Multistep ADR: Florida Appellate Court, Emphasizing Contract Language, Says Trial Ct (Web)
June 7, 2007
In Ocean Yachts Inc. v. Florida Yachts Int’l Inc., No. 3D07-606, 2007 WL 1610183 (Fla. App. 3rd Dist. June 6, 2007)(available at: http://www.3dca.flcourts.org/Opinions/3D07-0606.pdf), Florida’s Third District Appeals Court affirmed in part and reversed in part a lower court's ruling ordering parties to mediate in New Jersey, but then proceed in Florida if the mediation failed.
The unanimous three-judge panel held that while, under their contract, the parties needed to mediate, Florida could not be imposed as the venue for a follow-up arbitration. The panel found that the trial court improperly rewrote the parties' agreement regarding the venue.
In August 2005, defendant-appellant Ocean Yachts Inc., a New Jersey corporation, entered into an agreement with plaintiff-appellee Florida Yachts International Inc., a Florida corporation, in which FYI would be an exclusive dealer of Ocean Yachts-manufactured boats in several southeastern Florida counties.
According to the appellate opinion, the agreement included a med-arb provision providing that disputes between the parties would be
resolved first by non-binding mediation or arbitration to take place where the non-complaining party was located, to be followed by legal action in the place where the prevailing party in the non-binding mediation or arbitration is located if not resolved in non-binding mediation/arbitration.
“Several years into the operation of this agreement,” the opinion continues, FYI filed suit, alleging breach of contract and seeking declaratory relief. But FYI had failed to first proceed to non-binding mediation and arbitration.
Ocean sought dismissal, stating that FYI had failed to follow the proper dispute resolution procedure, alleging that the action could not be maintained in any venue.
Although the trial court denied Ocean's motion to dismiss, it ordered the parties to mediate in New Jersey, and then to proceed to Florida if the mediation failed. On a reconsideration motion, the trial court decided, according to the panel opinion, that “because the mediation had been ordered, the venue requirements stated in the parties' agreement did not apply.”
The trial court attempted to justify this ruling by reasoning that mediation and arbitration are mutually exclusive terms, with mediation by definition non-binding, and arbitration, under American Arbitration Association rules, binding on all parties.
The trial court found that “because mediation ends without declaring a winner, the ‘prevailing party’ venue privilege provided by the agreement does not apply.” Ocean appealed.
The appellate court affirmed that the trial court correctly ordered the parties to mediate. The agreement required mediation and arbitration to occur before litigation. Likewise, the venue had to be where the non-complaining party, Ocean, was located, New Jersey.
But on the issue of a subsequent venue, the appellate court held that parties may contract not only for venue, but also provide how venue should be determined. Therefore, the trial court's ruling was improper because, “without necessity or justification, [the court] rewrote the parties’ agreement” by approving a Miami-Dade County, Fla., venue for any legal action after the mediation.
The appellate court stated that “there is nothing that prevents agreement to non-binding arbitration even if conducted according to AAA rules.” As support, the court cited Volt Information Sciences Inc. v. Board of Trustees of the Leland Stanford Junior University, 489 U.S. 468 (1989), which states that “parties are free to structure their arbitration agreements as they see fit,” including “the rules under which the arbitration will be conducted.”
Furthermore, the appeals panel observed fatal flaws in the trial court's reasoning on binding arbitration. The opinion notes that “if, as the trial court found, arbitration necessarily was ‘binding’ on these parties, there would be no need to bring suit much less to select venue, thereby making this provision which clearly addressed venue . . . superfluous.”
Therefore, the appellate court reinforced that parties are free to contract for the med-arb venues according to their intent at the time of contract.
Finally, with regard to the issue of “prevailing” at mediation, the appellate court noted that since “mediators are authorized to make ‘oral and written recommendations for settlement’” under AAA rules, it saw “no reason why these recommendations cannot either indicate, upon request, or be utilized to determine which of the parties prevailed, as the parties here agreed.”
It appears that the appellate panel is indicating that while mediation is not about winning per se, it is possible to assess who has a stronger case, which would permit the venue determination for the arbitration proceeding, as required by the parties’ original agreement.
The appellate court affirmed the order for the New Jersey mediation, but reversed and remanded for further proceedings.