What happens when a substantive Florida law which voids any venue selection
clause in a construction contract calling for venue outside of Florida
comes up against an arbitration agreement governed by the Federal Arbitration
Act? Federal law prevails.
In a recent case, a Michigan based Contractor and a Florida based Subcontractor
entered into a contract for the improvement of real property located in
Florida. The contract contained an arbitration clause which stated that
any dispute arising out of the contract must be arbitrated in Michigan
in accordance with Michigan law. When litigation ensued, the subcontractor
argued that the arbitration clause was void under Florida Statute §
47.025 which invalidate a venue clause in a construction contract if the
venue clause requires a Florida contractor to sue outside of Florida.
The trial court agreed.
On appeal, the Second District Court of Appeal reversed the trial court,
holding that, if the Federal Arbitration Act applies, it preempts Fla.
Stat. § 47.025. Courts have repeatedly held that the Federal Arbitration
Act governs the enforceability of arbitration clauses in contracts involving
interstate commerce (contracts among parties from different states for
example). The FAA is broadly interpreted to favor arbitration wherever
and whenever possible. Florida courts must enforce an arbitration agreement
that is valid and enforceable under the Federal Arbitration Act even when
the agreement would be unenforceable under Florida law. Accordingly, if
the Contract between Contractor and Subcontractor involves interstate
commerce, then the Federal Arbitration Act applies, and the parties must
submit their dispute to arbitration in accordance with their agreement.
The take away from this case is that you must read and consider every clause
in a contract – not only arbitration contracts -- and be aware of
clauses which may control where and how you handle disputes relating to
Rosenthal Law Group can help review and negotiate the terms of your contracts
and arbitration agreements. Contact us at 954-384-9200 for a consultation.