Compelling Arbitration of Disputes – The Florida v. Federal Law Quagmire
Adjudication of a motion to compel arbitration of a dispute by a trial court often presents a panoply of issues whether the parties’ agreement to arbitrate is invoked pursuant to Florida or federal law. A client’s contractual choice of law, however, may be dispositive as to whether a trial court rules in favor of compelling the parties to arbitrate. While Florida courts have determined the standard for adjudicating motions to compel arbitration is the same under Florida or federal law,1 the application of federal law is materially distinct from Florida law, which a majority of state appellate courts have yet to recognize. One Florida appellate court has gone so far as to state, “when determining the existence of a valid written agreement or an arbitrable issue, the inquiry and result would be the same. Thus, an inquiry into waiver should also yield the same result, regardless of whether the dispute is to be arbitrated pursuant to the federal Act or the Florida [Arbitration] Code.”2
This article, however, is not intended to provide Florida practitioners with all of the nuances and distinctions between Florida and federal law concerning adjudication of motions to compel arbitration. Instead, the author hopes to inform practitioners of some material differences between the two bodies of law. Undoubtedly, selection of Florida as opposed to federal law concerning rights to arbitration could result in the parties’ dispute being resolved through judicial proceedings rather than the intended arbitral forum.
Some Similarities between Florida and Federal Law
Certain federal and state arbitration procedures are virtually identical.3 Additionally, a trial court’s ruling on a motion to compel arbitration is subject to de novo review.4 Thus, the standard of review on appeal is identical whether considered under federal or Florida law.
Like state law, the Federal Arbitration Act directs the court to conduct an evidentiary hearing when the existence of an arbitration agreement is in dispute.5 Just like the Federal Arbitration Act, F.S. §682.03(1) also requires a hearing to determine whether there are disputed issues regarding the making of the agreement to arbitrate or failure to comply.6 If the court finds disputed issues regarding the making of the agreement or the failure, neglect, or refusal to perform same, the court is mandated to summarily hear and determine the issue, with the latter requirement contemplating an expedited evidentiary hearing.7
Thus, there is indeed some similarity between Florida and federal law concerning the standard of appellate review on motions to compel arbitration and the procedure to be undertaken by a trial court when the existence of an arbitration agreement or the arbitration clause itself is in dispute.
Standards for Adjudicating Motions to Compel Arbitration
“The propriety of a motion to compel arbitration pursuant to §4 of the Federal Arbitration Act is a two-step inquiry.”8 “The first step is to determine whether the parties agreed to arbitrate.”9 “The second step in ruling on a motion to compel arbitration involves deciding whether legal constraints external to the parties’ agreement foreclosed arbitration.”10 If there are no impediments to the parties’ agreement that foreclose arbitration, it is unnecessary to address the second step in the analysis.11 Furthermore, the Federal Arbitration Act (FAA) makes enforceable a written arbitration provision in a contract evidencing a transaction involving commerce.12 Where the contract falls within the scope of the FAA, federal law applies.13 When an arbitration agreement contains a choice-of-law provision, that provision must be honored, and a court interpreting the agreement must follow the law of the jurisdiction selected by the parties.14
Agreements to arbitrate are akin to forum-selection clauses.15 Even if a clause was designed to ensure that Florida law would govern enforcement of the arbitration provisions, the FAA would be dispositive.16 When the governing law provision is the FAA and the parties’ agreement plainly falls within the ambit of this federal substantive statute, the lower court is under a mandate to order the parties to arbitration.17 Thus, under federal law, often the sole question to be decided by a trial court is simply to determine whether the parties agreed to arbitrate, which can be decided in the absence of a written agreement.18
In stark contrast, Florida’s appellate courts have expressed under both federal statutory provisions and Florida’s arbitration code that there are three – not two – elements for courts to consider in ruling on a motion to compel arbitration of a given dispute: 1) whether a valid written agreement to arbitrate exists; 2) whether an arbitrable issue exists; and 3) whether the right to arbitration was waived.19
As to whether a valid written agreement to arbitrate exists, the appellate court for the 11th Circuit has rejected that notion and “held that the lack of a written agreement is not an impediment to arbitration.”20 Accordingly, a written agreement is not required under federal law, but is required under Florida law; a material distinction between these bodies of law.
Second, whether an arbitrable issue exists under federal law, similarly, is either determined by what the parties agreed to or is a matter for the arbitrator to decide, not the trial court.21 The answer to the question of who has primary authority to decide whether a party has agreed to arbitrate can make a critical difference to a party resisting arbitration.22 However, the answer to the “who” question is actually fairly simple.23 Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate the dispute, the question of who has primary power to decide arbitrability turns upon what the parties agreed about that matter.24
Notably, the U.S. Supreme Court agrees that a court must defer to an arbitrator’s arbitrability decision when the parties submitted that matter to arbitration.25 When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally apply ordinary state law principles that govern formation of contracts.26 When courts decide whether a party has agreed that arbitrators should decide arbitrability, courts should not assume that the parties agreed to arbitrability unless there is clear and unmistakable evidence that they did so.27
Stated otherwise, the question of arbitrability is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.28 However, procedural questions which grow out of the dispute and bear upon its final disposition are presumptively not for the judge, but rather for an arbitrator to decide.29
As to the third element, whether the right to arbitration was waived, the presumption is also that the arbitrator should decide allegations of waiver, delay, or a like defense to arbitrability.30 Further, the Revised Uniform Arbitration Act of 2000 states that an arbitrator “shall decide whether a condition precedent to arbitrability has been fulfilled and in the absence of an agreement to the contrary, issues of procedural arbitrability are for the arbitrators to decide.”31
Under the Florida or federal view, only an attack on the making of the arbitration provision of the contract raises an issue for the court to decide.32 “A challenge to the validity or enforceability of a contract generally, as distinguished from a challenge to the validity of the arbitration clause specifically, is subject to arbitration, under both the Florida Arbitration Code and the FAA.”33 Under the FAA,34 a trial court must grant a motion to compel arbitration if it is satisfied that the parties actually agreed to arbitrate the dispute.35
Congress has, thus, mandated the enforcementof arbitration agreements.36 Nothing in the FAA indicates that the broad principle of enforceability is subject to any additional limitations under state law.37 In fact, a party is well served to seek judicial imprimatur in order to compel parties to a dispute into arbitration.38 Congress’ clear intent in the Arbitration Act is to move the parties to an arbitrable dispute out of court into arbitration as quickly and easily as possible.39 “Arbitration laws are passed to expedite and facilitate the settlement of disputes and avoid the delay caused by litigation. It was never intended that these laws should be used as a means of furthering and extending delays.”40
The federal courts of appeal have consistently concluded that questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration with which we agree.41 “The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or any allegation of waiver, delay, or a like defense to arbitrability.”42 Where interstate commerce is involved, whether a party waived its right to arbitrate iscontrolled solely by federal law.43 Moreover, the issue of waiver should not be decided by the lower court, but rather by the arbitrator.44
Accordingly, federal court decisions make clear that the three elements considered by Florida state courts in adjudicating a motion to compel arbitration are not the same two elements considered under federal law. Furthermore, only a challenge to the making of an agreement to arbitrate the dispute under federal law rests with the trial court, whereas all other issues are deferred to the arbitrator to decide.
Is a Showing of Prejudice Required to Find Waiver of the Right to Arbitration?
In considering the issue of whether a showing of prejudice is required under federal law, the Supreme Court of Florida, applicable federal law notwithstanding, affirmed the Second District Court of Appeal’s majority decision in Raymond James Fin. Serv., Inc. v. Saldukas, 851 So. 2d 853 (Fla. 2d DCA 2003), holding that a showing of prejudice was not required. Therein, the Second District majority stated the Fourth and Fifth districts have agreed with this court that no showing of prejudice is necessary in order to establish a waiver of the right to arbitrate.45 However, that conclusion, later swept up in the Supreme Court’s Saldukas decision, did not comport with the cited Fourth and Fifth District decisions or necessarily with federal law. Significantly, the Supreme Court accepted the Second District’s decision that Raymond James, by its inconsistent actions, waived the right to arbitrate.46 If, indeed, inconsistent actions caused waiver of the right to arbitrate, that conclusion alone should have ended the inquiry.47 For some inexplicable reason, the Florida Supreme Court did not stop there.
Significantly, the Fifth District, in Morrell, did not conclude that no showing of prejudice was required as adopted by the Second District. Instead, the Fifth District concluded that a party who opposes arbitration need not demonstrate actual prejudice unless waiver is premised on delay in asserting the right.48
Stated otherwise, if waiver is premised on delay in asserting the arbitration right, then a showing of prejudice is required.49 Despite the Florida Supreme Court proceeding beyond where it should, the court in Saldukas did not address the issues of whether waiver of an arbitration right premised on delay requires a showing of prejudice or whether a finding of prejudice is required where it is not clear that a party has foregone its contractual right to arbitrate. Likewise, the Third District, relying on Finn, and acknowledging that federal law controlled, nonetheless found that the FAA does not require a finding of prejudice before a waiver of the right to arbitration may be found.50
In approving the Second District decision, based upon the accepted facts and circumstances of Saldukas, the Florida Supreme Court’s holding was that a showing of prejudice is not required where a party has acted inconsistently with its arbitration right. However, in reaching its conclusion, the Supreme Court overlooked or declined to attempt to harmonize the federal court decisions.51 The Supreme Court also applied state law — declaring itself at liberty to do so — rather than federal law and, assertedly, agreed with Nat’l Found. for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 774 (D.C. Cir. 1987).52
The Florida Supreme Court, like the Second District, declared there was a split among the federal courts on the issue of waiver of the right to arbitrate and a showing of prejudice, without effectively analyzing those federal court decisions.53
Notably, under the law of the 11th Circuit, a party has waived its right to arbitrate if, under the totality of the circumstances, the party has acted inconsistently with the arbitration right and in so acting has in some way prejudiced the other party.54 “When determining whether the other party has been prejudiced, we may consider the length of delay in demanding arbitration and the expense incurred by that party from participating in the litigation process.”55
With due regard for federal law,56 Second District Judge Canady astutely recognized that the cases the majority opinion cited clearly indicate the weight of federal authority supports the view that some showing of prejudice is necessary to establish that a right to arbitrate has been waived.57
For the proposition that a showing of prejudice is required under federal law, the Second District majority cited four decisions; namely, S&H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir. 1990); Fraser v. Merrill Lynch Pierce, Fenner & Smith, Inc., 817 F.2d 250, 251-52 (4th Cir. 1987);58 Fisher v. A.G. Becket Paribas, Inc., 791 F.2d 691,693 (9th Cir. 1986);59 Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985).60
For the contrary proposition, the Second District majority cited two federal court decisions that instead found prejudice is not required only where it is clear that a party has foregone its contractual right to arbitrate: St. Mary’s Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prod. Co., 969 F.2d 585, 590 (7th Cir. 1992);61 Nat’l Found. for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 777 (D.C. Cir. 1987).62 Stated otherwise, a finding of prejudice may be required where it is not clear that a party has foregone its contractual right to arbitrate.63
Thus, the contours of federal law, as determined by a super majority64 of federal appellate courts, fundamentally, are readily harmonized. Those decisions among the federal circuits appear best exemplified by the 11th Circuit decision in S&H: A party has waived its right to arbitrate if, under the totality of the circumstances the party has acted inconsistently with the arbitration right and in so acting has in some way prejudiced the other party.65
To the extent a Florida state court is challenged to decide the issue of waiver under federal law, it should decline to do so under current principles of federal law and refer the matter to arbitration. However, if the court deems it appropriate to decide the waiver issue, it should conduct an initial inquiry to determine whether a party has foregone its right to arbitrate because it has acted inconsistently with the right to arbitrate. If, based on the facts and circumstances, the court determines that a party has not acted inconsistently with the right to arbitrate, then it is not necessary to address the issue of prejudice to the opposing party.66 However, if the court is left with any doubt that a party may have acted inconsistently with the right to arbitrate, the court may then turn to determine whether in so acting, that party has in some way prejudiced the other party.67 “When determining whether the other party has been prejudiced, we may consider the length of delay in demanding arbitration and the expense incurred by that party from participating in the litigation process.”68
Thus, while the Florida Supreme Court determined, under federal law, that a showing of prejudice is not required to find waiver of the right to arbitration, its Saldukas decision appears to stand at odds and in contrast with a majority of federal courts who have decided this same issue.
Conclusion
Although the appellate courts of Florida, including the Florida Supreme Court, have determined, inter alia, the standard for adjudicating motions to compel arbitration is the same under Florida or federal law, practitioners would be wise to reconsider the application of federal law, which affords greater deference to arbitration than Florida law. Accordingly, practitioners wishing to ensure clients an arbitral forum may find that contractual provisions specifying federal arbitration law and federal arbitration rights, which are liberally construed, are the preferred choice.
1 Seifert v. U.S. Home Corp., 750 So. 2d 633, 636 (Fla. 1999); Rappa v. Island Club West Dev., Inc., 890 So. 2d 477, 480 (Fla. 5th D.C.A. 2004); Fla. Power Corp. v. City of Casselberry, 793 So. 2d 1174, 1178-79 (Fla. 5th D.C.A. 2001); Benedict v. Pensacola Motor Sales, Inc., 846 So. 2d 1238, 1241-42 (Fla. 1st D.C.A. 2003); Terminix Int’l Co. v. Ponzio, 693 So. 2d 104, 106 (Fla. 5th D.C.A. 1997); Raymond James Fin. Services, Inc. v. Saldukas, 896 So. 2d 707, 711 (Fla. 2005).
2 Benedict v. Pensacola Motor Sales, Inc., 846 So. 2d 1238, 1241-42 (Fla. 1st D.C.A. 2003).
3 Merrill Lynch Pierce Fenner & Smith, Inc. v. Melamed, 425 So. 2d 127, 128 n.4 (Fla. 4th D.C.A. 1982)(citing Fla. Stat. §682.03(1), with 9 U.S.C. §4) [hereinafter Melamed II].
4 Bess v. Check Express, 294 F.3d 1298, 1302 (11th Cir. 2002); Benedict v. Pensacola Motor Sales, Inc., 846 So. 2d 1238, 1240 (Fla. 1st D.C.A. 2003).
5 Linea Naviera De Cabotaje, C.A. v. Mar Caribe De Navegacion, C.A., 169 F. Supp. 2d 1341, 1348 (M.D. Fla. 2001)(citing §4 of the Federal Arbitration Act); Moses H. Cone Mem’l Hosp. V. Mercury Constr. Corp., 460 U.S. 1, 22 (1983); Merrill Lynch Pierce Fenner & Smith, Inc. v. Melamed, 425 So. 2d at 128 (providing that these statutes “offer a realistic solution in the form of a carefully crafted abbreviated and summary procedure.”).
6 Merrill Lynch Pierce Fenner & Smith, Inc. v. Melamed, 425 So. 2d at 128-29.
7 Id. at 129; see Kemiron Atl., Inc. v. Aguakem Int’l, Inc., 290 F.3d 1287, 1289-90 (11th Cir. 2002)(observing the district court conducted an evidentiary hearing on the motion to stay the proceeding pending arbitration, wherein the testimony showed that neither party had triggered the duty to arbitrate); Tandem Health Care of St. Petersburg, Inc. v. Whitney, 897 So. 2d 531, 532 (Fla. 2d D.C.A. 2005)(finding error by the trial court where the parties disputed the existence of an agreement to arbitrate, which required the adjudication of several mixed questions of law and fact, and the trial court failed to conduct an evidentiary hearing); Houchins v. King Motor Co., 906 So. 2d 325, *9 -*10 (Fla. 4th D.C.A. 2005)(citing Melamed II); Merrill Lynch Pierce Fenner & Smith, Inc. v. Falowski, 425 So. 2d 129, 130 (Fla. 4th D.C.A. 1982)(citing Melamed I and quashing the order denying motion to compel arbitration because the trial court failed to conduct an evidentiary hearing, which hearing held was “based upon legal argument by the parties, memoranda of law, and cases cited therein”); Travelers Ins. Co. v. Irby Constr. Co., 816 So. 2d 829, 830 (Fla. 3d D.C.A.2002)(concluding a court must summarily hear and determine disputed issues regarding arbitration in an expedited evidentiary hearing where “the parties clearly disagree as to the existence and applicability of any agreement to arbitrate”).
8 Klay v. Pacific Health Sys., Inc., 389 F.3d 1191, 1200 (11th Cir. 2004).
9 Mitsubishi Motors Corp. v. Soler Chrysler-P1ymouth, 473 U.S. 614, 628 (1985).
10 Klay, 389 F.3d at 1200; Mitsubishi, 473 U.S. at 628.
11 Klay, 389 F.3d 1191, 1200 n.10 (11th Cir. 2004); see Mitsubishi, 723 F.2d 155, 161-66 (lst Cir. 1983)(discussing whether there existed any legal constraints external to the parties’ agreement that foreclosed arbitration of claims made).
12 MS Dealer Service Corp. v. Franklin, 177 F.3d 942, 948 (11th Cir. 1999).
13 Marine Envir. Partners, Inc. v. Johnson, 863 So. 2d 423, 425 (Fla. 4th D.C.A. 2003); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 277 (1995)(holding that the word “involving” signals an intent to exercise Congress’ commerce power to the fullest).
14 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 87 (2002)(Thomas J., concurring in the judgment)(citing Volt Info. Sciences, Inc. v. Board of Trustees, 489 U.S. 468, 478-79 (1989).
15 Anders v. Hometown Mortgage Services, Inc., 346 F.3d 1034, 1029 (11th Cir. 2003).
16 Huber, Hunt & Nichols, Inc. v. Architectural Stone Co., 625 F.2d 22, 26 n.8 (11th Cir. 1980)(concluding as such, based on a general contract that provided “that it shall be governed by the law of the place where the project is located”).
17 Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219 (1985)(concluding that a court must compel arbitration of otherwise arbitrable claims, when a motion to compel arbitration is made).
18 Buckeye Check Cashing, Inc. v. Cardegna, 126 S.Ct. 1204, 1208-09 (2006) (providing unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance). This opinion reversed the decision of the Supreme Court of Florida which held that “an arbitration provision contained in a contract which is void under Florida law cannot be separately enforced while there is a claim pending in a Florida trial court that the contract containing the arbitration provision is itself illegal and void ab initio” in Cardegna v. Buckeye Check Cashing, Inc., 894 So. 2d 860, 861 (Fla. 2005).
19 See note 1.
20 MS Dealer Service Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999).
21 Buckeye Check Cashing, Inc. v. Cardegna, 126 S.Ct. 1204, 1208-09 (2006).
22 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995).
23 Id.
24 Id. at 943 (internal citations omitted).
25 Id.
26 Id. at 944; Paladino v. Avnet Computer Tech., Inc., 134 F.3d 1054, 1061 & n.1 (11th Cir. 1998)(assuming Florida law applied, however, concluded that principles of contract construction are, in any event, matters of hornbook law).
27 Kaplan, 514 U.S. at 944.
28 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (emphasis by the court).
29 Id. at 84.
30 Id. (citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)(discussed infra)).
31 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. at 85; Terminix Int’l Co. v. Ponzio, 693 So. 2d 104 (Fla. 5th D.C.A. 1997)(concluding the Federal Arbitration Act, 9 U.S.C. §2, et seq., mandates arbitration of a claim brought on a contract containing a written agreement calling for arbitration where the contract evidences a transaction involving interstate commerce). The Terminix court further acknowledged the U.S. Supreme Court decision in Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (1995), in which the Supreme Court, citing a strong federal policy favoring enforceability of arbitration provisions, held that the act is entitled to a broad construction, one that extends to the limits of Congress’ commerce clause power. The Allied-Bruce court, in ordering arbitration, explained that where the transaction involves (i.e., affects) interstate commerce, it is within the ambit of the act, even if the parties did not contemplate an interstate commerce transaction. Terminix Int’l Co. v. Ponzio, 693 So. 2d at 106; Allied Bruce Terminix Co. v. Dobson, 513 U.S. at 274-82. Moreover, an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. United Steelworkers of Am. V. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960). Where “the parties to contracts are from different states performance necessarily entailed interstate commerce.” Huber, Hunt & Nichols, Inc. v. Architectural Stone Co., 625 F.2d 22, 25 (11th Cir. 1980).
32 John B. Goodman Ltd. P’ship v. THF Constr., Inc., 321 F.3d 1094, 1098 (11th Cir. 2003).
33 Fla. Stat., Ch. 682 (2006).
34 The FAA is a congressional declaration of a liberal policy favoring arbitration agreements, notwithstanding any state substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the act. Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); Southland Corp. v. Keating, 465 U.S. 1, 10 (1984). In so enacting, Congress withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration. Southland Corp. v. Keating, 465 U.S. at 10.
35 John B. Goodman Ltd. P’ship v. THF Constr., Inc., 321 F.3d 1094, 1098 (11th Cir. 2003)(citing 9 U.S.C. §3 and Bess); Bess v. Check Express, 294 F.3d 1298, 1304 (11th Cir. 2002).
36 Southland Corp. v. Keating, 465 U.S. at 10.
37 Id. at 11.
38 United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 585 (1960)(concluding the judiciary sits in these cases to bring into operation an arbitral process).
39 Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22 (1983).
40 Merrill Lynch Pierce Fenner & Smith, Inc. v. Melamed, 425 So. 2d 127, 129 n.5 (Fla. 4th D.C.A. 1982)(Melamed II, citing Radiator Specialty Co. v. Cartoon Mills, Inc., 97 F.2d 318, 319 (4th Cir. 1938).
41 Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. at 1.
42 Id. at 24-25. Merrill Lynch Pierce Fenner & Smith, Inc. v. Melamed, 405 So. 2d 790, 791 (Fla. 4th D.C.A. 1981)(Melamed I, holding state courts are bound to apply the Federal Arbitration Act when it applies) agreed with Oppenheimer & Co. v. Young, 456 So. 2d 1175, 1189 (Fla. 1984); vacated on other grounds, Oppenheimer & Co. v. Young, 470 U.S. 1078 (1985).
43 S&H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir. 1990); Huber, Hunt & Nichols, Inc. v. Architectural Stone Co., 625 F.2d 22, 25 & n.8 (5th Cir. 1980).The 11th Circuit adopted all decisions of the former Fifth Circuit handed down prior to October 1, 1981 as binding precedent. Bonner v. City of Pritchard, 661 F.2d 1206, 1209 (11th Cir. 1981)(en banc).
44 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002); Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).
45 Raymond James Fin. Serv., Inc. v. Saldukas, 851 So. 2d 853, 857 (Fla. 2d D.C.A. 2003). Both the Second District and the Florida Supreme Court cited with approval the Fifth District’s decision in Morrell v. Wayne Frier Mfr’d. Home Ctr., 834 So. 2d 395 (Fla. 5th D.C.A. 2003). Raymond James Fin. Serv., Inc. v. Saldukas, 896 So. 2d 707, 710-11 (Fla. 2005).
46 Raymond James Fin. Serv., Inc. v. Saldukas, 896 So. 2d 707, 710 & n.3 (Fla. 2005)(declining to review the issue).
47 Fla. Educ. Assoc./United v. Sachs, 650 So. 2d 29 (Fla. 1995)(holding “a trial court may determine whether the parties to an arbitration agreement have, by their subsequent conduct, waived their contractual right to arbitration”).
48 Morrell v. Wayne Frier Mfr’d. Home Ctr., 834 So. 2d 395, 397 (Fla. 5th D.C.A. 2003)(citing Beverly Hills Dev. Corp. v. George Wimpey of Fla., Inc., 661 So. 2d 969, 971 (Fla. 5th D.C.A. 1995)(citing Finn v. Prudential-Bathe Sec., Inc., 523 So. 2d 617 (Fla. 4th D.C.A. (1988) rev. denied, 531 So. 2d 1354 (Fla. 1988) cert. denied, 488 U.S. 917 (1988)).
49 Finn v. Prudential-Bache See., Inc., 523 So. 2d 617, 619 (Fla. 4th D.C.A. (1988).
50 Rosen v. Shearson Lehman Bros., Inc., 534 So. 2d 1185, 1186-87 (Fla. 3d D.C.A. 1988)(concluding it was comforted by the fact that our choice is consistent with the rule announced by Florida courts in cases deciding this same waiver issue under the Florida Arbitration Code).
51 Raymond James Fin. Serv., Inc. v. Saldukas, 896 So. 2d 707, 710-11 (Fla. 2005).
52 Raymond James Fin. Serv., Inc. v. Saldukas, 896 So. 2d 707, 711 (Fla. 2005)(stating in “our decisions we have not held that there is a requirement of proof of prejudice for there tobe an effective waiver of the right to arbitrate”). This statement was made without citation to any precedential decision(s). See Cardegna v. Buckeye Check Cashing, Inc., 894 So. 2d 860, 875 (Fla. 2005)(Cantero, J., dissenting)(concluding, in relevant part, “the majority’s decision contradicts federal law favoring arbitration”) cert. granted, 125 S.Ct. 2937 (2005), rev. Buckeye Check Cashing, Inc. v. Cardegna, 126 S.Ct. 1204 (2006).
53 Raymond James Fin. Serv., Inc. v. Saldukas, 896 So. 2d 707, 710 (Fla. 2005); Raymond James Fin. Serv., Inc. v. Saldukas, 851 So. 2d 853, 858 (Fla. 2d D.C.A. 2003).
54 S&H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir. 1990). The required proof of prejudice under federal circuit law where there is no clear showing that a party acted inconsistently with the right to arbitrate, appears to be the most significant difference between federal and Florida law where “there is no requirement for proof of prejudice in order for there to be an effective waiver of the right to arbitrate.” Raymond James Fin. Services, Inc. v. Saldukas, 896 So. 2d 707, 710-11 (Fla. 2005)(holding same, but erroneously concluding “that federal law is consistent with Florida arbitration and contract law on this issue”).
55 Id.
56 “The judiciary sits in these cases to bring into operation an arbitral process” and, therefore, a party does not waive its right to arbitration merely by filing a lawsuit wherein it expressly reserves its arbitration right. United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 585 (1960). Notably, fundamental logic and reason dictate that if a party could not initiate a lawsuit to compel the parties to arbitration, a refusing party could not and would not ever be compelled to arbitrate the dispute.
57 Raymond James Fin. Serv., Inc. v. Saldukas, 851 So. 2d 853, 859 (Fla. 2d D.C.A. 2003)(Canady, J., concurring specially) (citing Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990)); Benedict v. Pensacola Motor Sales, Inc., 846 So. 2d 1238, 1241 (Fla. 1st D.C.A. 2003)(providing the FAA has consistently been interpreted to require a showing of prejudice before an implied waiver of arbitration can be found); Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985)(other citation omitted) disapprov. Raymond James Fin. Serv., Inc. v. Saldukas, 896 So. 2d 707, 711 (Fla. 2005)(“to the extent in conflict”). Notably, Benedict addressed the question of “implied” not actual waiver and whether prejudice was required.
58 Provided that the dispositive question is whether the party objecting to arbitration has suffered actual prejudice. Id. at 252. “Neither delay nor the filing of pleadings by the party seeking a stay will suffice, without more, to establish waiver.” Id. Activity inconsistent with arbitration is also a material factor. Id.
59 Because waiver of the right to arbitration is disfavored under federal law, any party arguing waiver of arbitration bears a heavy burden of proof. Fisher 791 F.2d at 694 (citing Belke v. Merrill Lynch Pierce, Fenner & Smith, 693 F.2d 1023, 1025 (11th Cir. 1982); St. Mary’s Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prod. Co., 969 F.2d 585, 591 (7th Cir. 1992)). Acts inconsistent with right to arbitration or prejudice from such acts may result in waiver. Fisher v. A.G. Becker Paribas, Inc., 791 F.2d at 694-98.
60 Raymond James Fin. Serv., Inc. v. Saldukas, 851 So. 2d 853, 857 (Fla. 2d D.C.A. 2003). Prejudice to the other party is the touchstone in determining waiver of the right to compel arbitration. Mere delay in seeking a stay of proceedings without some resultant prejudice to a party cannot carry the day. Id. at 886-87. The Rush court further observed that the U.S. Supreme Court “noted that the legislative history of the [a]ct establishes that the purpose behind its passage was to ensure judicial enforcement of privately made agreements to arbitrate,” Id. at 888 (citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985)), “and to overrule the judiciary’s longstanding refusal to enforce agreements to arbitrate.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. at 219.
61 Like the Edwards court, the Disco court determined that the essential question is whether, based on the circumstances, the alleged defaulting party has acted inconsistently with the right to arbitrate. Disco, 969 F.2d at 588. While the court concluded where it is clear that a party has foregone its right to arbitrate, a court may find waiver even if that decision did not prejudice the non-defaulting party, the court proceeded to agree with the lower court that St. Mary’s was prejudiced by Disco’s litigation activity. Id. at 591. This holding makes perfect sense.
62 It is astonishing to recognize the misplaced reliance on Edwards by Raymond James Fin. Serv., Inc. v. Saldukas, 896 So. 2d 707, 711 (Fla. 2005), as well as by the Second District. This is particularly true because Edwards expressly stated “a court may consider prejudice to the objecting party as a relevant factor among the circumstances that the court examines in deciding whether the moving party has taken action inconsistent with the agreement to arbitrate.” Nat’l Found. for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d at 777. The Edwards court further observed that substantial invocation of the litigation process may cause prejudice and detriment to the opposing party. Id. (citing Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986)). Then, the court proceeded to “hold that in light of appellant’s delay [over three years] in seeking arbitration, its extensive involvement in pretrial discovery, its invocation of summary judgment procedures, and the resulting prejudice to appellee, Edwards cannot now rely on its customer agreement with NFCR to compel arbitration.” Edwards at 778. Edwards plainly does not support the Saldukas decisions reached by the Second District and the Florida Supreme Court for the proposition on which these state appellate courts drew their conclusions.
63 See Reid Burton Constr., Inc. v. Carpenters Dist. Council, 614 F.2d 698, 702 (10th Cir. 1980)(considering a variety of factors including prejudice by delay to conclude there was a waiver) cert. denied 449 U.S. 824 (1980); Miller Brewing Co. v. Fort Worth Dist. Co., 781 F.2d 494, 497 (5th Cir. 1986)(providing waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party).
64 The Second, Fourth, Fifth, Seventh, Ninth, 10th, 11th, and the District of Columbia courts of appeal.
65 S&H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir. 1990).
66 See Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1315-16 (11th Cir. 2002)(providing, “first, we decide if, under the totality of the circumstances, the party has acted inconsistently with the arbitration right, and, second, we look to see whether, by doing so, that party has in some way prejudiced the other party”).
67 Id.; S&H Contractors, Inc. v. A.J. Taft Coal Co., 906F.2d 1507, 1514 (11th Cir. 1990).
68 S&H Contractors, 906 F.2d at 1514; Disco, 969 F.2d 585, 591 (7th Cir. 1992); Nat’l Found. for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 775-78 (D.C. Cir. 1987).
H. Michael Muñiz is a litigation associate at Buckingham, Doolittle & Burroughs, L.L.P., Boca Raton, where he focuses his practice in commercial, construction, intellectual property, and contract litigation with a major concentration in appeals in both state and federal courts. He received his undergraduate degree from SUNY at Buffalo, became a Florida-licensed CPA, and obtained his J.D. from the Shepard Broad Law School at Nova Southeastern University. He acknowledges the capable assistance provided by Brittney Christian on this article.
