ARBITRATION AND BUSINESS LITIGATION: COURTS CAN DEEM PARTIES BOUND BY ARBITRATION CLAUSE FROM A SEPARATE WRITTEN CONTRACT

When parties execute two separate contracts and only one contract contains an arbitration clause, generally the parties cannot be compelled to arbitrate disputes arising from the contract that does not call for arbitration. However, under certain circumstances courts will extend the arbitration provisions from one contract to a separate contract, and the parties may be bound to arbitrate disputes arising out of either agreement because the two agreements will be read together as one contract. Peter Mavrick has successfully represented clients in Palm Beach, Broward, and Miami-Dade business litigation and related arbitration proceedings.

Phoenix Motor Co. v. Desert Diamond Players Club, Inc. involved four agreements for the purchase of new motor vehicles. The purchase agreements contained an arbitration clause, but also stated that “[t]he Purchaser, before or at the time of delivery of the motor vehicle covered by the Order, shall execute such other forms of agreement or documents as may be required by the terms and conditions of payment indicated on the front of this Order.” Phoenix Motor Co. v. Desert Diamond Players Club, Inc., 144 So.3d 694 (Fla. 4th DCA 2014). The purchaser also signed an export policy imposing liquidated damages if Desert exported the new vehicle out of the United States within one year of purchase. The export policy stated that “[e]xecution of the purchase/lease documents by the purchaser/lessee shall constitute acceptance of these terms and conditions.”

The purchaser sued for a declaration that the export policy was invalid and unenforceable. The seller filed a motion to compel arbitration pursuant to the arbitration clause in the purchase agreements. The trial court in Phoenix Motor Co. addressed whether there was a valid agreement to arbitrate a dispute arising from the export policy. The trial court denied the seller’s motion and the seller immediately appealed.

The central issue in Phoenix Motor Co. v. Desert Diamond Players Club, Inc. whether a valid agreement to arbitrate existed to authorize the court to compel arbitration of disputes arising from the export policy. The doctrine of incorporation by reference requires that there must be some expression in the incorporating document of an intention to be bound by the collateral document. Phoenix Motor Co. supra. The mere reference to another document is not sufficient, particularly when the incorporating document makes no specific reference that it is “subject to” the collateral document. Id. In other words, for the purchase agreements’ arbitration clauses to extend to the export policy, the purchase agreements must expressly refer to the export policy or sufficiently describe it so that the document could be interpreted as part of the purchase agreements.

The appellate court found that the parties expressly contemplated executing additional documents when they signed the purchase agreements. Also, that the export policy stated that execution of purchase documents constituted acceptance of the export agreement. The appellate court found that when these two provisions were read in pari materia, i.e., were read together as if they were one whole contract, they indicate the parties’ intent for the export policy to be part of the same contract. “Where two or more documents are executed by the same parties, at or near the same time, in the course of the same transaction, and concern the same subject matter, they will be read and construed together.” Collins v. Citrus Nat’l Bank, 641 So.2d 458, 459 (Fla. 5th DCA 1994)

Conversely, the facts of Temple Emanu–El of Greater Fort Lauderdale v. Tremarco Indus., Inc., 705 So.2d 983 (Fla. 4th DCA 1998), demonstrate a failure to incorporate by reference the contract containing the arbitration provision. Tremarco Indus., Inc. involved a roofing contract which stated that a 12-year Firestone performance warranty would be provided by the roofer. The roofing contract did not have an arbitration agreement. However, the Firestone warranty contained a clause providing that “any dispute, controversy or claim between the Owner and Firestone … shall be settled by final and binding arbitration….” Tremarco Indus., Inc. supra.

When the property owner sued Tremarco and Firestone, Tremarco and Firestone filed a motion with the trial court to require arbitration on each of their respective contracts based on the clause in Firestone’s warranty. The property owner consented to Firestone’s motion but disputed Tremarco’s motion. The trial court granted Tremarco’s motion and ordered arbitration of the property owner’s action against Tremarco. The property owner filed an appeal disputing the propriety of the trial court decision.

The appellate court reversed the decision holding that “[n]o serious contention could be made that the Tremarco contract incorporates by reference the Firestone warranty and its arbitration provision.” Tremarco Indus., Inc. supra. The Tremarco contract did not state that the agreement between the property owner and Tremarco is “subject to” the Firestone warranty. Rather, it states only that Tremarco agrees to “provide” a Firestone warranty. The Tremarco contract did not contain any words remotely indicating an intention that the property owner and Tremarco agree to be bound by the Firestone warranty and its arbitration provision.

In sum, Florida courts examine the entire contracts to discern indicia of the parties’ consent to arbitration, and generally only where there is clear evidence of such consent will Florida courts compel arbitration.

Peter Mavrick is a commercial litigation attorney who had successfully represented many clients in arbitration. This article does not serve as a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.