On June 12, 2024, Florida’s Third District Court of Appeal vacated a $1.5 million legal malpractice arbitration award, holding the arbitrator unfairly considered an unpled theory of relief when rendering an award in favor of Claimant, Royal Merchant Holdings LLC (“RMH”) in the matter of Ferraro Law Firm, P.A. v. Royal Merchant Holdings, LLC.[1]
Case Background
RMH hired the Ferraro Law Firm (“Ferraro”) to bring suit for breach of an agreement RMH brokered between two nonparty companies. During that litigation, Ferraro asserted that RMH was only a party to the agreement, not a beneficiary. Ferraro advised RMH to reject an offer for an assignment of recovery rights from the non-breaching signatory to the agreement, which would have clarified RMH’s standing and allowed it to recover for the breach. The case was dismissed, prompting RMH to bring a malpractice claim in AAA arbitration against Ferraro for alleged malpractice. The arbitrator decided the case in favor of RMH, awarding it $1.5 million in damages based on Ferraro’s advice to reject the assignment proposal.
Ferraro filed a motion to vacate the arbitration award in the Eleventh Judicial Circuit Court in Miami-Dade County, arguing the arbitrator’s reliance on the unpled assignment issue as the basis for relief was fundamentally unfair and amounted to a deprivation of its due process rights. Subsequently, RMH moved for reconsideration, and a successor judge vacated the prior order and instead confirmed the arbitration award in its entirety. Ferraro appealed to the Third District Court of Appeal (“Third DCA”).
Florida’s Third District Court of Appeal Decision
In the opinion, the Third DCA noted that the Revised Florida Arbitration Act specifically gives arbitrators “broad discretion to ‘conduct an arbitration in such manner as the arbitrator considers appropriate for a fair and expeditious disposition.’” Notwithstanding this statutory guidepost, the Third DCA issued a decision reversing the circuit court’s confirmation of the arbitration award. Despite the lack of a substantive pleading requirement in arbitration proceedings, the Third DCA reasoned that the arbitrator’s reliance on a ground for relief that was not pled as an affirmative claim, and without prior notice to Ferraro that the arbitrator would consider it as such, prejudiced Ferraro’s ability to prepare a defense.
Key Takeaways
Even absent a substantive pleading requirement in an arbitration proceeding, the Third DCA holds that an award should be vacated if the losing party does not receive fair and effective notice of the claims to be tried. This decision vitiates an arbitrator’s ability to conduct an arbitration proceeding as it deems appropriate without the looming threat of having its decision overturned by a reviewing court. It will serve as a tool for defendants to vacate awards based on unexpected claims or theories of relief claimants pursue for the very first time during the final arbitration hearing.
The author thanks Bressler Summer Law Clerk, Lia Rosado, for her contributions to this article.
[1] No. 3D22-1851, 2024 Fla. App. LEXIS 4579, 2024 WL 2947593 (Fla. 3d DCA Jun. 12, 2024).