A recent decision from the Fifth District Court of Appeal addressed a very relevant question for any entity considering entering into a contract that contains a provision for the compulsion of arbitration: which legal actions do or do not trigger a waiver of that right to compel arbitration. In this case, a property seller’s lawsuit over certain deed restrictions did not constitute a waiver because that was a separate agreement and was outside the contract that contained the arbitration clause.
At the heart of this case was a contract for the sale of commercial real estate. The land in question was a portion of an outlet mall in Spring Hill. The mall consisted of a north outparcel and a south outparcel, and the property owner’s April 2014 contract called for it to sell the north outparcel to the buyers for $550,000.
As with almost any commercial contract, the agreement had provisions related to dispute resolution. This contract’s provisions said that Florida law controlled and that they also had 30 days to resolve any dispute that had arisen through mediation. If that did not succeed, they agreed to take the disagreement to binding arbitration in the county where the mall was located.
Prior to the closing of the sale, the seller added some amended deed restrictions (ADRs) on the north outparcel. The new restrictions covered a massive list of things, including all “future buildings or structures, property or building uses or ancillary or related uses, plans, site plans, on site parking, remodeling, renovations or additions as to building type, construction and set backs, Tract replats or subdivisions and the like,” for which the buyer had to submit plans and obtain the seller’s prior approval before acting in any of these areas. The buyer signed an acknowledgement form, consenting to the deed restrictions.
The sale closed, and the buyer promptly began constructing a 6,124-square-foot building on the north outparcel. Unhappy, the seller filed a court petition seeking an injunction but lost, both in the trial court and the appeals court.
The case didn’t end there, however, since the buyer filed a counter-claim for breach of contract. The dispute did not resolve within the first 30 days, and the seller sought to compel arbitration. The trial court rejected that motion.
Waiver or no waiver?
The crucial question on appeal was this: did the seller’s petition seeking to enforce the deed restrictions constitute a waiver of its right to demand arbitration on the buyer’s breach of contract counter-claim? Under Florida law, one way in which an entity can trigger a waiver of its right to compel arbitration is by acting in a way that is inconsistent with the arbitration right. An example of an inconsistent action might be bringing a lawsuit on an issue subject to arbitration.
In this case, however, the appeals court concluded that the seller’s basis for its lawsuit – the provisions of the deed restrictions – was not an issue subject to the sales contract’s arbitration clause. The basis for the seller’s lawsuit was not the sales contract but was the ADR, which was a separate and distinct agreement between the parties. This conclusion meant that the seller’s lawsuit over the deed restrictions did not create a waiver of its right to demand arbitration, and the trial court should have granted its motion to compel arbitration.
In physics, Newton’s Third Law says that every action has an equal and opposite reaction. While there is no identical law in litigation, it is true that most actions do have certain impacts and consequences. The key to selecting any tactical step is understanding the effects that action will or won’t have in other areas. This is just one of many areas in which knowledgeable counsel can provide invaluable help. The experienced Florida commercial litigation attorneys at Stok Folk + Kon have been helping commercial clients for many years and are equipped to assist you with your matter.
Contact us online or by calling (305) 935-4440 to schedule your consultation and find out how this firm can help you protect your interests.
More blog posts:
Florida Court Required to Address Arbitration Motion Before Awarding Summary Judgment in Construction Contract Dispute, Florida Business Lawyers Blog, Feb. 24, 2017
Federal Court Denies Florida Franchisor’s Arbitration Request Due to Contract Clause’s Specifics, Florida Business Lawyers Blog, Dec. 6, 2016
Photo credit: M.O. Stevens at Wikimedia Commons.