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In remanding a case with instructions to order arbitration of a construction dispute, the Florida District Court of Appeal followed the majority rule and held that an ADR provision remains in force after termination of the underlying contract unless there is clear intent to the contrary.
In Auchter Co. v. Zagloul, No. 1D06-2817, 2007 WL 671080 (Fla. Dist. Ct. App. Mar. 7, 2007), Auchter contracted to build a house for Zagloul using a standard American Institute of Architects (AIA) contract. The contract contained an ADR provision that required the parties to submit their disputes to mediation and, if unsuccessful, to arbitration.
After the house was built, Zagloul terminated the contract and sued for damages. Auchter filed a motion to compel arbitration. The trial court denied the motion on the ground that the arbitration clause did not survive termination of the underlying contract.
The trial court's ruling was based on Aberdeen Golf & Country Club v. Bliss Construction, Inc., 932 So.2d 235 (Fla. Dist. Ct. App. 2005), which also construed the standard AIA contract and concluded that the ADR provision did not survive termination of the contract.
On appeal, the Court identified three reasons why Aberdeen was not controlling. First, Aberdeen was distinguishable because the party seeking the benefit of the ADR provision was also the party who terminated the contract. Second, the Aberdeen court's construction of the ADR provision was mere dicta because the court affirmed the trial court's finding that the party seeking ADR waived the right to demand arbitration.
Third, and most important, the Court rejected the reasoning of Aberdeen in noting that "an arbitration provision does not require any type of 'savings clause' to survive contract termination." Instead, as the Court explained, "[a]rbitration provisions are to be construed to require arbitration of disputes arising after the cancellation of the underlying contract unless such disputes are specifically excluded from arbitration."
The Court concluded its analysis by pointing out that a contrary holding "would permit parties to avoid arbitration simply by purporting to terminate the contract" and thereby undermine the policy favoring arbitration as an expeditious means of dispute resolution.
In holding that the ADR provision remained in force, the Court followed the majority rule whereby an arbitration agreement survives termination of the underlying contract unless there is clear intent to the contrary. See Shams v. Howard, No. 05CA1936, 2007 WL 416356 (Colo. Ct. App. Feb. 8, 2007).
Though in conformity with the majority rule, this case is unique because the ADR provision required the parties to participate in mediation before proceeding with arbitration. This hybrid form of ADR can be especially efficient because it facilitates an amicable resolution while preserving the benefits of arbitration in the event of an impasse.
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