Federal Arbitration Act Preempts Florida State Statute Which Prohibits Out-of-State Resolution of Construction Claims Involving Florida Real Property

Sachse Constr. & Dev. Corp. v. Affirmed Drywall, Corp., 2018 Fla App. Lexis 9998 (July 18, 2018)

Sachse Construction, a Michigan-based general contractor, entered into a subcontract (the “Subcontract”) with Affirmed Drywall Corp. (“Affirmed”), a Florida drywall subcontractor, to perform work on a property in Florida.  The Subcontract provided that all disputes be resolved by mediation and/or arbitration in Southfield, Michigan, or within 20 miles thereof, pursuant to the Construction Industry Rules of the American Arbitration Association and in accordance with Michigan laws.  However, under Section 47.025 of the Florida Statutes, a venue provision in a contract involving a Florida-based contractor or subcontractor, etc., for the improvement of real property located in Florida is considered void as a matter of public policy if it requires that legal action be brought outside of Florida.

Affirmed filed an action in Florida state court alleging claims for breach of contract against Sachse and to recover against a bond naming Sachse and the surety on the bond.  Sachse moved to dismiss or to compel arbitration in Michigan in accordance with the dispute resolution provision in the Subcontract.  Sachse argued that the Subcontract involved interstate commerce, so the Federal Arbitration Act (the “FAA”) governed the Subcontract and preempted inconsistent state law.  Sachse claimed that Section 47.025 did not void the provision in the Subcontract mandating that disputes be resolved by arbitration in Michigan because of the FAA’s liberal policy favoring arbitration agreements.  The trial court disagreed, denied Sachse’s motion and ordered Sachse to answer the complaint.  Sachse appealed.

The Appeals Court reversed the trial court’s decision.  Relying upon Section 2 of the FAA, which requires that a written agreement to arbitrate shall be valid, irrevocable and enforceable, unless such agreement is unenforceable due to generally applicable contract defenses, such as fraud, duress or unconscionability, the Court held that “the FAA preempts conflicting or inconsistent state law.  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.” (citations omitted).

The Court also looked to case law interpreting similar statutes in Louisiana, Illinois and North Carolina, each of which held that the FAA preempted the state statutes and upheld provisions requiring the out-of-state arbitration of disputes.

The Court did not agree with Sachse, however, that the Subcontract, on its face, involved interstate commerce by virtue of the fact that Sachse was a Michigan company.  Accordingly, the Court remanded with instructions that the trial court address the question of interstate commerce to determine if the FAA applies.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

Emily D. Anderson

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