Brea 3-2 LLC v. Hagshama Fla. 8 Sarasota, LLC

• Decision Date: 29 September 2021
• Docket Number: 3D20-1197,Nos. 3D20-1154,s. 3D20-1154
• Parties: BREA 3-2 LLC, etc., et al., Appellants, v. HAGSHAMA FLORIDA 8 SARASOTA, LLC, etc., et al., Appellees.
• Court: Florida District Court of Appeals

327 So.3d 926

BREA 3-2 LLC, etc., et al., Appellants,

v.HAGSHAMA FLORIDA 8 SARASOTA, LLC, etc., et al., Appellees.

Nos. 3D20-1154

3D20-1197

District Court of Appeal of Florida, Third District.

Opinion filed September 29, 2021

Anthony & Partners, LLC, and John A. Anthony and Andrew J. Ghekas (Tampa), for appellants.

Levine Kellogg Lehman Schneider + Grossman LLP, and Stuart I. Grossman and Matthew J. McGuane ; D'Agostino, Levine, Landesman, Lederman, Rivera & Sampson, LLP, and Bruce H. Lederman (New York, NY), for appellees.

Before EMAS, LINDSEY and BOKOR, JJ.

EMAS, J.

I. INTRODUCTION

In these consolidated appeals, plaintiffs below, BREA 3-2 LLC, Michael Bednarski, and Peggy Tseung (BREA), appeal two final orders compelling arbitration and dismissing—without prejudice—their lawsuits against Hagshama Florida 8 Sarasota, LLC and Hagshama Florida 10 Orlando, LLC (Hagshama), defendants below. Although BREA raises a number of issues on appeal, we address primarily: (1) whether the trial court erred in finding that the underlying arbitration clause is a "broad" provision under the case law; and (2) whether the trial court erred in determining that the decision in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) required the parties to arbitrate the dispute. We hold that the trial court erred in both rulings, and reverse the orders compelling arbitration and dismissing the action.

We hold that the arbitration clause, by which the parties agreed to arbitrate any dispute "under the Agreement," constitutes a narrow arbitration provision, and that the claims alleged in the complaint below (usury and related claims premised on an allegedly usurious loan) do not have the requisite "direct relationship" to the underlying agreement such that the parties agreed to arbitrate this dispute.

In reversing on this basis, we agree with the strict holding of our sister court in Party Yards, Inc. v. Templeton, 751 So. 2d 121 (Fla. 5th DCA 2000). In Party Yards, the Fifth District, construing a contract with a similarly narrow arbitration provision (providing that "any controversy arising under this Agreement shall be submitted to arbitration"), held that "the arbitration provision of the contract is not broad enough to encompass a usury violation" and that the statutory usury claim did not "arise under" the agreement but instead arose under Florida statutory law. Id. at 123.

II. FACTUAL AND PROCEDURAL BACKGROUND

In 2015, BREA was formed to serve as general partner in certain real estate development projects. BREA developed business plans to acquire and develop two vacant pieces of land—one in Sarasota and one in Orlando. In 2016, to finance the development projects, BREA entered into two separate Agreements with Hagshama—one Agreement for each project. Relevant to our purposes, each of the Agreements contained the identical arbitration provision:

Any dispute under this Agreement or any Exhibit attached hereto shall be submitted to arbitration under the American Arbitration Association (the "AAA") in New York City, New York ....

(Emphasis added).

Attached to each Agreement was a Guaranty. Although individual appellants Michael Bednarski and Peggy Tseung (in their personal capacities) are not signatories to the Agreements, they are each (in their personal capacities) signatories to the Guaranty which are paginated as part of each Agreement. Also, each document references the other, i.e., the Guaranty confirms that the signatories "accept and agree to be bound" by the Agreement as if they were "a direct party to the Agreement," and the Agreement requires appellants to personally guarantee (via the Guaranty) BREA's "undertakings and obligations" under the Agreement.¹

When neither Project was completed prior to the maturity date in the Agreement, Hagshama sent notices of default and demand letters asserting that BREA breached or failed to meet the obligations under the Agreements. In response, BREA filed the underlying state court actions against Hagshama—one as to the Sarasota Agreement and the other as to the Orlando Agreement—alleging, inter alia, that appellees were attempting to collect on two "criminally usurious debts" in violation of section 687.071, Florida Statutes (2016). The complaints sought: damages for usury under section 687.071 (Count I); declaratory relief, i.e., a declaration that the Agreements are illegal and unenforceable against appellants (Count II); and injunctive relief, i.e., enjoining appellees from enforcing the Agreements (Count III).

Hagshama moved to stay the action and compel arbitration and, in the alternative, to dismiss the action for improper venue. Hagshama maintained that the arbitration provision is broad, and relied on Buckeye, 546 U.S. at 444-46, 126 S.Ct. 1204, for the proposition that, because appellants’ usury claims challenged the "contract as a whole" as "void for illegality," the claims must be "considered by an arbitrator, not a court." BREA countered that Buckeye is distinguishable because the instant arbitration provision is "narrow," as contrasted with the concededly broad arbitration provision in Buckeye.

The trial court concluded that the arbitration clause "of the subject Agreement is broad, valid and enforceable;" ordered BREA to refile their claims in an arbitration proceeding before the AAA in New York, and pursuant to New York substantive law; and dismissed the cases without prejudice to any New York court proceedings "to enforce or reject any determination in arbitration." This appeal followed.

III. DISCUSSION AND ANALYSIS ²

In adopting section two of the Federal Arbitration Act,³ "Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration." Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984).

Accordingly, "the first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute." All S. Subcontractors, Inc. v. Amerigas Propane, Inc., 206 So. 3d 77, 80-81 (Fla. 1st DCA 2016) (quotation omitted). See also Seifert v. U.S. Home Corp., 750 So. 2d 633, 636 (Fla. 1999) (holding: "[N]o party may be forced to submit a dispute to arbitration that the party did not intend and agree to arbitrate.") Arbitration provisions are "contractual in nature," and, therefore, "[t]he intent of the parties to a contract, as manifested in the plain language of the arbitration provision and contract itself, determines whether a dispute is subject to arbitration." Jackson v. Shakespeare Found., Inc., 108 So. 3d 587, 593 (Fla. 2013).

Appellants contend that the trial court in the instant case overlooked this "first task" and, instead, relied exclusively on what it perceived to be the holding in Buckeye to grant the motion to compel arbitration of these usury claims. We agree.

A. Buckeye

In Buckeye, 546 U.S. at 444, 126 S.Ct. 1204, the plaintiffs alleged that "various deferred-payment transaction[ ]" agreements entered into with the defendant were "rendered invalid by the usurious finance charge." The trial court denied defendant's motion to compel arbitration of the claim. On appeal from the order denying the motion to compel arbitration, the Fourth District Court of Appeal reversed the trial court's order, holding that the challenge to the underlying contract's validity must be resolved by an arbitrator, not a trial court. Buckeye Check Cashing, Inc. v. Cardegna, 824 So. 2d 228 (Fla. 4th DCA 2002). The Florida Supreme Court quashed the Fourth District's decision, holding that a challenge to the entire contract as void (usurious) was a question for the trial court, not an arbitrator. Cardegna v. Buckeye Check Cashing, Inc., 894 So. 2d 860 (Fla. 2005). The Florida Supreme Court reasoned that to enforce an agreement in a contract challenged as unlawful "could breathe life into a contract that not only violates state law, but also is criminal in nature, by use of an arbitration provision." Id. at 862 (quotation omitted).

The United States Supreme Court disagreed, reversing the decision of the Florida Supreme Court. In doing so, the Court interpreted section 2 of the Federal Arbitration Act (FAA), holding that the arbitration provision in a potentially void contract is severable from the remainder of the contract. It further rejected the notion that state law controlled on the issue of severability, holding: "[W]e cannot accept the Florida Supreme Court's conclusion that enforceability of the arbitration agreement should turn on Florida public policy and contract law." Buckeye, 546 U.S. at 446, 126 S.Ct. 1204 (quotation omitted).

Having determined that federal law, not state law, controlled the question of severability and that, under federal law, the arbitration clause was severable from the remainder of the contract, the Court concluded that plaintiff's claims—alleging the contract was usurious and therefore invalid—must be resolved by the arbitrator:

We reaffirm today that, regardless of whether the challenge is brought in federal or state court, a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.

Id. at 449, 126 S.Ct. 1204. The Court reasoned that a contrary holding "permits a court to deny effect to an arbitration provision in a contract that the court later finds to be perfectly enforceable." Id. at 448-49, 126 S.Ct. 1204.

B. Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287 (2010)

An isolated reading of Buckeye’s conclusion—that "a challenge to the validity of the contract as a whole... must go to the arbitrator"—might reasonably lead one to conclude that all such challenges must, as a matter of law, be resolved in arbitration. However, such a conclusion is belied by subsequent Court decisions explaining that the issue in Buckeye...