FLORIDA BUSINESS LITIGATION: ENFORCEABILITY OF “UNILATERAL” ARBITRATION PROVISIONS

Arbitration can be a useful tool to thwart unwanted litigation, and, therefore, contracting parties often include mandatory arbitration provisions in contracts to discourage unnecessary litigation. See, e.g., Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1412 (2019) (prohibiting employees from asserting a class action arbitration unless the class waived their right to sue in an employment agreement). However, a contracting party may not always want to pursue his/her claim in arbitration due to these same impediments. A unilateral arbitration provision can resolve this conundrum because it requires your counterpart to arbitrate while providing you with the option to seek redress through arbitration or the court system. The enforceability of these unilateral arbitration provisions has been questioned by Florida courts because they lack mutuality or may be unconscionable. Peter Mavrick is a Fort Lauderdale business litigation attorney who has substantial experience in representing businesses in arbitration.

Florida courts would likely determine that unilateral arbitration provisions are not void for lack of mutuality. Florida’s Fifth District Court of Appeal originally ruled that unilateral arbitration provisions are unenforceable because they lack mutual consideration. R.W. Roberts Cont. Co., Inc. v. St. Johns River Water Manag. 423 So. 2d 630, 633 (5th DCA 1982) (Upholding the trial court’s order denying a motion to compel arbitration because “each severable clause of a contract should have its own consideration or mutual obligation.”). However, the Roberts decision was rejected and overturned because contracting parties never have mutual obligations or remedies at the same time. Rohlfing v. Tomorrow Realty Auction Co. Inc., 528 So. 2d 463 (5th DCA 1988) (“The extent, scope, and application of [the mutuality] concepts were always subject to much disagreement and today can be plainly stated to largely be nothing more than a smoke screen defense… In no real sense is there ever, at any one time, any mutuality of obligation or remedy.”); see also LaBonte Precision, Inc. v. LPI Indus. Corp., 507 So. 2d 1202 (4th DCA 1987) (“Mutuality of remedy in contracts as a requirement has largely disappeared from the law of American jurisdictions.”). Therefore, it is likely that mutuality is not an barrier to enforcing a unilateral arbitration provision. But we urge caution in this regard because there is little law on the subject matter and most authorities emanates from Florida’s Fifth Circuit Court of Appeal. See Avid Engineering, Inc. v. Orlando Marketplace Ltd., 809 So. 2d 1, 3 (5th DCA 2001) (“A reasonable interpretation of the [arbitration] statute is that it allows two or more parties to arbitrate “any controversy,” including those controversies in which only one party has the right to arbitrate.”). It is therefore possible that other districts may disagree and require mutuality before the arbitration provision can be enforced.

A unilateral arbitration provision may not be unconscionable depending on the facts and circumstances giving rise to the provision. A contract provision is unconscionable when it is procedurally and substantively unconscionable. See Belcher v. Kier, 558 So.2d 1039 (Fla. 2d DCA 1990); Complete Interiors v. Behan, 558 So.2d 48 (Fla. 5th DCA 1990). Procedural unconscionability exists when the parties’ bargaining power impacts their ability to know and understand the disputed contract terms. Kohl v. Bay Colony Club Condo., Inc., 398 So. 2d 865, 868 (Fla. 4th DCA 1981) (defining procedural unconscionability as “absence of choice” due to the parties “respective bargaining powers”, “education”, and “intelligence”). Substantive unconscionability exists when the terms of the contract are so unreasonable and unfair that is would shock the conscious. Woebse v. Health Care & Ret. Corp. of Am., 977 So. 2d 630, 632 (Fla. 2d DCA 2008) (“Substantive unconscionability requires an assessment of whether the contract terms are so outrageously unfair as to ‘shock the judicial conscience.”) (internal quotations omitted). Some courts have found that unilateral arbitration provisions are always substantively unconscionable to some degree. See Palm Beach Motor Cars Ltd. Inc. v. Jeffries, 885 o. 2d 990. 992 (4th DCA 2004) (“Some substantive unconscionability was present in the arbitration agreement in this contract.”); Bellsouth Mobility LLC v. Christopher, 819 So. 2d 171 173 (4th DCA 2002) (“Moreover, the substance of the arbitration provision seems unduly unfair. Although customers are bound to arbitration, Bellsouth still has the option of pursuing court action in some instances, including the collection of a debt.”); Prieto v. Healthcare & Ret. Corp. of Am., 919 So. 2d 531, 533 (Fla. 3d DCA 2005) (finding that the contract was procedurally unconscionable and the arbitration provision was substantively unconscionable). However, other courts have found that no unconscionability (substantive or procedural) exists in unilateral arbitration provisions. See Avid Engineering, Inc., 809 So. 2d 1, 5 (5th DCA 2001) (the court ruled that the unilateral arbitration provision was not unconscionable because the contracting parties were sophisticated entities with relatively equal bargaining power that negotiated at arm’s length and each modified many terms).

A contracting party can help ensure his/her unilateral arbitration provision is enforceable by limiting its use to instances where both parties have equal bargaining power. As just discussed, procedural and substantive unconscionability must be present to void a unilateral arbitration provision. Contracting parties could therefore defeat a claim of unconscionability even if the unilateral arbitration provision is substantively unconscionable when there is no procedural unconscionability. As a result, limiting the implementation of unilateral arbitration provisions to situations where both contracting parties had equal bargaining power will ensure procedural unconscionability does not exist and that the unilateral provision is enforceable.

Peter Mavrick is a Fort Lauderdale business litigation lawyer. This article does not serve as a substitute for legal advice tailored to a particular situation.