Announcing The Revised Florida Arbitration Code

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1 DECEMBER 17, 2013 Announcing The Revised Florida Arbitration Code By: Alex J. Sabo Effective July 1, 2013, Chapter 682 of the Florida Statutes now is known as the Revised Florida Arbitration Code , Fla. Stat. (2013). It applies to all agreements to arbitrate that are made on or after July 1, (1), Fla. Stat. (2013). It can apply to arbitration agreements made before July 1, 2013, if all the parties agree to apply the revised law (2), Fla. Stat. (2013). Otherwise, the law existing at the time of the arbitration agreement applies through June 30, Id. Beginning on July 1, 2016, an arbitration agreement, including one entered into before July 1, 2013, is governed by the Revised Florida Arbitration Code (4), Fla. Stat. (2013). Lastly, the Revised Florida Arbitration Code does not apply to any arbitration that commenced, or any right that accrued, before July 1, (3), Fla. Stat. (2013). Changes in the Revised Florida Arbitration Code are substantial and are discussed below. Their significance flows from the fact that under Florida state court decisional law, Florida s arbitration statutes apply unless expressly preempted by the Federal Arbitration Act. E.g., Lee v. Smith Barney Harris Upham & Co., Inc., 626 So. 2d 969, 970 (Fla. 2d DCA 1993). Thus, while the provisions of the Federal Arbitration Act, if applicable, will preempt conflicting provisions of the Revised Florida Arbitration Code, non-conflicting provisions of Florida law are applicable to arbitrations in Florida. See Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 470 (1989) (provision in state arbitration code is not preempted by Federal Arbitration Act where parties have agreed that their arbitration is governed by that state s law). For this reason, whether to proceed in state or federal court in Florida certainly carries added and potentially case determinative significance, given the new provisions in the Revised Florida Arbitration Code. In addition, in light of these new provisions, making the Revised Florida Arbitration Code Act expressly applicable to the arbitration agreement between the parties is a further consideration, albeit one that that likely merits a great deal of skepticism in light of the Florida legislature s decision to empower arbitrators to decide attorney s fees issues. Provisional Remedies The Revised Florida Arbitration Code includes new Section of the Florida Statutes, which relates to provisional remedies. This section addresses pre-arbitrator appointment provisional remedies, the ability of an arbitrator to issue a provisional remedy, post-arbitrator appointment provisional remedies if the arbitrator is unavailable, and confirmation or vacatur of a provisional remedy for injunctive or other equitable relief. Under (1), Fla. Stat. (2013), a party to an arbitration proceeding, for good cause shown, may petition a court to enter an order granting a provisional remedy to protect the effectiveness of the arbitration proceeding[.] Under these circumstances, the Court s order is limited to the same extent and under the same conditions as if the controversy were the subject of the civil action. Id. Thus, a party may seek injunctive 1

2 The court shall confirm a provisional remedy award for injunctive or equitable relief if the award satisfies for awarding a party injunctive or equitable relief. relief under the express language of the statute pending an arbitration as long as the party is able to satisfy requirements under Florida law for entry of a preliminary injunction by a court. 1 Notably, the statute requires that any motion for a provisional remedy be made by a party to an arbitration proceeding[.] Id. This language necessarily presupposes that a party has initiated an arbitration proceeding before seeking a provisional remedy in a court. In other words, the language suggests that a party may not petition a court for a provisional remedy unless and until the petitioner is a party to an arbitration proceeding. Merely being a party to a contract providing for arbitration presumably is not enough under the plain language of the statute to seek court relief. Once an arbitrator or arbitration panel is appointed, the arbitrator or arbitration panel may grant provisional remedies as provided by (2), Fla. Stat. (2013), including the issuance of interim awards. Notably, the arbitrator must find that such provisional remedy is necessary to protect the effectiveness of the arbitration proceeding and to promote the fair and expeditious resolution of the controversy, to the same extent and under the same conditions as if the controversy were the subject of a civil action. Id. Where an arbitrator grants injunctive or equitable relief, the arbitrator is required to set forth both the arbitrator s factual findings and the arbitrator s legal basis for the award (4), Fla. Stat. (2013). After appointment of an arbitrator or arbitration panel, a party to the arbitration nonetheless may petition the court for a provisional remedy if the matter is urgent and the arbitrator is not able to act timely or the arbitrator may not provide an adequate 1 Under Florida law, a court may issue a preliminary injunction upon proof that a party will suffer irreparable injury unless the status quo is maintained, the party has no adequate remedy at law, the party has a substantial likelihood of success on the merits and an injunction will serve the public interest. E.g., Netfirst National Bank v. First TeleBanc Corp., 834 So. 2d 944, 949 (Fla. 4th DCA 2003). remedy (2)(b), Fla. Stat. (2013). 2 A party to the arbitration, if the arbitrators award provisional relief, is entitled to seek confirmation or vacatur of any provisional remedy award in court. Section of the Florida Statutes governs this procedure (5), Fla. Stat. (2013). Section (2) of the Florida Statutes ostensibly gives a court carte blanche to conduct a de novo review of a provisional remedy award for injunctive or equitable relief issued by an arbitrator. The court shall confirm a provisional remedy award for injunctive or equitable relief if the award satisfies the legal standards for awarding a party injunctive or equitable relief (2)(a), Fla. Stat. (2013). The Court shall vacate a provisional remedy award for injunctive or equitable relief which fails to satisfy the legal standards for awarding a party injunctive or equitable relief (2)(b), Fla. Stat. (2013). 3 Whether these provisions are valid in light of the Federal Arbitration Act is questionable. See Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 578 (2008) (parties may not supplement statutory grounds for vacatur or modification under the Federal Arbitration Act via their agreement to arbitrate). Under Section (1) of the Florida Statutes, pre-award rulings by the arbitrators, which are incorporated into an arbitration award within the meaning of Section , are subject to expedited review by a court, albeit a much more stringent review than that available in regard to injunctive or equitable relief. In regard to preaward arbitrator ruling, a court shall issue an order to confirm the award unless the court vacates, modifies, or corrects the award under or of the Florida Statutes. Pre- 2 Seeking a provisional remedy in court does not waive the right to arbitrate (3), Fla. Stat. (2013). 3 Notably, the Federal Arbitration Act is silent regarding provisional remedy awards for injunctive or equitable relief. 2

3 award rulings, unlike provisional remedy awards for injunctive or equitable relief, therefore are subject to the limited grounds for correction, vacatur or modification found in Sections and of the Florida Statutes, which have language similar to Sections 10 and 11 of the Federal Arbitration Act, 9 U.S.C. 10, 11, rather than the seemingly expansive grounds available for provisional remedy awards for injunctive or equitable relief under Section of the Florida Statutes. Consolidation of Separate Arbitration Proceedings New Section of the Florida Statutes allows a party to an arbitration agreement or arbitration proceeding to ask the court to consolidate separate arbitration proceedings in certain circumstances. The statute discusses the requirements in the conjunctive, establishing that all factors must be present for the court to order arbitration. See Reynolds v. CSR Rinker Transport, 31 So. 3d 268, 270 (Fla.1st DCA 2010) (use of conjunctive and requires party to satisfy all parts of a statute). The factors for the court to consider in regard to a consolidation motion are some commonality between the parties to the arbitrations, the existence of common issues of law or fact, which create the possibility of conflicting decisions, the claims arise substantially from the same transaction or series of related transactions, and the prejudice resulting from the failure to consolidate is not outweighed by prejudice to the parties opposing the consolidation, including the risk of undue delay or other hardship (1), Fla. Stat. (2013). In addition, the statute allows the court to order consolidation of some claims and allow other claims to be resolved in separate arbitrations (2), Fla. Stat. (2013). The court may not order consolidation where an agreement specifically prohibits consolidation (3), Fla. Stat. (2013). The plain language of the statute excludes its application to commencing, maintaining or certifying a claim or defense on behalf of a class or as a class action. Id. While Section provides for a court to order consolidation, it does not address the mechanics of or protocol for any such consolidation. For example, the statute does not address how a court should determine the arbitration panel before whom the consolidated cases will proceed. As a result, whether to seek consolidation presents a party with a choice between seeking consolidation, and running the risk that a court may consolidate the claim before a panel of arbitrators who, historically, have ruled in favor of one side or the other in prior arbitration proceedings, or allowing the cases to proceed separately, with the expectation that a party who prevails may point to the first arbitration panel s decision as dispositive of the same issue before later arbitration panels considering the same or similar issues. Disclosures by Arbitrators New Section of the Florida Statures sets forth disclosures required by arbitrators to an arbitration proceeding. Florida statutory law previously has not codified the disclosures required of arbitrators. The new law requires an arbitrator to make a reasonable inquiry and to disclose facts that a reasonable person would consider likely to affect the arbitrator s impartiality, including a financial or personal stake in the outcome of the arbitration and any existing or past relationships with the parties, counsel, representatives of parties, witnesses, or other arbitrators (1), Fla. Stat. (2013). The statute imposes a continuing obligation on each arbitrator to disclose facts, which a reasonable person likely would consider While Section provides for a court to order consolidation, it does not address the mechanics of or protocol for any such consolidation. 3

4 A neutral arbitrator s failure to disclose facts required by the statute creates a presumption that the arbitrator acted with evident partiality. as affecting the disclosing arbitrators impartiality, that the arbitrator discovers after accepting appointment as an arbitrator (2), Fla. Stat. (2013). The statute does not define what constitutes a reasonable inquiry by an arbitrator. An arbitrator s disclosure as required by the statute, coupled with a timely objection by a party to the arbitration, may serve as a basis to vacate the award under Section (1)(b) (3), Fla. Stat. (2013). 4 The failure to disclose a required fact also may serve as a basis to vacate an arbitration award under Section (1)(b) (4), Fla. Stat. (2013). A neutral arbitrator s failure to disclose facts required by the statute creates a presumption that the arbitrator acted with evident partiality (5), Fla. Stat. (2013). Where parties to an arbitration agreement are bound by the procedures of an arbitration organization, the parties must comply with the requirements of such procedures as a condition precedent to seeking vacatur of an arbitration award based upon misconduct by an arbitrator (6), Fla. Stat. (2013). 5 Summary Disposition of Claims Section of the Florida Statute is amended to include a provision allowing an arbitrator to summarily dispose of a claim or issue in an arbitration proceeding (2), Fla. Stat. (2013). The arbitrator may act if the parties to the arbitration agree or if a party to an arbitration 4 Section (1)(b) provides for vacatur of an arbitration award upon a showing of evident partiality by a neutral arbitrator, corruption by an arbitrator or misconduct by an arbitrator that prejudices the rights of a party to the arbitration (1)(b), Fla. Stat. (2013). 5 This language suggests, by way of example, that a party to an arbitration proceeding governed by the FINRA Dispute Resolution Code of Arbitration Procedure for Custoemr Disputes will need to comply with FINRA Rule (arbitrator recusal) and FINRA (removal of an arbitrator by the director of arbitration) or risk a finding that the party had waived its challenge by failing to comply with such provisions. requests summary disposition, as long as the party requesting summary disposition gives notice to all of the parties to the arbitration, and all of the parties have a reasonable opportunity to respond to the request for summary disposition. Id. Parties must receive at least five days notice before the commencement of any hearing (3), Fla. Stat. (2013). The failure to object based upon lack or insufficiency of notice by the beginning of the arbitration hearing operates as a waiver in regard to the notice given if the objecting party appears at the hearing. Id. Remedies, Fees, and Expenses of Arbitration Proceeding The Florida Legislature significantly amended Section of the Florida Statutes. Previously, this provision was succinct in regard to its coverage: Unless otherwise provided in the agreement or provision for arbitration, the arbitrators, or umpire s expenses and fees, together with other expenses, not including counsel fees, incurred in the conduct of arbitration, shall be paid as provided in the award , Fla. Stat. (2012). The new version of the statute only retained the requirement that the expenses and fees of the arbitrators, together with other expenses must be paid as provided in the award (4), Fla. Stat. (2013). The new version dramatically changed the powers of arbitrators in two significant areas. The Revised Florida Arbitration Code, in Section of the Florida Statutes, now includes a specific provision allowing arbitrators to award punitive damages or other exemplary relief if (1) authorized by law in a civil action involving the same types of claims and (2) the evidence produced at the arbitration hearing justifies such an award under applicable legal standards. 4

5 682.11(1), Fla. Stat. (2013). If arbitrators award punitive damages or other exemplary relief, they must set forth the factual and legal basis supporting the award (5), Fla. Stat. (2013). They also must state separately in their award the amount of punitive damages or other exemplary relief. Id. Another significant change from prior law in Florida allows arbitrators to award reasonable attorney s fees if such fees are authorized by law or in an agreement between the parties to the arbitration (2), Fla. Stat. (2013). 6 This change is a reversal from prior law in Florida, which precluded arbitrators from awarding attorneys fees unless the parties agreed to submit the issue to the arbitrators for resolution. See Turnberry Associates v. Service Station Aid, Inc., 651 So. 2d 1173 (Fla. 1995). The Revised Florida Arbitration Code is silent regarding the procedure for consideration of an application for reasonable attorney s fees. 7 Under the Florida Rules of Civil Procedure, a party must file a motion seeking attorney s fees within thirty days after filing of the judgment or service of a voluntary dismissal concluding to the actions as to the parties seeking fees. Fla. R. Civ. P In arbitrations where the arbitrators may consider an award of attorney s fees, absent an agreement by the parties or a ruling from the arbitrators to consider the amount of any attorneys fee award through a post-arbitration award hearing, a party 6 Under Florida law, a court may award attorney s fees to the prevailing party only if the such fees are allowed by statute or contract. Rivera v. Deauveille Hotel Employer Service Corporation, 277 So. 2d 265 (Fla. 1973). 7 Reasonable attorney s fees in Florida are determined using the federal lodestar approach (number of hours reasonably expended multiplied by a reasonable hourly rate gives the lodestar figure), with an addition or subtraction from the lodestar amount depending upon a contingency risk factor and the results obtained. Florida Patient s Compensation Fund v. Rowe, 472 So. 2d 1145, (Fla. 1985). seeking fees in an arbitration is faced with the prospect of litigating the issue of reasonable attorney s fees as an adjunct to the arbitration hearing addressing the underlying claims and defenses. Of particular note, in contingency fee cases, Florida law requires consideration of a multiplier. Rowe, 472 So. 2d at For contract and tort cases, the contingency fee multiplier is 1 to 1.5 where success was more likely than not at the beginning of the litigation; a multiplier of 1.5 to 2 where chances of success at the beginning of the case were even; and, a multiplier of 2 to 2.5 where chances of success were unlikely at the beginning of the case. Standard Guarantee Insurance Company v. Quandstrom, 555 So. 2d 828, 843 (Fla. 1990). Thus, in contingency fee cases, the arbitrators could determine the lodestar amount and then apply a multiplier to increase the amount of attorneys fees awarded to the prevailing party. The parties could agree that the arbitrators will determine only entitlement to attorney s fees and leave the determination of the amount of attorneys fees to a court upon an action to confirm the arbitration award. This procedure could help to alleviate any angst created by the possibility that an arbitration panel could apply a contingency fee multiplier to the lodestar amount. The Florida Legislature has amended Section of the Florida Statutes to allow a court to award costs and reasonable attorney s fees in favor of the prevailing party in a contested judicial proceeding seeking vacatur, modification or correction of an arbitration award (3), Fla. Stat. (2013). This provision is new to the Florida Arbitration Code. The language of this provision requires a prevailing party to seek an award of attorney s The Revised Florida Arbitration Code, in Section of the Florida Statues, now includes a specific provision allowing arbitrators to award punitive damages or other exemplary relief. 5

6 fees by motion. The court has discretion to deny the motion. In other words, an award of attorney s fees is not mandatory in an action to confirm, vacate or modify an arbitration award. 8 Conclusion similar provisions in the Federal Arbitration Act, federal law will control and will pre-empt those conflicting provisions. To the extent that the new provisions do not conflict with federal law, they likely will apply to arbitration proceedings in Florida. For more information about any of the topics covered in this issue of the Securities Law Alert, please contact: Alex J. Sabo, Esq. asabo@bressler.com The Florida Legislature has made significant changes to the Florida Arbitration Code. These changes apply to all agreements to arbitrate made on or after July 1, 2013, and apply to all arbitration agreements, regardless of when they are executed, beginning on July 1, Of course, to the extent that any provision in the Revised Florida Arbitration Code conflicts with 8 The court could award attorney s fees under another statute, if applicable, or if a contract between the parties so provided. Supra at n. 4. The information contained in this Client Alert is for general informational purposes only and is neither presented nor intended to constitute legal advice or a legal opinion as to any particular matter. The reader should not act on the basis of any information contained herein without consulting first with his or her legal or other professional advisor with respect to the advisability of any specific course of action and the applicable law. The views presented herein reflect the views of the individual author(s). They do not necessarily reflect the views of Bressler, Amery & Ross, P.C. or any of its other attorneys or clients. 17 State Street New York, NY Columbia Turnpike Florham Park, NJ East Las Olas Blvd. Fort Lauderdale, FL Bressler, Amery & Ross, P.C. All rights reserved. ATTORNEY ADVERTISING