Construction: Florida Appeals Court Says Standard Architects' Step ADR Clause (Web)

Florida’s First District Court of Appeal, in Auchter Co. v. Zagloul, No. 1D06-2817, 2007 WL 671080 (March 7, 2007) (available at http://opinions.1dca.org/written/opinions2007/3-07-07/06-2817.pdf), reversed and remanded a Duval County trial court's denial of a motion to compel mediation or arbitration under an American Institute of Architects standard contract that requires a step ADR process–mediation first, and then arbitration.

The appeals court remanded, directing the lower court to grant the appellant's motion, and “compel the parties to submit to mediation and, if mediation fails, to binding arbitration; and stay the action pending the parties' compliance.”

The case arises out of a standard AIA contract for the construction of a house entered between appellant Auchter Co, a Jacksonville, Fla..-based builder, and appellee Fouad Zagloul in 2003. Auchter secured a certificate of occupancy in 2005.

Two months later, Zagloul terminated the contract based on “substantial breaches,” and filed a four-count complaint seeking damages. Auchter responded by filing a motion to dismiss or to compel mediation and arbitration, and stay the action. Auchter argued that pursuant to AIA contract subparagraphs 4.5.1 and 4.6.1, appellee Zagloul was required to submit any “claims arising out of or related to the contract” to mediation and, if mediation failed, to binding arbitration.

Zagloul opposed the motion on the ground that the contract between the parties had been terminated and, as a matter of law, the General Conditions’ mediation and arbitration provisions did not survive that termination.

The Duval County Circuit Court denied the company's motion. Auchter appealed. The main issue was whether the mediation and arbitration provisions contained in the contract were valid when the appellant sought to invoke them.

The opinion discusses both the federal statutory provisions and Florida's arbitration code with regard to elements that courts consider while ruling on a motion to compel arbitration. The appeals court reviews Aberdeen Golf & Country Club v. Bliss Construction Inc., 932 So.2d 235 (Fla. 4th DCA 2005), which appellee Zagloul contended was binding on the trial court because it was the only Florida appellate decision construing the mediation and arbitration provisions contained in the standard AIA contract.

Auchter had argued before the trial court that Aberdeen wasn’t controlling because the discussion of the effect of the contract’s termination on the mediation and arbitration provisions was dicta, and the case’s actual holding was that the owner had waived the right to insist on mediation or arbitration when it terminated the contract.

The appellate court distinguished the Aberdeen facts, stating that in the case, it was the owner who sought to repudiate the contract by terminating it. Auchter Co. also involved an owner repudiating a contract. But Aberdeen involved a party seeking the benefit of the contract's dispute resolution provisions, as opposed to the Auchter Co. situation where the contractor was demanding enforcement.

In Aberdeen, the owner's action had constituted a waiver of its right to insist on arbitration. The unanimous Auchter Co. appellate panel disagreed with Aberdeen court's dicta regarding the intent of the standard AIA contract as to alternative dispute resolution mechanisms. The panel, relying on several judgments, noted that “an arbitration provision does not require any type of ‘savings clause’ to survive contract termination.”

The opinion notes that “[a]rbitration provisions are to be construed to require arbitration of disputes arising after the cancellation of the underlying contract unless such disputes are specifically excluded from arbitration. . . . Because post-termination disputes are not expressly excluded from the scope of the dispute resolution provisions of the contract, we must construe them as intended to be included.”

The appeals court observed that Aberdeen overlooked the AIA contract definition of claims. The “Claim,” the opinion points out, was meant to include other disputes and matters between the Owner and Contractor “arising out of or relating to” the contract. The language “does not purport to limit ‘Claims’ to disputes arising” before contract’s termination.

The appeals panel was convinced that arbitration was intended to be the sole remedy if a party to the contract requested it. In construing the AIA contract, the appeals court concluded “that the provisions were not intended to be a substitute for litigation in court,” but were intended to make it clear that, even if neither of the parties asks for arbitration, “they still must first submit their disputes to the architect, and then to mediation, before they may proceed to litigation.”

The opinion also notes that the Aberdeen court's dicta “disregards the propositions that arbitration clauses are to be given the broadest possible interpretation in order to accomplish the purpose of resolving controversies out of court. . . . To read arbitration provisions such as that in this case as not intended to survive termination of the contract would permit parties to avoid arbitration simply by purporting to terminate the contract, thereby frustrating such policy objectives.”

The panel held that the trial court erred as a matter of law when it ruled that the mandatory mediation and arbitration provisions didn’t survive appellee Zagloul’s purported termination of the contract.

–Ongmu Tshering, CPR Intern