DOES THE FAILURE TO COMPLY WITH A PRE-SUIT MEDIATION CLAUSE RESULT IN THE WAIVER OF THE RIGHT TO ARBITRATION? ONLY THE ARBITRATOR KNOWS!

Oct 16, 2024   
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Florida’s Second district court of appeal recently issued another opinion in the long line of decisions to determine the gatekeeping question of arbitration under the Revised Florida Arbitration Code, §§ 682.01, Fla. Stat., et seq. (the “Code”). In Patterson v. Melman, 2024 WL 4178473 (Fla. 2d DCA Sep. 13, 2024), the Court addressed an alternative dispute resolution (“ADR”) clause that required the parties to resolve their disputes “by first attempting mediation,” and any “disputes not resolved by mediation will be settled by neutral binding arbitration.” Id. at *1. After the defendant refused to participate in mediation, the plaintiff sued in court. The defendant then moved to compel arbitration. In opposition, the plaintiff argued that mediation was a condition precedent to arbitration and that the defendant waived the right to arbitration by refusing to participate in the first step of the ADR clause, to wit, mediation. The trial court found no waiver and compelled arbitration.

A trial court faced with a motion to compel arbitration must first address the threshold “gateway” question, to wit, whether a trial court or arbitrator decides if the issue is arbitrable. See Seifert v. U.S. Home Corp., 750 So.2d 633, 636 (Fla. 1999) (“Under both federal statutory provisions and Florida’s arbitration code, there are three elements for courts to consider in ruling on a motion to compel arbitration of a given dispute: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived.”) (emphasis added). Arbitrability refers to whether the merits of any legal claims arising from a contract, e.g., the “enforceability, scope, or applicability of the parties’ agreement to arbitrate their claims,” are subject to arbitration. Attix v. Carrington Mortg. Servs, LLC, 35 F.4th 1284, 1295 (11th Cir. 2022) (quotation omitted). Stated differently, arbitrability refers to “(1) whether a valid agreement to arbitrate exists, and if it does, (2) whether the agreement encompasses the dispute at issue.” Bielski v. Coinbase, Inc., 87 F.4th 1003, 1009 (9th Cir. 2023). Arbitrability questions are decided by courts, “unless the parties have entered an agreement stating otherwise.” Romano v. Goodlette Office Park, Ltd., 700 So.2d 62, 64 (Fla. 2d DCA 1997) (citing Thomas W. Ward & Associates, Inc. v. Spinks, 574 So.2d 169 (Fla. 4th DCA 1991)). Florida is no exception, having codified the principle of law in section 682.02(2), Fla. Stat. (“The court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.”). So, is the waiver and condition-precedent question in Patterson one of arbitrability? Yes, but one of procedural, not substantive, arbitrability and therefore one for the arbitrator to decide.

The question before the Second District was whether the failure to comply with a condition precedent to arbitration was procedural or substantive. The defendant argued that the failure to mediate was not a failure to meet a condition precedent because that event could be cured by attending mediation. The plaintiff argued that the underlying failure to mediate was a waiver that could not be cured because suit had already been filed. Was the waiver a procedural issue or a substantive waiver, and who decides?

The outcome of Patterson can be traced to the Revised Uniform Arbitration Act of 2000 (RUAA)—the basis of the Code—which sought to “incorporate the holdings of the vast majority of state courts and the law that has developed under the [Federal Arbitration Act].” Howsam v. Dean Witter Reynolds, Inc., 123 S.Ct. 588, 592 (2002).1 Section 6(c) of the RUAA provides that an “arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled.” The RUAA’s comments add that “in the absence of an agreement to the contrary, issues of substantive arbitrability … are for a court to decide and issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide.” Id., § 6, comment 2, 7 U.L.A., at 13 (emphasis added). Florida codified this distinction between procedural and substantive arbitrability in Section 682.02(3), Fla. Stat., which provides “An arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled and whether a contract containing a valid agreement to arbitrate is enforceable.”2

Since § 682.02 delineates the gateway function between courts and arbitrators, the confusion in Patterson may have arisen from the fact that trial courts, when deciding a motion to compel arbitration, must decide “whether the right to arbitration was waived.” Seifert v. U.S. Home Corp., 750 So.2d 633, 636 (Fla. 1999). The trial court was likely aware of § 682.02(3) but may not have considered the waiver-of-arbitration argument to be a “condition precedent to arbitrability” argument. The Second District, while explaining the nuances of the laws of waiver as it applies to conditions precedent, ultimately ruled that it was the arbitrator’s job to determine this gateway question, not the trial court’s. See Patterson, at *5.

Let’s consider Patterson in more detail. To recap, the plaintiff argued that mediation was a condition precedent to arbitration and that the defendant “waived the right to arbitration by refusing to participate in mediation.” Patterson, at *1. The trial court disagreed, holding that “the actual occurrence of mediation” was not a condition precedent to arbitration under its reading of the agreement. Patterson, at *2. On appeal, the issues were “[1] whether and when the failure to perform a condition precedent can constitute a waiver of the right to arbitration and [2] whether and when that question is one for the arbitrator or the trial court.” Id.

Citing § 682.02(3), Patterson concluded that the trial court erred “because the question of condition precedent fulfillment … was not one of waiver, and presuming only for the sake of analysis that failure to fulfill a condition precedent could under some circumstances constitute a waiver, the question would by statute still be one for the arbitrator to decide.” Id., at *2 (emphasis added). To be more specific:

[W]hat is or is not a condition precedent is logically subsumed within the question of whether a condition precedent has been fulfilled: the arbitrator must necessarily identify the nature and scope of any condition precedent before determining whether that condition has been fulfilled. But even if those two questions could be separated from one another, the [Code] is equally clear as to what issues the court may decide; whether a contract contains a condition precedent to arbitration is not one of them. Section 682.02(2), which explicates the division of labor between the court and the arbitrator, confers on the court the authority to “decide whether an agreement to arbitrate exists” and whether “a controversy is subject to an agreement to arbitrate.” Section 682.03(1)(b) sets forth the procedure the court must follow when a party seeks to compel arbitration. Upon the filing of an opposed “motion of a person showing an agreement to arbitrate and Statalleging another person’s refusal to arbitrate pursuant to the agreement … , the court shall proceed summarily to decide the issue and order the parties to arbitrate unless it finds that there is no enforceable agreement to arbitrate.” § 682.03(1)(b) (emphasis added). Reading sections 682.02 and 682.03 in pari materia, it is inescapable that once the “issue” of whether there is an “enforceable agreement to arbitrate,” § 682.03(1)(b), and the question of whether “a controversy is subject to an agreement to arbitrate,” § 682.02(2), are resolved in the affirmative, the trial court is required to order arbitration straight away, leaving no opportunity for the court to address any other questions—such as whether an obligation in the arbitration agreement does or does not constitute a condition precedent.

Id. at *5. Patterson thus provides a welcome summary on the substantive and procedural law to follow when faced with a motion to compel arbitration under Florida’s Code.

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1 Effective July 1, 2013, Florida’s legislature passed the Revised Florida Arbitration Act to adopt portions of the RUAA. See Ch. 2013-232, Laws of Florida.
2 Just as parties can agree to delegate substantive arbitrability matters to an arbitrator, see Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019), it stands to reason that they can agree to designate a court as the adjudicator of procedural arbitrability claims, notwithstanding § 682.02(3), Fla. Stat.

Did Patterson create an interdistrict conflict?

Patterson arguably casts doubt on another District Court decision in which a trial court adjudicated the issue of whether a party had waived the right to arbitration by failing to fulfill a condition precedent.

In Leder v. Imburgia Construction Services, Inc., 325 So. 3d 256, 257 (Fla. 3d DCA 2021), the Third District concluded that a party’s failure to satisfy an arbitration provision, which first required the submission of a claim to an “Initial Decision Maker” within 21 days after the dispute arose, constituted a waiver of arbitration because the parties had agreed that the arbitration right would be waived if the “condition precedent to arbitration is not followed.” Id., at 257. The Third District held that the failure to timely fulfill the condition precedent extinguished the right to arbitration. Yet, as Patterson noted in distinguishing the decision, Leder “seems to suggest” that the contract made it explicit that “a failure to timely fulfill the condition precedent constituted a waiver…. Presuming it was, then the parties’ inaction would be deemed a waiver by operation of the agreement itself without further analysis.” Patterson, at *4, FN1.3

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3 One must, of course, be careful of decisions that precede the 2013 enactment of section 682.02, Fla. Stat. See, e.g., Aberdeen Golf & Country Club v. Bliss Construction, Inc., 932 So. 2d 235 (Fla. 4th DCA 2005).

Leder did not mention § 682.03, so it is debatable whether its unique facts conflict with Patterson. But the ultimate takeaway from Patterson is that while a trial court must evaluate whether the right to arbitration was waived when deciding a motion to compel arbitration, see Seifert, at 636, the question of “whether a certain obligation is or is not a condition precedent is necessarily subsumed” within the arbitrator’s exclusive statutory authority to determine if a condition precedent was fulfilled. Patterson, at *2 (emphasis added). Thus, both cases remain good law; the cautious litigant must be on the lookout for unique contracts like the one in Leder.

Is waiver of the right to arbitration the same as nonfulfillment of a condition precedent to arbitration?

Since Patterson held that the trial court reached the right result by compelling arbitration but acted improperly by resolving the arbitral issue of whether the occurrence of mediation is a condition precedent to arbitration, id. at *5, the nagging question arises: can you argue that waiver and other procedural arbitrability defenses are actually “condition precedent defenses” and thus have the issue decided by an arbitrator? Common sense dictates that it should not be that easy to remove the matter from a court’s hands. Simply calling something a condition precedent does not make it so. Fortunately, the Second District provided pointers for distinguishing waiver from condition precedent in the motion-to-compel arbitration context.

Starting with the general principle that waiver is “the voluntary and intentional relinquishment of a known right or conduct which implies the voluntary and intentional relinquishment of a known right,” Id. at *2 (quoting Raymond James Fin. Servs., Inc. v. Saldukas, 896 So. 2d 707, 711 (Fla. 2005)), and that a party may waive the right to arbitrate if it has “manifested an acceptance of the judicial forum,” Id. (quoting Hardin Int’l, Inc. v. Firepak, Inc., 567 So. 2d 1019, 1021 (Fla. 3d DCA 1990)), the Patterson court held:

When a party demands arbitration without having fulfilled a condition precedent to arbitration, the party may be invoking the arbitration right prematurely, but invoking the right prematurely is not tantamount to acting inconsistently with the right and is certainly not a manifestation of an acceptance of the judicial forum. By demanding arbitration as the appropriate forum to resolve the dispute, even if prematurely, and insisting that no conditions precedent remain to be fulfilled—either on the basis that the action asserted to be a condition precedent has been accomplished or under the rationale that it is not in fact a condition precedent at all—the party has indicated that it wants to arbitrate. As such, it cannot be seen as having acted inconsistently with the arbitration right or to have affirmatively manifested an acceptance of the judicial forum…. In other words, the party seeking arbitration has acted consistently with its right to do so and demonstrated an intent not to relinquish the right.

Patterson, at *3. Moreover, the Court noted, “when, as in this case, the failure to perform a condition precedent can simply be cured by fulfilling the condition precedent, such a failure cannot be conflated with waiver because waiver effects a relinquishment of the right that is irrevocable—that is, it cannot be reinstated without agreement of the opposing party.” Id. (citations omitted).

Such was the situation in Patterson. The appellees did not act inconsistently with—i.e., waive—their right to arbitration by disregarding a condition precedent to arbitration. If anything, they could have simply “cured” the issue by fulfilling the condition precedent. Id. Regardless, the main takeaway from Patterson is that issues such as whether a condition precedent to arbitration was already fulfilled, whether it was retroactively cured, or whether it is even a condition precedent at all, is for an arbitrator to decide.