BREA 3-2 LLC, ETC., ET AL.,

v.

HAGSHAMA FLORIDA 10 ORLANDO, LLC, ETC.,

Third District Court of Appeal State of Florida

Opinion filed September 29, 2021. Not final until disposition of timely filed motion for rehearing.

________________

Nos. 3D20-1154 and 3D20-1197 Lower Tribunal Nos. 20-2464, 20-2466 ________________

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

vs.

Hagshama Florida⁸ Sarasota, LLC, etc., et al., Appellees.

Appeals from the Circuit Court for Miami-Dade County, Beatrice Butchko, Judge.

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.

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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 Florida⁸ Sarasota, LLC and Hagshama Florida¹⁰ 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 (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.

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).

1 One of the arguments raised on appeal is that the trial court erred in enforcing the arbitration provision in the Agreement against appellants where they are not signatories to the Agreements. This argument misses the mark because, as detailed above, the Guaranty (to which appellants were signatories) expressly incorporated the terms of the Agreement. See Massa v. Michael Ridard Hosp. LLC, 306 So. 3d 1106, 1109 (Fla. 3d DCA 2020) (observing: “Nonsignatories have been held to be bound to arbitration agreements under the theories of (1) incorporation by reference; (2) assumption; (3) agency; (4) veil piercing/alter ego; and (5) estoppel.”) (quoting Liberty Comms., Inc. v. MCI Telecomms. Corp., 733 So. 2d 571, 574 (Fla. 5th DCA 1999)). See also Perdido Key Island Resort Dev., L.L.P. v. Regions Bank, 102 So. 3d 1, 3 (Fla. 1st DCA 2012) (finding that the claim for foreclosure of the mortgage was arbitrable where, under the plain language of the contract, the mortgage explicitly incorporated the terms of the note).

III.

DISCUSSION AND ANALYSIS2

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 (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.”

2 An order granting a motion to compel arbitration is reviewed de novo. Yam Exp. & Imp. LLC, v. Nicaragua Tobacco Imps., Inc., 298 So. 3d 1173, 1175 (Fla. 3d DCA 2020). The interpretation of a contractual forum selection clause is also a question of law, which we review de novo. Am. Safety Cas. Ins. Co. v. Mijares Holding Co. LLC, 76 So. 3d 1089 (Fla. 3d DCA 2011). 3 9 U.S.C. § 2 (entitled “Validity, irrevocability, and enforcement of agreements to arbitrate”) provides:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

A. Buckeye

In Buckeye, 546 U.S. at 444, 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

Id. at 449. 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. 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 was severability of the arbitration provision from the remainder of the contract. The Court did not specifically address whether the usury claim was subject to arbitration under the contract because, given the obviously broad scope

In Buckeye, . . . [t]he arbitration clause's scope was [] not at issue, because the provision expressly applied to “ ‘[a]ny claim, dispute, or controversy . . . arising from or relating to . . . the validity, enforceability, or scope of this Arbitration Provision or the entire Agreement.’ ”

Id. at 302-03.

The party opposing arbitration in Buckeye was not contesting whether the scope of the arbitration agreement was broad enough to encompass a usury claim. Instead, the party opposing arbitration was contending that the usurious nature of the contract rendered the entire contract invalid, including

1. The arbitration clause in the instant case is narrow, not

broad.

“A trial court's role in determining arbitrability under the Revised Florida Arbitration Code is limited to the following inquiries: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived.” City of Miami v. Fraternal Order of Police Lodge #20, 248 So. 3d 273, 275 (Fla. 3d DCA 2018) (quotation omitted) (emphasis added). The question presented here is whether the usury claim, and the related claims for injunctive and declaratory relief, are arbitrable under the Agreement. In making this determination, we first consider whether the arbitration provision at hand is broad or narrow in scope. The Florida Supreme Court

(Emphasis added) (citations omitted). See also Seifert, 750 So. 2d at 636-7 (observing that clauses covering all claims or controversies “arising out of” or “under” the subject contract have been considered by some courts to be narrow in scope and arbitration under such provisions is limited to those claims having some direct relation to the terms and provisions of the contract); Hedden v. Z Oldco, LLC, 301 So. 3d 1034, 1039 (Fla. 2d DCA 2019) (finding that arbitration clause was broad where clause required arbitration of “‘[a]ny dispute, controversy or claim arising out of or relating to’ the Compensation Agreement”) (citing O'Keefe Architects, Inc. v. CED Const. Partners, Ltd., 944 So. 2d 181, 188 (Fla. 2006) (noting: “In this case, the parties agreed to a broad provision that requires arbitration of ‘[c]laims, disputes, and other matters . . . arising out of or relating to’ the contract.”))

(Emphasis added.) Of note, the arbitration language here is significantly narrower than that in Buckeye, which required arbitration of “[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 . . ..” Buckeye, 546 U.S at 442 (emphasis added).⁴

4 Again, the broad language of the Buckeye arbitration provision illustrates the focus of the parties’ disagreement in Buckeye was not on whether an arbitrable issue existed. Instead, the question was whether the rule of severability of an arbitration provision was limited in application to federal courts or applied equally to state courts. Indeed, given the sweeping language of Buckeye’s arbitration provision, it is understandable the Court saw no need to address whether a claim challenging the entire agreement (as usurious) was arbitrable.

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). The use of this language and juxtaposition of these two paragraphs suggests the parties intended to create an arbitration provision that was narrow in scope.

Concluding that the arbitration clause is narrow, we must next determine whether the usury claim arises “under the Agreement” and has a “direct relationship” to the narrow arbitration provision.

Appellants contend that the usury claim (and the related declaratory and injunctive claims premised on usury) are not arbitrable because the claim “arises under” Florida’s usury statute rather than under the Agreement itself. That is, the duty and obligation not to commit usury, and the resulting illegality of the Agreement, arise under state statutory law. It follows, appellants urge, that this narrow arbitration provision, by which the parties agreed to arbitrate “any dispute under the Agreement” does not include a claim that the Agreement is illegal or unenforceable under Florida’s usury law. We agree. As the Florida Supreme Court has explained, such a narrow arbitration provision “limits arbitration to those claims that have a direct relationship to a contract’s terms and provisions.” Jackson, 108 So. 3d at 593 (emphasis added). “In contrast, when a contract contains a broad arbitration provision, the court will compel arbitration when the party's claims have a ‘significant relationship’ to the contract.” Vanacore Constr., Inc. v. Osborn, 260 So. 3d 527, 530 (Fla. 5th DCA 2018) (citing Jackson,108 So. 3d at 593). Because these two tests—the “direct relationship” test for narrow arbitration provisions and the “significant relationship” test for broad

Seifert, 750 So. 2d at 638-39 (emphasis added) (citations and quotations omitted). This “contractual nexus” component of the significant relationship test was reaffirmed by the Florida Supreme Court in Jackson: [A] claim has a nexus to a contract and arises from the terms of the contract if it emanates from an inimitable duty created by the parties' unique contractual relationship. In contrast, a claim does not have a nexus to a contract if it pertains to the breach of a duty otherwise imposed by law or in recognition of public policy, such as a duty under the general common law owed not only to the contracting parties but also to third parties and the public.

Jackson, 108 So. 3d at 593 (emphasis added). In the instant case, we have a narrow arbitration provision (requiring the parties to arbitrate “[a]ny dispute under this Agreement”) and a usury claim premised upon a duty imposed by Florida statute. Even applying the less-rigorous “significant relationship/contractual nexus” test typically reserved for broad arbitration provisions, it is clear this usury claim is not arbitrable: it cannot be said that the usury claim arises “under the

5 As observed in Dunn v. Global Trust Management, 506 F. Supp. 3d 1214, 1222 (M.D. Fla. 2020):

Usury has been forbidden for millennia by civilized society. The strong victimize the weak. It makes the rich richer and the poor poorer. The Code of Hammurabi (circa 1750 B.C.) barred usury. Both Plato and Aristotle noted it is immoral and unjust. The Roman Code of Justinian barred usury, as did the Abrahamic religions. The prophet Ezekiel listed usury among abominations like violence and rape. See Ezekiel 18:8-21. In The Inferno, Dante placed usurers in the seventh circle of hell—below murderers. Shakespeare of course illustrated its corrosive traits in the notorious The Merchant of Venice. Usury and loansharking were outlawed in all the American colonies, following English common law practice. And usury is a crime in Florida, see Fla. Stat. § 687.071. . . .

(Footnotes omitted.)

6 We recognize that this usury claim satisfies one portion of the significant relationship/contractual nexus test, which requires that “for a tort claim to be

considered ‘arising out of or relating to’ an agreement, it must, at a minimum, raise some issue the resolution of which requires reference to or construction of some portion of the contract itself.” Seifert, 750 So. 2d at 638. See also Jackson, 108 So. 3d at 593 (“A contractual nexus exists between a claim and a contract if the claim presents circumstances in which the resolution of the disputed issue requires either reference to, or construction of, a portion of the contract.”) Nevertheless, this is only one aspect of what Seifert and Jackson require, even when analyzing the scope of a broad arbitration provision. The narrow arbitration provision agreed to by the parties in the instant case cannot satisfy the remaining aspects of the contractual nexus test because the usury claim does not “emanate[] from an inimitable duty created by the parties’ unique contractual relationship,” but instead is a claim that “pertains to the breach of a duty otherwise imposed by law or in recognition of public policy, such as a duty under the general common law owed not only to the contracting parties but also to third parties and the public.” Jackson, 108 So. 3d at 593.

7 To the extent that Party Yards (and its progeny, FastFunding The Company, Inc. v. Betts, 758 So. 2d 1143 (Fla. 5th DCA 2000)) held in absolute terms that any usury claim, as a matter of law, cannot be arbitrated regardless of the narrow or broad scope of the parties’ agreement to arbitrate, such a holding was disapproved by the United States Supreme Court’s decision in Buckeye, 546 U.S. at 445-46, as reflected in the Florida Supreme Court’s decision on remand, see Buckeye, 930 So. 2d at 611:

In the Fourth District's decision in Cardegna, the court held that a borrower's claim that a contract was void ab initio under Florida law and public policy must be resolved by arbitration where there was no separate claim that the arbitration provision in the

contract itself was unenforceable. This Court quashed and held that the dispute as to the validity of the contract must first be resolved in court before the arbitration provision could be enforced. In turn, the United States Supreme Court has reversed this Court's decision, and, in effect approved the holding of the Fourth District.

Accordingly, consistent with and pursuant to the United States Supreme Court's decision, we withdraw our previous opinion and now approve the decision of the Fourth District and disapprove of the conflicting opinion of the Fifth District in Fastfunding the Company, Inc. v. Betts, 758 So. 2d 1143 (Fla. 5th DCA 2000).

What remains of Party Yards is its strict holding, based upon the narrow arbitration provision (providing that “any controversy arising under this Agreement shall be submitted to arbitration”), that “the arbitration provision of the contract is not broad enough to encompass a usury violation” and thus the statutory usury claim did not “arise under” the agreement but arose only under Florida statutory law. Id. at 123. We agree with this holding and find it fully applicable here.

8 “Any 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. . . shall be resolved. . . by binding arbitration. . . . .” Buckeye, 546 U.S. at 442 (emphasis added).

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IV.

CONCLUSION

Given the narrow language contained in the arbitration provision of the parties’ underlying agreement, we conclude that the usury and usury-related claims do not “arise under the Agreement,” do not satisfy the “direct relationship” test of Seifert and Jackson, and are not subject to arbitration. We reverse the trial court’s order dismissing the action without prejudice and compelling arbitration in New York and remand for further proceedings consistent with this opinion.⁹

9 Appellants also challenge the trial court’s order dismissing based on improper venue (forum selection) and its order determining that New York substantive law applies. We reverse the order on these two issues as well.

With regard to these issues, the Agreement provides in pertinent part:

This Agreement shall be governed by and construed in accordance with the laws of the State of New York, United States of America. The Parties agree to submit themselves to the jurisdiction of the courts situated within the State of New York with regard to any controversy arising out of or relating to this Agreement.

(Emphasis added). Because this is a permissive forum selection clause, the trial court erred in requiring that “any judicial proceedings [] be brought in a court of competent jurisdiction in the State of New York.” Rudman v. Numismatic Guar. Corp. of Am., 298 So. 3d 1212, 1214 (Fla. 3d DCA 2020) (holding: “Mandatory forum selection clauses require or unequivocally specify . . . that a particular forum be the exclusive jurisdiction for litigation concerning the contract. Whereas, permissive forum selection clauses constitute nothing more than a consent to jurisdiction and venue in the named forum and do not exclude jurisdiction or venue in any other forum.

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Hence, forum selection clauses that lack mandatory or exclusive language are generally found to be permissive”) (citations and quotations omitted). Compare with Michaluk v. Credorax (USA), Inc., 164 So. 3d 719, 725 (Fla. 3d DCA 2015) (finding the following forum selection clause to be permissive: “This Agreement shall be governed by and construed in accordance with the Laws of Malta and each party hereby submits to the jurisdiction of the Courts of Malta as regards any claim, dispute or matter arising out of or in connection with this Agreement, its implementation and effect.”)

As to the trial court’s determination that New York substantive law would apply, we note the trial court need not have reached this issue once it determined the claims were to be arbitrated and that further proceedings were to take place in a New York forum. Further, while the forum selection and arbitration issues presented questions of law, the choice-of-law issue presented not only a question of law, but questions of fact as well, see, e.g., § 671.105(1), Fla. Stat. (2020) (providing: “Except as provided in this section, when a transaction bears a reasonable relation to this state and also to another state or nation, the parties may agree that the law either of this state or of such other state or nation will govern their rights and duties”), which were not fully developed or analyzed on the record before us. We do not reach the merits of the choice-of-law issue, but reverse this remaining portion of the orders on appeal and remand for further proceedings as may be appropriate.