You have been sued in Florida state court. Your agreement with the plaintiff contains an arbitration provision that may apply to the particular type of claim the plaintiff has brought against you. You want to ask the court to compel arbitration, but you are concerned that by doing so you may be waiving certain challenges to the lawsuit if the court declines to compel arbitration. On the other hand, by raising those challenges first, you worry about the risk of waiving your right to compel arbitration. What do you do?
This dilemma frequently arises because, under the Florida Rules of Civil Procedure, certain challenges to a lawsuit (e.g., the venue where the action is pending or the legal sufficiency of a complaint) must be made in the defendant's first filing; otherwise, the arguments are considered waived.
At the same time, Florida case law traditionally holds that a party's active participation in a lawsuit (such as filing a lawsuit, answering a complaint without asserting the right to arbitration, engaging in discovery, or moving for summary judgment) is considered a waiver of the right to compel arbitration.
The Third District Court of Appeal's recent decision in Truly Nolen of America v. King Cole Condominium Association lends clarity to this chicken-or-egg dilemma.
In Truly Nolen, the defendant entered into a contract with the plaintiff that contained a mandatory arbitration provision. The plaintiff became dissatisfied with the defendant's performance of the contract and filed suit in Hillsborough County, alleging breach of contract and violations of Florida's Deceptive and Unfair Trade Practices Act.
As its first filing, the defendant filed a motion seeking to transfer the case to Miami-Dade County—which the defendant argued was a more convenient venue—and/or to stay the action and compel arbitration under the mandatory arbitration provision. During the hearing on the defendant's motion, the defendant affirmatively argued both portions of its motion. The Hillsborough trial court entered an order transferring the case to Miami-Dade County.
Once transferred, the defendant again moved to compel arbitration. The Miami-Dade trial court denied the motion, finding that the defendant had acted inconsistently with and had waived its right to arbitration by moving in Hillsborough County to transfer venue. On appeal, the Third District Court of Appeal reversed.
The court explained that, in the context of a party's waiver of its right to compel arbitration, the essential question is not the timing of the filings, as some prior Florida decisions have held, but "whether, under the totality of the circumstances, the defaulting party has acted inconsistently with the arbitration right."
And because asserting the arbitration right simultaneously with a motion to transfer venue "as its first action in the lawsuit" could hardly be considered inconsistent with arbitration, the defendant had taken the only action available to it to protect both its right to compel arbitration and its right to seek transfer to a convenient venue.
Although Truly Nolen arose in the context of a simultaneous motion to transfer venue, the court did not limit its holding to such a motion. Instead, the court explained that a party's simultaneous filing of any pre-answer motion along with a motion to compel arbitration will not waive the right to arbitration. Notably, the court relied on a number of rulings from other Florida appellate courts holding that the filing of a pre-answer motion is not an action inconsistent with arbitration and will not waive the right to arbitrate, even if the motion to compel arbitration is not simultaneously filed with or was preceded by the pre-answer motion.
The practical take-away of Truly Nolen is clear: Treat a motion to compel arbitration just like any other motion the rules require to be filed as the first substantive action in a lawsuit. Assert your clients' right to arbitration immediately. If there are any legal challenges you wish to make to the lawsuit, make them at the same time you request an order compelling arbitration.
Until the motion is decided, avoid doing anything that arguably could be considered "inconsistent" with the right to arbitration, such as filing an answer or a counterclaim or engaging in discovery.
More broadly, Truly Nolen underscores the continuing inclination of Florida courts toward arbitration. By affirming that pre-answer defenses are not inconsistent with a party's arbitration right (and therefore do not constitute a waiver of that right), Truly Nolen confirms that Florida courts will focus on the totality of the circumstances, and not technicalities, when considering whether the right to arbitration has been waived. To have held otherwise would have discouraged litigants from asserting their arbitration rights.
This article is reprinted from the September 19, 2014 issue of the Daily Business Review. © 2014 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.