A buyer who backed out of the purchase of two different pieces of commercial property remained potentially liable for those non-purchases, since the buyer’s efforts to win a dismissal of the sellers’ lawsuit failed. The buyer’s efforts failed because, contrary to its arguments, the existence of an arbitration clause in the parties’ contracts did not act as an automatic bar to legal actions based upon the failed transactions. The Third District Court of Appeal case provides some useful insight into how arbitration clauses work and what they can (and can’t) do for the parties that sign contracts that include them.
The underlying business transactions that led to this litigation were a pair of sales of commercial real estate. In one deal, the buyer agreed to pay $4.725 million for one parcel, and, in another sale, the same buyer agreed to pay $3.685 million for a different parcel offered by a different seller. Both purchases were conditioned, however, upon the buyer selling a different piece of commercial real estate it owned, for a little more than $9.4 million, to a third party.
Both of the contracts the buyer consummated for the two would-be purchased properties had relatively broad arbitration clauses in them. The provisions stated that any “controversy or claim arising out of or relating to this contract shall be settled by neutral binding arbitration.”
The buyer successfully sold its property but then decided not to close on the two properties it contracted to buy. The sellers sued the buyer and a manager for the buyer, who was the individual who signed the sales contracts.
The manager filed a motion to dismiss in this case. The basic thrust of the manager’s argument was that the arbitration clauses in the contracts functioned as a legal impediment that barred the sellers from going to court and pursuing civil actions.
The trial and the appeals courts ruled against the manager. The problem with the manager’s arguments was that they misapplied how the arbitration provisions in these deals worked. The clauses were not, as the manager appeared to contend implicitly, self-effectuating. In other words, the manager’s position was erroneous from a procedural perspective. The mere presence of these arbitration clauses in these contracts did not automatically work as a total bar to civil lawsuits; they merely gave a party like the manager (who was in the position of a defendant in a civil case) the opportunity to go to the court and seek an order compelling arbitration.
The other flaw with the manager’s position, according to the court, was also procedural. Even with a valid and enforceable arbitration clause, the proper impact of such a provision on a civil lawsuit isn’t dismissal; instead, the trial court must order a stay of the case (and retain jurisdiction) pending the resolution of the arbitration proceeding.
The appellate ruling also made clear that if a party in a position like this manager desires that the trial court rule upon his right to arbitrate a claim, he must file a motion to compel arbitration. A ruling on a motion will not necessarily determine, largely because it does not specifically ask the trial court to determine, a party’s entitlement to arbitrate a claim.
Wherever you are in the process of buying or selling commercial property, you need experienced counsel on your side. The skilled South Florida real estate attorneys at Stok Folk + Kon have been helping buyers and sellers of commercial real estate for many years and have the knowledge and resources you need.
Contact us online or by calling (954) 237-1777 to schedule your consultation and find out how this firm can help you protect your interests.
More blog posts:
Southwest Florida Condo Association Loses Battle Over Interpretation of Bylaw Governing Board of Directors, Florida Business Lawyers Blog, March 4, 2016
Sale of South Beach Walgreens Hits Snag Due to Condo Association’s Right of First Refusal, Florida Business Lawyers Blog, Jan. 22, 2016