When a business is purchased, often the former owner will enter into a separate employment agreement to provide continuity of service to the customers and a smooth transition from the former owner to the new one. Such agreements typically include a non-compete provision so that the former owner does not attempt to take the customers away from the new owner. If a dispute arises over these agreements and one agreement contains an arbitration clause and the other does not, then a court will need to interpret the agreements and evaluate the claims to determine if the parties must arbitrate the claims. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida. Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.
An example of this occurred in Sunsplash Events Inc. v. Robles, 150 So. 3d 1194 (Fla. 4th DCA 2014). Pedro Robles (Robles) entered an employment agreement with Sunsplash Events Inc. (Sunsplash) which contained a non-compete provision prohibiting Robles from having direct or indirect ownership or other financial interest in any business which competes with Sunsplash. The agreement also contained an arbitration provision which stated, in pertinent part, “the Parties hereby agree and specifically stipulate that all differences, claims or matters of dispute relating to the performance of duties and/or benefits arising between the Parties to this Agreement contained herein shall be submitted to a mutually acceptable arbitrator.” Robles and Sunsplash also executed a bill of sale agreement selling Robles’ business to Sunsplash. The bill of sale agreement required Robles to cease further operation of his business. The bill of sale agreement, however, did not contain an arbitration provision.
Robles later filed a lawsuit against Sunsplash and its president (Defendants) based on claims failure to pay under the employment agreement or the bill of sale agreement, and claims that Sunsplash’s president made misrepresentations to Robles that induced him to enter the employment and bill of sale agreements. Defendants moved to dismiss and compel arbitration of of the claims relating to the bill of sale agreement. Defendants contended that the employment agreement’s arbitration provision, was “written broadly to encompass all matter[s] between the parties…. Therefore, the issue of the bill of sale is arbitrable and this case must be dismissed.”
Robles contended that his claims related to the bill of sale agreement were not arbitrable issues because they did not relate to matters specifically contemplated by the employment agreement. Robles contended that his claims related to the bill of sale, a wholly separate and independent contract, did not present circumstances in which the resolution of those claims required either reference to, or construction of, the employment agreement. Robles contended that the employment agreement did not reference the bill of sale, nor did the bill of sale reference the employment agreement. Robles further contended that the bill of sale contained terms and conditions that were solely related to the purchase and transfer of ownership of inventory housed in two warehouses, and for the rental of those warehouses. The bill of sale did not address Robles’ employment with Sunsplash and contained no provisions that even remotely suggested that reference to the employment agreement would be required should a dispute arise regarding the terms and conditions of the bill of sale. The employment agreement likewise did not suggest that other contracts, such as the bill of sale agreement, required reference to the employment agreement for resolution of a dispute between the parties.
The trial court denied the motion to dismiss and compel arbitration. Defendants immediately appealed. On appeal, Defendants contended that Robles’ claims arose from the same operative facts, namely: 1) mispresentations that induced Robles to enter both the employment and bill of sale agreements, and 2) that both agreements prohibited Robles from working, owning or operating any other business which competed with Sunsplash. The appellate court agreed with Defendants.
“Generally, the three fundamental elements that must be considered when determining whether a dispute is required to proceed to arbitration are: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived.” Jackson v. Shakespeare Found., Inc., 108 So.3d 587 (Fla. 2013). The appellate court focused on the question of whether Robles’ claims relating to the bill of sale agreement created an arbitrable issue under the employment agreement’s arbitration provision.
The appellate court made four rulings regarding Robles’ claims and the contracts at issue. First, the appellate court found that the employment agreement contained a broad arbitration provision because it subjected “all differences, claims or matters of dispute relating to the performance of duties and/or benefits arising between the Parties to the Agreement.” Second, the appellate court found that Robles’ claims relating to the bill of sale agreement had a significant relationship to the claims relating to the employment agreement. Robles alleged that Sunsplash’s president made numerous misrepresentations that induced him to enter the bill of sale agreement and that those same misrepresentations induced him to enter the employment agreement. The appellate court held that based on this circumstance, the claims related to the bill of sale agreement are inextricably intertwined with the clams related to the employment agreement. Third, the appellate court found that resolution of Robles’ claims relating to the bill of sale agreement required the construction and consideration of duties arising under the employment agreement. Because there was a consistency of non-compete duties under both agreements the determination of whether Robles complied with the duty to cease his business under the bill of sale agreement may have required determination of whether Robles complied with the non-compete provisions of the employment agreement. Fourth, the appellant court held that “to the extent any ambiguity may exist in the scope of the employment agreement’s arbitration provision, we resolve that ambiguity in favor or arbitration.” The appellate court reversed the trial court’s order and remanded it back for entry of an order compelling arbitration of Robles’ claims.
Peter Mavrick is a Fort Lauderdale non-compete lawyer who also practices non-compete litigation in Palm Beach, Boca Raton, and Miami. This article does not serve as a substitute for legal advice tailored to a particular situation.