The Chicago Cubs, Errors, and Arbitration of Florida Non-Compete Agreements

October 22, 2015 by

Some clients prefer to resolve disputes in arbitration. In theory, an arbitration proceeding can more quickly and — in some instances — more cost effectively resolve disputes. However because most arbitration clauses call for binding arbitration, many clients prefer to litigate disputes in court. At least a defeat in a courtroom carries with it the ability to appeal. If the court makes a clear legal error, the argument goes, an appellate panel can collectively correct the error and “set matters right.”

The Chicago Cubs are a National League baseball team. Perhaps you’ve heard of them? Like an arbitration panel, it is difficult to overcome some of their errors. The Chicago Cubs, by almost any standard, had an excellent 2015 baseball season. An impressive pitching staff, an optimistic and experienced manager, and a great second-half team effort allowed the Cubs to win the National League Wildcard Playoff and to beat the St. Louis Cardinals in the opening series. Instant replay may have decided some of the calls. None of those calls was subject to arbitration.

Getting back to Florida Non-Competes, a client recently asked the question: “Can parties agree to arbitrate, rather than litigate, an otherwise valid Florida Non-Compete agreement?” The simple answer is “yes.” The question gets more complicated when the sale of a business raises possible violations of the Non-Compete agreement and no arbitration clause exists in the purchase and sale documents relating to the sale. At least one appellate court in Florida determined that the question of whether or not the employee ran afoul of the Non-Compete agreement was subject to arbitration, despite the fact that the documents controlling the sale of the business contained no such provision.

In the matter noted above, the two-year Non-Compete agreement stated that during “the period of his employment… and for a period of two years immediately following the termination of such employment for whatever reason, Employee shall not have any direct or indirect ownership or other financial interest in any business which competes with the Business of the Company.” The employment agreement stipulated that the parties arbitrate disputes. The parties entered into the employment agreement commensurate with an agreement for the Employee to sell the business to the new employer. Unlike the Employment Agreement, the agreements related to the sale of the business did not contain an arbitration clause.

We all know what happens next. The parties have a dispute over their mutual contract performance and alleged breaches. Seller ultimately accuses the Buyer of misrepresentations intended to induce the sale and a series of other acts inconsistent with the agreement to purchase the company. The Seller sues in state court claiming that the Buyer violated the terms related to the parties’ sale and purchase of the business.

Citing the very broad language of the Non-Compete agreement, the Buyer (Employer) seeks to have the dispute resolved in arbitration in accordance with the Non-Compete agreement, despite the fact that the issues raised in the Seller’s Complaint did not specifically relate to the Employment Agreement or a breach thereof. (See generally Sunsplash Events, Inc., Fla. 4th DCA 2014). The trial court ruled against the Buyer, favoring the argument that the causes of action arose under the agreements to purchase the business (no arbitration clause) and not under the employment agreement (arbitration clause). The appellate court disagreed. In a detailed analysis, the appellate court ruled that the very broad language of the employment agreement was sufficient to encompass the claims Seller brought in the state court. The appellate court found a nexus between the disagreement over the sale of the business and the simultaneously-entered employment agreement. As a result, the appellate court ordered the parties to arbitrate the dispute (rather than litigate it in state court).

Readers of this blog are aware that courts favor arbitration clauses. Generally, courts give very liberal interpretation to arbitration clauses and favor resolving disputes in arbitration whenever the facts allow. In the case noted above, the appellate court surmised that an arbitrator could hear the entire dispute because the issue of whether the Buyer’s alleged fraudulent inducement occurred might also involve a determination of whether the Seller breached the employment agreement. As a result, the arbitration clause of the employment agreement mandated an arbitration proceeding rather than an action in state court.

As for the Chicago Cubs, after a fine season and a triumphant start to the 2015 Playoffs, the journey ended when the New York Mets swept the Cubs in four games to earn a trip to the 2015 World Series.

The take-away is this: the question of whether or not to arbitrate is worthy of discussion with your counsel. In some instances arbitration is required even when not anticipated (or preferred). And if you’re a Cubs fan, there’s always next year. At Burr & Forman we have lawyers throughout the southeast skilled in this area of the law. We do not have attorneys capable of predicting when the Cubs might win the World Series.

Filed Under: Florida, Non-Compete Agreements Tagged With: , , , , , ,

Be Careful What You Ask for: Selecting Forums for Arbitration

October 6, 2014 by

On October 2, 2014, the United States Court of Appeals for the Eleventh Circuit rendered its decision in Inetianbor v. CashCall, Inc. A copy of the slip opinion can be found here. Although this case did not involve a non-compete agreement, the Eleventh Circuit’s guidance regarding contractual arbitration provisions may have implications for those drafting and litigating non-competes.

The arbitration clause at issue in Inetianbor was a bit unusual (at least as to the specified forum), but the underlying dispute between the parties was not out of the ordinary. The plaintiff, Mr. Inetianbor, was a Florida resident who borrowed money from Western Sky Financial, LLC. The defendant CashCall, Inc. serviced this loan. Mr. Inetianbor sued the servicer in a Florida court, alleging, among other things, violations of the Fair Credit Reporting Act. After removing the case to a federal court, the servicer then moved to compel arbitration of the dispute pursuant to the terms of Mr. Inetianbor’s loan agreement with Western Sky. This loan agreement contained the following arbitration provision: “You agree that any Dispute … will be resolved by Arbitration, which shall be conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative ….”

After the trial court initially compelled arbitration in accordance with this provision, Mr. Inetianbor contacted the Tribe in Eagle Butte, South Dakota. In response, Mr. Inetianbor received a letter from a Tribal Judge stating that the Tribe “does not authorize Arbitration,” but after some back-and-forth, a Tribal Elder was eventually chosen to arbitrate Mr. Inetianbor’s dispute. However, at the preliminary arbitration hearing, the arbitrator explained that “this is a private business deal” and that “[t]he Tribe has nothing to do with any of this business.” When Mr. Inetianbor brought the arbitrator’s statements to the attention of the trial court in Florida, the court was persuaded to reconsider its previous orders compelling arbitration.

The trial court determined that it was not possible to conduct an arbitration in accordance with the parties’ agreement, because the arbitration was not being conducted by an “authorized representative” of the Tribe. On appeal, the Eleventh Circuit affirmed the trial court’s decision. The dispute between Mr. Inetianbor and his loan servicer will now be resolved through judicial proceedings, not through arbitration.

So what does this mean for non-compete agreements? It is probably fair to say that most practitioners have never encountered a non-compete agreement specifying resolution of disputes through arbitration conducted by the Cheyenne River Sioux Tribal Nation. However, employment contracts sometimes contain both non-compete provisions and arbitration provisions. As an initial matter, such arbitration provisions may add additional steps to the process of obtaining injunctive relief from a court when an employer seeks to enforce its non-compete provisions. This said, when the arbitration provisions are enforceable, it is the arbitrator — and not a court — who will ultimately determine the scope and application of the non-compete provisions. The Eleventh Circuit’s decision in Inetianbor underscores the need to pay attention to the forum(s) specified for arbitration when drafting or litigating non-compete clauses subject to arbitration.

Filed Under: Non-Compete Agreements Tagged With: , , , , , ,