Visiting Nurse Association of Florida, Inc. v. Jupiter Medical Center , 154 So. 3d 1115 ( 2014 )

Supreme Court of Florida
____________
No. SC11-2468
____________
VISITING NURSE ASSOCIATION OF FLORIDA, INC.,
Petitioner,
vs.
JUPITER MEDICAL CENTER, INC.
Respondent.
[November 6, 2014]
REVISED OPINION
LABARGA, C.J.
Visiting Nurse Association of Florida, Inc., seeks review of the decision of
the Fourth District Court of Appeal in Jupiter Medical Center, Inc. v. Visiting
Nurse Ass’n of Florida, Inc., 72 So. 3d 184 (Fla. 4th DCA 2011), on the ground
that it expressly and directly conflicts with a decision of the Fifth District Court of
Appeal in Commercial Interiors Corp. of Boca Raton v. Pinkerton & Laws, Inc., 19
So. 3d 1062 (Fla. 5th DCA 2009), on a question of law. We have jurisdiction. See
art. V, § 3(b)(3), Fla. Const. For the following reasons, we quash the Fourth
District’s decision holding that a court must determine whether a contract is legal
prior to enforcing an arbitral award based on the contract.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Overview
After the conclusion of an arbitration proceeding resolving a contract dispute
between Visiting Nurse Association, Inc. (VNA), a home health care agency, and
Jupiter Medical Center, Inc. (JMC), a hospital, involving agreed-upon discharge
planning procedures and VNA’s lease of office space in JMC’s hospital, the
arbitration panel issued an “interim award,” granting VNA damages, prejudgment
interest on a portion of the damages, and reserving jurisdiction to consider
attorney’s fees and costs. In a “Final Award of Arbitrators,” the arbitration panel
granted VNA attorney’s fees, administrative filing fees and expenses, and
arbitrators’ fees and expenses.
After the “interim award” was issued, JMC filed a motion for
reconsideration and a motion to reopen the hearing, alleging that the arbitration
panel construed the contract and the discharge planning procedures in violation of
federal and state health care laws prohibiting kickbacks for referrals of Medicare
patients. The panel summarily denied the motion by e-mail stating that it had
already considered those arguments. Jupiter Medical Center subsequently filed a
motion to vacate the arbitration award in the Circuit Court of the Fifteenth Judicial
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Circuit in and for Palm Beach County, Florida, alleging that the arbitration panel
interpreted the contract to be an unlawful agreement and that the panel exceeded its
powers.1 Visiting Nurse Association also filed a motion to enforce the award. At
the conclusion of a hearing regarding both motions, the circuit court dismissed the
motion to vacate and granted the motion to enforce the award.
On appeal, the Fourth District noted that the trial court did not address the
issue of the contract’s legality prior to dismissing the action. The Fourth District
ultimately reversed the dismissal of the motion to vacate the award and remanded
for the trial court to consider the legality of the contract because “a Florida court
cannot enforce an illegal contract” and must make that determination prior to
enforcing an award based thereon. Visiting Nurse Association then filed a petition
to invoke this Court’s discretionary jurisdiction, and we granted review. The
circumstances leading to the contractual dispute, the arbitration award, and this
Court’s review of Jupiter Medical Center are more fully set forth below.
B. Contractual Relationship and Breach
This action arises from the February 2005 purchase of a hospital-based home
health care agency (HHA) by VNA from JMC. In 2004, VNA approached JMC to
1. During the arguments on the motion to dismiss, counsel for JMC argued
that the contract is legal according to its language, but the arbitration award was
based on JMC not making future Medicare referrals to VNA, which would have
been illegal. Thus, according to JMC’s argument below, “it is the method in which
the arbitrators construed the agreement” that renders the contract illegal.
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purchase JMC’s in-house HHA believing that if it streamlined JMC’s current
operations, VNA could generate $1.5 million of revenue due to the volume of
Medicare patients serviced by JMC. Visiting Nurse Association’s purchase
decision was based on the belief that it would receive forty-five to fifty Medicare
referrals per month. Despite a purchase evaluation revealing significant
competition from other HHAs, JMC concluded that its in-house HHA’s fair market
value was $639,000, which VNA ultimately agreed to pay in cash. In exchange for
the $639,000, VNA was to obtain all rights and interests in JMC’s HHA. The
agreement also provided that VNA would have “access to the institution” and
“work space” in the hospital. This portion of the agreement was then
memorialized in a separate, contemporaneous “office lease” agreement that
provided that VNA would occupy space in the discharge planning office until the
“dissolution of [VNA].” Further, although VNA did not need the space, it agreed
to take over 5,000 square feet of JMC’s existing 10-year lease in Jupiter Farms at
an expense of $375,000, to purchase “JMC’s market share of HHA referrals.”
Shortly thereafter, VNA noticed a decline in Medicare referrals and attributed it to
JMC not divulging information about the agreement’s discharge procedures,
specifically paragraph five of Exhibit “D” of the agreement, to JMC physicians. In
Exhibit “D” of the agreement, the discharge planning procedures were outlined as
follows:
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1. For any patient requiring home health services post discharge,
[JMC] will include in the discharge plan a list of home health agencies
that are available to the patient, that are participating in the Medicare
program and that serve the geographic area in which the patient
resides, consistent with the requirements of 42 CFR 42.43, [JMC] will
update its list at least annually and include home health agencies
which have requested to be listed by [JMC] and which meet the
requirements stated herein.
2. For patients enrolled in managed care organizations, [JMC]
indicates the availability of home health agencies to individuals and
entities that have a contract with the managed care organization.
3. [JMC] will document in the patient’s medical record that the list
was presented to the patient or to an individual acting on the patient’s
behalf.
4. [JMC] will inform the patient or the patient’s family of their
freedom to choose among participating Medicare home health
agencies and will, when possible, respect patient and family
preferences, when they are expressed to [JMC]. [JMC] will not
specify or otherwise limit the qualified providers that are available to
the patient.
5. If, after following the foregoing procedures, the patient expresses
no preference, [JMC] will inform the patient of its relationship with
the VNA. The purpose of establishing a working relationship with the
VNA is to facilitate the smooth transfer of patients into post-hospital
care and thereby reduce the average length of stay for hospitalization.
(Some emphasis added).
Around November 2006, VNA suspected that a rotation system was being
used where each patient who did not express a preference for a particular HHA
was simply assigned to the next HHA on JMC’s HHA list. Jupiter Medical Center
denied there was a rotation system in place. At the evidentiary hearing, however, a
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former JMC discharge planner said a rotation system had indeed been implemented
and VNA was only mentioned if the patient had previously been provided services
by JMC’s HHA prior to its sale to VNA. On June 4, 2007, VNA notified JMC that
it would not renew the Jupiter Farms lease after its expiration. Approximately a
week later, Chief Medical Officer Dr. Ketterhagen was hired, and he directed the
discharge planning department to continue its rotation system to ensure equal
distribution of HHA referrals. Pursuant to these directions, if a patient did not
express a preference for a particular HHA, JMC referred the patient to the next
HHA on JMC’s list because Dr. Ketterhagen did not believe JMC was allowed to
demonstrate a preference to any particular HHA.
On September 10, 2007, Dr. Ketterhagen informed VNA that due to a
shortage of office space, VNA could not continue to maintain office space in the
hospital. In this notice, Dr. Ketterhagen also informed VNA that JMC would no
longer notify patients of its relationship with VNA. In September 2007, in
accordance with its previous notice to JMC, VNA did not make a rent payment for
the Jupiter Farms office space. Jupiter Medical Center filed suit in circuit court
and VNA instituted arbitration proceedings on November 1, 2007. Neither party
argued that the contractual arrangement itself was illegal during the arbitration
proceedings.
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C. Arbitration Awards
The arbitration panel issued an “interim award” in which the panel found
that JMC breached the contract in two material respects. First, JMC never made its
staff aware of the discharge planning procedures outlined in Exhibit “D” of the
agreement; the closest JMC ever came to complying with provision 5 of Exhibit
“D” was informing former patients of JMC’s HHA that VNA had purchased the
HHA. Further, the facts demonstrated that JMC continued its use of a rotation
system, which deprived VNA of “what it had paid $639,000 for: the ability to
subtly ‘nudge’ JMC’s patients to select its agency from among a host of choices.”2
Notably, the panel did not conclude that JMC breached the agreement by failing to
refer patients, but only for failing to follow the discharge procedures. The panel
also found that even if JMC’s equivocation in following the discharge procedures
was not a breach of contract, the September 10, 2007, letter from JMC to VNA
terminating the in-house lease agreement and announcing its intention to cease
explaining its relationship with VNA to patients did constitute a breach.
Second, JMC breached the agreement by terminating VNA’s lease
agreement that provided VNA with office space inside JMC and access to the
2. The panel clarified that the use of the term “nudge” was in reference to
the nudge theory that is well known in behavioral economics and defined as the
“harmless engineering that attracts a person’s attention and alters behavior.” The
example provided is when vegetables are placed in a more prominent place on a
table than junk food.
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discharge planning staff. The panel concluded that the office space gave VNA
visibility and access to doctors and other referrers in the hospital; without the
space, VNA was on equal footing with other HHAs, which was not the benefit
VNA purchased.
Regarding damages, the panel noted that calculation of damages was
difficult because the evidence presented showed a drop in Medicare referrals,
increased competition from other HHAs, and that VNA’s business plan failed to
account for loss of referrals due to patient choice or doctor referral to a competitor.
Further, the evidence showed that VNA lost a substantial amount of business
because of referrals by two surgeons to a competing HHA and the termination of a
popular admissions coordinator, which upset many doctors. The panel also
recognized that VNA failed to account for the work it would take to establish the
relationships that JMC’s HHA had acquired with hospital staff over the course of
twenty years. Moreover, VNA experienced a similar decline in revenue at another
hospital and did not demonstrate that JMC itself would not have experienced the
same drop in referrals had it not sold the HHA to VNA. Thus, based on the above,
the arbitration panel concluded that VNA’s damages should be reduced from
VNA’s projected revenue of $1.5 million per year to $1.125 million due to the
historical 25% drop in Medicare census that would have occurred even if VNA
received all of the Medicare referrals. Further, the damages were reduced by the
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approximately 60% loss of referrals to competitors for a total of $450,000 for three
years, which, when reduced to present value, totals $1,251,213.3 The panel also
awarded VNA prejudgment interest on $900,000 and reserved jurisdiction to
consider attorney’s fees and costs.4
Shortly thereafter the panel issued a “Final Award of Arbitrators” in which it
granted VNA $214,047.50 in attorney’s fees; $16,550 in administrative filing fees
and expenses; and $71,780.07 in arbitrators’ fees and expenses to be borne entirely
by JMC. Jupiter Medical Center was also required to reimburse VNA $49,890.05
for fees and expenses previously incurred by VNA. The arbitration panel later
issued an order clarifying the final award to adopt and incorporate the “interim
award.”
3. Stated another way, the panel determined that VNA did not purchase a
guaranteed amount of referrals because it reduced VNA’s projected revenue by the
“historical” 25% drop in Medicare census and another 60% to account for losses of
referrals due to patient choice or doctor’s preference of another HHA. Thus, the
panel calculated damages based on what it appears to have considered a more
reasonable projection of anticipated patient volume.
4. The panel further noted that the “Interim Award is in full settlement of all
claims on the merits submitted to this arbitration. This Award shall remain in full
force and effect until such time as a final award is rendered.” The panel indicated
it would issue a final award within thirty days after a hearing on attorney’s fees and
costs.
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D. Jupiter Medical Center’s Challenges to the Arbitration Award
After the “interim award,” JMC filed a motion for reconsideration arguing
that the arbitration panel did not have a factual basis to reach its decision and did
not base its conclusions on the four corners of the agreement. Jupiter Medical
Center then filed a formal application and request to reopen the arbitration hearing
contending that the proceeding needed to be reopened to allow for testimony and
evidence concerning the illegality and serious regulatory concerns resulting from
the panel’s proposed construction and interpretation of the contract. Specifically,
JMC argued that the arbitration panel issued the award based on an erroneous
construction of the parties’ purchase agreement as an unlawful agreement to make,
influence, and steer future patient referrals to VNA in exchange for remuneration
in direct violation of multiple state and federal healthcare laws and regulations,
including Florida’s Anti-Kickback Statutes (§§ 456.054 and 395.0185, Fla. Stat.
(2009)); the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)); Medicare
Hospital Condition of participation; Discharge planning (42 C.F.R. § 482.43);
Florida’s Patient Brokering Act (§ 817.505, Fla. Stat. (2009)); and the Federal
Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a). Jupiter Medical Center
cited examples of how the award construed the contract in an illegal manner, to
wit: the arbitration panel found that VNA based its decision to purchase on
receiving a certain amount of referrals; VNA agreed to take over the remaining
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three years of JMC’s lease to purchase JMC’s market share of referrals; and the
damage award was based on a calculation solely involving illegally promised
future Medicare patient referrals from JMC. The panel issued an order via e-mail
denying JMC’s motion to reopen the hearing because the panel “considered the
matters stated in the motion in its deliberations.”
Jupiter Medical Center then filed a motion to vacate the arbitration award in
the United States District Court for the Southern District of Florida asserting that
the award should be vacated because the award impermissibly construed the
parties’ contract in a manner that violated multiple federal laws, regulations, and
specific, well-defined public policy; and the panel exceeded its powers by
contravening the express contractual limitations imposed by the parties’ contract
and by issuing an award in violation of federal laws, rules, and regulations. The
federal district court issued an order granting VNA’s motion to dismiss for lack of
subject matter jurisdiction, in which the court noted that JMC’s right to relief was
not dependent on resolution of federal law, but rather only whether the panel
properly interpreted and construed the agreement.
While the motion was pending in federal court and before the panel issued
the “Final Award of Arbitrators” and the subsequent clarification order, JMC filed
a motion to vacate the arbitration award in the Fifteenth Judicial Circuit Court in
and for Palm Beach County. Shortly thereafter JMC filed an amended motion to
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vacate the arbitration award in the circuit court alleging that the arbitration panel
interpreted the contract to be an unlawful agreement and that the panel exceeded its
powers. The circuit court dismissed the motion to vacate and granted the motion to
enforce the award without explanation or analysis.5
On appeal, the Fourth District began its analysis by noting that illegality of a
contract is a compelling reason not to enforce a contract, citing several cases from
Florida courts indicating a refusal to enforce illegal contracts. The district court
then acknowledged that section 682.13(1), Florida Statutes (2009), clearly does not
include illegality of a contract as a basis to vacate an arbitral award. Nevertheless,
the Fourth District held that “[w]hen the issue of a contract’s legality is raised, the
trial court must make that determination prior to deciding whether to enforce an
arbitral award based thereon.” Jupiter Med. Ctr., 72 So. 3d at 187. The Fourth
District reasoned that the arbitral award was based on a breach of contract and that
a prior arbitration would not prevent the court from vacating an award based on an
illegal contract. Visiting Nurse Association then filed a petition to invoke this
Court’s discretionary jurisdiction arguing that the Fourth District’s decision in
5. Although the circuit court did not explain its reasoning in the order
dismissing the motion to vacate, the court appeared concerned with res judicata
principles (the motion to vacate was previously dismissed from federal court) and
noted that the argument regarding the illegality of the award appeared
disingenuous because it was only raised after the contract was construed by the
arbitration panel.
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Jupiter Medical Center expressly and directly conflicts with the Fifth District’s
decision in Commercial Interiors.
E. CONFLICT
In Commercial Interiors, an arbitrator presided over a dispute involving two
subcontracts between Commercial Interiors Corporation of Boca Raton
(Commercial Interiors) and Pinkerton & Laws, Inc. (Pinkerton). Commercial
Interiors, 19 So. 3d at 1063. As part of the subcontracts, which contained an
arbitration provision, Commercial Interiors agreed to provide interior painting and
other extra work on a hotel being constructed by Pinkerton. Id. Commercial
Interiors eventually brought suit claiming that Pinkerton had failed to pay it
$51,209 for work done according to the subcontracts. Pinkerton filed a motion to
compel arbitration and the case moved to arbitration. Id.
Once the arbitration proceedings were initiated, Pinkerton filed a motion to
dismiss the claim alleging that Commercial Interiors was not entitled to payment
because the subcontracts were illegal—Commercial Interiors did not have a
contractor’s license. The arbitrator ruled that although Commercial Interiors may
have violated a local ordinance, it had not violated section 489.128, Florida
Statutes (2002), which is titled “Contracts performed by unlicensed contractors
unenforceable.” Further, the arbitrator ruled that Pinkerton had waived its right to
assert the subcontracts were illegal. Id. Pinkerton then filed a motion to set aside
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or vacate the order in the trial court. The trial court entered an order setting aside
the arbitrator’s order and dismissed the case with prejudice. Id. The trial court
held that, although it accepted the arbitrator’s findings of fact, the subcontracts
were not enforceable, and the arbitrator had misapplied section 489.128. Id.
On appeal, the Fifth District stated that the issue presented was limited to the
standard a trial court should use in reviewing an arbitrator’s ruling on illegality.
Id. at 1064. The Fifth District then noted that if a party failed to establish one of
the five grounds for vacating an award provided in section 682.13(1), Florida
Statutes (2007), “neither a circuit court nor a district court of appeal has the
authority to overturn the award.” Id. (quoting Schnurmacher Holding, Inc. v.
Noriega, 542 So. 2d 1327, 1328 (Fla. 1989)). Applying that rationale to the facts,
the Fifth District held that none of the narrow grounds to vacate an award were
present in the case and that the trial court’s order amounted to a simple
disagreement with the arbitrator’s application of the law to the facts, which was an
insufficient basis to set aside the arbitration proceeding. Thus, the conflict issue
presented is whether the legality of a contract is subject to review on a motion to
vacate.
Visiting Nurse Association argues before this Court that the Fourth District
erred in holding that the trial court must determine whether a contract is legal prior
to enforcement of an arbitration award because section 682.13(1) sets forth the
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only grounds on which a court shall vacate an arbitration award. Jupiter Medical
Center argues that contract illegality is an exception to the statute,6 and the
arbitrators exceeded their powers pursuant to section 682.13(c). For the reasons
discussed below, we resolve the conflict by approving Commercial Interiors and
disapproving Jupiter Medical Center because courts cannot review an arbitration
award based on a claim of contract illegality. Further, we hold that the arbitrators
did not exceed their powers.7
II. ANALYSIS
A. Standard of Review
Visiting Nurse Association contends that it is the arbitrator’s role to decide
the legality of the contract; JMC, however, contends that a court must decide
whether a contract is legal prior to enforcement of an arbitral award. Further, JMC
contends that the arbitrators exceeded their powers within the meaning of section
682.13(c). Thus, the issues presented are pure questions of law, subject to de novo
6. We note that JMC does not argue that the contract itself is illegal, but
only that the arbitration panel’s erroneous construction of the contract rendered it
unlawful. In short, JMC disagrees with the arbitrator’s application of the law to
the facts. Jupiter Medical Center also appears to invite this Court to address the
legality of the agreement. However, we do not address the merits of this argument.
7. Visiting Nurse Association also argued, as a secondary issue, that JMC’s
motion to vacate was untimely filed and therefore a legal nullity. We find it
unnecessary to address this issue in light of our resolution of VNA’s other
arguments.
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review. See Shotts v. OP Winter Haven, Inc., 86 So. 3d 456, 461 (Fla. 2011)
(citing Aills v. Boemi, 29 So. 3d 1105, 1108 (Fla. 2010)). We now turn to the
merits.
B. Federal Arbitration Act
Neither party noted whether the Federal Arbitration Act (FAA) or the
Florida Arbitration Code (FAC) applied to this case. Although the FAA controls
when a transaction involves interstate commerce, “[i]n Florida, an arbitration
clause in a contract involving interstate commerce is subject to the [FAC], to the
extent the FAC is not in conflict with the FAA.”8 See Shotts, 86 So. 3d at 463-64.
An arbitration clause in a contract not involving interstate commerce is subject to
the FAC. O’Keefe Architects, Inc. v. CED Constr. Partners, Ltd., 944 So. 2d 181,
184 (Fla. 2006).
To determine if a transaction involved interstate commerce, courts look to
whether the transaction in fact involved interstate commerce, even if the parties did
not contemplate an interstate commerce connection. Allied-Bruce Terminix Cos.,
Inc. v. Dobson, 513 U.S. 265, 281 (1995). Here, both parties to the contract are
Florida companies; the purchase agreement involved a home health care agency
8. The FAA’s enactment demonstrates a national policy favoring
arbitration, and forecloses state legislative attempts to restrict the enforceability of
arbitration provisions in agreements. Preston v. Ferrer, 552 U.S. 346, 353 (2008);
see also Allied Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 272 (1995).
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with operations in Florida; the lease agreements were for office space in Florida;
the patients were treated in Florida; and there is no evidence that the patients
treated were from outside the state. However, referral of Medicare patients was
contemplated and occurred as part of the transaction. Thus, this transaction in fact
involved interstate commerce and is subject to the FAA. See THI of N.M. at
Hobbs Ctr., LLC v. Spradlin, 893 F. Supp. 2d 1172, 1183-84 (D.N.M. 2012) aff’d,
532 Fed. Appx. 813 (10th Cir. 2013) (holding that a disputed transaction involved
interstate commerce where Medicare paid for a portion of care and the hospital
received payment from the New Mexico Medicaid Program, a substantial portion
of which is funded by the federal government); Canyon Sudar Partners, LLC v.
Cole ex rel. Haynie, CIV. A. 3:10-1001, 2011 WL 1233320 (S.D.W. Va. 2011)
(holding that the disputed transaction involved interstate commerce where the
plaintiff alleged, among several other factors, that the health care received was
paid for by the federal Medicare program and requests for payments were sent to
South Carolina); Owens v. Coosa Valley Health Care, Inc., 890 So. 2d 983, 987-88
(Ala. 2004) (holding that the disputed transaction involved interstate commerce
where one of the factors alleged was that 95% of the income received by the
nursing home derived from federally funded Medicaid or Medicare); Miller v.
Cotter, 863 N.E.2d 537, 544 (Mass. 2007) (noting that health care is an activity
that in the aggregate would represent a general practice subject to federal control
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and holding that “accepting payment from Medicare, a Federal program (which
there was some evidence of here), constitutes an act in interstate commerce”)
(citing Summit Health, Ltd. v. Pinhas, 500 U.S. 322, 327 (1991)). Although the
FAA provisions control, we also apply the FAC to the facts of this case because, as
demonstrated below, the FAC is not in conflict with the FAA. See Shotts, 86 So.
3d at 463-64; Miller, 863 N.E.2d at 544 (acknowledging that the FAA applies, but
applying the Massachusetts Arbitration Act because the FAA only preempts state
law on arbitration where the state act seeks to limit the enforceability of arbitration
contracts). We first address federal case law to determine whether a court
reviewing an arbitral award on a motion to vacate can consider the claim that a
contract containing an arbitration provision is void for illegality pursuant to the
FAA.
1. Whether a Court Can Consider the Claim that a Contract Containing an
Arbitration Provision is Void for Illegality
The United States Supreme Court has repeatedly observed that “Congress
enacted the FAA to replace judicial indisposition to arbitration with a ‘national
policy favoring [it] and plac[ing] arbitration agreements on equal footing with all
other contracts.’ ” Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 581
(2008) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443-44
(2006)). Section 2 of the FAA “makes contracts to arbitrate ‘valid, irrevocable,
and enforceable,’ so long as their subject involves ‘commerce.’ ” Id. at 582 (citing
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9 U.S.C. § 2). Under the FAA, questions of arbitrability must be resolved “with a
healthy regard for the federal policy favoring arbitration.” Volt Info. Scis., Inc. v.
Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 475 (1989). With these
principles in mind, in Buckeye, the Supreme Court addressed whether “a court or
an arbitrator should consider the claim that a contract containing an arbitration
provision is void for illegality” with regard to section 2 of the FAA. 546 U.S. at
442.
In Buckeye, the respondents entered into various deferred-payment
transactions with the petitioner, in which they received cash in exchange for a
personal check in the amount of the cash plus a finance charge. For each separate
transaction they signed a “Deferred Deposit and Disclosure Agreement”
(Agreement), which included arbitration provisions. Id. The respondents brought
a putative class action, alleging that the petitioner charged usurious interest rates
and that the agreement violated various Florida lending and consumer-protection
laws, rendering it criminal on its face. The petitioner moved to compel arbitration.
The trial court denied the motion, holding that a court rather than an arbitrator
should resolve a claim that a contract is illegal and void ab initio. The Fourth
District Court of Appeal reversed, holding that because the respondents did not
challenge the arbitration provision itself, but instead claimed that the entire
contract was void, the agreement to arbitrate was enforceable, and the question of
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the contract’s legality should go to the arbitrator. The respondents appealed, and
this Court reversed “reasoning that to enforce an agreement to arbitrate in a
contract challenged as unlawful ‘could breathe life into a contract that not only
violates state law, but also is criminal in nature.’ ” Id. at 443 (quoting Cardegna v.
Buckeye Check Cashing, Inc., 894 So. 2d 860, 870 (Fla. 2005) rev’d, 546 U.S. 440
(2006), and opinion withdrawn, 930 So. 2d 610 (Fla. 2006)). The United States
Supreme Court then granted certiorari review.
The Supreme Court began its analysis by noting that Congress enacted the
FAA to overcome judicial resistance to arbitration. Id. It then observed that
challenges to the validity of arbitration agreements can be divided into two types:
challenges to the validity of the agreement to arbitrate within the contract; and
challenges to the contract as a whole, either on a ground that directly affects the
entire agreement, or on the ground that a provision is illegal, which renders the
whole contract invalid. Id.
The claim brought by the respondents was identified as one of the second
type of challenges. The Supreme Court noted that it previously addressed the
question of “who—court or arbitrator—decides these two types of challenges” in
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967),
where it held that federal courts are not permitted to consider challenges to the
contract as a whole. Buckeye, 546 U.S. at 444. Further, in Southland Corp. v.
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Keating, 465 U.S. 1, 12 (1984), it held that the FAA created a body of substantive
law applicable in state and federal courts. Thus, Prima Paint and Southland
answered the question presented by establishing three propositions: “First, as a
matter of substantive federal arbitration law, an arbitration provision is severable
from the remainder of the contract. Second, unless the challenge is to the
arbitration clause itself, the issue of the contract’s validity is considered by the
arbitrator in the first instance. Third, this arbitration law applies in state as well as
federal courts.” Buckeye, 546 U.S. at 445-46 (emphasis added). Applying those
principles to the facts of the case, the Supreme Court held that a challenge to the
validity of the contract as a whole, and not specifically to the arbitration clause,
must go to the arbitrator. Id. at 446.
Jupiter Medical Center, however, argues that the Supreme Court’s use of the
phrase “in the first instance” indicates that it anticipated a subsequent proceeding
by a court to decide the claim that a contract containing an arbitration provision is
void for illegality.9 We disagree. In Buckeye, the issue presented was whether a
court or arbitrator decides if a contract is void for illegality, not which tribunal has
9. Jupiter Medical Center also argues that Buckeye, which involved a
motion to compel arbitration rather than a motion to enforce or vacate an
arbitration award, is inapposite to the circumstances presented here. Although a
motion to compel arbitration is procedurally distinguishable, the determination that
the issue of a contract’s legality is to be decided by an arbitrator, however,
necessarily results in circumscribed court review pursuant to 9 U.S.C. § 10 as we
discuss in the analysis.
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the first opportunity to resolve the claim.10 The Supreme Court discussed the
import of a determination of who—arbitrator or court—has the authority to decide
claims arising out of a contract containing an arbitration provision in First Options
of Chicago, Inc. v. Kaplan:
Although the question is a narrow one, it has a certain practical
importance. That is because a party who has not agreed to arbitrate
will normally have a right to a court’s decision about the merits of its
dispute (say, as here, its obligation under a contract). But, where the
party has agreed to arbitrate, he or she, in effect, has relinquished
much of that right’s practical value. The party still can ask a court to
review the arbitrator’s decision, but the court will set that decision
aside only in very unusual circumstances. See, e.g., 9 U.S.C. § 10
(award procured by corruption, fraud, or undue means; arbitrator
exceeded his powers); Wilko v. Swan, 346 U.S. 427, 436-437 (1953)
(parties bound by arbitrator’s decision not in “manifest disregard” of
the law), overruled on other grounds, Rodriguez de Quijas v.
Shearson/American Express, Inc., 490 U.S. 477 (1989).
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995) (emphasis
added). As First Options makes clear, the Supreme Court’s determination that an
arbitrator “should consider the claim that a contract containing an arbitration
provision is void for illegality” limits a party’s right to the circumscribed court
review provided in 9 U.S.C. § 10. Buckeye, 546 U.S. at 442. Thus, we cannot
10. In addition, the phrase “in the first instance” qualifies the immediately
preceding portion of the sentence: “the issue of the contract’s validity is considered
by the arbitrator. . . .” Thus, in light of the Supreme Court’s broadly stated issue
and holding, the Supreme Court intended that the arbitrator would consider legality
of the contract before proceeding to the merits of the contractual dispute as
opposed to creating an additional layer of review for contract illegality claims.
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read Buckeye as establishing a subsequent de novo court review for contract
illegality claims in this context. Such a reading would be inconsistent with the
Supreme Court’s efforts to avoid interpretations of the FAA that would “ ‘rende[r]
informal arbitration merely a prelude to a more cumbersome and time-consuming
judicial review process. . . .’ ” Hall St., 552 U.S. at 588 (citations omitted).
Despite this apparent legislative limitation on the authority of the courts to
vacate an arbitral award, JMC argues that a court cannot enforce an arbitration
panel’s interpretation of a contract if it results in the violation of some well-
defined, dominant public policy that is to be ascertained by “reference to the laws
and legal precedents and not from general considerations of supposed public
interests,” citing to authority from various federal courts and the Supreme Court of
Connecticut. See United Paperworkers Int’l Union, AFL-CIO v. Misco, Inc., 484
U.S. 29, 42 (1987) (explaining that “[a] court’s refusal to enforce an arbitrator’s
award . . . because it is contrary to public policy is a specific application of the
more general doctrine, rooted in common law, that a court may refuse to enforce
contracts that violate law”); W.R. Grace & Co. v. Local Union 759, Int’l Union of
the United Rubber, Cork, Linoleum & Plastic Workers, 461 U.S. 757, 766 (1983)
(“If the contract as interpreted by [the arbitrator] violates some explicit public
policy, we are obliged to refrain from enforcing it.”); Delta Air Lines, Inc. v. Air
Line Pilots Ass’n, Int’l, 861 F.2d 665 (11th Cir. 1988); Mercy Hosp., Inc. v. Mass.
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Nurses Ass’n., 429 F.3d 338, 343 (1st Cir. 2005) (noting that an exception to the
general rule that the arbitrator has the “last word” is that courts may refuse to
enforce illegal contracts); I.U.B.A.C. Local Union No. 31 v. Anastasi Bros. Corp.,
600 F. Supp. 92, 94-95 (S.D. Fla. 1984) (“While there are sound reasons for
requiring parties to adhere to the procedures governing arbitration, it is also well-
established that a court may not enforce a contract that is illegal or contrary to
public policy . . . the legality of the contract clause at issue here must be
determined before the arbitration award can be enforced.”); State v. AFSCME,
Council 4, Local 2663, 777 A.2d 169, 178 (Conn. 2001) (explaining that
Connecticut recognizes a public policy exception to section 52-418, Connecticut
General Statutes, which mirrors the FAA, because “[w]hen a challenge to the
arbitrator’s authority is made on public policy grounds . . . the court is not
concerned with the correctness of the arbitrator’s decision but with the lawfulness
of enforcing the award.”). However, these cases did not involve arbitration under
the FAA and are thus inapplicable to the question of whether extra-statutory
grounds for invalidating an arbitration award survived the decision in Hall Street in
cases, such as this one, that are governed by the FAA.
In Hall Street, petitioner Hall Street Associates, L.L.C., and respondent
Mattel, Inc., initiated litigation in the United States District Court for the District of
Oregon, but soon reached an impasse on the parties’ indemnification portion of the
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dispute. The parties offered to submit to arbitration and the District Court was
amenable. As a result, the parties drafted an arbitration agreement, approved by
the District Court and entered as an order, providing the District Court with the
authority to vacate, modify, or correct any award where the arbitrator’s findings of
fact were not supported by substantial evidence or where the conclusions of law
were erroneous. Hall St., 552 U.S. at 579.
Arbitration proceedings took place and the arbitrator ruled that Mattel was
not obligated to indemnify Hall Street. Hall Street subsequently filed a motion to
vacate, modify, or correct the arbitration decision on the ground that the
arbitrator’s decision constituted legal error. The District Court vacated the award
based on the standard of review provided in the parties’ contractual agreement. Id.
at 580. After the arbitration decision was revised on remand, each party sought
modification in the District Court, which largely upheld the award pursuant to the
same standard of review provided in the parties’ agreement.
On appeal to the Ninth Circuit Court of Appeals, Mattel argued that the
arbitration agreement’s provision for judicial review of legal error was
unenforceable. The Ninth Circuit reversed in favor of Mattel, instructing the
District Court to consider the original decision of the arbitrator pursuant to the
grounds allowable under 9 U.S.C. § 10, or modified or corrected under
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9 U.S.C. § 11. After the District Court again held for Hall Street, reasoning that
the arbitration award rested on an implausible interpretation of the lease and thus
exceeded the arbitrator’s powers, the Ninth Circuit reversed, holding that
implausibility is not a valid basis for vacatur. Thus, the Supreme Court granted
certiorari review to consider whether the grounds for vacatur and modification
provided by §§ 10 and 11 of the FAA are exclusive or whether the statutory
grounds may be supplemented by contract. Id. at 581.
Title 9 U.S.C. § 10(a) provides in part:
In any of the following cases the United States court in and for
the district wherein the award was made may make an order vacating
the award upon the application of any party to the arbitration—
(1) where the award was procured by corruption, fraud, or
undue means;
(2) where there was evident partiality or corruption in the
arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing
to postpone the hearing, upon sufficient cause shown, or in refusing to
hear evidence pertinent and material to the controversy; or of any
other misbehavior by which the rights of any party have been
prejudiced; or
(4) where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite award
upon the subject matter submitted was not made.
And Title 9 U.S.C. § 11 provides:
In either of the following cases the United States court in and
for the district wherein the award was made may make an order
modifying or correcting the award upon the application of any party to
the arbitration—
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(a) Where there was an evident material miscalculation of
figures or an evident material mistake in the description of any person,
thing, or property referred to in the award.
(b) Where the arbitrators have awarded upon a matter not
submitted to them, unless it is a matter not affecting the merits of the
decision upon the matter submitted.
(c) Where the award is imperfect in matter of form not affecting
the merits of the controversy.
The order may modify and correct the award, so as to effect the
intent thereof and promote justice between the parties.
Hall St., 552 U.S. at 582 n.4.
The Supreme Court began its analysis by recognizing that “[t]he Courts of
Appeals have split over the exclusiveness of these statutory grounds when parties
take the FAA shortcut to confirm, vacate, or modify an award, with some saying
the recitations are exclusive, and others regarding them as mere threshold
provisions open to expansion by agreement.” Id. at 583. Hall Street first argued
that “expandable judicial review authority” has been the law since Wilko v. Swan,
346 U.S. 427 (1953). The Supreme Court disagreed. It noted that although the
“Wilko Court . . . remarked . . . that ‘[p]ower to vacate an [arbitration] award is
limited’ . . . and . . . ‘the interpretations of the law by the arbitrators in contrast to
manifest disregard [of the law] are not subject, in the federal courts, to judicial
review for error in interpretation,’ ” this statement did not recognize “manifest
disregard of the law” as an additional ground for vacatur. Hall St., 552 U.S. at 584
(quoting Wilko, 346 U.S. at 436-37). Further, the Supreme Court acknowledged
that Wilko expressly rejected the concept of general review for an arbitrator’s legal
- 27 -
errors and noted the vagueness of the Wilko Court’s reference to “manifest
disregard” of the law. Hall St., 552 U.S. at 585. Indeed, the Supreme Court
suggested that “manifest disregard” of the law could have been a new ground for
review, reference to § 10 collectively, or reference to only §§ 10(a)(3) or 10(a)(4),
which are the provisions authorizing vacatur when the arbitrators were guilty of
misconduct or exceeded their powers. Id. (citing Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 656 (1985) (Stevens, J., dissenting)
(“Arbitration awards are only reviewable for manifest disregard of the law, 9
U.S.C. §§ 10, 207”); Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341
F.3d 987, 997 (9th Cir. 2003)).
The Supreme Court then discussed “whether the FAA has textual features at
odds with enforcing a contract to expand judicial review following the arbitration.”
Hall St., 552 U.S. at 586. It ultimately concluded that the
text compels a reading of the §§ 10 and 11 categories as exclusive.
To begin with, even if we assumed §§ 10 and 11 could be
supplemented to some extent, it would stretch basic interpretive
principles to expand the stated grounds to the point of evidentiary and
legal review generally. Sections 10 and 11, after all, address
egregious departures from the parties’ agreed-upon arbitration:
“corruption,” “fraud,” “evident partiality,” “misconduct,”
“misbehavior,” “exceed[ing] . . . powers,” “evident material
miscalculation,” “evident material mistake,” “award[s] upon a matter
not submitted”; the only ground with any softer focus is
“imperfect[ions],” and a court may correct those only if they go to
“[a] matter of form not affecting the merits.”
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Id. It further reasoned that “it makes more sense to see the three provisions . . . as
substantiating a national policy favoring arbitration with just the limited review
needed to maintain arbitration’s essential virtue of resolving disputes
straightaway.” Id. at 588. It then concluded that any other reading “opens the door
to the full-bore legal and evidentiary appeals that can ‘rende[r] informal arbitration
merely a prelude to a more cumbersome and time-consuming judicial review
process,’. . . and bring arbitration theory to grief in post arbitration process.” Id.
(citations omitted). Accordingly, the Supreme Court held that the statutory
grounds were exclusive and could not be supplemented by contract. Id. at 584.
The Supreme Court’s decision in Hall Street, which addressed the parties’
ability to expand the statutory bases for vacating an award by contract, but focused
on the exclusivity of the categories listed, has led to a federal circuit court split
regarding whether Hall Street prohibits all extra-statutory grounds for vacating an
award, including judicially created grounds.
In Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir.
2009), the Fifth Circuit Court of Appeals concluded that Hall Street restricts the
grounds for vacating an award to those set forth in section 10 of the FAA and
consequently, manifest disregard of the law is no longer an independent ground for
vacating arbitration awards under the FAA. The Fifth Circuit reasoned that “[i]n
the light of Hall Street’s repeated statements that ‘We hold that the statutory
- 29 -
grounds are exclusive,’ ” it could not be interpreted as applying only to contractual
expansions of section 10 of the FAA. The Seventh Circuit has held that “[s]ome
decisions of this circuit . . . have implied that ‘manifest violation of law’ has some
different or broader content. See, e.g., Edstrom Indus., Inc. v. Companion Life Ins.
Co., 516 F.3d 546, 552 (7th Cir. 2008). But . . . none survives [Hall Street].”
Affymax, Inc. v. Ortho-McNeil-Janssen Pharm., Inc., 660 F.3d 281, 285 (7th Cir.
2011) (holding that manifest disregard of the law is not a ground on which a court
may reject an abritrator’s award under the FAA). The Eighth Circuit has also
found that claims that the arbitrator disregarded the law are not cognizable under 9
U.S.C. § 10. Medicine Shoppe Int’l, Inc. v. Turner Invs., Inc., 614 F.3d 485, 489
(8th Cir. 2010) (“Appellants’ claims, including the claim that the arbitrator
disregarded the law, are not included among those specifically enumerated in § 10
and are therefore not cognizable.”). Finally, the Eleventh Circuit agreed with the
Fifth Circuit that the categorical language of Hall Street compels the conclusion
that judicially created bases for vacating an award are no longer valid. Frazier v.
CitiFinancial Corp., LLC, 604 F.3d 1313, 1324 (11th Cir. 2010) (citing Hall Street,
552 U.S. at 586, 589, 590 (“the text compels a reading of the [sections] 10 and 11
categories as exclusive”; “the statutory text gives us no business to expand the
statutory grounds”; “[sections] 10 and 11 provide exclusive regimes for the review
provided by the statute”)).
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The Second and Ninth Circuits, on the other hand, treat manifest disregard
of the law as a judicial interpretation of the district court’s power under section
10(a)(4) where the arbitrator “exceeded [his] powers” or “so imperfectly executed
them that a mutual, final, and definite award . . . was not made.” See Comedy
Club, Inc. v. Improv W. Assoc., 553 F.3d 1277, 1290 (9th Cir.) (concluding that
“manifest disregard of the law remains a valid ground for vacatur” because it is
“shorthand for a statutory ground under the FAA. . . .”), cert. denied, 130 S. Ct.
145 (2009); Stolt-Nielsen v. Animalfeeds Int’l Corp., 548 F.3d 85, 94 (2d Cir.
2008) (same), cert. granted, Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 129
S. Ct. 2793 (2009).11 The Sixth Circuit has concluded in an unpublished opinion
that Hall Street “did not foreclose federal courts’ review for an arbitrator’s
manifest disregard of the law” because it held only that the FAA prohibits
contractual expansion of the statutory grounds for vacating an award, but did not
address whether those grounds could be supplemented judicially. Coffee Beanery,
Ltd. v. WW, L.L.C., 300 Fed. Appx. 415, 418-19 (6th Cir. 2008), cert. denied, 130
S. Ct. 81 (2009). The Fourth Circuit Court of Appeals also found that “manifest
disregard continues to exist either as ‘an independent ground for review or as a
11. The Supreme Court did not decide whether manifest disregard survived
Hall Street “as an independent ground for review or as a judicial gloss on the
enumerated grounds for vacatur set forth at 9 U.S.C. § 10.” Stolt-Nielsen, 559
U.S. at 672 n.3.
- 31 -
judicial gloss.’ ”12 Wachovia Sec., LLC v. Brand, 671 F.3d 472, 483 (4th Cir.
2012).
Like the Fifth, Seventh, Eighth, and Eleventh Circuit Courts of Appeals, we
are of the view that the FAA bases for vacating or modifying an arbitral award
cannot be supplemented judicially or contractually after Hall Street. As the
Supreme Court noted in Hall Street, “it makes more sense to see the three
provisions . . . as substantiating a national policy favoring arbitration with just the
limited review needed to maintain arbitration’s essential virtue of resolving
disputes straightaway.”13 552 U.S. at 588. Accordingly, courts cannot review the
12. The Third and Tenth Circuits have declined to address this issue.
Abbott v. Law Office of Patrick J. Mulligan, 440 Fed. Appx. 612, 620 (10th Cir.
2011) (“But in the absence of firm guidance from the Supreme Court, we decline
to decide whether the manifest disregard standard should be entirely jettisoned.”);
Paul Green Sch. of Rock Music Franchising, L.L.C. v. Smith, 389 Fed. Appx. 172,
177 (3d Cir. 2010) (unpublished) (citing Bapu v. Choice Hotels Int’l Inc., 371 Fed.
Appx. 306 (3d Cir. 2010) (unpublished); Andorra Servs. Inc. v. Venfleet, Ltd., 355
Fed. Appx. 622, 627 (3d Cir. 2009) (unpublished)). Further, although the First
Circuit briefly addressed the issue in dicta, it chose not to squarely determine
whether its case law on manifest disregard of the law could be reconciled with Hall
Street. See Kashner Davidson Sec. Corp. v. Mscisz, 601 F.3d 19, 22 (1st Cir.
2010) (citing Ramos-Santiago v. United Parcel Serv., 524 F.3d 120, 124 n.3 (1st
Cir. 2008) (acknowledging that manifest disregard of the law is not a valid ground
for vacating or modifying an arbitral award in cases brought under the FAA in
light of Hall Street, but declining to reach the question of whether Hall Street
precludes a manifest disregard inquiry in the setting presented)).
13. Further, the Supreme Court suggested that the enumerated grounds for
vacatur in 9 U.S.C. § 10 are exclusive in First Options. There, the Supreme Court
held that if parties contractually agree to submit the question of arbitrability itself
to arbitration, then “the court should give considerable leeway to the arbitrator,
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claim that an arbitrator’s construction of a contract renders it illegal. We now turn
to JMC’s argument that the arbitrators exceeded their powers.
2. Whether the Arbitrators Exceeded their Powers
In Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013), the question
presented was whether an arbitrator “exceeded [his] powers” pursuant to 9 U.S.C.
§ 10(a)(4) by finding that the parties’ contract provided for class arbitration. The
Supreme Court noted at the outset that “[a] party seeking relief under [9 U.S.C. §
10(a)(4)] bears a heavy burden. ‘It is not enough . . . to show that the [arbitrator]
committed an error—or even a serious error.’ ” Oxford Health, 133 S. Ct. at 2068
(quoting Stolt-Nielsen, 559 U.S. at 671). It further noted that an arbitral decision
“ ‘even arguably construing or applying the contract’ must stand, regardless of a
court’s view of its (de)merits” because the parties “ ‘bargained for the arbitrator’s
construction of their agreement.’ ” Id. (quoting Eastern Associated Coal Corp. v.
Mine Workers, 531 U.S. 57, 62 (2000) (quoting Steelworkers v. Enter. Wheel &
Car Corp., 363 U.S. 593, 599 (1960); Paperworkers v. Misco, Inc., 484 U.S. 29, 38
(1987); (internal quotation marks omitted))). Thus, a court has the power to
overturn an arbitrator’s determination only if “ ‘the arbitrator act[s] outside the
scope of his contractually delegated authority’—issuing an award that ‘simply
setting aside his or her decision only in certain narrow circumstances,” citing 9
U.S.C. § 10. First Options, 514 U.S. at 943 (emphasis added).
- 33 -
reflect[s] [his] own notions of [economic] justice’ rather than ‘draw[ing] its
essence from the contract.’ ” Id. (quoting Eastern Associated Coal, 531 U.S. at 62
(quoting Misco, 484 U.S. at 38)). Effectively, the Supreme Court narrowed the
question presented to whether the arbitrator arguably interpreted the parties’
contract. Id. Accordingly, because the Supreme Court observed that the arbitrator
twice considered the parties’ contract and decided whether it reflected an
agreement to permit class proceedings, it held that the arbitrator did not exceed his
powers.
The Supreme Court also determined whether an arbitrator exceeded his
powers in Stolt-Nielsen. There, it found that an arbitrator did exceed his powers
by ordering a party to submit to class arbitration. The Supreme Court reasoned
that the parties had entered into a stipulation stating that they had never reached an
agreement on class arbitration, which made clear that the panel’s decision could
not have been based on the parties’ intent. Stolt-Nielsen at 673 n.4, 676 (“Th[e]
stipulation left no room for an inquiry regarding the parties’ intent.”). The
Supreme Court concluded that “the panel simply imposed its own conception of
sound policy” and thus exceeded its powers. Id. at 675, 677.
Here, JMC argues that the arbitrators exceeded their powers because the
panel interpreted the purchase agreement in a manner that would violate state and
federal laws, regulations, and rules resulting in both civil and criminal penalties.
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Specifically, JMC points to sections 20, 24, and 28 of the purchase agreement,
which expressly state that the parties were not to construe the discharge planning
procedures, the purchase price of the home health care agency (HHA), and either
of the leases as an illegal agreement to make, influence, and steer future patient
referrals to VNA. In short, the parties were to interpret the requirements of the
contract in a manner consistent with state and federal health care laws. Thus, JMC
essentially argues that the arbitrators exceeded their powers because they
interpreted the contract in a manner allegedly inconsistent with the contract’s
terms. It is clear from JMC’s argument that it simply disagrees with the panel’s
construction of the contract rather than alleging that the panel “imposed its own
conception of sound policy.” Accordingly, the arbitration panel did not exceed its
powers pursuant to 9 U.S.C. § 10(a)(4).
Based on the foregoing, JMC’s claim that the arbitration panel construed the
contract to be an unlawful agreement is not grounds for review pursuant to 9
U.S.C. § 10, and the arbitration panel did not otherwise exceed its powers pursuant
to 9 U.S.C. § 10(a)(4). Our review of the provisions of the FAC leads us to the
same conclusion.
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C. Florida Arbitration Code
1. Whether a Court Can Consider the Claim that a Contract Containing an
Arbitration Provision is Void for Illegality
“When construing a statute, this Court attempts to give effect to the
Legislature’s intent, looking first to the actual language used in the statute and its
plain meaning.” Trinidad v. Fla. Peninsula Ins. Co., 121 So. 3d 433, 439 (Fla.
2013) (citing Daniels v. Fla. Dep’t of Health, 898 So. 2d 61, 64 (Fla. 2005)).
“ ‘Where the statute’s language is clear or unambiguous, courts need not employ
principles of statutory construction to determine and effectuate legislative intent.’ ”
Trinidad, 121 So. 3d at 439 (quoting Fla. Dep’t of Children & Family Servs. v.
P.E., 14 So. 3d 228, 234 (Fla. 2009)).
Section 682.13(1), Florida Statutes (2009), provides:
(1) Upon application of a party, the court shall vacate an award
when:
(a) The award was procured by corruption, fraud or other undue
means.
(b) There was evident partiality by an arbitrator appointed as a
neutral or corruption in any of the arbitrators or umpire or misconduct
prejudicing the rights of any party.
(c) The arbitrators or the umpire in the course of her or his
jurisdiction exceeded their powers.
(d) The arbitrators or the umpire in the course of her or his
jurisdiction refused to postpone the hearing upon sufficient cause
being shown therefor or refused to hear evidence material to the
controversy or otherwise so conducted the hearing, contrary to the
provisions of s. 682.06, as to prejudice substantially the rights of a
party.
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(e) There was no agreement or provision for arbitration subject
to this law, unless the matter was determined in proceedings under
s. 682.03 and unless the party participated in the arbitration hearing
without raising the objection.
But the fact that the relief was such that it could not or would not be
granted by a court of law or equity is not ground for vacating or
refusing to confirm the award.
§ 682.13(1), Fla. Stat. (2009). The unambiguous language of section 682.13(1)
does not include the term “illegality” or require a court to vacate an arbitrator’s
“illegal construction of the underlying contract.” Further, the list of circumstances
set forth in section 682.13(1) is directed at arbitral misconduct or lack of authority,
and not mere errors of law, or errors of construction or interpretation of a contract.
Accordingly, although Florida courts are wont to refuse to enforce an illegal
contract as noted by the Fourth District, the plain language of the statute constrains
the courts’ authority to vacate awards to the five grounds set forth in section
682.13(1). See Jupiter Med. Ctr., 72 So. 3d at 186 (noting case law indicates that
Florida courts will not enforce an illegal contract). Indeed, we have previously
held that section 682.13(1) sets forth the only grounds upon which an award of an
arbitrator may be vacated.
In Schnurmacher, 542 So. 2d at 1328, a commercial lessor filed a motion to
vacate an arbitrator’s award finding that the commercial lessor rather than the
lessee was obligated to pay sales tax on rental payments. The circuit court
confirmed the award and the Third District Court of Appeal reversed. This Court
- 37 -
held that “in the absence of one of the five factors set forth in [section 682.13],
neither a trial court nor a district court of appeal has the authority to overturn the
award” despite the arbitrator’s erroneous interpretation of the statutes governing
sales tax obligations. Id. This Court specifically observed that “it is well settled
that ‘the award of arbitrators in statutory arbitration proceedings cannot be set
aside for mere errors of judgment either as to the law or as to the facts; if the award
is within the scope of the submission, and the arbitrators are not guilty of the acts
of misconduct set forth in the statute, the award operates as a final and conclusive
judgment.’ ” Id. (quoting Cassara v. Wofford, 55 So. 2d 102, 105 (Fla. 1951); and
citing District School Bd. v. Timoney, 524 So. 2d 1129 (Fla. 5th DCA 1988),
Prudential-Bache Sec., Inc. v. Shuman, 483 So. 2d 888 (Fla. 3d DCA 1986),
McDonald v. Hardee Cnty. School Bd., 448 So. 2d 593 (Fla. 2d DCA), rev. denied,
456 So. 2d 1181 (Fla. 1984), and Newport Motel, Inc. v. Cobin Rest., Inc., 281 So.
2d 234 (Fla. 3d DCA 1973)); see also Felger v. Mock, 65 So. 3d 625, 626 (Fla. 1st
DCA 2011) (“Section 682.13(1), Florida Statutes (2009), sets forth the only
grounds upon which an arbitration award in a statutory arbitration proceeding may
be vacated. . . .”); Commercial Interiors, 19 So. 3d at 1064 (“We have specifically
held that in order to vacate an arbitration award a party must establish one of the
five section 682.13 grounds.”). Accordingly, section 682.13(1) sets forth the only
grounds upon which an arbitration award will be vacated and an arbitration panel’s
- 38 -
alleged construction of a contract to be an unlawful agreement is not one of those
five grounds.
Jupiter Medical Center, however, argues that there is a public policy
exception to the statute. We decline to adopt a public policy exception to the
statute. In reaching this conclusion, we are mindful of the hypothetical possibility
that an arbitration panel could erroneously determine that an agreement is lawful
and not void for illegality. Indeed, it was this concern in part that led us to
determine in Cardegna v. Buckeye Check Cashing, Inc., 894 So. 2d 860 (Fla.
2005) rev’d and remanded, 546 U.S. 440 (2006) and opinion withdrawn, 930 So.
2d 610 (Fla. 2006), that a claim that a contract was void for illegality should be
decided by the courts and not arbitrators. See Cardegna, 894 So. 2d at 862
(quoting Party Yards, Inc. v. Templeton, 751 So. 2d 121, 123 (Fla. 5th DCA 2000)
(indicating a concern with submitting a claim that a contract is void for illegality to
arbitration because it “could breathe life into a contract that not only violates state
law, but also is criminal in nature”)).
Parties to an agreement containing an arbitration provision, however,
specifically bargained for an arbitrator’s construction and interpretation of the
agreement as an alternative to litigation in the courts system, as opposed to an
additional step in the process. See B.L. Harbert Int’l, LLC v. Hercules Steel Co.,
441 F.3d 905, 907 (11th Cir. 2006) (noting that the “laudatory goals of [arbitration]
- 39 -
will be achieved only to the extent that courts ensure arbitration is an alternative to
litigation, not an additional layer in a protracted contest”). This characteristic of
arbitration—finality—is perhaps its most prized feature. For instance, in
Schnurmacher, this Court stated:
The reasons underlying the need for finality of arbitration
awards were expressed in Johnson v. Wells, 72 Fla. 290, 297; 73 So.
188, 190-91 (1916):
The reason for the high degree of conclusiveness which
attaches to an award made by arbitrators is that the parties have
by agreement substituted a tribunal of their own choosing for
the one provided and established by law, to the end that the
expense usually incurred by litigation may be avoided and the
cause speedily and finally determined. To permit the
dissatisfied party to set aside the award and invoke the
judgment of the court upon the merits of the cause would be to
render it merely a step in the settlement of the controversy,
instead of a final determination of it.
These reasons, articulated by this Court over seventy years ago,
remain relevant under today’s arbitration legislation. As petitioner
notes, the finality and enforceable nature of an arbitration award is a
characteristic of arbitration that distinguishes it from other forms of
alternative dispute resolution. To allow judicial review of the merits
of an arbitration award for any reasons other than those stated in
section 682.13(1) would undermine the purpose of settling disputes
through arbitration. We find it incumbent to adhere to the long-
standing principle of finality of arbitration awards in order to preserve
the integrity of the arbitration process as a means of alternative
dispute resolution.
Schnurmacher, 542 So. 2d at 1328-29 (emphasis added). Here, the parties to the
agreement received the benefit of their bargain—arbitral construction of the
- 40 -
agreement as opposed to litigation in the courts system. 14 Thus, we decline to
adopt a public policy exception under these circumstances because such an
exception would evince resistance to arbitration and deprive the parties of perhaps
arbitration’s ultimate benefit of finality. See id. at 1329.
Likewise, we find that the circumstances presented here do not merit relief
pursuant to section 682.13(1)(c), Florida Statutes (2009), because the arbitrators
did not exceed their powers.
2. Whether the Arbitration Panel Exceeded its Powers
As noted above, JMC argues that the arbitrators exceeded their powers
because the panel interpreted the purchase agreement in a manner that would
violate state and federal laws, regulations, and rules resulting in both civil and
criminal penalties. Because the phrase “exceeded their powers” in section
682.13(1)(c), Florida Statutes (2009), does not encompass misinterpretations of
contractual provisions or other errors of law, but is jurisdictional in nature, we
disagree.
14. We again note that neither party contested the legality of the contract
during the arbitration proceedings; only after an adverse arbitration award did JMC
raise the issue of the contract’s illegality by asserting that the arbitration panel’s
construction of the contract rendered it unlawful. Further, the arbitration panel
considered and rejected JMC’s arguments. Where, as here, a contract is not
patently illegal and criminal in nature, more expansive judicial review of an
arbitral decision would amount to simple disagreement with an arbitrator’s
application of the law to the facts.
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In Schnurmacher, this Court discussed the meaning of “exceeded their
powers” as follows:
Section 682.13(1)(c) declares that an arbitration award may be
vacated if it is shown that the arbitrator exceeded his or her power.
Respondent now urges us to interpret subsection (c) to include that if
an arbitrator departs from the accepted rule of law, then the
arbitrator’s award can be vacated on the ground that the arbitrator
exceeded his or her power. However, our view is that an arbitrator
exceeds his or her power under subsection (c) when he or she goes
beyond the authority granted by the parties or the operative documents
and decides an issue not pertinent to the resolution of the issue
submitted to arbitration. See International Medical Centers, Inc. v.
Sabates, 498 So. 2d 1292 (Fla. 3d DCA), review denied, 508 So. 2d
14 (Fla. 1987); Broward County Paraprofessional Ass’n v. McComb,
394 So. 2d 471 (Fla. 4th DCA 1981); Dubbin v. Equitable Life
Assurance Society of the United States, 234 So. 2d 693 (Fla. 4th
DCA), cert. denied, 238 So. 2d 423 (Fla. 1970).
Schnurmacher, 542 So. 2d at 1329 (emphasis added); see also Nucci v. Storm
Football Partners, 82 So. 3d 180, 183 (Fla. 2d DCA 2012) (noting that an arbitrator
exceeds his power only when he exceeds the authority the parties granted him in
their agreement to arbitrate and stating that an arbitrator may very well exceed his
authority when he decides an issue that is not pertinent to resolving the issue
submitted to arbitration).
The 2009 version of the statute, applicable here, provides that a court shall
vacate an award when “[t]he arbitrators or the umpire in the course of her or his
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jurisdiction exceeded their powers.”15 § 682.13(1)(c) (2009). Thus, a claim that an
arbitrator exceeded his or her powers is jurisdictional in nature and is in reference
to the scope of authority given to an arbitrator in the arbitration agreement.
Moreover, reading this subsection of the statute together with the remainder of the
statute, it is clear that the Legislature intended the grounds for vacating an award to
be misconduct-oriented or process-oriented. For instance, the statute provides
circumstances under which an award could be vacated such as corruption, fraud,
undue means, evident partiality, misconduct prejudicing the rights of any party,
refusal to postpone the hearing upon sufficient cause being shown or refusal to
hear evidence material to the controversy, or that there was no agreement or
provision for arbitration. Even the cases cited by JMC to support its proposition
demonstrate the jurisdictional quality of this subsection.
In Soler v. Secondary Holdings, Inc., 832 So. 2d 893 (Fla. 3d DCA 2002),
the Third District considered the appellant’s claim that an arbitrator exceeded the
scope of his jurisdiction, which was limited to a determination of whether a joint
venture existed between the parties. Id. at 894. In holding that the arbitrator
exceeded his authority because both the arbitration agreement and the trial court’s
15. This section was subsequently amended in 2013. It was changed to
section 682.13(1)(d) and provides that a court shall vacate an award when “an
arbitrator exceeded the arbitrator’s powers.” It is not clear why the “in the course
of her or his jurisdiction” language was stricken from the statute. Nevertheless, the
absence of such language from the 2009 statute would not alter the result.
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order limited the arbitration proceeding to a determination of whether a partnership
was formed, the Third District noted that “[a]n Arbitrator exceeds his or her power
when he or she goes beyond the authority granted by the parties and decides an
issue not pertinent to the resolution of the matter submitted to arbitration.” Id. at
895.
In Edstrom Industries, the Seventh Circuit Court of Appeals held that “the
arbitrator cannot disregard the lawful directions the parties have given them. If
they tell him to apply Wisconsin law, he cannot apply New York law.” Edstrom
Indus., 516 F.3d at 552 (holding that manifest disregard of the law is not a ground
on which a court may reject an arbitrator’s award under the FAA). Thus, Edstrom
stands for the proposition that an arbitrator exceeds his or her powers if the
arbitration clause directs the arbitrator to apply a particular state’s laws and the
arbitrator chooses to apply a different state’s laws, which would be acting outside
the scope of authority provided by the parties to the contract.
Here, the parties’ arbitration clause authorized the arbitration panel to
preside over “[a]ny dispute, controversy or claim arising out of or related to this
Agreement or the breach hereof”—the clause did not contain any other limiting
language of authority. The arbitration panel presided over a claim for breach of the
agreement, awarding damages and attorney’s fees and costs. Thus, by awarding
damages based on a breach of contract, the arbitration panel “did what the parties
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had asked” and did not “decide[] an issue not pertinent to the resolution of the
issue submitted to arbitration.”16 See Schnurmacher, 542 So. 2d at 1329; Oxford
Health, 133 S. Ct. at 2069. Accordingly, the arbitration panel did not exceed its
powers.
III. CONCLUSION
Based on the foregoing, the claim that an arbitration panel construed a
contract containing an arbitration provision to be an unlawful agreement is an
insufficient basis to vacate an arbitrator’s decision pursuant to the FAA or the
FAC. Further, the arbitration panel did not exceed its powers. Accordingly, we
quash the Fourth District’s decision in Jupiter Medical Center, Inc. v. Visiting
Nurse Ass’n of Florida, Inc., 72 So. 3d 184 (Fla. 4th DCA 2011), because the
district court below erred in holding that a court must determine whether a contract
is legal prior to enforcing an arbitral award based on the contract.
It is so ordered.
PARIENTE, LEWIS, QUINCE, and PERRY, JJ., concur.
CANADY and POLSTON, JJ., concur in result.
16. If JMC’s argument did apply, such a construction of section
682.13(1)(c), Florida Statutes (2009), would lead to parties such as VNA
contesting an arbitrator’s determination that a contract is illegal and unenforceable
on the very same grounds. For instance, if the arbitrator were to have held that the
contract was unenforceable despite language in the contract stating the parties were
to construe the agreement in accordance with the law, VNA would argue that the
arbitrator exceeded his or her powers because the contract constrained the
arbitrator from reaching such a determination.
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NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND
IF FILED, DETERMINED.
Application for Review of the Decision of the District Court of Appeal – Direct
Conflict of Decisions
Fourth District – Case No. 4D10-1803
(Palm Beach)
David B. Earle, Thomas K. Gallagher, and John P. Carrigan of Ross Earle &
Bonan, P.A., Stuart, Florida,
for Petitioner
Michael G. Austin and Matthew D. Grosack of DLA Piper LLP (US), Miami,
Florida,
for Respondent
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