Roberto Basulto v. Hialeah Automotive, etc. , 39 Fla. L. Weekly Supp. 140 ( 2014 )

Supreme Court of Florida
____________
No. SC09-2358
____________
ROBERTO BASULTO, et al.,
Petitioners,
vs.
HIALEAH AUTOMOTIVE, etc., et al.,
Respondents.
[March 20, 2014]
PERRY, J.
Roberto Basulto and Raquel Gonzalez, a married couple, seek review of the
decision of the Third District Court of Appeal in Hialeah Auto., LLC v. Basulto,
22 So. 3d 586 (Fla. 3d DCA 2009), on the ground that it expressly and directly
conflicts with a decision of this Court, Seifert v. U.S. Home Corp., 750 So. 2d 633(Fla. 1999), on a question of law. We have jurisdiction. See art. V, § 3(b)(3), Fla.
Const. For the reasons that we explain below, we quash the Third District’s
decision based on its conflict with our controlling precedent.
I. BACKGROUND AND FACTS
The pertinent facts that led to the civil action that commenced in the Circuit
Court of the Eleventh Circuit in and for Miami-Dade County, Florida, are taken
from the decision on review.
In 2004, Roberto Basulto and Raquel Gonzalez, who are
husband and wife (“the buyers”), purchased a new 2005 Dodge
Caravan from Hialeah Automotive, LLC, which does business as
Potamkin Dodge (“the [dealership]”). The buyers alleged that while
at the dealership, the dealer had the buyers sign the contract in blank,
with the representation that the agreed-upon numbers would be filled
in. The buyers alleged that when the dealership completed the sales
contract, it allowed them a lower trade-in allowance than the amount
agreed upon. The dealer refused to correct the situation. After
negotiations proved unsuccessful, the buyers returned the van to the
dealership (having driven a total of seven miles) and demanded the
return of their trade-in. The trade-in had been sold.
The buyers brought suit alleging fraud in the inducement and
violation of the Florida Deceptive and Unfair Trade Practices Act
(“FDUTPA”). See Ch. 501, pt. II, Fla. Stat. (2004). The buyers also
sought rescission of the arbitration agreements they had signed, and
rescission of the loan agreement.
The dealer moved to compel arbitration. The trial court held an
evidentiary hearing at which the buyers and representatives of the
dealer testified.
Basulto, 22 So. 3d at 588.
During the evidentiary hearing, the buyers independently testified, with the
assistance of a court-approved interpreter, that they (1) emigrated from Cuba in
December 1997, and (2) were only able to communicate in Spanish. All of the
documents pertaining to the civil action between the buyers and the dealership
were drafted in English.
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The trial court heard testimony from multiple witnesses, including the
dealership’s employees who were directly involved in the automobile purchase
deal with the buyers. After the evidentiary hearing, the trial court entered an
“Order Denying [the dealership’s] Amended Motion to Dismiss and/or to Compel
Arbitration.” See Basulto v. Hialeah Auto., LLC (Order), No. 05-05556 CA09
(Fla. 11th Cir. Ct. Mar. 8, 2007). The trial court made the following pertinent
findings of fact:
3. It is undisputed that at least two of the documents which [the
buyers] were called upon to sign contained arbitration clauses. . . .
[E]ven if the documents had been printed in Spanish, a reasonable
person reading these documents would not have a clear understanding
of the precise terms and conditions to which they were called upon to
agree.
4. Although [the dealership]’s sales representative and finance
and insurance manager both testified that at the time the [buyers]
signed the subject documents, these employees explained “arbitration”
to the [buyers], further testimony by these employees clearly
established that (a) the sales representative had no basic understanding
of the concept of arbitration . . . and (b) the finance and insurance
manager did not convey to the [buyers] that arbitration deprived
[buyers] of their rights to seek punitive damages or class action status.
5. [The buyers], on the other hand, testified that they had never
been informed concerning arbitration and . . . were never put on notice
that they were being called on to waive valuable rights, much less to
ask important questions regarding what rights they were waiving.
Any waiver was a blind and unknowing waiver.
6. . . . [The dealership’s] finance manager also testified that if
the [buyers] had refused to sign, they would not have had a deal. [The
buyers] also testified that they were hurried/rushed when signing the
many documents that they could not read and were told to sign, sign,
sign in rapid succession.
Order at 2-3.
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The trial court entered conclusions of law that relied on the framework set
forth in Seifert for evaluating motions to compel arbitration. The trial court stated:
The parties in this case have stipulated that no waiver of the right to
arbitrate has occurred.
The Court concludes as a matter of law that no valid agreement
to arbitrate exists in this case. This conclusion is based on the Court’s
finding of fact that the various jury waiver and arbitration clauses
which [the buyers] were required to sign were conflicting in their
essential provisions and, taken together, provided for three separate
and distinct means of dispute resolution. One of the clauses at issue
provided for jury waiver and (presumably) trial in a court of law.
Another provision required arbitration by a single arbitrator. Another
provision required arbitration by a panel of three arbitrators. In
addition the methods for selecting arbitrators were conflicting as well
as what law or procedure would govern the arbitration proceeding.
Each of the competing dispute resolution provisions at issue
contemplates the enforcement of a different remedy whose terms and
conditions are irreconcilable with the terms and conditions of each of
the other conflicting provisions. This Court accordingly concludes as
a matter of law that there was no meeting of the minds with respect to
the terms by which the [the dealership] intended the parties to be
bound. There is accordingly no valid agreement for this Court to
enforce.
Id. at 4-5 (emphasis added).
The trial court further concluded that even if the arbitration provisions could
be construed as agreed upon by the parties, the provisions are unenforceable
because they are procedurally and substantively unconscionable.
The dealership appealed the trial court’s nonfinal order. The Third District
rendered a decision that affirmed in part, and reversed in part, the trial court’s
judgment. Basulto, 22 So. 3d at 592. The Third District noted:
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Although by no means an exclusive list, the Fourth District has
identified two analytical frameworks that have been used by courts
“when confronted with this issue [a challenge to the validity of an
arbitration agreement]: (1) whether the arbitration clause is void as a
matter of law because it defeats the remedial purpose of the applicable
statute, or (2) whether the arbitration clause is unconscionable.” By
the phrase “defeats the remedial purpose of the applicable statute,” the
Fonte [v. AT&T Wireless Servs., Inc., 903 So. 2d 1019, 1023 (Fla. 4th
DCA 2005)] court referred to an arbitration clause that eliminates
substantive rights guaranteed by a remedial statute. The trial court
applied both approaches in this case.
Id. at 589 (citations omitted). The Third District further noted:
Under either analysis, procedural unconscionability was
established. . . . The trial court found that the Agreement was
substantively unconscionable because it contained a waiver of the
right to seek punitive damages. . . . We agree with the trial court that it
is unconscionable to employ an arbitration agreement to obtain a
waiver of rights to which the signatory would otherwise be entitled
under common law or statutory law.
Id. at 590 (citation omitted).
We observe that the district court designated the “Agreement to Arbitrate
Disputes,” a single-page document, as “the Agreement.” Second, the district court
designated the arbitration provision on the reverse side of the “Retail Installment
Contract,” as “the Clause.” 1 Regarding the disputed arbitration provisions, the
Third District noted:
1. We also observe that the trial court considered and ruled that none of
three purported arbitration agreements were valid: (1) the Agreement, (2) the
Clause, and (3) an untitled provision within the dealership’s order form. The third
purported arbitration provision appears at the bottom of the dealership’s order
form, and it does not include the term “arbitrate(ion).” It contains certain
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The trial court found that the Agreement was substantively
unconscionable because it contained a waiver of the right to seek
punitive damages. The complaint contains a claim for fraud, and
punitive damages are available in judicial proceedings where there is a
fraud claim. We agree with the trial court that it is unconscionable to
employ an arbitration agreement to obtain a waiver of rights to which
the signatory would otherwise be entitled under common law or
statutory law.
Id. (citations omitted). The dealership asserted in its appeal below that the
severability clauses should enable the purported arbitration agreements to survive
after severing any unenforceable terms. The Third District disagreed as to one of
the arbitration provisions, determining that “the severability clause does not apply
here, and the Agreement operates in a substantively unconscionable way. We
therefore affirm the order denying enforcement of the Agreement.” Id. at 591.
However, the Third District had a different view regarding another
arbitration provision:
With regard to the Clause, we affirm the trial court’s order insofar as
it declined to enforce arbitration of the claims for declaratory and
injunctive relief. We reverse the trial court’s order insofar as it
declined to enforce the Clause with respect to the buyers’ claims for
monetary relief.
Id. at 592 (emphasis added).
boilerplate language that is associable with agreements to arbitrate—e.g., “Florida
shall have exclusive jurisdiction,” “venue shall lie exclusively in Miami-Dade
County, Florida,” and “trial by jury is irrevocably waived.”
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In the analysis that follows, we explain why we disagree with the Third
District’s Basulto decision. The decision on review is quashed and remanded with
instructions to reinstate the trial court’s judgment. First, we determine that the
Third District neglected to employ the standard we established in Seifert to
evaluate a motion to compel arbitration according to a purported agreement. Next,
we determine that although the Federal Arbitration Act (FAA) was implicated by
the parties’ agreement for the automobile purchase, the trial court’s finding that no
arbitration agreements existed negates any conclusion that the FAA requires that
motion to compel arbitration should have been granted. Next, we explain that,
under Florida law, both the procedural and substantive prongs of unconscionability
must be established as an affirmative defense to prevent the enforcement of an
arbitration agreement. However, these prongs need not be present to the same
degree. Finally, we determine that the buyers are entitled to reasonable appellate
attorney’s fees.
II. ANALYSIS
A. Jurisdiction
We have granted discretionary review under our jurisdiction to consider
express and direct conflict of decisions, see art V, § 3(b)(3), Fla. Const., because
the Third District’s decision in Basulto has created misapplication conflict with our
decision in Seifert. See generally Ascensio v. State, 497 So. 2d 640, 641 (Fla.
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1986) (“Based on the conflict created by [the] misapplication of law, we have
jurisdiction under article V, section 3(b)(3), Florida Constitution.”); State v.
Stacey, 482 So. 2d 1350, 1351 (Fla. 1985) (exercising jurisdiction because the
district court “misapplied controlling case law to the facts of the case”).
In its decision below, the Third District misapplied the unconscionability
standard in spite of the trial court’s explicit ruling denying the dealership’s motion
to dismiss and/or compel arbitration. The cause on appeal before the Third District
required an application of the Seifert standard. In Seifert, we previously provided
guidance for evaluating motions to compel arbitration agreements. See Seifert,
750 So. 2d at 636 (“Under both federal statutory provisions and Florida’s
arbitration code, there are three elements for courts to consider in ruling on a
motion to compel arbitration of a given dispute: (1) whether a valid written
agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether
the right to arbitration was waived.”). In denying the dealership’s motion to
compel arbitration, the trial court concluded “as a matter of law that no valid
agreement to arbitrate exists in this case,” which relates to the first prong of the
Seifert standard. However, the Third District neglected to perform a Seifert
analysis in making its decision on review. Accordingly, we determine that the
Third District’s Basulto decision misapplied the Seifert standard, which governs
the evaluation of motions to compel arbitration agreements in Florida courts.
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B. Standard of Review
Because both the trial court and the Third District decided the present issues
as a matter of law, our review of the Basulto decision is de novo. Aravena v.
Miami-Dade County, 928 So. 2d 1163, 1166 (Fla. 2006).
C. The Purported Agreements
1. The District Court’s Decision to Reverse
The trial court, relying on the Seifert standard, denied the dealership’s
motion to compel arbitration. Nevertheless, the Third District reversed the trial
court’s order, in part; requiring the buyers and the dealership to proceed to
arbitration under the Clause. The Third District failed to perform a Seifert analysis
in making its decision, and did not provide any explanatory reasoning. In general,
if there is no showing for each of the elements set forth in Seifert, the motion to
compel arbitration must be denied. In this case, the record shows that the trial
court had legally sufficient grounds under the first prong of the Seifert standard to
deny the dealership’s motion to compel arbitration when it found that no
arbitration agreements between these parties existed. See Seifert, 750 So. 2d at
636. The trial court further concluded that even if any arbitration agreement
existed between the buyers and the dealership, it was unenforceable due to
procedural and substantive unconscionability. The trial court specifically found
that the buyers were unable to understand any of the purported arbitration
agreement documents. Furthermore, none of the dealership’s employees involved
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in the deal with the buyers could explain arbitration as an alternative dispute
remedy in an understandable way.
The buyers argue that under the circumstances of the case presented on
appeal, the Third District’s analysis should have addressed the Seifert standard.
We agree.
The Third District’s decision reversing, in part, the trial court’s judgment
pertaining to the Clause does not conform to our controlling precedent governing
disputed motions to compel arbitration set forth in Seifert. Contrary to the trial
court’s finding, the Third District determined that the Clause was a valid
arbitration agreement entered into under the FAA, and was enforceable on a
limited basis. The Clause states in pertinent part: “This contract evidences a
transaction involving interstate commerce. Any arbitration under this contract
shall be governed by the Federal Arbitration Act . . . .” The Third District states
the following pertinent points concerning its decision:
Where, as here, the parties execute an arbitration agreement in a
transaction involving interstate commerce, the Federal Arbitration Act
(“FAA”), 9 U.S.C. § 1, is implicated.
Parties are allowed to choose state law for “the rules under
which . . . arbitration will be conducted.” By their Florida choice of
law, the parties have specified the procedures of the Florida
Arbitration Code as being applicable to this transaction. See Ch. 682,
Fla. Stat. (2004). While this is permissible, the arbitration agreements
in this case must still be enforced in a way which is consistent with
the substantive provisions of the FAA.
Under the FAA, an arbitration agreement in a transaction
involving interstate commerce “shall be valid, irrevocable, and
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enforceable, save upon such grounds as exist at law or in equity for
the revocation of any contract.” 9 U.S.C. § 2. “Section 2 prohibits the
states from placing greater restrictions on arbitration clauses than
those that apply to other contract provisions.” “A court must enforce
an arbitration agreement according to its terms, absent an established
ground for setting aside the contractual provision, such as fraud,
duress, coercion, or unconscionability.”
Basulto, 22 So. 3d at 589 (internal citations omitted; omission in original). In
Basulto, the Third District aptly observes that the FAA was implicated.
Accordingly, we now examine the specific requirements for entertaining disputed
arbitration agreements governed by this federal statute.
2. Enforcing Arbitration Agreements Governed by
the Federal Arbitration Act
We acknowledge that neither of the parties has challenged the validity the
Retail Installment Contract, which contains the Clause. And because of the
subordinate nature of the Clause to the Retail Installment Contract, we
preliminarily evaluate the Clause in light of Prima Paint Corp. v. Flood & Conklin
Manufacturing Co. (Prima Paint Corp.), 388 U.S. 395 (1967), in which the United
States Supreme Court addressed an arbitration agreement that was a provision
within a larger agreement between corporations.
In Prima Paint Corp., the United States Supreme Court granted certiorari
review to consider a claim under the United States Arbitration Act (the Act)
pursuant to diversity jurisdiction—a dispute between a New Jersey corporation
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(Flood & Conklin), and a Maryland corporation (Prima Paint). Id. at 396-97.
Prima Paint filed a complaint in the federal district court (Southern District of New
York) seeking rescission of its consulting agreement with Franklin & Conklin
claiming fraudulent inducement; Prima Paint also sought an order enjoining
Franklin & Conklin from proceeding to arbitration. Id. at 398-99. Franklin &
Conklin cross-moved to stay the complaint pending arbitration. Id. at 399. The
district court decided for Franklin & Conklin concluding that “a charge of fraud in
the inducement of a contract containing an arbitration clause as broad as this one
was a question for the arbitrators, not for the court.” Id. Prima Paint appealed. Id.The Second Circuit Court of Appeals dismissed the appeal holding that the federal
district court’s judgment was based on controlling precedent. Id. at 399-400. The
Supreme Court affirmed the federal circuit court’s decision, but it provided slightly
different reasons for rendering its decision. Id. at 400. The Supreme Court based
its decision on the plain language meaning within sections 2, 3, and 4 of the Act:
The key statutory provisions are [sections] 2, 3, and 4 of the
United States Arbitration Act of 1925. Section 2 provides that a
written provision for arbitration ‘in any maritime transaction or a
contract evidencing a transaction involving commerce . . . shall be
valid, irrevocable, and enforceable, save upon such grounds as exist at
law or in equity for the revocation of any contract.’ Section 3 requires
a federal court in which suit has been brought ‘upon any issue
referable to arbitration under an agreement in writing for such
arbitration’ to stay the court action pending arbitration once it is
satisfied that the issue is arbitrable under the agreement. Section 4
provides a federal remedy for a party ‘aggrieved by the alleged
failure, neglect, or refusal of another to arbitrate under a written
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agreement for arbitration,’ and directs the federal court to order
arbitration once it is satisfied that an agreement for arbitration has
been made and has not been honored.
Id. (footnotes omitted).
The Supreme Court concluded that Congress explicitly provided under
section 4 of the Act “the federal court is instructed to order arbitration to proceed
once it is satisfied that ‘the making of the agreement for arbitration or the failure to
comply (with the arbitration agreement) is not in issue.’ ” Id. at 403. Thus, Prima
Paint Corp. requires a judicial order compelling arbitration when there are no
issues found with the making of a valid agreement to arbitrate governed by the Act.
However, in this review, we see that the trial court’s order reflects that there
were substantial issues in the making of the purported arbitration agreements
between the buyers and the dealership. The trial court specifically found that the
buyers and the dealership had not, in fact, agreed to any of the arbitration terms in
dispute.
The trial court’s findings that no arbitration agreement exists between the
buyers and the dealership negate any conclusion that the Third District properly
applied the proposition set forth in Prima Paint Corp. The Third District’s decision
that the Clause is enforceable to compel arbitration of the buyers’ claims for
monetary relief is contrary to section 4 of the FAA. The federal statute requires
that the trial court be “satisfied that the making of the agreement for arbitration or
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the failure to comply therewith is not in issue” to grant a petition (motion) for an
order directing the parties to proceed with arbitration.2 9 U.S.C. § 4.
2. The applicable provision of the federal statute (Failure to arbitrate under
agreement; petition to United States court having jurisdiction for order to compel
arbitration; notice and service thereof; hearing and determination) states:
A party aggrieved by the alleged failure, neglect, or refusal of another
to arbitrate under a written agreement for arbitration may petition any
United States district court which, save for such agreement, would
have jurisdiction under Title 28, in a civil action or in admiralty of the
subject matter of a suit arising out of the controversy between the
parties, for an order directing that such arbitration proceed in the
manner provided for in such agreement. Five days’ notice in writing
of such application shall be served upon the party in default. Service
thereof shall be made in the manner provided by the Federal Rules of
Civil Procedure. The court shall hear the parties, and upon being
satisfied that the making of the agreement for arbitration or the failure
to comply therewith is not in issue, the court shall make an order
directing the parties to proceed to arbitration in accordance with the
terms of the agreement. The hearing and proceedings, under such
agreement, shall be within the district in which the petition for an
order directing such arbitration is filed. If the making of the
arbitration agreement or the failure, neglect, or refusal to perform the
same be in issue, the court shall proceed summarily to the trial
thereof. If no jury trial be demanded by the party alleged to be in
default, or if the matter in dispute is within admiralty jurisdiction, the
court shall hear and determine such issue. Where such an issue is
raised, the party alleged to be in default may, except in cases of
admiralty, on or before the return day of the notice of application,
demand a jury trial of such issue, and upon such demand the court
shall make an order referring the issue or issues to a jury in the
manner provided by the Federal Rules of Civil Procedure, or may
specially call a jury for that purpose. If the jury find that no
agreement in writing for arbitration was made or that there is no
default in proceeding thereunder, the proceeding shall be dismissed.
If the jury find that an agreement for arbitration was made in writing
and that there is a default in proceeding thereunder, the court shall
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make an order summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.
9 U.S.C. § 4 (2000).
The Florida Arbitration Code has a comparable provision as was identified in
Prima Paint Corp. in section 4 of the Act. The statute—Proceedings to compel and
stay arbitration— provides:
A party to an agreement or provision for arbitration subject to
this law claiming the neglect or refusal of another party thereto to
comply therewith may make application to the court for an order
directing the parties to proceed with arbitration in accordance with the
terms thereof. If the court is satisfied that no substantial issue exists
as to the making of the agreement or provision, it shall grant the
application. If the court shall find that a substantial issue is raised as
to the making of the agreement or provision, it shall summarily hear
and determine the issue and, according to its determination, shall grant
or deny the application.
§ 682.03(1), Fla. Stat. (2004). We also note that effective July 1, 2013, the Florida
Legislature revised section 682.03. The statute provides in pertinent part:
(1) On motion of a person showing an agreement to arbitrate
and alleging another person’s refusal to arbitrate pursuant to the
agreement:
(a) If the refusing party does not appear or does not oppose the
motion, the court shall order the parties to arbitrate.
(b) If the refusing party opposes the motion, the court shall
proceed summarily to decide the issue and order the parties to
arbitrate unless it finds that there is no enforceable agreement to
arbitrate.
(2) On motion of a person alleging that an arbitration
proceeding has been initiated or threatened but that there is no
agreement to arbitrate, the court shall proceed summarily to decide the
issue. If the court finds that there is an enforceable agreement to
arbitrate, it shall order the parties to arbitrate.
(3) If the court finds that there is no enforceable agreement to
arbitrate, it may not order the parties to arbitrate pursuant to
subsection (1) or subsection (2). . . .
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The Third District never evaluated the threshold requirement that the trial
court be “satisfied with the making of the agreement for arbitration” under the
terms of the Clause. The trial court’s finding that the Clause stands as a non-
existent agreement with respect to these parties should have been addressed on
appeal below. The FAA empowered the trial court to decide whether any
agreement existed if, as the record in this case reflects, the buyers did not demand a
jury trial. See 9 U.S.C. § 4 (2000) (“If the making of the arbitration agreement or
the failure, neglect, or refusal to perform the same be in issue, the court shall
proceed summarily to the trial thereof. If no jury trial be demanded by the party
alleged to be in default, or if the matter in dispute is within admiralty jurisdiction,
the court shall hear and determine such issue.”). The trial court’s judgment that no
arbitration agreements, governed by the FAA, existed is dispositive as to whether
we should quash the Basulto decision on review as misapplying the Seifert
standard.
3. Trial Court’s Findings that No Arbitration Agreement Exists
A trial court’s findings of fact are presumptively correct unless clearly
erroneous. See Tobin v. Michigan Mut. Ins. Co., 948 So. 2d 692, 696 (Fla. 2006)
(“On appeal, ‘[t]he findings of a trial court are presumptively correct and must
§ 682.03, Fla. Stat. (2013).
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stand unless clearly erroneous.’ ”) (quoting Chiles v. State Empl. Attorneys Guild,
734 So. 2d 1030, 1034 (Fla. 1999)).
The trial court’s findings in this the record show that: (1) the buyers could
not communicate in English; (2) the documents that they signed were in English;
(3) some of the documents were blank when signed by the buyers, and pertinent
information was filled in after the fact; (4) the dealership’s employees who
presented the terms of the deal to the buyers in Spanish, did not have any basic
understanding about the nature of arbitration; (5) there is no evidence that anyone
explained the potential valuable rights the buyers were waiving by purportedly
entering into the three separate agreements; and (6) the trial court found that
“[e]ach of the competing dispute resolution provisions at issue contemplates the
enforcement of a different remedy whose terms and conditions are irreconcilable
with the terms and conditions of each of the other conflicting provisions.” Thus,
we see nothing in this record showing that the trial court’s findings of fact that no
valid arbitration agreements existed are clearly erroneous.
Moreover, pursuant to the first prong of the Seifert elemental analysis, the
trial court’s legal conclusion that no valid arbitration agreement exists was a proper
basis to deny the motion to compel arbitration between the buyers and the
dealership. The dealership argues that valid arbitration agreements were made
with the buyers, and that it should not matter, under Florida’s law of contracts, if a
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party is blind, illiterate, or has limited understanding of the language. The
dealership further argues that none of the referenced party-specific limitations
work to invalidate the present arbitration agreement. We reject the dealership’s
arguments.
The record supports the trial court’s conclusion that there was no “meeting
of minds” between the buyers and the dealership, which constituted the making of
an enforceable arbitration agreement. See generally Pepple v. Rogers, 140 So.
205, 208 (Fla. 1932) (“The general rule is that in order for a misrepresentation to
be a ground for rescission and cancellation, it must be with reference to some
material fact or thing, unknown to the complainant, either from his not having
examined, or for want of opportunity to be informed, or from his entire confidence
reposed in the defendant . . . .”). Our precedent confirms that any of the parties’
disputed agreements to arbitrate are actually contractual issues, which are subject
to existing Florida law of contracts. See Seifert, 750 So. 2d at 636 (stating
arbitration provisions are contractual in nature and, therefore, subject to contract
interpretation); see also Ibis Lakes Homeowners Ass’n, Inc. v. Ibis Isle
Homeowners Ass’n, Inc., 102 So. 3d 722, 728 (Fla. 4th DCA 2012) (quoting
Seifert). In its decision, the Third District also recognized that arbitration
agreements are subject to this state’s law of contracts:
Thus, an arbitration clause can be defeated by any defense existing
under the state law of contracts. As the [Supreme] Court explained in
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[Doctor’s Associates, Inc. v.] Casarotto, [517 U.S. 681 (1996)],
“generally applicable contract defenses, such as fraud, duress or
unconscionability, may be applied to invalidate arbitration agreements
without contravening [the Federal Arbitration Act].” 517 U.S. at 687,
116 S.Ct. 1652[.]
Basulto, 22 So. 3d at 589 (quoting Powertel, Inc. v. Bexley, 743 So. 2d 570, 574
(Fla. 1st DCA 1999)).
We disagree with the Third District’s conclusion that the buyers’ claims for
monetary relief are enforceable under the Clause. Because the buyers have not
agreed to the arbitration terms within the Clause, they cannot be compelled to
arbitrate their claims for monetary relief. See Seifert, 750 So. 2d at 636 (“[N]o
party may be forced to submit a dispute to arbitration that the party did not intend
and agree to arbitrate.”). We, therefore, conclude that the Third District’s decision
concerning enforcement of the Clause is erroneous.
Because there was no basis for reversing the trial court’s nonfinal order, we
also determine that the buyers are the prevailing parties in this cause. And, for the
reasons addressed, we quash the decision on review.
D. Procedural and Substantive Unconscionability
Even though the issue of whether the purported arbitration agreements are
unconscionable is beyond the scope of whether the decision on review conflicts
with Seifert, such discussion is nevertheless addressable under our discretionary
authority. See generally Savona v. Prudential Ins. Co. of Am., 648 So. 2d 705, 707
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(Fla. 1995) (“We have held that we have the authority to consider issues other than
those upon which jurisdiction is based, but this authority is discretionary and
should be exercised only when these other issues have been properly briefed and
argued, and are dispositive of the case.”); Savoie v. State, 422 So. 2d 308, 310
(Fla. 1982) (“[O]nce we accept jurisdiction over a cause in order to resolve a legal
issue in conflict, we may, in our discretion, consider other issues properly raised
and argued before this Court.”).
Unconscionability is a common law doctrine that courts have used to prevent
the enforcement of contractual provisions that are overreaches by one party to gain
“an unjust and undeserved advantage which it would be inequitable to permit him
to enforce.” Steinhardt v. Rudolph, 422 So. 2d 884, 889 (Fla. 3d DCA 1982)
(quoting Peacock Hotel, Inc. v. Shipman, 138 So. 44, 46 (Fla. 1931)).
“Unconscionability has generally been recognized to include an absence of
meaningful choice on the part of one of the parties together with contract terms
which are unreasonably favorable to the other party.” Williams v. Walker-Thomas
Furniture Co., 350 F. 2d 445, 449 (D.C. Cir. 1965) (emphasis added). The absence
of meaningful choice when entering into the contract is often referred to as
procedural unconscionability, which “relates to the manner in which the contract
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was entered,”3 and the unreasonableness of the terms is often referred to as
substantive unconscionability, which “focuses on the agreement itself.” 4 Powertel,
743 So. 2d at 574.
The Third District affirmed the trial court’s secondary judgment that the
Agreement is unenforceable due to procedural and substantive unconscionability.
Basulto, 22 So. 3d at 591. In so doing, the Third District provided analysis
3. “The procedural component of unconscionability relates to the manner in
which the contract was entered and it involves consideration of such issues as the
relative bargaining power of the parties and their ability to know and understand
the disputed contract terms.” Powertel, 743 So. 2d at 574. The central question in
the procedural unconscionability analysis is whether the complaining party lacked
a meaningful choice when entering into the contract. Kohl v. Bay Colony Club
Condo., Inc., 398 So. 2d 865, 868-69 (Fla. 4th DCA 1981). When determining
whether a contract is procedurally unconscionable, Florida courts consider the
following:
(1) the manner in which the contract was entered into; (2) the relative
bargaining power of the parties and whether the complaining party
had a meaningful choice at the time the contract was entered into; (3)
whether the terms were merely presented on a “take-it-or-leave-it”
basis; and (4) the complaining party’s ability and opportunity to
understand the disputed terms of the contract.
Pendergast v. Sprint Nextel Corp., , 592 F.3d 1119, 1135 (11th Cir. 2010) (citing
Murphy v. Courtesy Ford, LLC, 944 So. 2d 1131, 1134 (Fla. 3d DCA 2006);
Powertel, 743 So. 2d at 574).
4. Substantive unconscionability focuses on whether the terms are
“unreasonably favorable” to the other party and “whether the terms of the contract
are so unfair that enforcement should be withheld.” Walker-Thomas Furniture,
350 F.2d at 449-50. In other words, the reviewing court asks whether the more
powerful party overreached and “gained an unjust and undeserved advantage
which it would be inequitable to permit him to enforce.” Steinhardt, 422 So. 2d at
889 (quoting Peacock Hotel, 138 So. at 46).
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explaining why it decided the Agreement was procedurally and substantively
unconscionable. Id. at 590-91. The Third District also determined that the buyers’
prayer for declaratory and injunctive relief was not within the scope of the Clause.
Id. at 592. However, the Third District reversed the trial court’s order to the extent
it “declined to enforce the Clause with respect to the buyers’ claims for monetary
relief.” Id.
The Third District’s analysis evaluated whether the purported arbitration
agreements were subject to the buyers’ defenses to contract enforcement. 5
However, we conclude that the district court’s “extra-Seifert” analysis was neither
necessary, nor proper in light of the finding by the trial court that no agreement to
arbitrate existed. Accordingly, we do not comment on whether any of the subject
arbitration provisions in this case are unconscionable.
Nevertheless, we take this occasion to address unconscionability in the
general context of defenses to enforcement of arbitration agreements—which are
contractual in nature. We have previously held that “[a]greements to arbitrate are
treated differently from statutes compelling arbitration.” Global Travel Mktg., Inc.
5. The Third District’s discussion about the Florida Deceptive and Unfair
Trade Practices Act (FDUTPA), see ch. 501, Fla. Stat. (2004), was part of its
analysis of the Clause. Basulto, 22 So. 3d at 588, 591-92. We have determined
that the defenses to contract enforcement analysis, including unconscionability,
should not have been applied in the appeal below. Accordingly, we find no need to
discuss the issue of whether the purported arbitration agreements are contrary to
the public policy embodied in FDUTPA.
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v. Shea, 908 So. 2d 392, 398 (Fla. 2005) (“The difference arises because the rights
of access to courts and trial by jury may be contractually relinquished, subject to
defenses to contract enforcement including voidness for violation of the law or
public policy, unconscionability, or lack of consideration.”).
Therefore, when a litigant seeks to avoid enforcement of a requirement to
proceed with arbitration, pursuant to the parties’ prior agreement, the challenging
party must establish that the arbitration agreement is both procedurally and
substantively unconscionable. The buyers assert that neither Seifert nor the Florida
Arbitration Code requires that in order to avoid compulsion to proceed with the
terms of an arbitration agreement, procedural and substantive unconscionability
must be established. Notwithstanding the buyers’ position on this issue, there is
ample support in existing case law requiring that both prongs of unconscionability
must be established by a proper showing. All of the district courts of appeal in this
state have previously recognized that, under Florida contracts law, both procedural
and substantive unconscionability must be established as a defense to contract
enforcement. See, e.g., Estate of Perez v. Life Care Ctrs. of Am., Inc., 23 So. 3d
741, 742 (Fla. 5th DCA 2009) (citing Murphy); Woebse v. Health Care & Ret.
Corp. of Am., 977 So. 2d 630, 632 (Fla. 2d DCA 2008) (citing Bland, ex rel. Coker
v. Health Care & Ret. Corp. of Am., 927 So. 2d 252, 256 (Fla. 2d DCA 2006));
Murphy, 944 So. 2d at 1134 (Third District) (“To invalidate a contract under
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Florida law, a court must find that the contract is both procedurally and
substantively unconscionable.”) (citing Powertel, 743 So. 2d at 574); Fonte v.
AT&T Wireless Servs., Inc., 903 So. 2d 1019, 1025 (Fla. 4th DCA 2005) (citing
Powertel, and Kohl, 398 So. 2d at 867); Gainesville Health Care Ctr., Inc. v.
Weston, 857 So. 2d 278, 284 (Fla. 1st DCA 2003) (citing Powertel, et seq.).6
We agree with our district courts of appeal that procedural and substantive
unconscionability must be established to avoid enforcement of the terms within an
arbitration agreement. However, we conclude that while both elements must be
present, they need not be present to the same degree. This balancing, or sliding
scale, approach, which we adopt, is considered to be the prevailing view in Florida:
The prevailing view is that [procedural and substantive
unconscionability] must both be present in order for a court to
exercise its discretion to refuse to enforce a contract or clause under
the doctrine of unconscionability. But they need not be present in the
same degree. Essentially a sliding scale is invoked which disregards
the regularity of the procedural process of the contract formation, that
creates the terms, in proportion to the greater harshness or
unreasonableness of the substantive terms themselves. In other
words, the more substantively oppressive the contract term, the less
evidence of procedural unconscionability is required to come to the
conclusion that the term is unenforceable, and vice versa.
6. We note that the Eleventh Circuit Court of Appeals, interpreting Florida
law of contracts, has drawn the same conclusion about the unconscionability
defense to contract enforcement as have our state appellate courts. See, e.g.,
Pendergast, 592 F.3d at 1134 (citations omitted).
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Romano ex rel. Romano v. Manor Care, Inc., 861 So. 2d 59, 62 (Fla. 4th DCA
2003) (internal quotation marks and citations omitted) (quoting Armendariz v.
Found. Health Psychcare Servs., Inc., 6 P.3d 669, 690 (Cal. 2000)); see also
Steinhardt, 422 So. 2d at 889 (“[M]ost courts take a ‘balancing approach’ to the
unconscionability question, and to tip the scales in favor of unconscionability, most
courts seem to require a certain quantum of procedural plus a certain quantum of
substantive unconscionability.” (quoting Kohl, 398 So. 2d at 868)).
Under this approach, “a balancing approach is employed allowing one prong
to outweigh another provided that there is at least a modicum of the weaker
prong.” VoiceStream Wireless Corp. v. U.S. Commc’ns, Inc., 912 So. 2d 34, 39
(Fla. 4th DCA 2005).
Other Florida courts, reject the balancing, or sliding scale, approach and
assess procedural and substantive elements independently, concluding the analysis
if either element is lacking. See, e.g., Nat’l Fin. Servs., LLC v. Mahan, 19 So. 3d
1134, 1136 (Fla. 3d DCA 2009) (“Because the arbitration provisions in this case
suffered from no procedural malady, we do not reach the question of substantive
unconscionability.”) abrogated on other grounds by Shotts v. Op Winter Haven,
Inc., 86 So. 3d 456 (Fla. 2011); Bland, 927 So. 2d at 257 (“This court, however,
eschews the ‘sliding scale’ approach. Rather we assess procedural
unconscionability and substantive unconscionability independently.”).
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We conclude that the better approach—more in keeping with the
pronouncement of this Court on unconscionability over eighty years ago in
Peacock Hotel—is the balancing, or sliding scale, approach. This approach
recognizes that although the concept of unconscionability is made up of both a
procedural component and a substantive component, it often involves an evaluation
in which the two principles are intertwined.
The 1931 Peacock Hotel decision, one of the original pronouncements on
the subject in Florida, demonstrates that this Court has never viewed
unconscionability as being comprised of two separate and independent
components:
It seems to be established by the authorities that where it is
perfectly plain to the court that one party [to a contract] has
overreached the other and has gained an unjust and undeserved
advantage which it would be inequitable to permit him to enforce, that
a court of equity will not hesitate to interfere, even though the
victimized parties owe their predicament largely to their own stupidity
and carelessness.
Peacock Hotel, 138 So. at 46.
Certainly, the original pronouncement of this doctrine from our Court and
the modern enunciation from Walker-Thomas Furniture, 350 F.2d at 449, do not
view unconscionability as a rigid construct composed of two separate, unrelated
elements. Rather, as explained in Walker-Thomas:
Unconscionability has generally been recognized to include an
absence of meaningful choice on the part of one of the parties together
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with contract terms which are unreasonably favorable to the other
party. Whether a meaningful choice is present in a particular case can
only be determined by consideration of all the circumstances
surrounding the transaction. In many cases the meaningfulness of the
choice is negated by a gross inequality of bargaining power. The
manner in which the contract was entered is also relevant to this
consideration. Did each party to the contract, considering his obvious
education or lack of it, have a reasonable opportunity to understand
the terms of the contract, or were the important terms hidden in a
maze of fine print and minimized by deceptive sales practices?
Ordinarily, one who signs an agreement without full knowledge of its
terms might be held to assume the risk that he has entered a one-sided
bargain. But when a party of little bargaining power, and hence little
real choice, signs a commercially unreasonable contract with little or
no knowledge of its terms, it is hardly likely that his consent, or even
an objective manifestation of his consent, was ever given to all the
terms. In such a case the usual rule that the terms of the agreement
are not to be questioned should be abandoned and the court should
consider whether the terms of the contract are so unfair that
enforcement should be withheld.
Id. at 449 (emphasis added) (footnotes omitted).
When analyzing unconscionability, courts must bear in mind the bargaining
power of the parties involved and the interplay between procedural and substantive
unconscionability. In the typical case of consumer adhesion contracts, where there
is virtually no bargaining between the parties, the commercial enterprise or
business responsible for drafting the contract is in a position to unilaterally create
one-sided terms that are oppressive to the consumer, the party lacking bargaining
power. On the other hand, if two sophisticated commercial enterprises or
businesses negotiate a contract where both sides are on equal footing, absent some
high degree of procedural unconscionability (such as a party “hiding the ball”), the
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chance that the terms of the contract are unduly oppressive is lessened given the
circumstances of the contract formation.
Given that the doctrine of unconscionability is not a rigid construct where
the procedural aspects are separate from the substantive aspects, we conclude that
both the procedural and substantive aspects of unconscionability must be present,
although not necessarily to the same degree, and both should be evaluated
interdependently rather than as independent elements.
E. Attorney’s Fees
The buyers have moved for an award of reasonable attorney’s fees in
accordance with section 501.2105(1) of the FDUTPA. In addition, the buyers
assert that they are entitled to reasonable attorney’s fees because the Retail
Installment Sales Contract contains a provision entitling the dealership to recover
attorney’s fees, and section 57.105(7), Florida Statutes (2009) applies to permit the
court to allow reasonable attorney’s fees to the buyers, if they prevail in this action.
In this case, the buyers have timely filed a motion pursuant to Florida Rule
of Appellate Procedure 9.400(b), and they assert FDUTPA as one statutory basis
for an award of attorney’s fees. See § 501.2105(1), Fla. Stat. (2004) (“In any civil
litigation resulting from an act or practice involving a violation of this part, except
as provided in subsection (5), the prevailing party, after judgment in the trial court
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and exhaustion of all appeals, if any, may receive his or her reasonable attorney’s
fees and costs from the nonprevailing party.”).
We disagree with the buyers, in part, and determine that section 501.2105 of
the FDUTPA, is not a valid statutory basis for an award for reasonable appellate
attorney’s fees in this case. Conversely, we agree with the buyers, in part,
determining that section 57.105, Florida Statutes, is applicable in this case for an
award of reasonable appellate attorney’s fees. Our latter determination is based on
the buyer’s reference to a provision in the Retail Installment Contract—that is not
within the Clause.7 See § 57.105(7), Fla. Stat. (2009) (“If a contract contains a
provision allowing attorney’s fees to a party when he or she is required to take any
action to enforce the contract, the court may also allow reasonable attorney’s fees
to the other party when that party prevails in any action, whether as plaintiff or
defendant, with respect to the contract. This subsection applies to any contract
entered into on or after October 1, 1988.”) (Emphasis added.)
We have stated above that the buyers are the prevailing party in the cause
before us. Therefore, pursuant to section 57.105(7), the buyers are entitled to an
award of reasonable appellate attorney’s fees. Accordingly, we direct that this
issue should be remanded to the trial court for a determination of the proper
7. Neither party has challenged the validity of the Retail Installment
Contract.
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attorney’s fees to be awarded. See generally Fla. R. App. P. 9.400(b) (“The
assessment of attorneys’ fees may be remanded to the lower tribunal. If attorneys’
fees are assessed by the court, the lower tribunal may enforce the payment.”).
III. CONCLUSION
We quash the Third District’s decision on review because it conflicts with
our controlling precedent set forth in Seifert. Accordingly, we remand this cause
to the Third District with instructions to order the full restoration of the circuit
court’s March 8, 2007, nonfinal order. Upon reinstatement of its order that was the
subject of this review, the trial court should appropriately address our decision that
the buyers be awarded reasonable appellate attorney’s fees.
It is so ordered.
PARIENTE, LEWIS, QUINCE, and LABARGA, JJ., concur.
POLSTON, C.J., dissents with an opinion in which CANADY, J., concurs.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND
IF FILED, DETERMINED.
Polston, C.J., dissenting.
At the heart of this dispute is whether an agreement to arbitrate was ever
concluded, which is a different issue from whether an agreement to arbitrate is
valid. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 n.1
(2006) (reversing this Court and explaining that “[t]he issue of the contract’s
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validity is different from the issue whether any agreement between the alleged
obligor and obligee was ever concluded”).
After conducting an evidentiary hearing, the trial court ruled that there was
not a meeting of minds on arbitration (i.e., no agreement to arbitrate was ever
concluded), and “accordingly no valid agreement for this Court to enforce.” On
appeal, the Third District Court of Appeal did not address this ruling by the trial
court and completely sidestepped it. Instead, the Third District ruled that the
stand-alone “Agreement to Arbitrate Disputes” is unenforceable because it is
unconscionable. Hialeah Auto., LLC v. Basulto, 22 So. 3d 586, 591 (Fla. 3d DCA
2009). Then, on rehearing, the Third District remanded to the trial court on an
issue regarding the arbitration clause contained in the “Retail Installment Contract”
and stated that “[t]he buyers are free on remand to request a ruling . . . that there
was no agreement to arbitrate.” Id. at 593.
The majority finds conflict between the Third District’s opinion and Seifert
v. U.S. Home Corp., 750 So. 2d 633 (Fla. 1999), explaining that the Third District
did not apply the requirement outlined in Seifert that courts must consider
“whether a valid written agreement to arbitrate exists” when ruling upon motions
to compel arbitration. See majority op. at 8. However, in Seifert, this Court
addressed the scope of the arbitration agreement at issue, not whether an agreement
to arbitrate was ever concluded. In fact, Seifert was a wrongful death action, and
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the question addressed by this Court was whether the arbitration provision in a
contract for the sale and purchase of a house required that wrongful death action to
be arbitrated. 750 So. 2d at 635. Further, unconscionability (which was a primary
focus of the Third District’s opinion) was not at issue in any way in Seifert.
Accordingly, there is no conflict between the Third District’s opinion and
Seifert, and the Court should not be reviewing this case. Because there is no
jurisdiction, I do not reach the merits of the case. I respectfully dissent.
CANADY, J., concurs.
Application for Review of the Decision of the District Court of Appeal - Direct
Conflict of Decisions
Third District – Case No. 3D07-855
(Miami-Dade County)
Timothy Carl Blake, Miami, Florida,
for Petitioners
Mark A. Goldstein, Miami, Florida,
for Respondents
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