Jackson v. The Shakespeare Foundation: Arbitration Clauses Are Not as Far From Fraud as Heaven from Earth

In Jackson v. The Shakespeare Foundation (SC11-1196), the Florida Supreme Court considered whether fraud that induced a party to enter into a contract is subject to the contract’s arbitration clause. The Court’s opinion made clear that the answer to that question is a resounding “it depends”.
The Shakespeare Foundation, relying in part on an advertisement posted by Jackson, agreed to purchase a parcel of land. The advertisement provided that the parcel had been surveyed, and contained no wetlands on it. Therefore, the entire parcel was supposedly available for development. After the sale the Shakespeare Foundation discovered that upward of 25% of the parcel was wetland. The foundation brought suit against Jackson, who moved to dismiss that action based on a contractual provision that required binding arbitration for all claims “arising out of or relating to [the] transaction or [the] Contract.” The trial court granted the motion, though the dismissal was reversed by the First District Court of Appeal, which concluded that the alleged fraud was a matter outside of the purchase contract and could stand as a cause of action on its own.
The Supreme Court began its analysis of the matter by noting that there are two types of arbitration clauses. Narrow clauses provide for arbitration of all matters “arising out of” a contract. These provisions limit arbitration to those claims that have a direct relationship to a contract’s terms and provisions. Broad clauses provide for arbitration of matters “arising out of or relating to” a contract. Such provisions require arbitration of any matter that has a “significant relationship” with the contract. Such a “significant relationship” exists in turn when a resolution of a dispute requires reference to, or construction of, part of the contract. A claim between contracting parties might not be subject to an arbitration clause if that claim is based fundamentally on some sort of duty imposed by a body of law outside of the contract and can be meaningfully separated from the circumstances that surrounded the creation of the contract.
The Court pointed out that in this case there was a broad arbitration clause, and that a resolution of the fraud claim required an analysis of at least part of the contract. The allegation of fraud was “inextricably intertwined” with the formation of the contract itself, as it would require a review of what representation induced the contract and what the contract provided. Additionally, an “as is” clause in the contract may have limited remedies and placed the burden of verifying suitability of the purchase on the purchaser. As a result, the fraud claim brought by the Shakespeare Foundation against Jackson would be subject to the arbitration clause.