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Perdido Key Island Resort Development, L.L.P., A Florida Limited Liability Partnership v. Regions Bank

January 13, 2012


An appeal from the Circuit Court for Escambia County. Linda L. Nobles, Judge.

The opinion of the court was delivered by: Van Nortwick, J.


Perdido Key Island Resort Development, L.L.P. (Perdido Key), David J. Cattar, and Joseph Holyfield appeal a non-final order ruling (i) that a claim for breach of a promissory note executed by Perdido Key in favor of Regions Bank, appellee, is subject to arbitration; and (ii) that a mortgage foreclosure claim and a claim under personal guarantees executed by Cattar and Holyfield were not governed by the arbitration provision contained in the promissory note. Appellants contend that the mortgage plainly incorporates the terms of the note and, therefore, it too is subject to the note's arbitration provision. Additionally, appellants assert that the personal guarantees, through their dependence upon the note, implicitly incorporate the arbitration provision. For the reasons discussed below, we affirm the trial court's order as to the claim for breach of the personal guarantees, but reverse as to the claim for mortgage foreclosure.

Appellants are a Florida limited liability partnership, Perdido Key, and two affiliated individuals, Cattar and Holyfield. On January 16, 2008, Perdido Key executed a promissory note in favor of Regions Bank in the principal amount of $4,500,000 to secure a loan for a real estate development in Escambia County, Florida. This note identified Perdido Key and H&C Developers of Louisiana, LLC, a Louisiana limited liability corporation (H&C), as the "borrowers." H&C was Perdido Key's managing partner. Cattar and Holyfield executed the note on H&C's behalf as its managing members. Concurrently with the execution of the note, the borrowers executed a mortgage deed and security agreement, and Cattar and Holyfield (guarantors) executed personal guarantees for all obligations of the borrowers to appellee Regions Bank under the note.

The note contains the following arbitration provision:

It is hereby agreed that all disputes, claims and controversies between Borrowers and Lender with regard to this Note and all other obligations of Borrower[s] with respect to the indebtedness represented by said Note shall be resolved through binding arbitration under the Rules of the American Arbitration Association in effect at the time said dispute, claim or controversy arises. The foreclosure upon any collateral securing this Note shall not constitute a waiver of this provision.

The mortgage does not contain an arbitration provision. The mortgage does provide that "all of the terms of [the] Note are incorporated herein by reference as though set forth fully herein." The guarantees do not contain arbitration clauses and do not incorporate the terms of the promissory note. The guarantees were signed in Cattar's and Holyfield's individual capacities and not as representatives of the borrowers.

The borrowers failed to make their balloon payment due October 27, 2009. On May 19, 2010, the bank served appellants with a complaint for foreclosure and other relief. On August 6, 2010, appellants filed a motion to compel arbitration. On June 24, 2011, the trial court granted the motion to compel arbitration as to the note, but denied the motion as to the mortgage foreclosure and breach of guarantees claims. The trial court ruled that, because the mortgage and guarantees contained no arbitration provisions, claims arising under these instruments were separate from the bank's claim under the note, and the note's arbitration provision did not apply to the mortgage and guarantees.

The determination of whether a particular dispute is subject to arbitration is a matter of contract interpretation which is reviewed de novo. State Bd. of Admin. v. Burns, 70 So. 3d 678, 680 (Fla. 1st DCA 2011); see O'Keefe Architects, Inc. v. CED Constr. Partners, Ltd., 944 So. 2d 181, 185 (Fla. 2006). Florida law favors arbitration, often holding that any doubt regarding the arbitrability of a claim should be resolved in favor of arbitration. See, e.g., Nestler-Poletto Realty, Inc. v. Kassin, 730 So. 2d 324, 325 (Fla. 4th DCA 1999); United Ins. Co. of America v. Office of Ins. Regulation, 985 So. 2d 665, 668 (Fla. 1st DCA 2008); Roe v. Amica Mut. Ins. Co., 533 So. 2d 279, 281 (Fla. 1988). In further recognition of this preference, we have previously applied the rule of maximum breadth so that arbitration clauses are given the "broadest possible interpretation in order to accomplish the purpose of resolving controversies out of court." Auchter Co. v. Zagloul, 949 So. 2d 1189, 1195 (Fla. 1st DCA 2007).

Although arbitration is favored, as the Florida Supreme Court explained in Seifert v. U.S. Home Corp., 750 So. 2d 633, 636 (Fla. 1999), "no party may be forced to submit a dispute to arbitration that the party did not intend and agree to arbitrate." See also Regency Group, Inc. v. McDaniels, 647 So. 2d 192, 193 (Fla. 1st DCA 1994) ("Only those claims which the parties have agreed are arbitrable may be subject to arbitration."); Seaboard Coast Line R.R. Co. v. Trailer Train Co., 690 F.2d 1343, 1352 (11th Cir. 1982) (holding that the federal policy favoring arbitration "cannot serve to stretch a contract beyond the scope originally intended by the parties"); Miller v. Roberts, 682 So. 2d 691, 692 (Fla. 5th DCA 1996) ("The general rule is that where an arbitration agreement exists between the parties, arbitration is required only of those controversies or disputes which the parties have agreed to submit to arbitration."). Here, the issue is whether the parties intended to arbitrate claims under the mortgage and personal guarantees despite the absence of an arbitration clause within the four corners of those documents.

The Personal Guarantees

The Florida Supreme Court in Seifert enunciated a three prong test to determine when a claim is subject to arbitration. The interpreting court must determine (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived. Seifert, 750 So. 2d at 636. The application of a particular arbitration provision to the circumstances surrounding the contract will depend in part on the precise words used in the provision. As the court explained in Seifert:

Not surprisingly, courts have given different meaning to clauses on the basis of the actual terminology used. For example, clauses including all claims or controversies "arising out of" the subject contract have been considered by some courts to be narrow in scope; i.e., the scope of the arbitration clause is limited to those claims having some direct relation to the terms and provisions of the contract. See Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983); In re Kinoshita & Co., 287 F.2d 951, 953 (2d Cir. 1961). Both Mediterranean and Kinoshita hold that claims alleging breach of a separate and unrelated contract, breach of fiduciary duty, and quantum meruit, none of which rely on the interpretation or performance of the contract containing the arbitration clause, are not subject to arbitration as disputes "arising out of" the contract.

These cases reason that where an arbitration clause refers solely to disputes or controversies "under" or "arising out of" the contract, arbitration is restricted to claims "relating to the interpretation of the contract and matter of performance." ...

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