Construction Professionals: You can Still be Forced to Arbitrate Outside of Florida
Reading Time: 3 minutes
Construction professionals who work on large commercial projects are probably familiar with the ins and outs of arbitration clauses that appear in many construction contracts. They may even be familiar with the Florida Statute, § 47.025, that prohibits contractual clauses that require any legal action, including arbitration, involving a Florida contractor, subcontractor, sub-subcontractor, or materialman, to be brought somewhere outside Florida. The statute states that any clause in a contract for improvement to real property that requires suit involving a Florida-resident construction professional to be brought outside of Florida, is void as a matter of public policy; as a result, any such clause is void.
But, at least as such clauses relate to arbitration, construction professionals should not rely on this statutory prohibition when negotiating their clauses, because the Florida Statute will not always govern the issue of where an arbitration is required to be held.
Recently, a Florida appellate court addressed the question of whether a Florida subcontractor could be forced to arbitrate a dispute in Michigan, where the general contractor for the project was headquartered. The subcontractor filed suit against the general contractor in Florida state court. The general contractor argued that, pursuant to the contract for the project, the dispute was required to be decided by arbitration, held in Michigan and governed by Michigan law. The trial court ruled against the general contractor, who then appealed.
On appeal, the general contractor prevailed. Florida Second District Court of Appeal held that the dispute was subject to the Federal Arbitration Act, because the contract constituted interstate commerce. And because the FAA applied, it controlled over the Florida state law. In general, the FAA has been interpreted quite broadly, and specifically as favoring arbitration whenever possible. This includes with regard to contracts that contain an arbitration clause that would be unenforceable pursuant to state law. As a result, § 47.025 did not apply to the dispute between the subcontractor and general contractor.
The lessons that construction professionals can take from this case are two-fold. First, always be wary of arbitration clauses. For many reasons, the primary one being the cost of arbitration, arbitration is rarely a preferable method for resolving disputes as compared to state or even federal court. Secondly, if the contract requires arbitration and is non-negotiable, and the other party is located outside of Florida, construction professionals need to understand the implications if the contract further requires that arbitration to be located out of state. An arbitration clause requiring out-of-state arbitration may be the difference between choosing to accept work on a project or not.