Deciding Who Decides: The Roles of Judges and Arbitrators in Deciding Whether Conditions Precedent to Arbitration Have Been Satisfied or Waived
By Aaron S. Blynn
I hate lima beans. I always have. I always will. It doesn’t matter if they are covered in cheese, doused in salt, or swimming in a pool of butter. They taste like dirt and the thought of them only serves to breathe life into repressed memories of childhood dinners where I was forced to consume those vile green lumps. It is no mistake that lima beans never seem to make their way onto the side dish section of your favorite restaurant’s menu. Not even the trendy “farm-to-table” restaurants serve them. Beets? Yes. Brussel sprouts? Sure. Asparagus? You bet. Lima beans? Never. Fortunately for me, when I was younger, my loyal dog Echo was more than happy to eat my lima beans from his spot underneath our dining room table. While Echo never turned down a carefully hidden handful of lima beans, I suspect that there came a time when even he yearned for something more palatable.
The way I feel about lima beans is the way many attorneys and their clients feel about mandatory arbitration provisions. In theory, arbitration is supposed to be less expensive, quicker, and less burdensome on the parties. For the claimant, however, the upfront costs associated with filing a claim and paying arbitrators can be prohibitive. For these, and many other reasons, it has become increasingly common for attorneys and their clients to try to avoid arbitration by preemptively filing their claims in court, and hoping that their counterparts do not attempt to enforce their rights to arbitrate.
Occasionally this tactic works. The responding party either will forget about the arbitration provision or decide that court would be preferable. In those cases, the lawsuit proceeds without issue. However, many parties wish to enforce their rights to arbitrate. Faced with a lawsuit, those parties immediately will file motions to compel arbitration. In response, the party who ignored the arbitration requirement either can concede that arbitration is proper or try to concoct an argument to justify its disregard for the arbitration provision.
An increasingly popular strategy for a party responding to a motion to compel arbitration is to argue that the moving party failed to satisfy a condition precedent to arbitration, such as notice or pre-arbitration mediation. But who decides whether a condition precedent to arbitration has been satisfied or waived? The judge ruling on a motion to compel arbitration, or the arbitrator?
There was a brief period in Florida when judges were tasked with making such a determination. In Kemiron Atl., Inc. v. Aguakem Int’l, Inc., 290 F.3d 1287 (11th Cir. 2002), the parties’ contract contained a provision stating that, if the parties were unable to resolve a dispute themselves, either could demand mediation. The agreement further provided that if the dispute was not resolved at mediation, either party could submit the dispute to arbitration after giving the other party ten days’ notice. A dispute arose between the parties but instead of following the dispute resolution procedure, one of the parties filed a lawsuit. The defendant moved to compel arbitration. The motion was denied. Ultimately, the Eleventh Circuit affirmed the trial court’s order denying the motion to compel arbitration, holding that because neither party demanded mediation or gave notice of its intent to submit the matter to arbitration, the conditions precedent to arbitration had not been satisfied. Implicit in the Eleventh Circuit’s decision was the determination that a judge, rather than an arbitrator, was the proper person to decide whether conditions precedent to arbitration were satisfied or waived.
The ruling in Kemiron was short-lived. Seven months later, the Supreme Court of the United States clarified the roles of the judge vis-à-vis the arbitrator where a party is opposing a motion to compel arbitration on the grounds that a condition precedent to arbitration has not been satisfied. In Howsham v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002), the Supreme Court made clear that “procedural questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide.” The Supreme Court continued:
[an] arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled . . . [and] in the absence of an agreement to the contrary, issues of substantive arbitrability . . are for the court to decide and issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide.
Subsequently, in Klay v. United Healthgroup, Inc., 376 F.3d 1092, 1107 (11th Cir. 2004), the Eleventh Circuit adopted the Supreme Court’s decision in Howsham, explaining that “the Supreme Court [in Howsham] laid out the respective responsibilities of courts and arbitrators absent an agreement to the contrary.” The court continued by echoing the Supreme Court’s holding that “issues of procedural arbitrability, i.e., whether . . . conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide.”
The Eleventh Circuit’s decision in Klay was applied in PTA-FLA, Inc. v. ZTE USA, Inc., No. 11-510, 2011 WL 5024647 (M.D. Fla. Oct. 21, 2011) where the parties’ contract included a provision stating that, if a dispute arose between them, they were required first to attempt to resolve the dispute through senior level negotiations between the parties, including a personal meeting lasting no less than four hours. If, following the negotiations, a resolution was not reached, either party could initiate arbitration proceedings. Ignoring the dispute resolution procedure and arbitration requirement, the plaintiff filed a lawsuit, leading to the defendant moving to compel arbitration. In opposition to the motion to compel arbitration, the plaintiff, relying on Kemiron, argued that the defendant failed to satisfy an essential condition precedent to arbitration and that the district court was required to determine whether the condition precedent had been satisfied. In response, the defendant argued that satisfaction of a condition precedent to arbitration was an issue for the arbitrator to decide. In granting the defendant’s motion, the court pointed out that Kemiron was decided before Howsham and Klay, and that the arbitrator must himself decide whether the defendant satisfied the pre-arbitration mediation requirement or not.
Recently, in DiMattina Holdings, LLC v. Steri-Clean, Inc., No. 16-61084, 2016 WL 4272373 (S.D. Fla. July 18, 2016), the plaintiff, a franchisee, filed a lawsuit, disregarding the arbitration provision in the parties’ franchise agreement. The franchisor moved to compel arbitration. In opposition to the franchisor’s motion, and relying on Kemiron, the franchisee argued, among other things, that conditions precedent to arbitration had not been satisfied. Specifically, the franchisee argued that the franchisor did not satisfy a pre-arbitration mediation requirement before moving to compel arbitration. After pointing out that Kemiron was no longer good law, the court granted the motion to compel arbitration, holding that whether the franchisor complied with the mediation requirement under the franchise agreement prior to moving to compel arbitration was a matter for the arbitrator to decide.
As long as lima beans and arbitration exist, children and attorneys will continue to come up with creative ways of avoiding them. While there has never been a question that mothers and fathers are the ultimate arbiters when it comes to deciding whether an unhappy child is entitled to dessert without eating all of his or her vegetables, there is now no dispute that arbitrators, rather than judges, are tasked with deciding whether conditions precedent to arbitration have been met.