Florida: Court Considers Federal Arbitration Act
December 16, 2004
Florida’s Third District Court of Appeals recently held that under the Federal Arbitration Act, the arbitration panel, not the courts, decides whether Florida’s statute rendering contracts unenforceable by unlicensed contractors has been violated. Rewards Hotel Management Company, LLC v. Elite General Contractors, Inc., 28 Fla. L. Weekly D27777b. The statute in question in Rewards Hotel provides:
489.128. Contracts performed by unlicensed contractors unenforceable
As a matter of public policy, contracts entered into on or after October 1, 1990, and performed in full or in part by any contractor who fails to obtain or maintain a license in accordance with this part shall be unenforceable in law or in equity.
F.S. § 489.128 (2002).
Rewards Hotel Management Company, LLC contracted with an unlicensed contractor, National Hotel Renovation Corp. (NHRC) to remodel its hotel. Disputes arose within a few months of the start of the renovation. Rewards Hotel filed suit against NHRC, who in turn filed a motion to compel arbitration.
Rewards Hotel moved to strike the motion alleging that NHRC failed to obtain or maintain a contractor’s license during the construction, and further requested that the trial court hold a hearing to determine the issue of whether Florida’s unlicensed contractor statute had been violated. The motion to strike implied that the arbitration clause would be unenforceable by the contractor if § 489.128 had been violated since the contractor could not enforce the underlying contract containing the arbitration clause.
NHRC argued that the issue of whether the unlicensed contractor statute had been violated was an issue for the arbitrator to decide – not the Court. Subsequently, the trial court granted the motion to compel arbitration, and Rewards Motel appealed.
The issue before the Appellate Court was whether a court must decide as a threshold issue as to whether parties have violated § 489.128 rendering a contract unenforceable before the same parties can enforce their contractual right to arbitration. The Appellate Court upheld the trial court’s ruling, deciding that the threshold issue of determining if the statute had been violated was an issue for the arbitrator – not the courts.
In support of its decision, the Appellate Court adopted the reasoning of John B. Goodman Limited Pship. v. THF Construction Inc., 321 F.3d 1094 (11th Cir. 2003). Specifically, the Eleventh Circuit held in Goodman that where a lawsuit is filed in court, and the court is satisfied that a right to arbitration exists in the underlying contract, then it is for an arbitrator to decide the question of whether the underlying contract is enforceable under Fla. Stat. § 489.128 – not the court.
This case demonstrates that owners should properly submit their claims to
arbitration when a contractor’s violation of Fla. Stat. § 489.128 is at
issue and the underlying contract clearly contains an arbitration clause.
Otherwise, owners risk a waste of time and resources through the
contractor’s efforts to successfully compel arbitration after a court action
has commenced.
For more information, e-mail Douglas W. Walker at
douglas.walker@hklaw.com or call toll free, 1-888-688-8500.
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