Marshall R. Cassedy, Jr. v. Kevin M. Hofmann, John N. Patronis, and Anne L. etc , 153 So. 3d 938 ( 2014 )

IN THE DISTRICT COURT OF APPEAL
FIRST DISTRICT, STATE OF FLORIDA
MARSHALL R. CASSEDY, JR., NOT FINAL UNTIL TIME EXPIRES TO
FILE MOTION FOR REHEARING AND
Appellant, DISPOSITION THEREOF IF FILED
v. CASE NO. 1D14-0745
KEVIN M. HOFMANN, JOHN
N. PATRONIS, AND ANNE L.
PATRONIS,
Appellees.
_____________________________/
Opinion filed November 24, 2014.
An appeal from the Circuit Court for Leon County.
John C. Cooper, Judge.
Stephen M. Masterson, Tallahassee, for Appellant.
W. Scott Newbern, Tallahassee, for Appellees.
MARSTILLER, J.
The controversy underlying this appeal arose several years ago after Kevin
M. Hofmann, John N. Patronis and Anne L. Patronis (“Appellees”) suffered
financial losses they allege resulted from willful misconduct by their former
stockbroker, Marshall R. Cassedy, Jr. (“Appellant”). The merits of Appellees’
case remain unaddressed, however, pending resolution on whether the case may be
arbitrated or whether it must proceed in a court action. Appellees submitted their
claims to arbitration, but Appellant sued to enjoin them, arguing they waived the
right to arbitrate when they litigated the matter in court in 2009, albeit not to
conclusion. Appellant seeks reversal of a final summary judgment in Appellees’
favor ruling that the waiver issue is for the arbitrator, not the court, to decide.
Because we conclude the trial court incorrectly applied Howsam v. Dean Witter
Reynolds, Inc., 537 U.S. 79 (2002), we reverse the judgment and remand the case
for further proceedings.
The procedural history of this case is, succinctly, as follows: In 2009,
Appellees sued Appellant in state court to recover their financial losses. Appellant
sought to compel arbitration based on provisions in Appellees’ brokerage account
documents. Appellees opposed arbitration, asserting the pertinent provisions were
either not binding or unenforceable. Little happened in the case over the next
several years until early 2013 when Appellant moved to dismiss the lawsuit.
Appellees responded by voluntarily dismissing the suit without prejudice.
Approximately two months later, Appellees filed a Statement of Claim with the
Financial Industry Regulatory Authority (“FINRA”) to initiate arbitration under a
FINRA rule and not the disputed contract provisions; the statement contains the
same allegations as were in the 2009 complaint. In response, Appellant went to
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state court seeking to enjoin Appellees from proceeding with arbitration, arguing
that, by litigating their claims via court action in 2009, Appellees waived their right
to arbitrate.
On Appellant’s motion for summary judgment, the trial court ruled that,
based on Howsam, the waiver issue is properly to be determined by the arbitrator.
The trial court read Howsam to hold that waiver is a procedural question arising
from the arbitrable dispute which is for the arbitrator to decide.
In fact, the Supreme Court did not so hold. Rather, Howsam involved a
factual scenario and a defense to arbitration significantly different from this case.
At the center of the Howsam decision was a National Association of Securities
Dealers (“NASD”) arbitration rule of procedure that established a six-year time
limitation period for submitting claims to arbitration. 537 U.S. at 82. The issue for
the Court was who should decide—a court or the arbitrator—whether the petitioner
had lost the right to arbitrate by submitting its claim beyond the six-year period.
Concluding this was a procedural issue for the arbitrator to resolve, the Supreme
Court explained that, whereas gateway “questions of arbitrability” such as whether
an arbitration agreement is binding or whether it covers a particular claim, is for
the court to decide, procedural questions that grow out of the dispute are for an
arbitrator to decide. Id. at 84-85. Procedural questions are those involving
conditions precedent to the obligation to arbitrate, like time limits, notice, waiver,
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estoppel and other similar defenses. Id. at 85 (citing Revised Uniform Arbitration
Act of 2000 § 6(c), 7 U.L.A. 12-13 (Supp. 2002)).
Inasmuch as Howsam concerned a purely procedural issue—failure to file an
arbitration claim within the time frame provided by procedural rule—we
comfortably conclude the decision is inapplicable to this case, where the issue is
waiver of the right to arbitrate by prior litigation. There are no Florida appellate
decisions on whether Howsam applies in this scenario to inform our decision. But
several federal appellate courts have held it does not, and we find those decisions
persuasive.
In Marie v. Allied Home Mortgage Corp., 402 F.3d 1 (1st Cir. 2005), the
dispute between the parties arose from an employment contract that contained an
arbitration clause. Instead of initiating arbitration, the employee filed a
discrimination complaint with the Equal Employment Opportunity Commission
(“EEOC”) and with Massachusetts’ state-level counterpart to the EEOC. Id. at 4-5.
The employer responded to the complaint, and when the EEOC found no
discrimination, the employee filed a civil suit in state court. Id. at 5. The
employer, in turn, removed the suit to federal court and moved to compel
arbitration. Id. The district court denied the motion because the employer had
failed to initiate arbitration within the 60-day period provided in the contract, and
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because, the employer had waived its right to arbitrate due to unreasonable delay in
asserting the right. Id. at 5-6.
On appeal, the employer argued that the arbitrator, and not the court, should
decide both issues. The First Circuit agreed as to the 60-day contractual time
limitation period, finding it akin to the rule-based limitation period at issue in
Howsam. Marie, 402 F.3d at 11. But the court disagreed as to the waiver,
reasoning that the courts, which have traditionally determined issues of waiver by
litigation conduct, are better positioned to determine whether a party is engaged in
forum shopping—which is the essence of the waiver-by-prior-litigation argument
in this context. Id. at 12-14. “We hold that the Supreme Court in Howsam and
Green Tree [Fin. Corp. v. Bazzle, 539 U.S. 444 (2003)] did not intend to disturb
the traditional rule that waiver by conduct, at least where due to litigation-related
activity, is presumptively an issue for the court.” Id. at 14.
The waiver-by-conduct issue in Ehleiter v. Grape Tree Shores, Inc., 482
F.3d 207 (3d Cir. 2007), was whether the corporate defendant/appellant in a
personal injury lawsuit waived its right to compel arbitration under a contractual
provision after participating in the litigation for nearly four years. Relying on
Howsam, the appellant argued that the waiver issue was presumptively for the
arbitrator to decide. Persuaded by the First Circuit’s reasoning in Marie, the Third
Circuit held that “waiver of the right to arbitrate based on litigation conduct
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remains presumptively an issue for the court to decide in the wake of Howsam[.]”
482 F.3d at 221. Explaining how Howsam should be read, the court stated:
Viewed in isolation, the Supreme Court’s statement in
Howsam that “the presumption is that the arbitrator
should decide ‘allegations of waiver, delay, or a like
defense to arbitrability,’” certainly provides general
support for [the appellant’s] position here. Properly
considered within the context of the entire opinion,
however, we believe it becomes clear that the Court was
referring only to waiver, delay, or like defenses arising
from non-compliance with contractual conditions
precedent to arbitration, such as the NASD time limit
rule at issue in that case, and not to claims of waiver
based on active litigation in court.
Id. at 218-19 (citations and footnotes omitted).
In JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388, 393 (6th Cir. 2008),
the Sixth Circuit “join[ed] the First and Third Circuits in holding that the court, not
the arbitrator, presumptively evaluates whether [a party] should be barred from
seeking a referral to arbitration because it has acted inconsistently with reliance on
an arbitration agreement.” And most recently, in Grigsby & Associates, Inc. v. M
Securities Investment, 664 F.3d 1350, 1353 (11th Cir. 2011), the Eleventh Circuit
vacated a district court’s order denying a request to enjoin arbitration on grounds
of res judicata and waiver by prior litigation because the lower court failed to
address the waiver claim. Aligning itself with the First, Third and Sixth Circuits,
the Eleventh Circuit announced, “Today we conclude that it is presumptively for
the courts to adjudicate disputes about whether a party, by earlier litigating in
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court, has waived the right to arbitrate. This presumption leaves the waiver issue
to the decisionmaker with the greater expertise in recognizing and controlling
abusive forum-shopping.” 664 F.3d at 1353-54. The court particularly observed
that Howsam “involved no allegations of waiver,” and thus, did not “override” the
court’s pre-Howsam longstanding “history of adjudicating conduct-based waiver
claims.” Id. at 1354.
One federal appellate court—the Eighth Circuit—appears to have held
otherwise. See Nat’l Am. Ins. Co. v. Transamerica Occidental Life Ins. Co., 328
F.3d 462, 466 (8th Cir. 2003). But the waiver issue in that case involved a claim of
prior arbitration of the dispute with some, but not all, parties to contracts
containing the operative arbitration provisions. See id. at 463-64. Thus the case is
distinguishable from the decisions cited above and from the instant case—which
involve waiver by prior litigation conduct—and does not give rise to similar
forum-shopping concerns. Although the Eighth Circuit provided no analysis to
support its decision, the waiver claim in Transamerica arguably falls in the
category of procedural claims arising from the dispute which Howsam deemed
presumptively for the arbitrator to decide. See Howsam, 537 U.S. at 85.
A number of state appellate courts also have held Howsam does not assign
waiver-by-prior-litigation claims presumptively to arbitrators. See, e.g., Radil v.
Nat. Union Fire Ins. Co., 233 P.3d 688, 693-95 (Colo. 2010); Good Samaritan
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Coffee Co. v. LaRue Distributing, Inc., 748 N.W.2d 367, 373-74 (Neb. 2008);
Perry Homes v. Cull, 258 S.W.3d 580, 588-89 (Tex. 2008); Ocwen Loan Serv.,
LLC v. Washington, 939 So. 2d 6, 11-14 (Ala. 2006); Hong v. CJ CGV Am.
Holdings, Inc., 166 Cal. Rptr. 3d 100, 114 (Cal. 2nd Ct. App. 2013).
Appellees maintain the trial court correctly applied Howsam to the waiver
claim here because they are pursuing arbitration not under the contractual
provisions they previously asserted were invalid, but under a FINRA rule that
provides an independent right to arbitrate. We do not consider that a significant
distinction because whether the right to arbitrate arose from a contract or from
some other authority, the crux of Appellant’s waiver-by-prior-litigation claim is
that, by litigating the underlying dispute for four years, Appellees acted
inconsistently with the right to arbitrate and are now forum shopping. Thus, the
issue remains within the greater expertise of the court.
In keeping with the federal decisions discussed above, and with the
decisions of several state appellate courts, we hold that a claim of waiver of the
right to arbitrate based on prior litigation conduct is presumptively one for the
court, rather than for the arbitrator, to decide. Howsam does not dictate otherwise.
Accordingly, we reverse the final summary judgment on appeal and remand to the
trial court to consider and rule on the merits of Appellant’s waiver claim.
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REVERSED and REMANDED.
ROBERTS and SWANSON, JJ., CONCUR.
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