On November 6, 2014, the Florida Supreme Court resolved a conflict among the Fourth and Fifth District Courts of Appeal by holding that a court is not required to determine whether a contract is legal before enforcing an arbitral award based on the contract.  See Visiting Nurse Ass’n of Fla., Inc. v. Jupiter Med. Ctr., Inc., No. SC11-2468.  To view the supreme court’s opinion click here

Visiting Nurse Association (VNA) and Jupiter Medical Center (“hospital”) arbitrated a contractual dispute stemming from VNA’s purchase of the hospital’s own home health care agency.  The dispute centered around the hospital’s obligation upon a patient’s discharge to notify the patient of available home health agencies, including the hospital’s relationship with VNA if the patient expressed no preference, and the hospital’s agreement to provide VNA with office space in the hospital.  The arbitration panel found that the hospital breached the contract and awarded VNA damages.  The hospital moved to vacate the award, alleging that the panel’s construction of the contract violated state and federal law.  Specifically, the hospital argued that the panel construed the purchase agreement as an unlawful agreement to make, influence and steer future patient referrals to VNA in exchange for compensation in violation of state and federal laws.  The panel denied the motion and enforced the award.

On appeal, the Fourth District reversed the denial of the motion to vacate and remanded for the trial court to consider the legality of the contract because “a Florida court cannot enforce an illegal contract” and must make that determination before enforcing an award based on it.  VNA then sought review in the Florida Supreme Court.

The supreme court framed the conflict issue as “whether the illegality of a contract is subject to review on a motion to vacate.”  The Court examined this issue under both the Federal Arbitration Act (FAA) and the Florida Arbitration Code (FAC).  The Court found that under FAA case law “the issue of the contract’s validity is considered by the arbitrator . . . unless the challenge is to the arbitration clause itself.” 

The Court’s analysis of the FAC was guided by section 682.13(1), Florida Statutes which enumerates when a court “shall” vacate an arbitral award.  Because that statute does not include the term “illegality” or require a court to vacate an arbitrator’s “illegal construction of the underlying contract,” the Court found that a court may not vacate an arbitral award based on illegality. 

As a consequence of its resolution of the conflict issue, the Court also found that the arbitrators did not exceed their powers under both the FAA and the FAC by interpreting the purchase agreement in a manner that would violate state and federal laws.

The Court therefore quashed the Fourth District’s decision and held that a court is not required to determine whether a contract is legal before enforcing an arbitral award based on the contract. Stated another way, the illegality of a contract is not subject to court review on a motion to vacate an arbitration award.


Image courtesy of Flickr by Juhan Sonin (no changes).