Arbitration is one of the most common forms of dispute resolution in construction today, but the recent ruling by the Third District Court of Appeal illustrates some of the difficulties that parties to arbitration proceedings can face in appealing or vacating the arbitrator's award.
In The Village of Dolphin Commerce Center, LLC v. Construction Service Solutions, LLC, the contractor was not licensed at the time of the contract and became licensed after the execution of the contract with the Dolphin Commerce Center. The contractor recorded a construction lien subsequent to a payment dispute along with a demand for arbitration with the American Arbitration Association pursuant to the contract. The property owner responded by asserting that the contract was unenforceable under Florida Statute s. 489.128 which provides: "As a matter of public policy, contracts entered into . . . by an unlicensed contractor shall be unenforceable in law or in equity by the unlicensed contractor." Section 489.128 further provides that, "[i]f a contract is rendered unenforceable under this section, no lien or bond claim shall exist in favor of the unlicensed contractor."
The owner also filed suit in circuit court seeking to declare that that the contractor's claim of lien was unenforceable because of the contractor's unlicensed status at the time of contract. However, the court ruled that the parties were compelled to arbitrate the dispute.
The owner, at the start of the arbitration, never objected to the arbitrator's jurisdiction to rule on whether the contractor's unlicensed status at the time of contract prevented it from enforcing the contract and the construction lien. The contractor went on to succeed in the arbitration and then moved to enforce the arbitration award in circuit court. The owner asked the court to vacate the award based on the unenforceability of the contract and lien because the contractor was not properly licensed. When the trial court affirmed the arbitration award, the owner appealed.
The Third DCA was asked to determine whether the arbitrator had jurisdiction to determine the enforceability of the contract and the lien pursuant to s. 489.128. The unanimous opinion held that "the issue of enforceability was submitted to the [arbitration] panel and neither party objected. As such, based on the American Arbitration Association rules, the panel had jurisdiction to determine the issue. To ask the trial court to revisit the issue would require the trial court to step into an appellate position. The Florida Arbitration Statutes do not provide for such. Pursuant to section 682.13, Florida Statutes, the authority of the trial court to vacate an arbitration award is very narrow."
Based on the United States Supreme Court decision in Buckeye Check Cashing, Inc. v. Cardegna as well as other Florida appellate decisions, the Third DCA wrote that when a party is challenging the legality/enforceability of a contract as a whole (versus only the arbitration provision), that determination must go to the arbitrator and not the court. "Those cases make clear that a trial or appellate court's view that an arbitration panel wrongly decided the issue of illegality of a contract, and specifically illegality of a contract under section 489.128, is not a basis to vacate an arbitration award."
The lessons to be learned for owners and contractors from this decision are clear. Parties are free to determine the scope of the arbitration provision and the issues to be determined by the arbitrator. If an owner seeks to avoid an arbitrator deciding licensing issues, it should specifically exclude the issue from the arbitration provision and make it clear that any licensing issues or issues concerning the enforceability of the contract, as a whole, are to be decided by the court. Additionally, if an owner disputes the authority of an arbitrator, an objection must be made in order to preserve the owner's rights. For contractors, the case is yet another reminder of the importance of ensuring that they are properly licensed.
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