SACHSE CONSTRUCTION AND DEVELOPMENT CORPORATION v. AFFIRMED DRYWALL CORP.

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING
MOTION AND, IF FILED, DETERMINED
IN THE DISTRICT COURT OF APPEAL
OF FLORIDA
SECOND DISTRICT
SACHSE CONSTRUCTION AND )
DEVELOPMENT CORPORATION, a )
Florida corporation, )
)
Appellant, )
)
v. ) Case No. 2D17-4276
)
AFFIRMED DRYWALL, CORP., a Florida )
corporation, and TRAVELERS )
CASUALTY AND SURETY COMPANY OF )
AMERICA, a foreign insurance company, )
)
Appellees. )
___________________________________)
Opinion filed July 18, 2018.
Appeal pursuant to Fla. R. App. P. 9.130
from the Circuit Court for Collier County;
Lauren L. Brodie, Judge.
Richard B. Akin, II, and J. Matthew
Belcastro of Henderson, Franklin, Starnes
& Holt, P.A., Fort Myers, for Appellant.
Steven M. Siegfried and Nicholas D.
Siegfried of Siegfried, Rivera, Hyman,
Lerner, De La Torre, Mars & Sobel, P.A.,
Coral Gables, for Appellee Affirmed Drywall
Corp.
No appearance for remaining Appellee.
SILBERMAN, Judge.
Based on a subcontract to perform drywall work (the Subcontract),
Affirmed Drywall Corp. filed a two-count complaint for (1) breach of contract against
Sachse Construction and Development Corporation and (2) an action against bond
naming Sachse and Travelers Casualty and Surety Company. Sachse appeals a
nonfinal order determining that the arbitration clause in the Subcontract is void and
unenforceable because it requires arbitration in Michigan of a contract dispute relating
to the improvement of real property in Florida, in violation of section 47.025, Florida
Statutes (2016). We reverse that order because if the Federal Arbitration Act (FAA)
applies, it preempts section 47.025. However, because the trial court did not first
determine whether the contract involves interstate commerce so as to make the FAA
applicable, on remand the trial court must address the question of interstate commerce.
In October 2016, Sachse, as contractor, and Affirmed Drywall, as
subcontractor, entered into the Subcontract. The Subcontract reflects that Sachse is a
Michigan Limited Liability Company (LLC) with an address in Detroit and reflects an
address in Coral Gables, Florida, for Affirmed Drywall. Affirmed Drywall was to provide
all labor, materials, and equipment associated with drywall work for the improvement of
real property in Naples, Florida. Paragraph 23 of the Subcontract states that any
dispute between Sachse and Affirmed Drywall "in any way relating to the Work or this
Subcontract may be submitted to mediation and/or arbitration pursuant to the
Construction Industry Rules of the American Arbitration Association then in effect."
Paragraph 23 also provides that arbitration "shall take place at the American Arbitration
Association's Southfield, Michigan, office or within 20 miles thereof." Paragraph 21
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provides that the "Subcontract shall be governed by and construed in accordance with
the laws of the State of Michigan."
On March 20, 2017, Affirmed Drywall filed its two-count complaint for
breach of contract and an action against bond. Sachse filed a motion to dismiss or to
compel arbitration in which it argued that the Subcontract is governed by and
enforceable in accordance with the FAA. It contended that the FAA supersedes any
inconsistent state law, that Florida courts must enforce valid arbitration agreements
within the scope of the FAA, and that the trial court should compel the parties to
proceed to arbitration in Michigan pursuant to the Subcontract's terms.
Affirmed Drywall opposed the motion and contended that Sachse failed to
adequately allege facts that evidence interstate commerce. Affirmed Drywall also
argued that under Florida law the venue provision requiring arbitration in Michigan was
void as against public policy and cited, among other things, section 47.025.
At the hearing on the motion, Sachse argued that the Subcontract
provides that the laws of Michigan control the contract, so section 47.025 does not even
apply. But counsel stated that "far more importantly," as argued in Sachse's motion to
compel arbitration, the contract involves interstate commerce because the contract
shows that Sachse's principal place of business is in Detroit, Michigan, and Affirmed
Drywall's principal place of business is Coral Gables, Florida; thus, Sachse's counsel
argued that the FAA applies. In its motion to compel and on appeal, Sachse cites
federal and Florida law, and neither party mentions what Michigan law provides.
Sachse argued to the trial court that the FAA preempts section 47.025.
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Affirmed Drywall argued that an evidentiary hearing would be necessary to
determine if the contract involved interstate commerce. Affirmed Drywall further argued
that section 47.025 prohibited the enforcement of a provision that requires venue
outside the State of Florida in a contract concerning improvements to real property.
Thus, Affirmed Drywall argued that the arbitration agreement violated public policy, a
generally applicable contract defense that could be used to invalidate the agreement,
relying upon Shotts v. OP Winter Haven, Inc., 86 So. 3d 456 (Fla. 2011).
The trial court stated that if it decided the agreement violated public policy,
then arbitration would not be compelled. If it did not, then the trial court recognized that
the issue of whether interstate commerce was involved would need to be determined.
The trial court took the matter under advisement.
Later, the trial court denied the motion to compel arbitration. In its order,
the trial court determined that "the arbitration clause that required arbitration of disputes
arising out of the improvement to real property within the state of Florida to take place in
the state of Michigan" was void and unenforceable, citing to Shotts and section 47.025.
The trial court implicitly rejected Sachse's preemption argument because the order did
not mention the FAA or preemption. Apparently, the court did not consider whether
arbitration could be ordered in Florida rather than in Michigan. The order further
directed Sachse to file its answer within twenty days.
On appeal, Sachse contends that the Subcontract involves interstate
commerce. We discuss later in this opinion the threshold question of interstate
commerce that the trial court did not answer and which must be addressed on remand.
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Sachse also contends that the FAA preempts section 47.025, leaving the arbitration
provision enforceable under the FAA. We now turn to that issue.
The FAA and Preemption
Section 47.025, entitled "Actions against contractors," provides as follows:
Any venue provision in a contract for improvement to real
property which requires legal action involving a resident
contractor, subcontractor, sub-subcontractor, or
materialman, as defined in part I of chapter 713, to be
brought outside this state is void as a matter of public policy.
To the extent that the venue provision in the contract is void
under this section, any legal action arising out of that
contract shall be brought only in this state in the county
where the defendant resides, where the cause of action
accrued, or where the property in litigation is located, unless,
after the dispute arises, the parties stipulate to another
venue.
(Footnote omitted.)
Our review of whether the FAA preempts Florida law is de novo as a
question of law. See McKenzie Check Advance of Fla., LLC v. Betts, 112 So. 3d 1176,
1180 (Fla. 2013). The FAA "establishes a liberal federal policy favoring arbitration
agreements." Id. at 1180-81. The FAA applies in both federal and state courts. Id. at
1185; Global Travel Mkt., Inc. v. Shea, 908 So. 2d 392, 396 (Fla. 2005). Section 2 of
the FAA provides that an arbitration provision in a contract 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." 9 U.S.C. § 2 (2012). "Commerce" includes
"commerce among the several States or with foreign nations." 9 U.S.C. § 1.
Enacted pursuant to the Commerce Clause of the United States
Constitution, the FAA preempts conflicting or inconsistent state law. AT&T Mobility LLC
v. Concepcion, 563 U.S. 333, 341, 343-44 (2011); Southland Corp. v. Keating, 465 U.S.
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1, 10-11 (1984); Gilman + Ciocia, Inc. v. Wetherald, 885 So. 2d 900, 903 (Fla. 4th DCA
2004); Jensen v. Rice, 809 So. 2d 895, 899 (Fla. 3d DCA 2002). Thus, a Florida court
must enforce an arbitration agreement that is valid and enforceable under the FAA even
when the agreement would be unenforceable under Florida law. Jensen, 809 So. 2d at
899.
The saving clause of § 2 of the FAA allows "arbitration agreements to be
declared unenforceable based on 'generally applicable contract defenses, such as
fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or
that derive their meaning from the fact that an agreement to arbitrate is at issue.' "
McKenzie Check Advance, 112 So. 3d at 1181 (quoting Concepcion, 563 U.S. at 339).
"The 'principal purpose' of the FAA is to 'ensur[e] that private arbitration agreements are
enforced according to their terms.' " Concepcion, 563 U.S. at 344 (alteration in original)
(quoting Volt Info. Scis. Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468,
478 (1989)). "Although § 2's saving clause preserves generally applicable contract
defenses, nothing in it suggests an intent to preserve state-law rules that stand as an
obstacle to the accomplishment of the FAA's objectives." Concepcion, 563 U.S. at 343.
In Shotts, which Affirmed Drywall and the trial court relied upon, the
Florida Supreme Court held that in determining whether a valid agreement to arbitrate
exists, the court, not the arbitrator, decides whether an arbitration agreement violates
public policy and is unenforceable. 86 So. 3d at 471. The supreme court recognized
that "[i]n Florida, an arbitration clause in a contract involving interstate commerce is
subject to the Florida Arbitration Code (FAC), to the extent the FAC is not in conflict with
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the FAA."1 Id. at 463-64. The Shotts court stated that public policy is one of the
" 'generally applicable contract defenses' for purposes of section 2" of the FAA because
"if an arbitration agreement violates public policy, no valid agreement exists." Id. at
464-65. There, the court determined that "the limitations of remedies provisions in [an
agreement regarding a nursing home] violate public policy, for they directly undermine
specific statutory remedies" provided by the Florida Legislature. Id. at 474. The court
concluded that the challenged provisions were unenforceable. Id. at 474-75.
The Shotts court recognized that courts are prohibited from "invalidat[ing]
arbitration agreements under state laws applicable only to arbitration provisions." Id. at
463 (quoting Doctor's Assocs. v. Casarotto, 517 U.S. 681, 687 (1996)). In Casarotto,
the Supreme Court determined that the FAA preempted a Montana statute that required
all arbitration agreements to comply "with a special notice requirement not applicable to
contracts generally." 517 U.S. at 687. The Court stated that the FAA's goals "are
antithetical to threshold limitations placed specifically and solely on arbitration
provisions." Id. at 688. The Court pointed out that the Montana statute "place[d]
arbitration agreements in a class apart from 'any contract,' and singularly limit[ed] their
validity." Id.Since Shotts, our supreme court in McKenzie addressed an arbitration
agreement that contained a class action waiver that the Fourth District had determined
was a violation of Florida public policy. 112 So. 3d at 1177. The arbitration agreement
in McKenzie contained a severability clause, unlike the arbitration provision at issue
1The
Revised Florida Arbitration Code, effective July 1, 2013, would be
applicable to the present case. See § 682.01, Fla. Stat. (2016); Ch. 2013-232, § 40 at
2767, Laws of Fla. The parties do not address this.
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here, but the parties in McKenzie stipulated "that if the class action waivers were held to
be unenforceable, the arbitration provisions would be stricken." Id. at 1179. Relying
upon Concepcion, the McKenzie court determined "that the FAA preempts invalidating
the class action waiver in this case on the basis of it being void as against public policy."
Id. at 1178.
The McKenzie court discussed the saving clause of § 2 and stated that it
reflected the " 'liberal federal policy favoring arbitration,' and the 'fundamental principle
that arbitration is a matter of contract.' " Id. at 1181 (quoting Concepcion, 563 U.S. at
339). Arbitration agreements cannot be declared unenforceable by "defenses that apply
only to arbitration or that derive their meaning from the fact that an agreement to
arbitrate is at issue." Id. (quoting Concepcion, 563 U.S. at 339). The court recognized
that "States cannot require a procedure that is inconsistent with the FAA, even if it is
desirable for unrelated reasons." Id. at 1185-86 (quoting Concepcion, 563 U.S. at 351).
Sachse relies upon R.A. Bright Construction, Inc. v. Weis Builders, Inc.,
930 N.E.2d 565 (Ill. App. Ct. 2010), and OPE International LP v. Chet Morrison
Contractors, Inc., 258 F.3d 443 (5th Cir. 2001), to support its argument that the FAA
preempts section 47.025. OPE dealt with a similar Louisiana statute providing that with
respect to construction contracts for work to be done within Louisiana any provision
which "[r]equires a suit or arbitration proceeding to be brought in a forum or jurisdiction
outside of this state" is "void and unenforceable as against public policy." 258 F.3d at
446 (quoting La. Stat. Ann. § 9:2779 (1998)). The court recognized that the FAA
prohibited "States from singling out arbitration provisions for suspect status" and
required that the courts place arbitration provisions "upon the same footing as other
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contracts." Id. at 447 (quoting Casarotto, 517 U.S. at 687). The court determined that
"[t]he statute directly conflicts with § 2 of the FAA because the Louisiana statute
conditions the enforceability of arbitration agreements on selection of a Louisiana
forum" and that requirement was "not applicable to contracts generally." Id.
R.A. Bright relied upon OPE in determining that the FAA preempted a
similar Illinois statute. 930 N.E.2d at 571-72. The statute provided that in building and
construction contracts to be performed in the state a provision requiring litigation or
arbitration to take place in another state was void as against public policy. Id. at 571. In
determining that the FAA preempted the statute, the court stated that the statute was
"not applicable to all contracts generally, but only to contracts involving building and
construction." Id. at 572; see also LaSalle Grp., Inc. v. Electromation of Del. Cty., Inc.,
880 N.E.2d 330, 333 (Ind. Ct. App. 2008) (stating that the Indiana statute applied "only
to dispute resolution forum selection clauses in" contracts for the improvement of real
property and not to "any" contract).
Also, in United States ex rel. TGK Enterprises, Inc. v. Clayco, Inc., 978 F.
Supp. 2d 540, 548 (E.D.N.C. 2013), the federal court determined that the FAA
preempted a general North Carolina statute and one applying specifically to
construction contracts because the statutes prohibited the out-of-state prosecution of an
action or arbitration of a dispute. The court explained that where a statute's
enforcement was sought to invalidate the arbitration agreement calling for arbitration in
Missouri, this "would 'require a judicial forum for the resolution of claims which the
contracting parties agreed to resolve by arbitration.' " Id. (quoting Southland Corp. v.
Keating, 465 U.S. 1, 10 (1984)).
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Even if section 47.025 "is desirable for unrelated reasons," Florida "cannot
require a procedure that is inconsistent with the FAA." McKenzie, 112 So. 3d at 1184(quoting Concepcion, 563 U.S. at 351.) Section 2 specifically provides that arbitration
provisions in contracts involving commerce "shall be valid, irrevocable, and enforceable"
and that the exception to enforcement of an arbitration provision is "grounds as exist at
law or in equity for the revocation of any contract." (Emphasis added.) Thus, the
language of § 2, along with OPE, R.A. Bright, and LaSalle, support our determination
that the FAA preempts section 47.025.
And not only did the trial court determine that section 47.025 prohibited
arbitration in Michigan, but also the trial court denied the motion to compel arbitration
and ordered Sachse to file its answer in twenty days.2 Thus, it appears that the trial
court prohibited arbitration in both Michigan and Florida. In Clayco, the court
determined that the state statute conflicted with the FAA when the result was to
invalidate the arbitration agreement and require resolution by a judicial forum. 978 F.
Supp. 2d at 548. That was the consequence in this case as well. Because the trial
court's order requires the parties to litigate the matter, the result is to "require a judicial
forum for the resolution of claims which the contracting parties agreed to resolve by
arbitration." Id. (quoting Southland Corp., 465 U.S. at 10). Because the FAA preempts
section 47.025 if the FAA is applicable, we reverse the trial court's order that finds the
arbitration provision unenforceable and requires the defendants to answer the
complaint.
2We note that the Subcontract does not contain a severability clause, and
the parties have not argued this issue to us.
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Interstate Commerce
As indicated earlier, the trial court never addressed the threshold question
of whether the Subcontract involves interstate commerce. Because we have
determined that the FAA preempts section 47.025 if the FAA is applicable, the trial court
must determine on remand whether the Subcontract involves interstate commerce.
That question should have been resolved first to determine if the FAA even applies to
the Subcontract, perhaps making unnecessary the preemption analysis.
We do not agree with Sachse that the face of the Subcontract clearly
shows that interstate commerce is involved by virtue of the fact that Sachse is a
Michigan LLC. In Hound Mounds, Inc. v. Finch, 153 So. 3d 368, 370 (Fla. 4th DCA
2014), which Sachse relies upon, the court determined that a franchise agreement
between a Texas corporation and Florida resident involved interstate commerce.
Sachse also relies upon Pilot Catastrophe Services, Inc. v. Fouche, 145 So. 3d 151,
153 (Fla. 5th DCA 2014), in which a Florida employee filed a lawsuit against her
employer, an Alabama corporation, for disability and gender discrimination. The Fifth
District did state that "[a] contract between a Florida resident and a foreign corporation
is an agreement evidencing a transaction involving interstate commerce." Id. at 154.
The court cited Gilman + Ciocia, Inc. v. Wetherald, 885 So. 2d 900, 904-05 (Fla. 4th
DCA 2004), for this proposition. 145 So. 3d at 154. But in Gilman, in addition to the
parties to the contract being a Florida resident and a New York corporation, the contract
was an employment contract in which the Florida employee provided accounting,
insurance, and broker services. 885 So. 2d at 902. The court listed seven provisions in
the parties' agreement it considered in determining that interstate commerce was
involved, such as the employee providing services of buying and selling securities and
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the parties' sharing of data, exchanging correspondence, and transferring funds
between New York and Florida. Id. at 904-05.
The present case does not involve a franchise agreement or employment
agreement. Rather, it involves a contract to improve real property in Florida. Further,
while Sachse maintains that it is a Michigan LLC, Affirmed Drywall alleged in its
complaint that "Contractor [Sachse] is a Florida Corporation, authorized to, and doing
business in Collier County, Florida." The parties did not address this allegation in light
of the interstate commerce analysis. Because the trial court never ruled on the issue of
whether the Subcontract involves interstate commerce and the record is not conclusive
on this issue, we direct the trial court to address this issue on remand.
Reversed and remanded with directions.
CRENSHAW and SLEET, JJ., Concur.
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