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Florida’s Supreme Court considers two arbitration cases from the Second District Court of Appeal

On Tuesday, June 8, 2010, the Florida Supreme Court heard oral arguments on Petitions for Certiorari review of two nursing facility arbitration cases from the Second District Court of Appeal:  Gessa v. Manor Care of Florida, Inc., 4 So. 3d 679 (Fla. 2d DCA 2009), and Shotts v. OP Winter Haven, Inc., 988 So. 2d 639 (Fla. 2d DCA 2008).  The outcome of these cases could determine whether Florida courts adhere closely to the approach federal courts take in favoring arbitration or turn to the route found in the courts of some other states that have disfavored arbitration clauses found in health care facility admission agreements. 

The primary issue before the Florida Supreme Court in these two cases is whether the trial court or an arbitrator should determine that provisions within an arbitration agreement offend public policy and, if so, are unenforceable.  Generally, under federal case law, it is the duty of the courts to determine only “gateway” issues when a party seeks to avoid an arbitration provision within an agreement or contract.  These issues include whether the contract is valid, i.e., there was no fraud or unconscionable conduct in the making of the agreement, and whether the actual disagreement between the parties is subject to arbitration.  Once the court is satisfied that the contract is valid, that the subject of the disagreement is covered by the arbitration provision, and that neither party has waived its right to arbitration, the court must send the case to the arbitrator, who will consider any other issues the parties raise—including whether specific provisions within the contract should be void because they go against public policy or whether they should be enforced. 

In Gessa, Florida’s Second District Court of Appeal found that a challenged limitations provision within an admissions agreement could be severed from the agreement and therefore affirmed the trial court’s order requiring the parties to proceed to arbitration.  In a footnote, the district court expressly noted that it was not deciding whether the trial court or the arbitrator should have the responsibility to determine that a provision of an arbitration agreement is contrary to public policy and should be severed.  Similarly, in Shotts, the Second District determined that provisions limiting a party’s remedies may violate public policy but were severable from the agreement because they were “not so interrelated and interdependent with the remainder of the arbitration agreement.”  Accordingly, the district court affirmed the order compelling arbitration and remanded the case for further proceedings, noting that “the arbitrators will have the ability to sever the improper provisions from the remaining provisions and enforce the remainder of the agreement according to its terms.”         

On Petition for Certiorari Review to the supreme court, the Petitioner/Plaintiff in Gessa, argued that the Second District Court of Appeal stands alone among Florida’s district courts in following the federal approach to arbitration.  Florida’s First, Fourth and Fifth District Courts of Appeal have held that a challenge to a remedial limitation in an arbitration agreement is for the trial courts to decide.  See e.g., Alterra Healthcare Corp. v. Estate of Linton, 953 So. 2d 574, 577 (Fla. 1st DCA 2007); Alterra Healthcare Corp. v. Bryant, 937 So. 2d 263, 270 (Fla. 4th DCA 2006); SA-PG-Ocala, LLC v. Stokes, 932 So. 2d 1242 (Fla. 5th DCA 2006).  The Petitioner asked the supreme court to “resolve the conflict between the Second District and all other” Florida District Courts of Appeals on the issue of whether “arbitrators have the authority to determine whether offending limitations of remedy provision are void as against public policy.”  See Petitioner’s Initial Brief on the Merits, available at http://www.floridasupremecourt.org/clerk/briefs/2009/601-800/index.shtml.  The Petitioner/Plaintiff, in Shotts, made nearly the identical argument concerning the Second District Court of Appeal’s position.   See Petitioner’s Initial Brief on the Merits, available at http://www.floridasupremecourt.org/clerk/briefs/2008/1601-1800/index.shtml.   

In Response, Gessa’s Respondent/Defendant, defended the Second District Court of Appeal’s decision, pointing out that the Florida Supreme Court used the federal analysis when it enumerated the elements a court should consider in making a decision whether to compel arbitration.  See Seifert v. U.S. Home Corp., 750 So. 2d 633 (Fla. 1999).  As to whether provisions within the arbitration agreement offend public policy and may be severed, Respondent pointed out that, again, like federal courts, the Second District limits its determination to only whether the provisions are severable, and if so, they permit the arbitrator to determine whether the provisions actually offend public policy because challenging the validity of a provision that could be severed is not a “gateway” issue for the courts.  See Respondent’s Answer Brief, also available at http://www.floridasupremecourt.org/clerk/briefs/2009/601-800/index.shtml

The Shott Respondent argued primarily that the case was improperly before the Supreme Court of Florida because the Second District’s opinion did not expressly or directly conflict with opinions from other Florida courts.  Nevertheless, the Respondent stated that under federal and Florida law, the determination of whether certain provisions—including liability limitations—within an arbitration agreement are valid or should be severed properly belongs to the arbitrator.  See Respondent’s Answer Brief, available at http://www.floridasupremecourt.org/clerk/briefs/2008/1601-1800/index.shtml.  In an Amicus Curiae Brief, the amicus curiae argued, as the Gessa Respondent had, that the Second District’s approach, giving the trial courts the authority to determine only the validity of the arbitration agreement itself, was correct under both Florida and federal law.  See Amicus Curiae Brief of Heartland of Zephyrhills, FL, LLC in Support of Respondents, available at http://www.floridasupremecourt.org/clerk/briefs/2008/1601-1800/index.shtml.        

In an interesting twist, on July 22, 2010, the Florida Supreme Court granted the Gessa Respondent’s motion to file supplementary briefs discussing the effect of the recent United States Supreme Court decision, Rent-A-Center West, Inc. v. Jackson, 130 S. Ct. 2772 (July 21, 2010), on the outcome of the case.  On the same date, the court, on its own, ordered the parties in Shotts, to also file supplemental briefs on the same topic.  The United States Supreme Court’s holding, in Jackson, supports the position that Florida’s Second District Court of Appeal has taken.  The Jackson Court upheld a provision within an arbitration contract that the gateway question of whether the agreement as a whole is enforceable would be decided by the arbitrator.  Usually gateway questions such as the validity of the agreement are for the trial court.  But because the parties, in Jackson, agreed in the contract to have the issue decided by the arbitrator, the Supreme Court stated that the agreement should be upheld as written and reversed the decision of the United States Court of Appeals for the Ninth Circuit that had reversed the district court’s decision granting a motion to compel arbitration.   

The Florida Supreme Court’s decision on these cases will potentially dictate how all Florida courts will treat specific provisions within even valid arbitration agreements when those provisions are challenged as being unenforceable.  If the court were to determine that the validity of every provision should be determined first by the trial court, it will considerably increase the already numerous challenges to arbitration agreements that are in Florida’s courts.  We will be following the court’s decision closely. 

For more information, please contact Amy Miles at amiles@mccumberdaniels.com

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