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A “Contractual Nexus” is not Always Necessary to Bind Parties to Arbitration: The Plain Language of an Arbitration Agreement Will Control

There are two basic types of arbitration covenants: (1) those with language and application narrow in scope and (2) those with language and application broad in scope.

An arbitration provision that is considered to be narrow in scope requires arbitration for claims or controversies “arising out of” the subject contract. This type of provision limits arbitration to claims directly relating to a contract’s terms and provisions. In contrast, an arbitration provision that is considered broad in scope typically requires arbitration for claims or controversies “arising out of or relating to” the subject contract. Adding the words “relating to” broadens the scope of an arbitration provision to include those claims that are described as having a “significant relationship” or “contractual nexus” to the contract—regardless of whether the claim is founded in tort or contract law.

There has been confusion among trial courts as to whether a broad arbitration clause, which expressly includes a particular type of claim, such as personal injuries, must still have a significant relationship or contractual nexus to the contract containing the arbitration clause for the claim to be arbitrable.

The Fourth District Court of Appeal recently clarified this issue in the case of Lennar Homes, LLC v. Wilkinsky, wherein the court held that broad arbitration provisions are not always limited to claims that have a significant relationship or contractual nexus to a contract. In Lennar Homes, Lennar developed a residential community and sold a home in the community to the plaintiff. The arbitration clause in the purchase and sale agreement stated: “The parties to this Agreement specifically agree that . . . any Dispute . . . shall thereafter be submitted to binding arbitration. . . “Disputes” (whether contract, warranty, tort, statutory or otherwise) shall include, but are not limited to any and all controversies, disputes, or claims (1) arising under, or related to, this Agreement, the Property, the Community or any dealings between Buyer and Seller; . . . (3) relating to personal injury or property damage alleged to have been sustained by Buyer. . , or in the Community.” The plaintiff was riding his bicycle on a road in the Community when he fell and suffered injuries and sued Lennar for negligence. Lennar filed a motion to dismiss and compel arbitration, which the trial court denied on the basis that the arbitration provision was inapplicable because there was no contractual nexus between the injury claim and the home purchase contract containing the arbitration clause. The Fourth District disagreed, holding that the arbitration provision unambiguously and expressly extended to personal injuries “in the Community” and that the agreement's plain language controlled and applied to the plaintiff’s claim. The Fourth District explained that the “significant relationship” or “contractual nexus” analysis is only necessary where the arbitration agreement uses broad language that does not expressly include the claim.

Rosenthal Law Group has successfully litigated the arbitrability of claims at both the trial and appellate levels. Rosenthal Law Group is available to assist you with all your litigation needs.