Is Your Arbitration Clause “Broad” or “Narrow”? And Do You Understand Buckeye v. Cardegna? (BREA 3-2 LLC v. Hagshama)

Arbitration Mediation

Most clients include arbitration clauses in their contracts with the intent that any and all disputes between the parties should be resolved by arbitration. Lawyers, however, don’t always write the contract that way… even though the rules have been crystalized for about a decade.

Here’s the first test whether your arbitration clause is going to work or not.

The question is whether it is broad or narrow.

If your arbitration clause says that “any dispute under this agreement shall be arbitrated” (or words to that effect) then you have a narrow arbitration clause that is NOT going to be enforced in all circumstances. Stated differently, unless you intended it to be narrow, that’s a poorly written arbitration clause which needs to be fixed.

If your arbitration clause says “any dispute arising from or relating to this agreement shall be arbitrated” (or words to that effect, then you have a broad arbitration clause which should be enforced (barring other problems outside of the wording of the clause itself).

One might argue that the gold standard for broad arbitration clauses comes from the Buckeye Checking Cashing, Inc. v. Cardegna case:

“[a]ny claim, dispute, or controversy
. . . arising from or relating to this Agreement . . . or the validity,
enforceability, or scope of this Arbitration Provision or the entire
Agreement…”

For a detailed discussion of a “narrow” (bad) arbitration clause vs. a “broad” (good) arbitration clause, look no further than BREA 3-2 LLC v. Hagshama Florida 8 Sarasota LLC et al (Third DCA Sept. 29, 2021). Therein, the arbitration clause was narrow and a dispute over whether the agreement was usurious or not was deemed to arise from the usury statute and not “under” the agreement. Whoops.

A final note on Buckeye, which is often viewed as a confusing case. You would not be the first to be confused: the trial court denied arbitration. The appellate court reversed. The state supreme court quashed. Then the US Supreme Court reversed that decision.

Florida’s Third District gives a nice summary of the elements of Buckeye:

Read in proper context—and with the clarity provided in Granite—
Buckeye stands for the proposition that 1) pursuant to federal law, an
arbitration provision is severable from the rest of the contract; 2) a challenge
to the validity or enforceability of the contract as a whole (e.g., a usury claim)
does not preclude arbitration of a dispute or claim which is otherwise within
the scope of the arbitration provision agreed to by the parties; and 3) an
exception exists where the party opposing arbitration “specifically challenges
the enforceability of the arbitration clause itself, or claims that the agreement
to arbitrate was never concluded.”

Questions about your form contracts? Are they up to date? Make sure you consult with a lawyer in your jurisdiction who writes, litigates, and keeps up with these issues.

Image credit: picpedia

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