FORT LAUDERDALE BUSINESS LITIGATION: ARBITRATION AND CLAIMS OF FRAUDULENT MISREPRESENTATION

Arbitration is a method of dispute resolution which parties may agree to through a pre-dispute contract. Often, a plaintiff will attempt to avoid the contractual agreement to arbitration because the plaintiff believes that arbitration puts him or her at a strategic disadvantage. A plaintiff may argue that he or she did not have the capacity to enter into the agreement to arbitrate. Normally, contracts with children are voidable at the discretion of the child. A recent case held that a child could be bound by an arbitration agreement, even though he did not have the capacity to be bound by the agreement, because the child fraudulently represented that a legal guardian agreed to a contract with an arbitration agreement. Peter Mavrick is a Fort Lauderdale business litigation lawyer, and also represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitrate.

A party cannot be compelled to arbitrate his or her disputes without having agreed to arbitration. A previous article explored the required consent in arbitration and apparent authority. A party that does not have the capacity to enter into an arbitration agreement generally cannot be bound by that contract.

Children do not have the same capacity to enter into contracts that people over the age of 18 have. Particularly, children often have the discretion to rescind a contract. “The right of an infant to avoid his contract is one conferred by law for his protection against his own improvidence and the designs of others; …. It is the policy of the law to discourage adults from contracting with infants.” Putnal v. Walker, 61 Fla. 720 (Fla. 1911).

While children may rescind contracts that they have entered into themselves, there is no such right when legal guardians contract on behalf of their children. Parents have the right to enter into contracts concerning the rights of their children. This includes the right to enter into agreements requiring that disputes be arbitrated. See Glob. Travel Mktg., Inc. v. Shea, 908 So. 2d 392 (Fla. 2005) (“Just as the mother in this case had the authority to enter into a contract for herself and her minor child to travel to Africa for a safari, she also had the authority to agree to arbitrate claims on his behalf arising from that contract”).

Additionally, a child may not be bound by a contract because he or she does not have the capacity to comprehend the effect and nature of a contract. Other potential bases for incapacity to enter into a contract include intoxication, mental illness, or age-related mental infirmities. It is the burden of the party claiming incapacity to prove that incapacity. John Knox Vill. of Tampa Bay, Inc. v. Perry, 94 So. 3d 715 (Fla. 2d DCA 2012) (“One tenet of contract law that is particularly applicable here holds that a person is presumed to be competent when she enters into a contract. The burden of overcoming this presumption rests on the party who challenges the validity of the contract”).

A plaintiff without capacity to enter into an arbitration agreement may nevertheless be bound when the agreement arises from the plaintiff’s fraud. “Fraud […] will prevent the disability of infancy from being made available in equity. If an infant procures an agreement to be made through false and fraudulent representations that he is of age, a court of equity will enforce his liability as though he were adult, and may cancel a conveyance or executed contract obtained by fraud.” Mossler Acceptance Co. v. Perlman, 47 So. 2d 296 (Fla. 1950), quoting Pomeroy’s Equity Jurisprudence, Vol. 3, p. 750–1; Watkins v. Watkins, 123 Fla. 267 (Fla. 1936) (“If an estoppel can arise against an infant, all the elements of an estoppel must concur. The conduct of the infant must have been fraudulent, and believed in, relied on, and acted upon by the other party”). The rationale for this principle is “to prohibit one who purposely uses false information to induce another into a transaction” should not be able to profit from that wrongdoing. Butler v. Yusem, 44 So. 3d 102 (Fla. 2010). Accordingly, “a recipient may rely on the truth of a representation, even though its falsity could have been ascertained had he made an investigation, unless he knows the representation to be false or its falsity is obvious to him.” Besett v. Basnett, 389 So. 2d 995 (Fla. 1980).

In the recent case, Off the Wall & Gameroom LLC v. Gabbai, 4D19-2657, 2020 WL 4668055 (Fla. 4th DCA Aug. 12, 2020), the Court was evaluating whether a child could be bound by an agreement to arbitrate because he misrepresented that his guardian entered into an arbitration agreement. The Off the Wall plaintiff was a thirteen-year-old boy who wished to play in the defendant’s indoor trampoline park and entertainment center. The defendant facility required that all participants have a release or waiver from a legal guardian executed prior to the participant being allowed to enter. This waiver contained an arbitration clause. Because the plaintiff was there without his parents’ permission, the child-plaintiff falsified records to indicate that his legal guardian agreed to the waiver. The plaintiff entered a fake name for a guardian and entered the driver’s license number of his friend’s sister for verification.

The Off the Wall trial court held that the defendant could not have reasonably relied on the waiver because the defendant should have been able to tell that the waiver had been faked by the child-plaintiff. Off the Wall reversed the trial court, holding that there was no duty to investigate whether the arbitration agreement was properly entered because the plaintiff-child’s actions were fraudulent. “[T]he infancy defense is unavailable to Plaintiff because the child intentionally misrepresented the information on the release and waiver agreement.” Off the Wall & Gameroom LLC v. Gabbai, 4D19-2657, 2020 WL 4668055 (Fla. 4th DCA Aug. 12, 2020).

Off the Wall provides certainty to Florida businesses that rely on the truth of the statements made by persons they do business with. Peter Mavrick is a Fort Lauderdale business litigation attorney who also practices business litigation in Miami and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.