It has become common practice for businesses to include arbitration provisions within agreements. Arbitration provides businesses a more efficient and less costly alternative to expensive, time-consuming litigation. Normally, arbitration provisions are drafted very broadly to cover all disputes or controversies that could arise between the contractual parties, commonly using the wording “arising from” or “relating to” the contract or agreement. Thus, anyone who signs an agreement containing such a provision will usually be required to proceed with arbitration if a contractual dispute occurs. Often times, however, a dispute will arise and the complaining party will wish to proceed in court rather than being compelled to participate in arbitration. To circumvent arbitration, the complaining party will attempt to argue that the contract is not valid for some reason, i.e. lack of consideration or arguing that the contract was procured by fraud. Based on these arguments, the complaining party will assert that the contract, as well as the arbitration provision contained therein, is not enforceable. Peter Mavrick is a Fort Lauderdale business litigation attorney who has defeated such arguments by arguing that courts, at both the state and federal levels, have concluded that attacking the validity of a contract does not remove a party from the scope of an arbitration provision contained therein.
The leading authority for this principle is the 1967 United States Supreme Court decision in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967). In Prima Paint, the plaintiff brought an action seeking to rescind a contract based on fraud in the inducement. The contract contained an arbitration provision, and the Supreme Court held that the plaintiff’s action for fraud was undoubtedly encompassed by the broad wording of the arbitration provision. In so holding, the court reasoned that if the alleged fraud related to the arbitration clause itself, then a court should resolve the issue. But if the fraud in inducement related to the whole contract which contained an agreement to arbitrate, that issue should be resolved by arbitration.
Although Prima Paint was decided under federal law, Florida courts have found its reasoning persuasive and have extended Prima Paint’s holding to contracts formed and executed in Florida. For example, in Simpson v. Cohen, 812 So. 2d 588 (Fla. 4th DCA 2002), the Florida Fourth District Court of Appeal cited Prima Paint when holding that “[c]ontract language agreeing to arbitrate ‘[a]ny controversy or claim arising out of or relating to this Agreement, or breach thereof ’ has been found to be broad enough to encompass a claim that the execution of an agreement itself was procured by fraud…The fraud in the inducement claim arises from the contract and relates to the other claims that the arbitrator must determine.”
There is an exception, however, to the general rule in Prima Paint which was explained by Florida’s Fifth District Court of Appeal in Beazer Homes Corp. v. Bailey, 940 So. 2d 453, 457 (Fla. 5th DCA 2006). Beazer discussed a line of Florida decisions that departed from the Supreme Court’s rationale in Prima Paint and instead held that “where a party seeks to rescind a contract based on fraud in the inducement, the arbitration provision itself is not enforceable.” This line of Florida decisions relies on the rationale stated by the minority in Prima Paint that “[i]f there is not contract, there can be no arbitration clause ‘of the contract.”’ Nevertheless, Beazer clarified that this exception is limited to cases “where only rescission is sought, and where the controversies between the parties have no relation to the contract itself.” If you have any questions concerning commercial arbitration agreements or the application of Prima Paint to Florida contracts, Peter Mavrick is a Fort Lauderdale Business litigation lawyer who can assist you.
The Fort Lauderdale business litigation attorneys at the Mavrick Law Firm have extensive experience dealing with arbitration, claims for fraud, and other types of business litigation cases throughout the Miami-Dade, Broward, and Palm Beach County areas encompassed by the Third and Fourth District Courts of Appeal, as well as Hillsborough, Sarasota, and other counties encompassed by the Second Circuit Court of Appeal. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.