2018 Ohio 1826
Ohio Ct. App.2018Background
- Paul and Stephanie Neel contracted with A. Perrino Construction to build a custom home for $364,900; contract contained an arbitration clause (¶13) and a one-year limited warranty (¶8).
- Neels sued Perrino, Greenwalt Architects, Pat Perrino, and Christopher Greenwalt for breach of contract, (negligent and fraudulent) misrepresentation, civil conspiracy, and HCSSA violations, alleging the house was substantially smaller than promised.
- Perrino answered, filed counterclaims (and a new-party complaint against Neels’ counsel unrelated to the construction contract), and expressly reserved its right to arbitrate.
- Trial court ordered Perrino to state whether it would arbitrate; Perrino moved to stay proceedings pending arbitration and the court granted a stay as to Perrino but refused to stay claims against other parties or individuals.
- On appeal, Neels argued the arbitration clause was procedurally and substantively unconscionable, ambiguous, and that Perrino waived arbitration by litigating; they also challenged incorporation of AAA Rule 48 (fee-shifting).
- Court of Appeals affirmed stay as to arbitrable disputes, held Perrino had not waived arbitration and the clause was not unconscionable or ambiguous, but remanded to stay the entire action (all parties) pending arbitration and agreed Rule 48(d)(ii) (loser-pays) is unenforceable as applied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability: unconscionability of arbitration clause | Neel: clause procedurally and substantively unconscionable (preprinted form, rushed signing, high arbitration costs, loser-pays) | Perrino: clause commercially reasonable, Neels failed to prove prohibitive costs or procedural oppression | Court: clause not procedurally or substantively unconscionable; plaintiffs failed to meet burden to show prohibitive costs or lack of voluntary assent |
| Ambiguity of arbitration clause (e.g., "warranty claims") | Neel: clause too ambiguous to show meeting of minds; undefined "warranty claims" and missing financial-liability detail | Perrino: warranty terms incorporated elsewhere in contract (¶8) and clause refers to those terms | Court: clause sufficiently definite because paragraph 8 describes the limited warranty; not void for ambiguity |
| Waiver of arbitration by defendant litigating | Neel: Perrino filed counter/new-party claims and participated in litigation → waived arbitration | Perrino: limited participation, timely reserved arbitration rights and soon moved to stay | Court: no waiv er; limited participation, reservation of rights, minimal delay, and no prejudice to plaintiffs |
| Scope of stay — whether to stay entire case including non-signatory parties | Neel: entire action must be stayed when arbitrable issues exist | Perrino: initially sought stay; conceded error in partial stay | Court: when stay is granted, entire action must be stayed; trial court’s partial stay was error; remanded to stay all claims against all parties |
Key Cases Cited
- Taylor Bldg. Corp. of Am. v. Benfield, 884 N.E.2d 12 (Ohio 2008) (arbitration unconscionability review and cost-of-arbitration analysis)
- Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) (inequality of bargaining power alone does not invalidate arbitration agreements)
- Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000) (party alleging prohibitive arbitration costs bears burden to show likely prohibitive costs)
- Collins v. Click Camera & Video, 621 N.E.2d 1294 (Ohio Ct. App. 1993) (factors for procedural unconscionability analysis)
- Harsco Corp. v. Crane Carrier Co., 701 N.E.2d 1040 (Ohio Ct. App. 1998) (waiver of arbitration not to be lightly inferred; fact-driven inquiry)