FALLANG FAMILY LIMITED PARTNERSHIP v. PRIVCAP COMPANIES LLC

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
FALLANG FAMILY LIMITED PARTNERSHIP, individually and as
assignee of HADELAND LIMITED PARTNERSHIP,
Appellant,
v.
PRIVCAP COMPANIES, LLC, PRIVCAP FUNDING, LLC, PRIVCAP
HOLDINGS, LLC, PRIVCAP MANAGER, LLC, and DANIEL COHEN,
Appellees.
No. 4D20-548
[March 24, 2021]
Appeal of nonfinal order from the Circuit Court for the Fifteenth
Judicial Circuit, Palm Beach County; James L. Martz, Judge; L.T. Case
No. 50-2018-CA-008888-XXXX-MB.
Jason Goldstein and Maria Piva of Goldstein & Company, Coral Gables,
for appellant.
Douglas S. Allison and Steven K. Platzek of Graner Platzek & Allison,
P.A., Boca Raton, for appellees.
CONNER, J.
Fallang Family Limited Partnership (“FFLP”), the plaintiff below,
appeals a nonfinal order granting without prejudice the motion to compel
arbitration and stay proceedings filed by Privcap Companies, LLC, Privcap
Holdings, LLC, Privcap Funding, LLC, Privcap Manager, LLC, and Daniel
Cohen (collectively “the Privcap Appellees”) in a suit in which the Privcap
Appellees are defendants, along with multiple other defendants. FFLP
makes multiple arguments as to how the trial court erred, contending that
none of the sixteen counts against the Privcap Appellees are subject to
arbitration. We affirm without discussion all of the trial court’s rulings,
except the issue raised as to whether reference to the American Arbitration
Association (“AAA”) rules in an arbitration agreement can be sufficient to
shift the authority to decide what disputes are arbitrable from the trial
court to the arbitrator or arbitration panel. We also explain the limits of
our opinion in Younessi v. Recovery Racing, LLC, 88 So. 3d 364 (Fla. 4th
DCA 2012).
Background
In the underlying action, FFLP brought a twenty-two count complaint
against the Privcap Appellees and other defendants. FFLP was an investor
client of one or more of the Privcap Appellees. The Privcap Appellees hold
themselves out as real estate investors, managers, and professionals. The
Privcap Appellees are in the business of identifying, securing, and selling
real estate investment opportunities to the public. All of the claims
addressed in the rulings under review are against one or more of the
Privcap Appellees, and the claims revolve around alleged breaches of two
separate arrangements: (1) an equity investment; and (2) a separate loan
made by FFLP to or through one or more of the Privcap Appellees. The two
arrangements were in connection with the acquisition and management of
a real estate portfolio consisting of various properties in Ohio (“Ohio
Properties”).
According to FFLP’s complaint, the Privcap Appellees’ collective mission
is to secure real estate investment opportunities for its clients. Appellee
Daniel Cohen is the president and chief executive officer of the Privcap
entities. The complaint alleges that Cohen holds himself out to be an
expert on real estate investments, loans, and property management. FFLP
claimed that all the Privcap entities are entirely governed and controlled
by Cohen and the entities exercise no independence or discretion.
The Operating Agreement
The Operating Agreement was between FFLP and Privcap Holdings and
no other persons or entities. Under the Operating Agreement, Privcap
Holdings was to create a separate entity to use FFLP’s investment funds
for purchasing and managing the Ohio Properties for “profit, income, and
gain.” The Operating Agreement contained the following single paragraph
arbitration provision:
12.10 Arbitration. In the event of any dispute under this
agreement the parties agree to submit to binding arbitration
in the state of Florida with a panel of one arbitrator. The
arbitrator shall be chosen by the AAA and the AAA rules and
procedure shall apply, and the arbitration will be governed by
the law of the state of Florida.
The Servicing Agreement
2
Almost a year before FFLP entered into the Operating Agreement, FFLP
and Privcap Funding entered into the Servicing Agreement. The Servicing
Agreement was intended to govern multiple secured loans FFLP made to
third parties through Privcap Funding. Under the Servicing Agreement,
Privcap Funding was responsible for servicing, administering, and
managing the secured loan opportunities Privcap Funding procured for
FFLP. One of the loans covered by the agreement was a one-million-dollar
loan FFLP made through Privcap Funding to certain other defendants in
connection with the acquisition of the Ohio Properties. The Servicing
Agreement did not contain an arbitration clause.
Allegations of Fraud and Wrongdoing Against the Privcap Appellees
Sixteen of the twenty-two counts of the complaint were against one or
more of the Privcap Appellees (the remaining counts were against other
defendants). As to the Privcap Appellees, FFLP alleged it discovered that
they had made multiple misrepresentations to FFLP in an effort to induce
FFLP to transfer its funds to one or more of the Privcap Appellees for
specific purposes that were never fulfilled. FFLP also discovered that one
or more of the Privcap Appellees and other defendants improperly
managed the investments and loans made by FFLP and entered into
mortgages using FFLP’s funds—all while securing interests in favor of one
or more of the Privcap Appellees. FFLP alleged that the Privcap Appellees’
actions and inactions rose to the level of fraud and negligence, including
breaches of their duties under common law and various statutes.
The Motions to Compel Arbitration and Stay
In response to the complaint, the Privcap Appellees filed a motion to
compel arbitration and stay portions of the proceedings. The appellees
claimed, “[a]lthough [FFLP] has attempted to bring as many causes of
action against as many Defendants as it could come up with, the
underlying investments are governed by or relate to an Operating
Agreement . . . which contains a clause requiring [FFLP] to arbitrate its
claims rather than bringing litigation.”
After a hearing, the court found that fourteen of the sixteen counts
against the Privcap Appellees were arbitrable because “they are either
wholly related to the Operating Agreement or tangentially related to the
Operating Agreement through the Servicing Agreement between [FFLP]
and Privcap Funding.” The trial court made its findings “without prejudice
to the arbitrator to make determinations as to which claims are arbitrable
based on a more detailed factual presentation by the Parties as to why
some of those counts listed in . . . this Order may not be related to the
3
arbitration clause of the Operating Agreement.” The trial court stayed all
remaining claims it determined were not subject to arbitration. The stay
was imposed until the conclusion of arbitration.
FFLP gave notice of this nonfinal appeal.
Appellate Analysis
Generally, review of an order on a motion to compel arbitration is de
novo. Hernandez v. Crespo, 211 So. 3d 19, 24 (Fla. 2016); Wilson v.
AmeriLife of E. Pasco, LLC, 270 So. 3d 542, 545 (Fla. 2d DCA 2019). Issues
of contract interpretation are also subject to de novo review. Fla. Inv. Grp.
100, LLC v. Lafont, 271 So. 3d 1, 4 (Fla. 4th DCA 2019). If there is a
dispute over what issues or controversies are within the scope of an
arbitration agreement, courts will generally resolve the dispute “in favor of
arbitration.” Jackson v. Shakespeare Found., Inc., 108 So. 3d 587, 593
(Fla. 2013).
“Arbitration provisions are creatures of contract and must be construed
‘as a matter of contract interpretation.’” Doe v. Natt, 299 So. 3d 599, 605
(Fla. 2d DCA 2020) (quoting Seifert v. U.S. Home Corp., 750 So. 2d 633,
636 (Fla. 1999)). “‘When interpreting a contract, the court must first
examine the plain language of the contract for evidence of the parties’
intent.’ . . . ‘Intent unexpressed will be unavailing. . . .’” Beach Towing
Servs., Inc. v. Sunset Land Assocs., LLC, 278 So. 3d 857, 860 (Fla. 3d DCA
2019) (first quoting Perez-Gurri Corp. v. McLeod, 238 So. 3d 347, 350 (Fla.
3d DCA 2017); and then quoting Moore v. Stevens, 106 So. 901, 903 (Fla.
1925)).
The Supreme Court of the United States has noted that “who—court or
arbitrator—has the primary authority to decide whether a party has agreed
to arbitrate can make a critical difference to a party resisting arbitration.”
First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995). The Court
has explained:
This Court, however, has (as we just said) added an important
qualification, applicable when courts decide whether a party
has agreed that arbitrators should decide arbitrability: Courts
should not assume that the parties agreed to arbitrate
arbitrability unless there is ‘clea[r] and unmistakabl[e]’
evidence that they did so. In this manner the law treats
silence or ambiguity about the question ‘who (primarily)
should decide arbitrability’ differently from the way it treats
silence or ambiguity about the question ‘whether a particular
4
merits-related dispute is arbitrable because it is within the
scope of a valid arbitration agreement’—for in respect to this
latter question the law reverses the presumption.
....
On the other hand, the former question—the ‘who (primarily)
should decide arbitrability’ question—is rather arcane. A
party often might not focus upon that question or upon the
significance of having arbitrators decide the scope of their own
powers. And, given the principle that a party can be forced to
arbitrate only those issues it specifically has agreed to submit
to arbitration, one can understand why courts might hesitate
to interpret silence or ambiguity on the ‘who should decide
arbitrability’ point as giving the arbitrators that power, for
doing so might too often force unwilling parties to arbitrate a
matter they reasonably would have thought a judge, not an
arbitrator, would decide.
Id. at 944–45 (first and second alteration in original) (emphases added)
(citations omitted). The Court recently reaffirmed these principles in
Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524 (2019), when
it cited First Options for the proposition: “This Court has consistently held
that parties may delegate threshold arbitrability questions to the
arbitrator, so long as the parties’ agreement does so by ‘clear and
unmistakable’ evidence.” Id. at 530 (quoting First Options, 514 U.S. at
944). Applying the Federal Arbitration Act to the context of an arbitration
agreement, the Court in Henry Schein said: “We must interpret the Act as
written, and the Act in turn requires that we interpret the contract as
written. When the parties’ contract delegates the arbitrability question to
an arbitrator, a court may not override the contract.” Id. at 529.
Although there is scant discussion in the briefs by the parties in this
case, we note that section 682.02, Florida Statutes (2018), contains
“gatekeeper” provisions allocating arbitrability issues between court and
arbitrator:
(1) An agreement contained in a record to submit to arbitration
any existing or subsequent controversy arising between the
parties to the agreement is valid, enforceable, and irrevocable
except upon a ground that exists at law or in equity for the
revocation of a contract.
5
(2) The court shall decide whether an agreement to arbitrate
exists or a controversy is subject to an agreement to arbitrate.
(3) An arbitrator shall decide whether a condition precedent to
arbitrability has been fulfilled and whether a contract
containing a valid agreement to arbitrate is enforceable.
§ 682.02, Fla. Stat. (emphases added). Thus, by statute in Florida, the
court decides what controversies are subject to an arbitration agreement,
however, by contract, the parties can shift that authority to the arbitrator.
Id. What First Options and Henry Schein make clear is that the contract
language shifting the authority to decide what controversies are arbitrable
from the court to the arbitrator must provide “clear and unmistakable
evidence” of that intent, and ambiguity as to “who decides” reverses the
usual presumption from the arbitrator to the court. Henry Schein, 139 S.
Ct. at 530; First Options, 514 U.S. at 944–45. Stated another way, if the
contract language is ambiguous, the normal presumption that favors
decision making by the arbitrator is reversed, and the presumption
becomes that the court decides what controversies are subject to
arbitration. In sum, ambiguous contractual language does not change the
statutory mandate that courts decide what controversies are subject to
arbitration.
In this case, the arbitration agreement in the Operating Agreement is
one paragraph. Notably, the agreement makes reference to “AAA” and
“AAA rules and procedure.” Importantly, the Operating Agreement did not
attach any portions of the AAA rules or explain where those rules could be
found. Nor did the arbitration paragraph identify which subject-area
version of the AAA rules apply. The Privcap Appellees contend the AAA
Commercial Arbitration Rules are applicable to this case, and in particular
rule R-7. Jurisdiction, which provides:
(a) The arbitrator shall have the power to rule on his or her own
jurisdiction, including any objections with respect to the
existence, scope, or validity of the arbitration agreement or to
the arbitrability of any claim or counterclaim.
(b) The arbitrator shall have the power to determine the
existence or validity of a contract of which an arbitration
clause forms a part. Such an arbitration clause shall be treated
as an agreement independent of the other terms of the contract.
A decision by the arbitrator that the contract is null and void
shall not for that reason alone render invalid the arbitration
clause.
6
Am. Arb. Ass’n, Commercial Arbitration Rules and Mediation Procedures, 13
(Oct. 1, 2013) http://www.adr.org/sites/default/files/Commercial-Rules-
Web.pdf (emphases added). As can be seen, AAA Commercial Arbitration
Rule R-7. gives the arbitrator the authority to decide what issues and
controversies are within the scope of the arbitration agreement, an
authority the arbitrator would not have directly under section 682.02(2).
However, similar to Natt, the issue we confront in this case is whether
contract language incorporating a set of arbitration rules by general
reference, rather than by reference to a specific rule granting authority to
decide what is arbitrable, “clearly and unmistakably” supplants a court’s
statutory power to decide what is arbitrable. Adopting the reasoning of
the Second District in Natt, we hold that on the facts of this case, the
general reference to “AAA rules” did not “clearly and unmistakably”
supplant the trial court’s authority to decide what is arbitrable. We also
take this opportunity to explain the limits of our opinion in Younessi.
In Younessi, the issue we confronted was the propriety of a trial court
order directing the parties to select an arbitrator. Younessi, 88 So. 3d at
365. The appellant contended that the trial court improperly ignored the
provision of the arbitration agreement that specifically stated that
arbitration would be in accordance with AAA rules. Id. In a brief opinion
without a lot of factual detail, we reversed the trial court’s order directing
the parties to select an arbitrator because the arbitration agreement stated
arbitration would be conducted in accordance with AAA rules, and the AAA
rules had a procedure for selecting the arbitrator. Id. at 366. Significantly,
we said: “Where language of the contract clearly indicates that AAA rules
govern, they are expressly incorporated into the contract,” citing to
Terminix International Co., LP v. Palmer Ranch Ltd. Partnership, 432 F.3d
1327, 1333 (11th Cir. 2005), as authority. Id. at 365. The citation to
Terminix in Younessi is important to our decision in this case because in
Terminix, the arbitration agreement stated that “arbitration shall be
conducted in accordance with the Commercial Arbitration Rules then in
force of the American Arbitration Association.” 432 F.3d at 1332. The
specific reference to “the Commercial Arbitration Rules” was important in
Terminix because those rules contained “Rule 8(a),” which provided that
“[t]he arbitrator shall have the power to rule on his or her own jurisdiction,
including any objections with respect to the existence, scope or validity of
the arbitration agreement.” Id. (citation omitted).
In Reunion West Development Partners, LLLP v. Guimaraes, 221 So. 3d
1278 (Fla. 5th DCA 2017), the Fifth District confronted a home purchase
agreement with an arbitration provision that provided arbitration would
7
be conducted “in accordance with the Construction Industry Arbitration
Rules of the American Arbitration Association (‘AAA’),” which the Fifth
District noted had a “Jurisdiction” provision authorizing the arbitrator to
rule on whether a dispute is within the scope of an arbitration agreement.
Id. at 1279. The buyers “argued that the arbitration clause was not
enforceable because there was no meeting of the minds and because its
terms were unconscionable, citing to Basulto v. Hialeah Automotive, 141
So. 3d 1145 (Fla. 2014).” Id. at 1279-80. The seller cited Glasswall, LLC
v. Monadnock Construction, Inc., 187 So. 3d 248 (Fla. 3d DCA 2016), and
“asserted that the issue of arbitrability was expressly reserved for the
arbitrator to decide.” Id. at 1280.
Citing Younessi and Terminix, the Fifth District concluded that “[w]here,
like here, the language of the contract clearly states that AAA rules govern,
then said rules are expressly incorporated into the contract.” Id. Due to
the specific reference to and applicability of the AAA Construction Industry
Arbitration Rules, the Fifth District reversed the denial of the motion to
compel arbitration and remanded for further proceedings. Id. Significant
to our disposition in this case, the Fifth District distinguished the
applicability of Basulto for three reasons, one of which was the fact that
the arbitration provision in Basulto “did not incorporate the Construction
Industry Arbitration Rules.” Id. It appears that the Fifth District in
Guimares required more than a general reference to “AAA rules,” and
instead relied on a reference to a specific subset of AAA rules as governing
arbitration.
It also appears the Third District has agreed that a more specific
reference to a subset of AAA rules is sufficient to vest the arbitrator with
the authority to decide arbitrability. See Mia. Marlins, L.P. v. Miami-Dade
Cty., 276 So. 3d 936, 940 (Fla. 3d DCA 2019) (finding that the arbitrator
could determine arbitrability because the arbitration agreement stated
arbitration would be conducted in accordance with the AAA Commercial
Arbitration Rules); Glasswall, 187 So. 3d at 251 (same, due to reference
to AAA Construction Industry Arbitration Rules).
As discussed above, in this case, the arbitration agreement was one
paragraph stating merely that “the AAA rules and procedure shall apply.”
There was no reference to any subset of the AAA rules. Like the Second
District, we conclude that “the reference to the AAA Rules was broad,
nonspecific, and cursory.” Natt, 299 So. 3d at 606. The AAA rules were
not attached and no information was given as to where to find the rules.
Id. Additionally, we agree that even if we were to assume that a general
reference to “AAA rules” was sufficient to show an intent that the trial
court’s authority could be supplanted, there is still the uncertainty of
8
whether the parties did intend to supplant the trial court’s authority. We
also agree with our sister court that AAA Commercial Arbitration Rule R-
7. language stating that the arbitrator “shall have the power” does not
grant exclusive authority to the arbitrator. As the Second District has
pointed out, “in most interpretive contexts, the statement, ‘shall have the
power,’ does not even constitute a mandatory directive.” Id. at 607. Most
importantly, we agree with the Second District that it is questionable
whether the opinions by the Third and Fifth Districts and our own opinion
in Younessi comports with the Supreme Court’s decisions in First Options
and Henry Schein. We also point out that Younessi, unlike Miami Marlins,
Guimares, and Glasswall, involved applying AAA rules to selecting an
arbitrator, and did not address the issue of “who decides” what is
arbitrable. It is unknown how a panel of this Court would have ruled if
the issue in Younessi was “who decides,” as between the trial court and an
arbitrator.
We conclude that the general reference to the “AAA rules” in this case
left ambiguity as to whether the arbitrator has authority to decide
arbitrability to the exclusion of the trial court.
In that regard, we also distinguish our position from the Second
District. As the dissent in Natt points out, the majority opinion seems to
indicate that an arbitrator will have authority to decide arbitrability only
if the contract language gives the arbitrator exclusive authority. Natt, 299
So. 3d at 612 (Villanti, J., dissenting) (“Here, the majority has created a
new requirement that the contract must confer an ‘exclusive’ power upon
the arbitrator or arbitration panel to determine the arbitrability of an
issue.”). As we see it, there can be instances, depending on the language
of the arbitration agreement, in which the court and the arbitrator or
arbitration panel can have concurrent jurisdiction to decide arbitrability.
As such, we conclude that the trial judge’s order in this case properly made
a preliminary decision as to which counts of the complaint are covered by
the arbitration agreement, based on a limited showing of the facts in this
multiple count, factually complex case, and properly left the final decision
as to what was arbitrable to the arbitrator. On the facts of this case, we
hold that such an approach is an efficient and economical manner to
decide the multitudinous disputes in this case and does not violate the
contract to arbitrate.
We also certify conflict with the decisions rendered by the Third District
in Miami Marlins and Glasswall, and the Fifth District in Guimaraes.
Affirmed; Conflict Certified.
9
CIKLIN, J., concurs.
DAMOORGIAN, J., dissents with opinion.
DAMOORGIAN, J., dissenting.
I dissent because the majority opinion directly conflicts with the
precedent of this Court in Younessi v. Recovery Racing, LLC, 88 So. 3d 364(Fla. 4th DCA 2012). Our holding in Younessi could not have been clearer:
“Where language of the contract clearly indicates that AAA rules govern,
they are expressly incorporated into the contract.” 88 So. 3d at 365(holding that even though the contract’s arbitration clause did not specify
how the arbitrator was to be selected, “[t]he contract expressly stated that
any dispute arising from it was to be arbitrated under AAA rules;” thus, as
AAA rules had an established procedure for selecting an arbitrator, “AAA
rules for the selection of an arbitrator should have been followed”); see also
Reunion W. Dev. Partners, LLLP v. Guimaraes, 221 So. 3d 1278, 1280 (Fla.
5th DCA 2017) (“Where, like here, the language of the contract clearly
states that AAA rules govern, then said rules are expressly incorporated
into the contract.”); Glasswall, LLC v. Monadnock Constr., Inc.,
187 So. 3d 248, 251 (Fla. 3d DCA 2016) (recognizing that “the majority of
federal courts considering similar circumstances where the AAA’s
arbitration rules have been incorporated by reference into a contract
likewise have found that the parties sufficiently evidenced their intent to
have arbitrators, not a court, hear and decide issues of arbitrability”).
* * *
Not final until disposition of timely filed motion for rehearing.
10