A purchaser of what turned out to be wetlands must arbitrate its fraud claim against the seller, the Florida Supreme Court directed as it overturned a First District Court of Appeal decision.

Resolving a split between district courts, the high court held that a claim for fraud connected to an underlying contract should be arbitrated under the contract’s arbitration provision if the provision is sufficiently broad.

In a previous case, the court had already differentiated between what constitutes broad and narrow arbitration provisions. Narrow provisions usually require arbitration for claims or controversies "arising out of" the contract. Broad provisions usually require it for claims or controversies "arising out of relating to" the contract.

Still, a split developed in the district courts of appeals.

The First DCA certified conflict after confronting the question of whether a fraud claim could be arbitrated where, like a previouse case the Fifth DCA confronted in 2005, the parties’ contract contained a broad arbitration provision. Unlike the Fifth DCA, the First DCA found that fraud claims were outside the reach of the arbitartion clause.

In 2006, George Jackson, Kerry Jackson and the Jackson Realty Team listed theri Bay Country parcel in the Bay County Multiple Listing Service. The advertisement included a statement that a wetlands study verified no wetlands were on the property. The Shakespeare Foundation would learn later that statement was false.

The foundation told the Jacksons about their plans to build a twenty-seven unit low-income housing development on the property, but the Jacksons never mentioned the presence of wetlands. After agreeing on the terms of the contract, they closed following year.

After closing, during an onsite meeting with their builder and engineer, the Shakespeare learned wetlands comprised 26 percent of the 1.5 acre parcel. And with that, their development would have to shrink by nine units.

The foundation later discovered that when the sellers created the MLS listing, they were holding a land use planning analysis report. It showed 25 percent of the property was made up of wetlands.

The foundation sued the Jacksons for fraudulent misrepresentation. They alleged that they never would have purchased the property had they known about the wetlands.

In response, the Jacksons moved to dismiss on the grounds that their fraud claim was subject to arbitration because their contract stated, "all controversies, claims, and other matters in question arising out of or relating to this transaction or this contract or its breach," were subject to the dispute resolution procedures.

The trial court granted the motion. In 2011, the First DCA reversed.

The First DCA held that even though the arbitration provision was broad, there was no significant relationship between the fraud claim and the contract.

The court reasoned that the sellers had a common law duty — not a contractual duty — to refrain from making false statements in advertising. To resolve the fraud claim, no reference to, or construction of, the contract would be necessary. Therefore, the contract was only incidental to the dispute.

On appeal to the Florida Supreme Court, the court considered the conflict the First DCA certified with the Fifth DCA’s decision in Maguire v. King, which also involved a real estate transaction.

In that case, the seller represented there would be two acres of drainage rights on the property. The buyer later learned the seller had previously transferred one acre of those rights. The trial court referred the contract claims to arbitration and retained the fraud claims. The Fifth DCA reversed, finding a sufficient contractual nexus, because the fraud claims were based on the duties created by the parties’ contractual relationship.

The Supreme Court sided with the Fifth DCA.

The court found a clear contractual nexus because the fraud claim is inextricably intertwined with both thecontract and the circumstances that surrounded the transaction. Furthermore, to resolve the fraud cliam, a court must consider the duties of each party under the contract.

The foundation’s fraud claim flowed from the Jackson’s knowing misrepresentation in the advertisement about the wetlands, which the buyers relied on when they entered into the contract. And the foundation’s economic damages were a direct consequence of the fraud.

While the Florida Supreme Court concluded the buyers’ fraud claim is subject to arbitration, it passed on deciding two related issues that may prove to sink it once there.

The first issue is that the contract limits remedies to those contractual in nature and prohibits the arbitrator from changing the terms. The second issue concerns an "as is" provision in the contract under which the buyers may have waived certain rights.