Homeowners’ Negligence Claims against Builder Bears Significant Relationship to Construction Contracts and Are Therefore Arbitrable

Recently, in Vanacore Construction, Inc. v. Osborn, 2018 Fla. App. LEXIS 18068, 2018 WL 6579205, the 5th District Court of Appeal determined that a homeowners’ claims against a builder for construction defects bore a significant relationship to the parties’ construction contracts. Therefore, the claims were arbitrable pursuant to the broadly worded arbitration provision of the contracts.

The builder, Vanacore Construction (“Builder”), was the developer of a subdivision located in Volusia County. Homeowners entered into respective contracts with Builder for the purchase of two homes within the subdivision. Each contract contained the following arbitration provision:

In the event of a dispute, which the parties cannot resolve, the parties agree to binding arbitration before a general BUILDER licensed to do business in the County of Volusia. The parties hereby stipulate and agree that the decision of the arbitrator shall be binding upon them and be submitted to a court of competent jurisdiction for enforcement…However BUILDER may, in lieu of arbitration, purchase the property back from the BUYER for the original contract price, plus the BUYER'S closing costs, plus any upgrades/change orders for which the BUYER has already paid BUILDER. This will be the total price paid. No other costs (real or implied), fees, or allowances will be paid by BUILDER.

Homeowners sued Builder to recover damages for alleged water intrusion into their homes and other various construction defects. The Complaint asserted claims for negligence, statutory violations of the Florida Building Code and violation of Florida’s Deceptive and Unfair Trade Practices Act. The trial court denied Builder’s Motion to Compel Arbitration, finding that the arbitration provision was invalid and the issues alleged by Homeowners were not arbitrable.

In its ruling, the 5th DCA found the arbitration provision in contracts to be broad in scope, suggesting that the parties intended to arbitrate any dispute that arises between them. The Court explained that while narrow arbitration provisions generally require arbitration for claims “arising out of” the subject contract, broad provisions require arbitration for claims "arising out of or relating to" the subject contract. Jackson v. Shakespeare Found., Inc., 108 So. 3d 587, 593 (Fla. 2013). Under the latter analysis, the court will enforce an arbitration provision where a party’s claims have a “significant relationship” to the contract. Id.

Here, the 5th DCA concluded that, while Homeowners presented their claims as torts, at their core, the allegations were directly related to the subject of their contracts with Builder – the construction of their homes. Thus, the claims raised in Homeowners’ complaint bore a significant relationship to the construction contracts and the 5th DCA concluded that the lower court erred in finding that Homeowners’ claims were not subject to the arbitration provision contained within those contracts.

The 5th DCA also reversed the trial court’s decision to deny Builder’s request to sever the buy-back provision in the arbitration provision. The Court found that, although the buy-back provision limits the damages Builder has to pay in the event it chooses to purchase the property, this limitation on damages does not go to the essence of the arbitration agreement or the construction contracts. In addition, if the buy-back provision is severed, a valid arbitration agreement still exists and the parties are still obligated to comply with the terms of the contract. See Hochbaum ex rel. Hochbaum v. Palm Garden of Winter Haven, LLC, 201 So. 3d 218, 223 (Fla. 2d DCA 2016) (holding provision which violates public policy severable from contract despite lack of severability clause in contract where offending provision did not go to essence of agreement). Accordingly, the Court concluded it was error for the lower court to refuse to sever the buy-back provision and compel arbitration.

On remand, the 5th DCA ordered the lower court to sever the buy-back provision and enter an order compelling arbitration. It further ordered that the trial court stay the litigation pending completion of arbitration.

Construction professionals must be cognizant of the precedent set by the 5th DCA in this decision. Where an arbitration provision is broad in scope, and the allegations at the heart of a dispute are directly related to the subject of the construction contract, courts should enforce an arbitration clause. When defending a claim for construction defects, even when those claims are presented in tort, it is imperative to always analyze contracts and any arbitration provisions before responding to a Complaint to determine whether the claim should be arbitrated. If you have any questions about this decision, or construction law in general, please contact Ryan Charlson at ryan.charlson@csklegal.com or 954-343-3919.