Ohiо and federal courts encourage arbitration to settle disputes. Kelm v. Kelm (1993),
Today, all these forces collide with an admittedly unsophisticated farmer who wants her day in court. The issue before us is whether a claim that a contract containing an arbitration clause was induced by fraud can defeat a motion to
In Prima Paint Corp. v. Flood & Conklin Mfg. Co. (1967),
“Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York, in accordance with the rules then obtaining of the American Arbitration Association.” Id. at 398,
In Prima Paint, the district court had held that a charge of fraud in the inducement of a contract containing an arbitration clause so brоad was a question for arbitrators and not for the court, and thus granted a stay of the action pending arbitration. The Supreme Court agreed that under Section 4, Title 9, U.S.Code, which is virtually identical to the relevant portion of R.C. 2711.03, the federal courts are not permitted to consider claims of fraud in the inducement of the contract generally. However, the сourt also held that Section 4 allows a federal court to consider issues relating to the making and performance of the agreement to arbitrate contained within the contract. Id. at 403-404,
R.C. Chapter 2711 mirrors the federal jurisprudence in its acknowledgment оf the severability of the arbitration clause from the remainder of the contract. R.C. 2711.03 clearly provides that only when the making of the arbitration clause is itself at issue may the trial court proceed to try the action:
“The court shall hear the parties [upon the issue of whether the case should proceed to arbitration], and upon being satisfied thаt the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitratiоn in accordance with the agreement. If the making of the arbitration agreement or the failure to perform it is in issue, the court shall proceed summarily to the trial thereof.”
R.C. 2711.01 mоre generally acknowledges that an arbitration clause is, in effect, a contract within a contract, subject to revocation on its own merits:
R.C. 2711.01(A) refers to the arbitration provision in a contract, and notes that it is valid unless revocable under contract law. Because the arbitration clause is a separate entity, it only follows that an alleged failure of the contract in which it is contained does not affect the provision itself. It remains as the vehicle by which the legitimacy of the remainder of thе contract is decided.
Therefore, we find that to defeat a motion for stay brought pursuant to R.C. 2711.02, a party must demonstrate that the arbitration provision itself in the contract at issue, and not merely the contract in general, was fraudulently induced. Krafcik v. USA Energy Consultants, Inc. (1995),
The trial court in this case did use the proper standard to determine whether a stay should apply, framing the issue as whether the arbitration clause itself was fraudulently induced. However, we find that the trial judge erred in finding for Woods.
A claim of fraud in the inducement arises when a party is induced to enter into an agreement through fraud or misrepresentation. “The fraud relates not to the nature or purport of the [contract], but to the facts inducing its execution * * Haller v. Borror Corp. (1990),
There was no evidence presented to the trial court that Maust discussed arbitration at all "with Woods, much less that he made a misrepresentation about it. Woods herself testified that arbitration was “[n]ever brought up, ever.”
Woods signed two documents in establishing her relationship with Advest. The first, a one-page document, authorized the transfer of Woods’s security account from The Ohio Company to Advest. The second, and the one at issue, was another one-page document, which set forth the basics of the relationship between Advest and Woods. (See Appendix.) The document was divided into two sections: clients who did not want a margin account signed the top portion, while those whо wanted a margin account signed the bottom half. The top portion, which Woods signed, consists of a three-sentence paragraph, followed by three acknowledgments:
“(а) Interest on debit balances -will be charged and compounded in accordance with the Account Agreement.
“(b) I have received, read and understand the terms and conditions of the Account Agreement set forth in the accompanying booklet.
“(c) In accordance with the pre-dispute arbitration clause in Section 15 of the Brokerage Agreement on page 7, I am agreeing in advance to arbitrate any controversies which may arise -with you.”
According to Woods, Maust told her that “[y]ou need to sign her[e] to not havе a margin account.” That statement is not misrepresentative. Woods obviously had to sign a contract to establish her account with Advest, and she had two choices on the nature of the account: a margin account or a non-margin account. Maust correctly informed her that by signing where she did, she would be choosing the latter. No matter which she chose, the arbitration provision was identical.
The law does not require that each aspect of a contract be explained orally to a party prior to signing. The contract Woods signed contained about six sentences, comprising less than a quarter of a page. The provisions at issue were not in fine print, and are part of an industry standard. Thе provisions were neither hidden nor out of the ordinary, and Maust did not misrepresent their nature.
A classic claim of fraudulent inducement asserts that a misrepresentation -of facts оutside the contract or other wrongful conduct induced a party to enter into the contract. Examples include a party to a release misrepresenting the economic value of the released claim, or one party employing coercion or duress to cause the other party to sign an agreement. Haller,
Judgment reversed and cause remanded.
[[Image here]]