Three Ohio Cases Clarify Ohio Arbitration Act
posted by Michael R. Fortney | Jun 23, 2015 07:22 AM in Arbitration and Mediation
Three recent Ohio cases have further clarified when arbitration agreements apply to contractual disputes. First, arbitration agreements, even if very broad, do not control if an action could be maintained without reference to the contract containing the arbitration agreement. Second, agreements to arbitrate only apply to claims covered by the agreement. Finally, in order for one party to prove that an arbitration agreement is unconscionable, and thus void, the party must affirmatively demonstrate both substantive and procedural unconscionability to the court. Arbitration agreements in Ohio are enforced through the Federal Arbitration Act and the Ohio Arbitration Act, R.C. Chapter 2711.
In Hepperly, the Hepperlys contracted with a log cabin home supplier, Katahdin, to purchase the materials for a home. Katahdin was recommended as a supplier for the Hepperlys by their contractors. The Hepperlys' contract with Katahdin included a broad arbitration clause that governed all disputes arising out of or pertaining to this contract. After the conractor failed to build the home, the Hepperlys filed suit alleging breach of contract, and alleging that the contractor and Katahdin were associated in a single business, otherwise known as joint venture. Parties engaged in a joint venture are liable for the transgressions of all other defendants. Katahdin then filed a motion to compel arbitration.
Katahdin claimed that since the agreement to arbitrate was broad it governed the entire scope of its relationship with the Hepperlys. The court disagreed with this notion and held that since a cause of action (breach of contract due to the joint venture) could be brought without reference to the arbitration agreement, the arbitration agreement did not control and arbitration could not be compelled.
In Eaton the company had an arbitration agreement covering any and all asbestos claims against a company it acquired. The agreement specifically stated that it applied only to claims against the other company, Cutler-Hammer. With the agreement in place Eaton filed a lawsuit against many other insurance companies related to aspects of its business other than Cutler-Hammer. The insurance companies moved to compel arbitration but were denied.
In its decision, the court held that since Eaton specifically stated that the claims were not related to Cutler-Hammer, those claims were not within the scope of the arbitration agreement. In order for a court to stay an action pending arbitration, the action must be brought on an issue referable to arbitration under a written agreement. The claims brought by Eaton in court did not relate to the arbitration agreement so the court could not refer the case to arbitration.
Lastly, in Schaefer, a couple filed a complaint against an auto repair shop. The shop moved to compel arbitration, or alternatively to stay proceedings pending arbitration. The arbitration agreement in question was an adhesion contract found on the invoice that the Schaefers signed. Adhesion contracts are typically found on invoices or terms and conditions. The Schaefers argued that the adhesion contract was unconscionable because it appeared on an invoice they had to sign if they wanted the shop to repair their car.
The court held that the contract was a valid, enforceable arbitration agreement and was not unconscionable. For a court to find that an adhesion contract is unenforceable it must find that the provision is both substantively and procedurally unconscionable. Substantive unconscionability looks to whether the contractual terms are unconscionable. Here the trial court found substantive unconscionability because the language was ambiguous and the costs high. However, the court did not find any procedural unconscionability, and both are required in order to overturn a contract.
Procedural unconscionability concerns the formation of the contract, and courts look to the bargaining power of the parties (including age, education, intelligence, experience, etc.), whether the party was represented by counsel, and whether the terms were explained. The Schaefers only argues that the contract was procedurally unconscionable because it was an adhesion contract and because the American Arbitration Association rules were not provided to them. The court held that the Schaefers were required to make some showing of the preceding factors in order for a court to determine procedural unconscionability. Since the Schaefers did not show unequal bargaining power, and since the adhesion contract was printed in all caps directly above where they signed their names, the court held that the arbitration provision was enforceable.
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