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Case Law Update

The Trial Court’s Role with Contested Motions to Compel Arbitration

Cirrus Holdings USA, LLC v. Welch, 41 Fla. L. Weekly D2125 (Fla. 4th DCA September 14, 2016)

A medical staffing company and its employee entered into a written employment contract that contained an arbitration clause. The employee contended that the contract was orally terminated and replaced by a new oral contract when he was promoted. The employee sued the company for unpaid commissions under the oral contract. The company moved to dismiss the complaint for failing to comply with the arbitration clause. The trial court denied the motion to dismiss without explanation. On appeal, the appellate court noted that pursuant to Section 682.03 of the Florida Statutes, the trial court’s inquiry upon receipt of a motion to enforce an arbitration agreement is limited to three issues: (1) whether a valid arbitration agreement exists, (2) whether an arbitrable issue exists, and (3) whether the right to arbitration was waived. If an enforceable agreement exists, the trial court is required to stay the case and order the parties to arbitrate the dispute. Failure of the trial court to determine whether an enforceable arbitration agreement exists constitutes reversible error.

Severability of Offending Clause from an Arbitration Agreement

Hochbaum v. Palm Garden of Winter Haven, LLC, 41 Fla. L. Weekly D2265 (Fla. 2d DCA October 5, 2016)

On behalf of her deceased husband, the plaintiff filed a complaint against the nursing home's alleging causes of action for, among other things, violation of Florida Statute § 415.1111 (civil action by a vulnerable adult), which contains a prevailing party attorneys’ fee provision. The nursing home defendants filed a motion to compel arbitration based upon arbitration agreements that plaintiff signed on behalf of her husband. Before the trial court, the plaintiff argued that the agreements violated public policy because they required each party to pay its own attorneys’ fees, thus precluding the plaintiff from recovering attorneys’ fees under Florida Statute § 415.1111. Therefore, the plaintiff argued that the arbitration agreements were unconscionable and void as against public policy. The trial court ordered the parties to arbitrate. On appeal, the court found that the arbitration agreements violated public policy to the extent that they limited the statutory remedies available to the plaintiff. Nevertheless, the appellate court also found that the offending provision did not go to the essence of the agreement as it only related to attorneys’ fees and did not limit other damages that the plaintiff might recover. In light of its limiting effect, the appellate court found that the offending attorneys’ fees provision could be severed from the agreement even in the absence of a severability clause.  

Statutory Duties of Real Estate Agents

Kjellander v. Abbott, 41 Fla. L. Weekly D 2155 (Fla. 1st DCA September 19, 2016)

After purchasing a home, the buyers sued the sellers, the sellers’ real estate agents, and the buyers’ home inspector alleging they concealed and failed to disclose numerous defects, including water damage, mold, and a malfunctioning HVAC system. Among other things, the trial court dismissed the buyers’ counts for fraudulent misrepresentation, fraudulent concealment, and breach of the duties of honesty, candor, and fair dealing from the complaint. In the sales contract, the buyers agreed that they would rely upon the sellers and third parties (not the real estate agents) for representations about the fitness of the home. On appeal, the court noted that the contract also included a provision stating that the real estate agents were not relieved of their statutory obligations. According to the appellate court, the real estate agents’ statutory obligations under Chapter 455 and 475 of the Florida Statutes included a “duty of honesty and fair dealing, a duty to disclose all known facts that materially affect the value of the property and are not readily observable, and a duty not to make misleading, deceptive, or fraudulent representations in any transaction.” In reversing the trial court, the appellate court ruled that the buyers’ allegations were sufficient to withstand the motion to dismiss.

Expiration of a Restrictive Covenant During the Pendency of the Lawsuit

Florida Digestive Health Specialists, LLP v. Colina, 41 Fla. L. Weekly D2078 (Fla. 2d DCA September 7, 2016)

Florida Digestive Health Specialists (FDHS) sought to enjoin Dr. Colina from violating a partnership agreement who began working for a competitor known as Intercoastal Medical Group (IMG). One of few issues on appeal was the impact of the expiration of the two-year restrictive covenant during the pendency of the litigation. Dr. Colina and IMG argued that the lapsing of the restrictive covenant rendered the preliminary injunction issue moot on appeal. Conversely, FDHS asserted that the restrictive covenant was tolled the period Dr. Colina was in violation of the restrictive covenant and that the two-year period of the restrictive covenant should begin from the date the court enters the preliminary injunction. Citing numerous authorities, the appellate court ruled that where there is a delay in enforcement of a non-compete injunction, the party seeking the injunction is entitled to the full benefit of the restrictive covenant set forth in the agreement between the parties. Because Dr. Colina had been violation of the restrictive covenant from the date he began employment with IMG and FDHS had not yet reaped the benefits of its contractual bargain, it would be unfair to hold that the restrictive covenant expired during the course of an appeal. Thus, the appellate court held that the “two-year injunctive period shall commence on the date the order is entered on remand.”

FINRA Corner

Forum Selection Provisions

FINRA Notice to Member 16-25 (July 2016)

Forum selection clauses in agreements between FINRA member firms (e.g. brokerage firms) and customers requiring customers to arbitrate in a private arbitration forum (forum other than FINRA) or litigate in state or federal court do not supersede FINRA Rules requiring parties to resolve disputes in FINRA’s arbitration forum, and the use of such forum selection clauses may subject the brokerage firm to disciplinary action by FINRA. Both the FINRA Code of Arbitration Procedure for Customer Disputes (Customer Code) and the FINRA Code of Arbitration Procedure for Industry Disputes (Industry Code) contain broad provisions requiring FINRA member firms and associated persons (financial advisors, brokers, etc.) to arbitrate disputes in FINRA’s arbitration forum. For example, FINRA Rule 12200 of the Customer Code requires the parties to arbitrate: (1) if arbitration is required by a written agreement or if it is requested by the customer, (2) the dispute is between a customer and a FINRA member firm or an associated person of a FINRA member firm, and (3) the dispute arises out of the business activities of a FINRA member firm or an associated person of a FINRA member firm except insurance related business. Brokerage firms often require their customers to sign new account agreements containing arbitration clauses, but FINRA Rule 2268(d) prohibits those agreements from limiting or contradicting the rules of any self-regulatory organization, or limiting the ability of a party to file a claim in arbitration. Despite several federal appellate court decisions to the contrary, FINRA member firms cannot require customers to waive the right to have their disputes arbitrated in FINRA’s forum. The customer’s right to the FINRA arbitration forum “cannot be superseded or disclaimed by any separate agreement between the customer and member firm.” Nevertheless, after a dispute has arisen, the FINRA member firm and the customer may mutually agree to resolve the dispute by private arbitration or through litigation. The inclusion of pre-dispute arbitration clauses in customer agreement that violate FINRA rules may subject to the FINRA member firm to disciplinary action. Accordingly, FINRA recommended that its member firms “promptly review their predispute arbitration agreements and any other customer agreements and ensure that the agreements comply with FINRA rules.”
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