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In upholding a lower court's decision to sever liability limitations from an arbitration agreement, the Florida District Court of Appeals held that courts have authority to rule on the enforceability of liability limitations where the limitations are not outside the arbitration agreement. This decision highlights a split of authority among Florida's appellate courts on the issue of whether a court may precede the arbitrator in deciding the enforceability of liability limitations.
In Alterra Healthcare Corp. v. Estate of Linton ex rel. Graham, No. 1D06-0986, 2007 WL 597008 (Fla. Dist. Ct. App. Feb. 28, 2007), Linton died during her residency in an Alterra nursing home. Linton's family subsequently sued Alterra for alleged violations of the Florida Nursing Home Residents Act.
Alterra moved to compel arbitration pursuant to the residency agreement. In opposing the motion, Linton's family argued that the residency agreement contained limitations on liability – specifically, a $250,000 cap on non-economic damages and a bar on punitive damages – which rendered the arbitration agreement unenforceable.
The trial court ruled that the limitations on liability were unenforceable as contrary to public policy but upheld the remainder of the arbitration agreement based on a severability clause in the residency agreement.
On appeal, Alterra cited Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) in arguing that the trial court had no authority to consider the enforceability of the liability limitations because the limitations were "outside" the arbitration agreement. The Court rejected this argument because the arbitration agreement expressly incorporated the liability limitations.
Alterra also cited Bland ex rel. Coker v. Health Care & Retirement Corp. of America, 927 So. 2d 252 (Fla. Dist. Ct. App. 2006) in arguing that the enforceability of the liability limitations was an issue for the arbitrator rather than the trial court. In Bland, the court found that an arbitrator is better situated to decide the enforceability of liability limitations because the arbitrator has the benefit of "a fully developed factual record."
The Court found that Alterra's reliance on Bland was misplaced because the relevant language is "mere dicta." As the Court noted, Alterra unsuccessfully relied on Bland while making the very same argument in Alterra Healthcare Corp. v. Bryant, 937 So.2d 263 (Fla. Dist. Ct. App. 2006).
Even if one accepts the Bryant court's characterization of the relevant language in Bland as "permissive" dicta, neither Bryant nor Linton can be reconciled with Rollins, Inc. v. Lighthouse Bay Holdings, Ltd., 898 So.2d 86 (Fla. Dist. Ct. App. 2005), in which the court concluded that an arbitrator should in the first instance decide the validity of liability limitations, particularly if the arbitration agreement contains a severability clause.
In both Byrant and Linton, the court attempted to reconcile its holding with Rollins by highlighting language from Rollins that suggests a court may review liability limitations where unconscionability is at issue. However, neither Bryant nor Linton adheres to that limitation because neither case turned on the doctrine of unconscionability. Instead, both cases invalidated liability limitations on the basis of public policy, which is a distinct issue from unconscionability as the court noted in Bland.
Moreover, since it is the Federal Arbitration Act (FAA) which limits a court's authority to rule on the enforceability of liability limitations, the Florida courts are arguably bound by Eleventh Circuit precedent on this issue. See Mobil Oil Corp. v. Shevin, 354 So.2d 372, 375 n. 9 (Fla. 1977) ("We recognize, of course, that state courts are bound by federal court determinations of federal law questions."). In Anders v. Hometown Mortgage Services, Inc., 346 F.3d 1024 (11th Cir. 2003), a case cited in Rollins, the Eleventh Circuit held that the FAA required the arbitrator to determine the validity of the liability limitations.
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