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Property Owner Liable to Contractor, Despite Contractor’s Lack of License

Construction_SiteA property owner found itself on the hook for an arbitration award in favor of one of its contractors, even though the contractor was not properly licensed when it signed the agreement with the owner. Once the owner placed the issue of the contract’s enforceability (based upon the contractor’s licensure status) in the hands of the arbitrator, it was bound by the outcome of that arbitration, even if the arbitrator reached a wrong conclusion regarding the contract’s legality, the 3d District Court of Appeal recently ruled.

The case regarded the relationship between The Village at Dolphin Commerce Center, LLC and Construction Service Solutions, LLC, which reached an agreement calling for CSS to build a warehouse on Dolphin’s property. As sometimes occurs, the warehouse project did not progress as planned, and CSS eventually went to court seeking a construction lien against Dolphin. Shortly thereafter, CSS also asked the court to compel arbitration based upon the arbitration clause in the parties’ contract.

Dolphin, in response, argued that the contract was unenforceable and the construction lien request improper because, at the time the two sides reached their agreement, CSS was not properly licensed, and it only became licensed after consummating the agreement.

The trial court in Miami ordered the parties to arbitration. At arbitration, Dolphin again brought up the issue of CSS’ lack of licensure at the time the parties signed their contract. Dolphin did not contest the arbitrator’s authority to address and rule upon the question of whether CSS could enforce the contract or seek a construction lien, given its licensure status.

The arbitrator ruled for CSS, and the trial court approved the arbitration decision. Dolphin appealed, arguing that the trial court erred in approving the arbitration decision, given that the outcome meant enforcing an unenforceable contract. The appeals court did not agree. The arbitrator held a 12-day hearing and, upon its conclusion, sided with CSS. To reach this outcome, the arbitrator clearly, if not explicitly, decided the issue of the agreement’s enforceability. Even if the arbitrator reached the wrong conclusion regarding the contract’s legality, that alone was not enough to vacate the arbitrator’s award in favor of CSS.

One of Dolphin’s missteps was a procedural one. The appeals court pointed out that at no point during the arbitration process did Dolphin challenge the arbitrator’s legal ability to rule upon the issue of CSS’ status and its relationship to the contract’s enforceability. In fact, by bringing up the issue in one of its affirmative defenses, Dolphin placed it before the arbitrator and could not now argue that the arbitrator was wrong in deciding that question.

The outcome of Dolphin’s case places a clear focus on the importance of weighing carefully each element of your business’ commercial contracts before executing an agreement. This is particularly true with regard to arbitration clauses in contracts. Whether you are weighing the pros and cons of a commercial agreement, or are dealing with a contract partner who has not followed the terms of an existing agreement, contact the Florida commercial litigation attorneys at Stok Folk & Kon. Our attorneys can help you assess whether a proposed agreement makes business sense for you, or provide you with the determined advocacy you need to deal with a non-performing contract partner.

Contact us online or by calling (305) 935-4440 to schedule your consultation.

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Photo credit: Mark Ahsmann at Wikimedia Commons.