Solomon Mediation and Arbitration

In Solymar Investments, Ltd. v. Banco Santander S.A., 672 F.3d 981 (11th Cir. 2012), the Eleventh Circuit addressed the “novel question” of whether a district court finding the existence of a valid contract containing an arbitration clause must then consider a further challenge to that contract's place within a broader, unexecuted agreement.  In Solymar, the plaintiff Holding Corporations invested an undisclosed sum of money with the defendant Santander.  Although the Holding Corporations had requested “low-risk” investments, the funds were placed with a Bernie Madoff-run fund.  The parties ultimately agreed to a multi-part comprehensive settlement, which included an “Exchange Agreement.”  Due to timing issues and based on Santander’s assurance that the remaining documents would be completed soon thereafter, the Holding Corporations acceded to Santander’s request to execute the Exchange Agreement.  When no agreement was reached on the remaining documents, the Holding Corporations filed suit.  Santander moved to dismiss under the arbitration clause of the signed Exchange Agreement.  The district court followed the recommendation of the magistrate judge and dismissed the action.

On appeal, the Eleventh Circuit looked first to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq., which provides that a written arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  The court then examined the interplay of Prima Paint Corp. v. Flood & Conklin Mfg. Co., 87 S.Ct. 1801 (1967) and Granite Rock Co. v. International Brotherhood of Teamsters, 130 S.Ct. 2847 (2010), and held that these cases require a two-step process in considering the arbitrability of any contract containing an arbitration clause:  (1) resolution of any formation challenge to the contract containing the arbitration clause, in keeping with Granite Rock; and 2) determination of whether any subsequent challenges are to the entire agreement, or to the arbitration clause specifically, in keeping with Prima Paint.

As to the Granite Rock inquiry as to contract formation, the Eleventh Circuit found that the district court had properly declined to consider parol evidence.  The Exchange Agreement on its face was not ambiguous, did not leave open essential terms, stated that it contained the “entire agreement” between the parties, and made no reference to the alleged comprehensive agreement.  The fraudulent inducement exception to the parol evidence rule did not apply because the proferred testimony would impermissibly directly contradict an express provision of the Exchange Agreement.

Under the Prima Paint inquiry, the court can consider challenges only to the formation of the arbitration clause within the contract, not broad challenges to general contracts containing arbitration clauses, which are properly reserved for the arbitrator.  Here, the plaintiffs challenged the Exchange Agreement as a whole, so the Eleventh Circuit affirmed the dismissal of the trial court.

For the full case, click here.  

In Best v. Educ. Affiliates, Inc., 37 Fla. L. Weekly D479 (Fla. 4th DCA 2012), the former students of a for-profit educational institution brought an action asserting breach of contract and other claims against the institution.  The trial court granted the institution’s motion to compel arbitration pursuant to the arbitration provision in the enrollment contracts, and the students appealed.  The Fourth District affirmed, finding that the issue of whether the arbitration agreement was invalid on its face due to its limitation on remedies was to be decided by the arbitrators, rather than the court.  The key fact in that case was that the arbitration agreement itself specifically delegated to the arbitrator the determination of the validity of the contract.

For the full case, click here.  

In Perdido Key Island Resort Development, L.L.P. v. Regions Bank  2012 WL 104464, (Fla. 1st DCA 2012), the court found that the claim to enforce the guaranty of a mortgage was not subject to arbitration, even though a foreclosure of the same mortgage was subject to arbitration.  In Perdido, a promissory note contained a “narrowly drawn” arbitration provision.  Neither the mortgage nor two personal guarantees contained any such provision.  However, the mortgage – unlike the guarantees -- explicitly incorporated all of the terms of the promissory note “as though set forth fully herein.”  In addition, the parties to the mortgage (but not the guarantees) were identical to the parties to the note.  The court acknowledged that its holdingwould result in arbitrable as well as non-arbitrable causes of action, but noted that the U.S. Supreme Court had affirmed the separation of such claims in KPMG LLP v. Cocchi,132 S. Ct. 23 (2011).  For the full case, click here.

_ The Second District Court of Appeal recently certified to the Florida Supreme Court the following question to be of great public importance:

DOES SECTION 95.011, FLORIDA STATUTES, APPLY TO ARBITRATION WHEN THE PARTIES HAVE NOT EXPRESSLY INCLUDED A PROVISION IN THEIR ARBITRATION AGREEMENT STATING THAT IT IS APPLICABLE?

Raymond James Fin. Services, Inc. v. Phillips, 36 Fla. L. Weekly D2479 (Fla. 2d DCA Nov. 16, 2011).  In answering this question in the negative as a matter of first impression, the second district held that Florida's statutes of limitations do not apply to arbitrations where the arbitration agreement does not expressly provide for their application. 

In Phillips, the client agreements (“Agreements”) between the claimant Account Holders and Raymond James required any disputes to be submitted to the National Association of Securities Dealers, Inc. (NASD) for arbitration.  The NASD Code of Arbitration Procedure (Code) includes a 6-year time limit on submissions for arbitration.  The Code states that this rule “shall not extend applicable statutes of limitations; nor shall the six-year time limit . . . apply to any claim that is directed to arbitration by the court.”  The Agreements provided:

Nothing in this agreement shall be deemed to limit or waive the application of any relevant state or federal statute of limitation, repose or other time bar.  Any claim made by either party to this agreement which is time barred for any reason shall not be eligible for arbitration. The determination of whether any such claim was timely filed shall be by a court having jurisdiction, upon application by either party.

After the Account Holders filed arbitration claims with NASD, Raymond James filed a motion to dismiss based upon the limitations periods in Chapter 95, Fla. Stat.  In response, the Account Holders filed a declaratory judgment action in circuit court, seeking a declaration that Florida’s statutes of limitations do not apply to arbitration proceedings.  The circuit court entered judgment in favor of the Account Holders, and Raymond James appealed.

On appeal, the second district first found that the Agreements did not expressly state that Florida's statutes of limitations would apply to arbitration claims.  The court found that the language stating that the Agreements would not “limit or waive the application of any relevant state or federal statute of limitation” did not affirmatively incorporate Florida's statutes of limitations into the Agreements.

The court then analyzed whether Florida's statutes of limitations are relevant to arbitration claims.  The court noted that section 95.011 provides: “A civil action or proceeding . . . shall be barred unless begun within the time prescribed in this chapter. . . .”  The court found such phrase to mean a court proceeding and not arbitration, which is an “alternative to the court system.”  Absent a more specific reference to arbitration in section 95.011, and without a clear indication of legislative intent otherwise or case law interpreting the issue, the appellate court found it “too much of a stretch” to extend the statutes of limitations to arbitration proceedings.  For the full case, click here.