Top Lawyers”. Mr. Stearns got his start in the construction industry working as a carpenter while attending the University of Florida’s M.E. Rinker College of Building Construction where he earned a Bachelor’s Degree in Building Construction. He has held a Florida State Certified Building Contractor’s license since 1989 and directed multi-million dollar construction projects as a project manager before attending law school and embarking on his legal career.