Arbitration & Mediation

You Can Rescind the Ferrari, But Not the Arbitration Clause

By Christopher B. Hopkins, Esq.

In the case of Michael Depaoli v. Exotic Motorcars and Jewelry, Inc., the Southern District of Florida court (Judge Kenneth A. Marra) handled a Ferrari deal gone bad. His ruling concluded that a 2000 Fourth DCA opinion was no longer good law and that a claim of rescission, which would void the contract, is for the arbitrator when there is a valid arbitration clause.

The plaintiff sought to buy a $160,000 Ferrari but rejected it upon delivery and sued to get his money back. Prior to the delivery, the parties entered into a retail buyers order (RBO) which contained a fairly ordinary arbitration clause ("arising out of or relating to this contract..."). However, the RBO referenced the wrong car. Still prior to delivery, the Defendant tried to cure the RBO clerical error but those revised RBOs were still refused.

Plaintiff's lawsuit was met with a motion to compel arbitration; plaintiff then claimed that there was no contract since the RBO was rescinded. The court framed the question to be whether a controversy arising out of a contract with an arbitration clause, which was allegedly rescinded, should be resolved by a court or arbitrator. Bottom line: arbitrator.

The federal court went through a two step process: (1) whether the parties agreed to arbitrate the dispute and (2) whether legal constraints external to the agreement foreclosed the arbitration of those claims. Step two was the Seifert v. U.S. Home Corp. three-step test. Of note, this is the first time we've seen a court set out the steps of analyzing arbitration this way -- arguably, step one duplicates Seifert's second prong (does an arbitrable issue exist). Nonetheless, we get to the same result.

Under Florida law, rescission voids the contract ab initio. According to the U.S. Supreme Court's 2006 Buckeye Check Cashing v. Cardegna, any challenge to the contract as a whole is heard by the arbitrator (conversely, a challenge only to the arbitration clause goes to the court). Cardegna also held that any challenge which renders the contract void or voidable -- such as rescission -- goes to the arbitrator. Here, the court found that a challenge to a contract based on rescission belongs before an arbitrator because under Florida law rescission voids a contract.

Judge Marra addressed a 2000 opinion from the Fourth DCA, Henderson v. Coral Springs Nissan, where an auto dealer rescinded a contract with an arbitration clause. The federal court offered that Henderson (2000) was likely over-ruled by Cardenga (2006) and there were some factual distinctions nonetheless. As a side note, Cardegna originally came out of a Fourth DCA decision.

Because of Cardegna's breadth and apparent application to state and federal cases, this opinion appears to be confirmation that rescission in any court is arbitrable.

Full post as published by Florida Arbitration Law on December 09, 2008 (boomark / email).