2015 Ohio 4341
Ohio Ct. App.2015Background
- Philpott, a former Pride Technologies executive, filed suit in Ohio state court claiming Pride failed to credit about $48,000 under a Profit Sharing Unit Agreement; the agreement contained an arbitration clause requiring AAA arbitration in New York.
- Pride Technologies had earlier filed an AAA demand in New York seeking over $190,000 from Philpott; Philpott filed a counterclaim in that arbitration.
- AAA suspended the arbitration when Philpott did not pay his portion of AAA fees (about $11,950); AAA offered fee-reduction assistance and indicated Pride, as claimant, could pay Philpott’s share to avoid suspension.
- Pride refused to pay Philpott’s share; Philpott said he could not afford the fees and then filed the Ohio court action alleging inability to arbitrate due to prohibitive costs and asserting waiver based on Pride’s conduct.
- Pride moved to stay/dismiss and compel arbitration under the contract; the trial court denied the motion, citing the allegedly extraordinary AAA fees and potential inability of Philpott to participate in arbitration.
- The court of appeals reversed, holding Philpott failed to prove arbitration costs were prohibitively high and Pride had not waived its arbitration right; the case was remanded to compel arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitration clause is unenforceable because arbitration costs are prohibitive (substantive unconscionability) | Philpott: AAA fees (~$11,950) were extraordinary and he could not afford them, rendering arbitration invalid | Pride: Philpott offered only unsupported allegations; he failed to show inability to pay or that arbitration costs exceed court litigation costs; AAA offered fee reductions | Held: Reversed — unsupported allegations insufficient; Philpott failed to show prohibitive costs or comparison to litigation costs; arbitration enforceable |
| Whether Pride waived its right to arbitrate by conduct (including refusing to pay fees and filing suit in NY) | Philpott: Pride’s refusal to pay his AAA share and subsequent NY suit show inconsistent acts and thus waiver | Pride: Initiated arbitration, promptly moved to compel arbitration in Ohio court before discovery or answering; AAA rules did not require Pride to pay opposing party’s fees | Held: Reversed — Pride did not act inconsistently with its arbitration right; no waiver shown |
| Choice of law to decide arbitration enforcement | Philpott: (argued applicability of forum law implicitly) | Pride: Contract selected New York law; but forum procedures governed by Ohio law | Held: Applied Ohio law for procedural enforcement; result same under either state’s law so Ohio law used |
| Standard of review for enforceability questions | Philpott: (argued trial court properly considered unconscionability and waiver) | Pride: Where unconscionability or waiver present questions of law, de novo review applies | Held: Court reviewed unconscionability/waiver de novo and found no basis to deny arbitration |
Key Cases Cited
- Taylor Bldg. Corp. of Am. v. Benfield, 884 N.E.2d 12 (Ohio 2008) (arbitration agreements presumptively enforceable; unsupported allegations of prohibitive costs insufficient)
- Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000) (party resisting arbitration must support claims that arbitration costs are prohibitive)
- Harsco Corp. v. Crane Carrier Co., 701 N.E.2d 1040 (Ohio Ct. App. 1997) (factors for determining waiver of arbitration based on totality of circumstances)
- Norman v. Schumacher Homes of Circleville, Inc., 994 N.E.2d 865 (Ohio 2013) (party must show inability to pay arbitration fees or that arbitration costs substantially exceed litigation costs)