2023 Ohio 3714
Ohio Ct. App.2023Background
- In 2017 Chandler bought a used car from Clerac and signed a buyer’s order containing a broad arbitration clause referencing AAA rules; the separate financing agreement (assigned to Westlake) did not contain an arbitration clause.
- Clerac assigned the financing agreement to Westlake Services; there is no clear record that Clerac assigned rights under the buyer’s order to Westlake.
- Westlake sued Chandler in 2021 to collect a deficiency after repossession and sale; Chandler answered, later amended and asserted class claims under RISA, OUCC, and OCSPA.
- Westlake litigated the case for over 15 months (discovery, deadlines passed) before moving to compel arbitration and to have an arbitrator decide threshold arbitrability issues (including waiver and nonsignatory enforcement).
- The trial court denied the motion, finding Westlake waived arbitration by litigation conduct, was not a party to the buyer’s order, and the arbitration clause did not clearly and unmistakably delegate arbitrability (including litigation-based waiver) to an arbitrator.
- The Eighth District affirmed: incorporation of AAA rules (and the clause’s language) did not supply clear-and-unmistakable delegation of waiver-by-litigation questions to an arbitrator; waiver-by-litigation is for the court to decide absent clear delegation.
Issues
| Issue | Plaintiff's Argument (Westlake) | Defendant's Argument (Chandler) | Held |
|---|---|---|---|
| Whether threshold arbitrability questions (including waiver and enforceability by a nonsignatory/assignee) were delegated to an arbitrator | Buyer’s order incorporated AAA rules, which empower the arbitrator to decide jurisdiction and arbitrability, so arbitrator should resolve gateway questions | No clear delegation in the clause; Chandler didn’t consent to delegating waiver-by-litigation or nonsignatory enforcement issues to an arbitrator | Court: No clear-and-unmistakable delegation; trial court properly decided arbitrability issues itself |
| Whether mere reference to AAA rules constitutes clear-and-unmistakable evidence of delegation | Incorporation by reference of AAA rules is sufficient to delegate arbitrability to arbitrator | Incorporation was permissive (AAA or other acceptable forum) and not specific; AAA rules do not expressly address waiver-by-litigation | Court: Incorporation of AAA (among multiple possible forums) did not clearly and unmistakably delegate litigation-waiver issues to arbitrator |
| Whether waiver by active litigation is an arbitrability question for the arbitrator | If delegation exists, arbitrator should decide waiver like other arbitrability defenses | Waiver-by-litigation is distinct from arbitrability (existence/scope/validity) and traditionally for courts to decide; Chandler also argued Westlake had no contractual right to arbitrate | Court: Waiver-by-litigation is for the court absent a clear delegation; here no clear delegation, so trial court correctly found waiver and decided it |
| Whether Westlake (nonsignatory/assignee) can enforce the buyer’s order arbitration clause | Westlake claimed it could enforce arbitration as assignee of Clerac’s rights | Chandler argued Clerac assigned only the financing agreement (which lacks arbitration), so Westlake cannot enforce the buyer’s order | Court: Appellate opinion assumed trial court’s finding that Westlake was not a party/assignee is correct and did not disturb that conclusion; Westlake did not challenge that factual ruling on appeal |
Key Cases Cited
- Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 (U.S. 2010) (parties may contractually delegate gateway arbitrability questions to an arbitrator)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (U.S. 2019) (courts must enforce clear-and-unmistakable delegation clauses; arbitrator decides arbitrability if delegation is clear)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. 2002) (procedural gateway questions are presumptively for the arbitrator; context matters)
- AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643 (U.S. 1986) (when parties clearly delegate arbitrability, arbitrator decides)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. 1967) (arbitration agreements are severable from the underlying contract for certain challenges)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (clear-and-unmistakable standard for delegation of arbitrability)
- Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (U.S. 1983) (federal policy favoring arbitration but arbitration agreements are enforced as other contracts)