Arbitration: Florida Court Compels Arbitration Pursuant to Clause (Web)

In The Hillier Group Inc. v. Torcon, Inc., No. 2D05-4615., 2006 WL 1479600 (Fla.App. 2 Dist. May 31, 2006), available at: http://www.2dca.org/opinion/May%2031,%202006/2d05-4615.pdf; Florida’s Second District Court of Appeal reversed a trial court order and ordered parties to arbitration where their agreement provided that disputes would be “decided by mediation or arbitration”.  The court further found that a defending party did not waive its right to arbitration by failing to demand it before being sued.
 
Beneficial Management Corporation of America (the Owner) hired Torcon as the design/builder of an office building and parking garage located in Tampa. Torcon retained Hillier to provide architectural and engineering services on the project. They used a standard form contract published by the American Institute of Architects to memorialize their agreement (the Contract).
 
Following the completion of the project, the Owner sued Torcon for alleged design and construction defects in the project. Torcon, in turn, claimed against Hillier and other subcontractors for indemnity and breach of contract. Hillier moved to dismiss the complaint on the basis of the contractual dispute resolution clause.
 
The trial court denied Hillier’s motion, saying that Torcon was not required to submit its claims against Hillier to arbitration. The basis of the ruling is not clear from the written order. However, the trial judge had orally noted that Hillier waived its arbitration right by failing to make a timely demand for arbitration of the parties’ dispute.
 
On appeal, Torcon urged affirmance on four grounds:

(1)        The Contract calls for nonbinding mediation or arbitration rather than binding arbitration.

(2)         Torcon’s claims against Hillier are related to the Owner’s claims against Torcon and Torcon‘s subcontractors to such an extent that all claims should be resolved in a single action because of judicial economy

(3)        Hillier waived its arbitration right by failing to make a timely demand for arbitration pursuant to the requirements of the Contract.

(4)        Hillier also waived its arbitration right by filing, without asserting its right to arbitration, an answer to a separate action for declaratory relief brought by Torcon on separate and distinct but related claims.
 
Torcon argued that because the pertinent part of the Contract lacks the words “only,” “solely,” “binding,” or “final,” it at best suggests a nonbinding method of dispute resolution.The Court of Appeal found Torcon’s argument unpersuasive for two reasons. First, the language of the pertinent paragraph saying that the parties’ dispute “shall be subject to mediation or arbitration” is sufficient to enforce binding arbitration. Second, Torcon’s interpretation is not compatible with Florida’s strong policy favoring the enforcement of agreements to arbitrate.
 
As far as Torcon’s second argument regarding judicial economy is concerned, the Appellate Court concluded that Florida’s policy favoring arbitration required that considerations of judicial economy play no role in its decision.
 
The Appeals Court disagreed with Torcon’s third argument as well, ruling that the Contract’s provisions only required that the demand be made “within a reasonable time.”
 
The trial judge’s oral comments implied Hillier was required to make a demand for arbitration before Torcon filed its lawsuit or Hillier would waive its right to arbitration.
 
 The Appeals Court, however, found that the adoption of the rule that a defending party waives the right to arbitration by failing to demand it prior to being sued would be unwise. Such a rule would enable one of the contracting parties to circumvent an arbitration provision by filing a lawsuit before the other party filed a demand, thereby encouraging the resort to litigation as soon as a dispute arises. This is contrary to the expectations of the parties who have chosen arbitration as the preferred means of settling their disputes.
 
Torcon also claimed that Hillier’s arbitration demand was untimely. The appellate court held that the facts of the case suggested only a delay and not untimeliness rising to a waiver and therefore the issue was to be decided by the arbitrator, not the trial court.
 
The Appeals Court found Torcon’s last argument unpersuasive as well. Hillier had served its answer and affirmative defenses in the separate action on the same day that it served the motion to dismiss that included a demand for the arbitration of Torcon’s claims for indemnity and breach of contract. Therefore Torcon could not support its claim that Hillier gained any advantage in the action before the court by its omission to demand arbitration in the action for declaratory relief.
 
Because the agreement specifically provided for arbitration and Hillier did not waive its arbitration right, the case was reversed and remanded, requiring the trial court to compel arbitration of the parties’ dispute. 

--Zoltan Elek, CPR Intern