Florida Litigation Update: Voluntarily Dismissal Trumps Arbitration Award

Over the past few years, we have written about significant developments in the area of commercial arbitration proceedings here [Complex Commercial Litigation Update: New York’s Separate Entity Rule and the Reemergence of Florida as a Potential Gateway for Judgment Creditors to Seize Debtors’ Foreign Assets in Enforcement and Collection Proceedings], here [Florida Litigation Update: Arbitration Clauses are Not Always Enforceable], here [Litigation Update: Appellate Arbitration], here [Litigation Update: American Arbitration Association Announces Changes to Commercial Arbitration Rules] and here [Florida Complex Litigation Update: Raymond James Financial Services, Inc. v. Phillips: Florida Supreme Court rules that statute of limitations applies to arbitration].

We continue our coverage of this critically important issue today. Recently, the Florida Third District Court of Appeal, in Laquer v. Falcone, Case Nos. 3D14-1803, 3D14-1804, 40 Fla. L. Weekly D936b (Fla. 3d DCA Apr. 22, 2015), available here,  addressed whether the voluntary dismissal of a claim referred to arbitration divests the arbitrator of jurisdiction to enter an award even after maintenance of a final evidentiary hearing.  Under the facts in Laquer v. Falcone, the Third District found that the arbitrator did lack jurisdiction to enter an award.

The appellant in Laquer v. Falcone (Edie Laquer) filed a lawsuit against the appellants (Arthur Falcone and various companies) known as the “Joint Venture Lawsuit” involving a dispute over Laquer’s equity interest in a multi-million dollar real estate project in downtown Miami known as the “Miami WorldCenter” project.  In separate foreclosure actions, the bank(-mortgagee) sued Laquer.  Laquer, in the Joint Venture Lawsuit, then filed cross-claims against Falcone, alleging that Falcone breached a duty to defend in the foreclosure actions.  Falcone, based on a dispute resolution provision in the underlying corporate operating agreements between the parties, responded by moving to compel arbitration of the “duty-to-defend”/indemnification cross-claims.

The trial court denied the motion to compel, finding that the parties waived their right to compel arbitration by participating in the foreclosure lawsuits and the Joint Venture Lawsuit.  On appeal, in 13 Parcels LLC v. Laquer, 104 So. 3d (Fla. 3d DCA 2012), available here, the Third District reversed, holding that the arbitration provision in the operating agreements controlled the duty-to-defend cross-claims, which limited issue did not appear in the record to have been waived or raised in any other litigation matters between the parties.

On remand after the first appeal in 13 Parcels, Falcone subsequently moved to compel arbitration of the entire Joint Venture Lawsuit, as opposed to merely the duty-to-defend cross-claims.  The trial court denied this motion to compel, which the Third District affirmed in Falcone v. Laquer, 132 So. 3d 1171 (Fla. 3d DCA 2014), available here.  The appellate court in Falcone v. Laquer found that the Joint Venture Lawsuit was “a much larger case” than the duty-to-defend claim, and that the “larger” lawsuit included claims, parties and alleged agreements that were not governed by the arbitration provision.  Separately, the appellate court found that the parties seeking to compel arbitration had waived any limited right to arbitrate the Joint Venture Lawsuit by the filing of a motion to dismiss, discovery requests, discovery responses, a motion for summary judgment and counterclaims, all which were deemed by the court to be “consistent with the alleged right to compel arbitration.”

On remand again after the Falcone v. Laquer appeal, the trial court stayed the duty-to-defend cross-claims from the pending lawsuit pending arbitration, pursuant to the Florida Arbitration Code, Fla. Stat. § 682.03 (2010), available here, allowing a trial court to stay severable issues subject to arbitration, and the trial court referred the cross-claims to arbitration.

Before the start of arbitration, Laquer settled with the bank in the foreclosure actions.  Laquer, in the Joint Venture Lawsuit, then filed voluntary dismissals of the duty-to-defend cross-claims.  Notwithstanding, the arbitrator conducted an arbitration hearing, at which Laquer argued that the arbitrator lacked subject matter jurisdiction and the hearing was “futile” because there was no arbitrable dispute after Laquer had voluntarily dismissed the cross-claims.  After a three-day evidentiary hearing, at which Laquer did not participate while Falcone presented witnesses and exhibits, the arbitrator entered a final arbitration award against Laquer, concluding in the award that Laquer would take “nothing” in the duty-to-defend cross-claims.

Lacquer opposed confirmation of the arbitrator’s award, which opposition the trial court denied by confirming the award.  Lacquer thereafter moved for rehearing and reconsideration, and to vacate the award.  At a non-evidentiary hearing on those motions, Falcone argued that the stay of litigation pending arbitration rendered Laquer’s notices of voluntary dismissal ineffective.  The trial court agreed, finding that, because Laquer did not “come forward to lift the stay,” the voluntary dismissals were improper.

On appeal, now the third in the saga, the Third District in Laquer v. Falcone addressed two issues:  (1) whether the trial court’s stay rendered the voluntary dismissals “ineffective” such that the arbitrator retained jurisdiction to enter an award on the duty-to-defend cross-claims; and (2) if the stay did not render the voluntary dismissals ineffective, whether the voluntary dismissals deprived the arbitrator of jurisdiction to enter an award.  The appellate court answered the first issue in the negative, and the latter in the positive, and thus effectively vacated the arbitration award.

Specifically, as to the stay issue, the Third District found that the voluntary dismissals were consistent with the central purpose of a stay, i.e., “to prevent the taking of any further steps in the action during the period of the stay.”  In other words, Laquer “ceased to take any further steps in the action when she put an end to the action altogether.”  Thus, the stay on the cross-claims did not preclude the filing of voluntary dismissals or render them ineffective.

As to the arbitrator’s jurisdiction, the Third District agreed with Laquer’s position that the trial court erred when it confirmed the arbitration award because there was no dispute left to arbitrate.  Relying on Florida Rule of Civil Procedure 1.420(a)(1), available here, the court highlighted that this rule allows a plaintiff to dismiss an action, a claim or any part of an action or claim without court-order by filing a notice of dismissal at any time before a hearing on motion for summary judgment.  However, under the Second District’s decision in Soares Da Costa Construction Services, LLC v. Alta Mar Development LLC, 85 So. 3d 1172 (Fla. 2d DCA 2012), available here, the Third District noted in Laquer v. Falcone that the filing of voluntary dismissals under Rule 1.420(a)(1) is subject to an exception where a defendant demonstrates “serious prejudice” if the dismissal is allowed.  The court added that serious prejudice in this context includes situations where the defendant (1) is entitled to receive affirmative relief, or a hearing and disposition of the case on the merits, (2) has acquired substantial rights in the case or (3) where dismissal is inequitable, citing the Fifth District’s decision in Ormond Beach Associates Limited v. Citation Mortgage, Ltd., 835 So. 2d 292 (Fla. 5th DCA 2002), available here.

However, the appellate court found that the so-called “Ormond Beach exception” did not apply to the facts at issue in Laquer v. Falcone.  First, Falcone was not seeking any affirmative relief; and, regardless, the duty-to-defend cross-claims, which were the only claims compelled to arbitration, were dismissed.  Second, the Third District found that Falcone failed to demonstrate serious prejudice, rejecting Falcone’s argument that the final arbitration award empowered Falcone to obtain attorneys’ fees, costs and expenses incurred as a result of Laquer’s demand that Falcone defend the foreclosure actions and of Falcone’s subsequent efforts to avoid arbitration of the dispute.

Thus, the court in Laquer v. Falcone held that Falcone had not acquired substantial rights in the litigation for purposes of the Ormond Beach exception.

Preliminarily, the court distinguished Soares, noting that the parties in that case stipulated to a stay pending arbitration and expressly acknowledged that “the issues raised in the arbitration proceedings [in that case] were the same issues underlying the [Soares] Complaint.”  Additionally, in contrast to the timing of the voluntary dismissal in Laquer v. Falcone, the plaintiff in Soaresfiled the notice of voluntary dismissal after the arbitrator entered an award in favor of the defendant in that case.  Thus, in Soares, the Second District found that the defendant in that case had acquired substantial rights in the litigation after the defendant prevailed on his counterclaim in the arbitration because the defendant’s motion to confirm the arbitration award acted as a “counterclaim” in the main action once the motion to confirm was filed and served.  The appellate court in Soares further noted that, based on the stipulation between the parties in that case for arbitration, the parties each attached “some level of importance” to the arbitrator’s determination for purposes of the substantial-rights analysis.

The court in Laquer v. Falcone also found that the arbitrator exceeded his jurisdiction when it made findings of fact supporting the final arbitration award relative to the Joint Venture Lawsuit, because the only issue compelled to arbitration was the duty-to-defend issue and the Third District already had held that the Joint Venture Lawsuit was not subject to arbitration in Falcone v. Laquer(the second appeal).

Finding that Laquer’s voluntary dismissal deprived the arbitrator of subject matter jurisdiction over the arbitrable issue (the duty-to-defend cross-claims), and that the arbitrator thus exceeded his jurisdiction when entering a final arbitration award, the Third District in Laquer v. Falconereversed the trial court’s judgment affirming the award.

In sum, the foregoing appellate decisions reinforce the important strategic implications related to motions to compel arbitration for both sides of the ledger at all stages of litigation.  Among other considerations, litigants should carefully assess up-front how their conduct in the actual litigation and/or in other pending litigation might impact their subsequent ability to demand arbitration or, conversely, to resist it.  For example, in 13 Parcels, the court compelled arbitration of a limited claim when the parties had not waived the claim or raised it in any other litigation; whereas, inFalcone v. Laquer, based on waiver, the court refused to compel arbitration of the entire lawsuit when the party seeking to compel had affirmatively participated in the suit (by, among other things, moving to dismiss, engaging in discovery and moving for summary judgment).  Similarly, inSoares, the parties’ pre-arbitration stipulation helped support affirmance of the arbitration award in that case.  Further, plaintiffs should consider up-front the timing of voluntarily dismissals, given that the filing of a notice of voluntary dismissal before an arbitration hearing may deprive the arbitrator jurisdiction to entertain the arbitration (as in Laquer v. Falcone), while the filing of a notice of voluntary dismissal after the entry of an arbitration award may be too late to resist the arbitration (as in Soares, where the defendant there already had acquired substantial rights in the cause when the voluntary dismissal notice was filed).  As for defendants, they likewise should consider up-front whether or not to seek affirmative relief in any action for arbitration purposes, which the defendant did in Soares by filing a counterclaim in the arbitration and then moving to confirm the arbitrator’s award.

The attorneys at Fuerst Ittleman David & Joseph have extensive experience in all areas of complex civil and criminal litigation, pre-litigation and arbitration, including international and domestic business disputes.  The firm also specializes in wealth preservation and asset protection designed to preserve wealth, protect assets and form the foundation for continued, protected wealth-creation (whether domestically or offshore).  Please contact us by email at contact@fidjlaw.comor telephone at 305.350.5690 with any questions regarding this article or any other issues on which we might provide legal assistance.