Koudela v. Johnson & Johnson Custom Builders, L.LC.
2017 Ohio 9331
| Ohio Ct. App. | 2017Background
- In January 2015 the Koudelas contracted to have a home built for $227,200; the written contract contained a binding arbitration clause (initialed by the Koudelas) and was signed by William Johnson as managing member.
- The contract heading listed the contractor as “Johnson & Johnson Builders” while the actual business entity is Johnson & Johnson Custom Builders, LLC (William and Robert Johnson are members).
- Disputes arose and the Koudelas sued (May 2016) alleging fraud in the inducement, breach of contract, negligence, conversion, unjust enrichment, and a declaratory judgment that the arbitration clause is unenforceable.
- Defendants moved to dismiss or, alternatively, to stay the litigation pending binding arbitration under the contract.
- The trial court denied dismissal but granted a stay pending arbitration, finding the arbitration clause valid and enforceable; the Koudelas appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration provision is enforceable where the contract used a trade/fictitious name rather than the LLC’s full legal name | Koudela: omission of “Custom”/LLC and use of unregistered trade name fraudulently induced them and voids the contract/arbitration clause | Defendants: the LLC was the actual contracting party; doing business under a trade name does not create a separate entity and does not invalidate or prevent enforcement of the arbitration clause | Court: Arbitration clause is valid and enforceable; misnaming/trade name omission was not material and did not show fraud in the inducement of the arbitration clause |
| Whether R.C. 1329.10(B) (failure to register trade/fictitious name) prevents the contractor from invoking arbitration | Koudela: unregistered trade name bars the contractor from enforcing the contract/arbitration provision | Defendants: R.C.1329.10(B) bars initiating suit in the trade name but does not stop a party from defending; subsection (C) permits actions against a trade-name user whether registered or not | Court: R.C.1329.10 does not prevent the LLC from enforcing the arbitration agreement; statute does not render contract unenforceable in this context |
| Whether the arbitration clause itself was fraudulently induced | Koudela: alleged overall fraud in inducement of the contract (due to fictitious name) | Defendants: plaintiffs did not allege the arbitration clause specifically was fraudulently induced; general contract fraud does not necessarily void arbitration clause | Court: Plaintiff failed to show the arbitration provision itself was fraudulently induced; under controlling law the arbitration clause stands |
Key Cases Cited
- Kelm v. Kelm, 68 Ohio St.3d 26 (Ohio 1993) (Ohio courts encourage arbitration)
- ABM Farms, Inc. v. Woods, 81 Ohio St.3d 498 (Ohio 1998) (party must show arbitration clause itself was fraudulently induced to avoid stay)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (federal policy favors arbitration)
- Haller v. Borror Corp., 50 Ohio St.3d 10 (Ohio 1990) (elements of fraud in the inducement)
- Beer v. Griffith, 61 Ohio St.2d 119 (Ohio 1980) (fraud requires knowing material misrepresentation inducing detrimental reliance)
- Smith v. Whitlatch & Co., 137 Ohio App.3d 682 (Ohio Ct. App.) (arbitration clause enforceable absent specific allegation it was fraudulently induced)