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Reversing its earlier ruling that a trial court should decide a challenge to a contract's validity, a Florida appellate court followed the Supreme Court's ruling in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) concluding that an arbitrator must first decide a challenge to a contract's validity, even when the FAA is not the governing law as it was in Caredegna.
In Charles Boyd Const. Inc. v. Vacation Beach, Inc., No. 5D06-2168, 2007 WL 1789297 (Fla. Dist. Ct. App. June 22, 2007), Vacation Beach contracted with Charles Boyd Construction to build a condominium project. Vacation Beach discovered Charles Boyd Homes, a dissolved corporation, had obtained the structure's building permit rather than Charles Boyd Construction.
Disputes arose between the parties. Boyd Construction placed a lien against Vacation Beach's property and filed a demand for arbitration. Vacation Beach responded by seeking declaratory relief arguing that Boyd Construction lacked authority to make the contract because it lacked a qualifying agent as required by Florida law. The trial court dismissed Vacation Beach's claim and compelled arbitration.
Relying on the Florida Supreme Court's ruling in Cardegna v. Buckeye Check Cashing, Inc., 894 So.2d 860 (Fla. 2005), the appellate court held it was contrary to public policy to enforce a contract where an unlicensed contractor sought enforcement. The Florida Supreme Court in Caredegna had held that a party asserting a contract's illegality must first present this claim to a trial court before arbitration of other claims could commence. The Court reversed the trial court and remanded directing the trial court to address the issue of the contract's illegality.
After the trial court denied Boyd Construction's motion to compel arbitration and granted Vacation Beach's motion to stay, the United States Supreme Court reversed the Florida Supreme Court's ruling. Boyd Construction submitted notices of supplemental authority seeking to compel arbitration asking the trial court to take into account the United States Supreme Court's ruling in Cardegna. The trial court denied the motion holding that the appellate court's earlier holding was the law of the case. Boyd Construction then appealed.
Following the Supreme Court in Cardegna, the Court reversed the finding that the contract between Vacation Beach and Boyd Construction "is illegal and the arbitration provision therein is not enforceable." The Court found that the arbitrator, rather than the trial court, must first consider the underlying contract's validity, except for a challenge specifically relating to the arbitration agreement.
Additionally, the Court rejected Vacation Beach's argument that the Florida Arbitration Code rather than the FAA governed the case's earlier disposition. Although there is no evidence suggesting the FAA applied to the parties' contract, Florida courts have interpreted section 682.03(1), Florida Statutes, as being "virtually identical" to Section 4 of the FAA.
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