Editorial: High Court Ruling Keeps Miami On Arbitration Map

by Bilzin Sumberg

Origianlly Published in Daily Business Review - June 14, 2013.

Every practitioner knows that arbitration is a creature of contract, allowing parties to negotiate a framework for private dispute resolution long before any controversies arise. Parties look to arbitration because it offers the efficiency and confidentiality of a private process, with the certainty and convenience of preselected substantive law and a pre-agreed geographic location for the arbitration to take place.

The simple fact that a Florida arbitration is borne out of contract does not mean that the proceeding is exempt from Florida law, however. In fact, the anticipated protection of Florida law is one of the main reasons parties from all over the world – and Latin America in particular – agree to arbitrate under Florida law and within the state.

But before the Florida Supreme Court’s recent decision in Raymond James Financial Services, Inc. v. Phillips, the Second DCA had held exactly that – that Florida’s statute of limitations does not apply in arbitration.

Court Proceedings

In late 2005, several individual accountholders brought an arbitration against their investment firm, Raymond James. Each individual had signed an identical client agreement requiring the parties to arbitrate in accordance with Florida law. Raymond James moved to dismiss on timeliness grounds, and the circuit court, which the client agreement empowered to hear such issues, found that Florida’s Statute of Limitations, chapter 95, does not apply in arbitration.

Raymond James appealed. The Second DCA agreed with the circuit court, reasoning that, based on its reading of Black’s Law Dictionary, arbitration does not fit within the definition of the section 95.011’s “civil action or proceeding” language, which the court believed to be confined to a “court proceeding.” As a result, in the Second DCA’s view, chapter 95 could only apply to arbitration if the parties’ arbitration agreement “expressly” invoked the statute.

Left unchallenged, the Second DCA’s opinion would have made businesses and individuals susceptible to claims in arbitration well past their expiration date, except in the unlikely event that the parties had agreed to be bound the statute. In the former case, the decision would have effectively breathed new life into a vast class of claims that long ago disappeared by operation of law. The resulting exposure could have been devastating.

But the Second DCA certified the issue as one of great public importance. Again, Raymond James appealed. 

Great Importance

The far-reaching implications of the Second DCA’s opinion attracted a lot of attention. Beyond Raymond James’ briefs, diverse amici curiae participated in the appeal, including the Miami International Arbitration Society, the Securities Industry and Financial Markets Association, the Florida Securities Dealers Association, and the Florida Association of Realtors.

Together, the Florida Supreme Court was presented with numerous compelling arguments for reversal. The most fundamental of these was that the court had simply gotten the statutory-construction analysis wrong. Even if “civil action” could not be interpreted to include arbitration, “proceeding” is broad enough for chapter 95 to apply to arbitration.

Also asserted was the presumption in favor of arbitration and arbitrability. Absent an express legislative intent to prevent arbitration, the Second DCA should have concluded that the parties could arbitrate their statutory rights, including those under chapter 95. Holding chapter 95 to not apply would also discourage arbitration, running afoul of the national policy favoring arbitration under the Federal Arbitration Act and implicating federal-preemption concerns.

Finally, the Second DCA’s decision could also lead to strange results. If parties have to expressly invoke chapter 95 for the statutory limitations period to apply, what other statutes needed to be specifically identified to apply in arbitration proceedings? And if chapter 95 does not apply in arbitration, then could parties not conceivably agree to virtually limitless abridgement of the limitations periods, in contravention of section 95.03?

The Florida Supreme Court clearly had much to consider.

Holding that “an arbitration proceeding is within the statutory term ‘civil action or proceeding,’” the Florida Supreme Court reversed the Second DCA’s decision and determined that the individuals’ claims against Raymond James were time-barred.

To get there, the Court also undertook a statutory-construction analysis using Black’s Law Dictionary and found that the lower court had “erred in failing to consider whether arbitration was a form of a tribunal,” which is included in the definition of “proceeding.” The Court also honed in on the risks of potential unfair play under section 95.03 and found supporting legislative intent in the Florida Arbitration Code.

Finally, the Court picked up on the irony of the Second DCA’s interpretation of chapter 95. If correct, then the statutory limitations would not apply where parties have chosen arbitration “to resolve disputes efficiently, quickly, and inexpensively.” As a result, parties would be incentivized to “wait to bring an arbitration claim until documents or witnesses are difficult to locate – a situation that would significantly increase the time, effort, and expensive to resolve a dispute” (not to mention gamesmanship).

Local Impact

Not unlike the Second DCA’s decision, the impact of the Florida Supreme Court’s opinion in Raymond James v. Phillips is also tremendous for parties to Florida arbitration agreements and the Florida arbitration community at large.

Of immediate importance, the Court has rejected an approach that would have revived countless claims that, in a world without the statute of limitations, could have been brought in arbitration (but not in court). As a result, concerned parties now need not undertake the time, expense, and risk of attempting to negotiate amendments to expressly invoke the statute of limitations, including with unwilling claimants who were likely pleased to learn that their once-dead claims may once again be viable.

The Court’s decision also promotes stability in the practice of arbitration in Florida. Because of the efficiency interests cited by the Florida Supreme Court in Raymond James, businesses often include arbitration provisions in their agreements. A drastic change in parties’ expectations about the applicability of Florida law could lead businesses to turn away from arbitration because it is perceived to be unreliable and risky, as in the case where a crafty party sits on its rights until documents have been discarded and witnesses have moved in the hope of obtaining a tactical advantage.

More locally, the Second DCA’s decision, left untouched, could ultimately have called into question the sensibility of Miami’s development as a center for international arbitration, particularly for disputes emanating in Latin America. That is, if parties moved away from selecting Florida law to govern their arbitrations, Miami would become a less appealing venue for those types of disputes than perhaps Sao Paolo, Bogota, or Santiago. Given that Miami is hosting the International Council for Commercial Arbitration Congress (ICCA) in April 2014, local practitioners can now breathe a little easier knowing that the applicability of Florida law to arbitration has been preserved.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bilzin Sumberg | Attorney Advertising

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Bilzin Sumberg

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