Arbitration Awards and Judicial Review of Contracts for Illegality

By Jacek Stramski

In Visiting Nurse Association of Florida, Inc. v. Jupiter Medical Center, Inc. (SC11-2468), the Florida Supreme Court held that courts cannot review, or refuse to enforce, an arbitration award based on a claim of contract illegality.
A brief procedural and background history is provided in a previous post located here.
The Supreme Court began its analysis by noting that because the transaction subject to the contract involved interstate commerce, as it related to Medicare patients, the challenged arbitral award and any review of it would be governed by the Federal Arbitration Act (FAA). The FAA in turn preempts any conflicting state law on arbitration relating to matters in interstate commerce.
Relying on Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576 (2008), the Court noted that the statutory grounds for vacating or modifying an arbitrator’s award under the FAA provided in 9 U.S.C. ss. 10 and 11, respectively, are the exclusive grounds for judicial review of an arbitration award. The Court concluded that because illegality is not a basis for vacating or modifying an arbitrator’s award under either of those provisions, a charge of illegality would not permit a court to review an arbitrator’s award that otherwise did not fall under the other listed bases for judicial review (such as corruption, fraud, partiality, exceeding of arbitral powers).
The Court rejected Jupiter Medical Center’s claim that the arbitrators exceeded their powers by construing the contract in a manner resulting in illegality because the arbitration panel construed the contract in dispute, as provided for in the arbitration clause. In other words, because it was within the powers of the arbitration panel to interpret the contract, the arbitration panel could not exceed its powers by construing the contract even if that interpretation might read illegal provisions into the contract. The Court upheld the arbitration award under the Florida Arbitration Code on essentially the same grounds, namely that illegality is not one of the statutory grounds in s. 682.13, F.S., available for judicial review of an arbitration award, and because the arbitration panel was acting within its powers when it interpreted the contract at issue.
The somewhat counterintuitive result of this unanimous decision is that an arbitration award issued under an illegal contract (or a contract interpreted to contain illegal provisions) may be enforceable by the courts even if the contract would have been otherwise void had it not contained an arbitration clause. Contract killers and cartel kingpins, take note.