2007 Ohio 2106 | Ohio Ct. App. | 2007
Lead Opinion
{¶ 2} In June 2005, six plaintiffs filed suit against ProCare and Martinez, alleging that they were wrongfully terminated from their employment as managers for ProCare because of their ages, in violation of R.C.
{¶ 3} The record reflects that Anderson was employed as a site manager at ProCare's Beechmont facility in Cincinnati, Ohio. In the spring of 2004, Anderson informed ProCare that he had a job offer from a ProCare competitor. To induce Anderson to continue as a ProCare employee, ProCare offered Anderson a written employment contract that allegedly increased his compensation by offering him a salary plus bonus. The employment agreement, which Anderson signed in June 2004, contained an arbitration clause which provided at paragraph 15:
{¶ 4} "The parties hereby agree that any controversy or claim arising out of or relating to this Agreement, or the breach hereof, will be settled by final and binding arbitration in accordance with the Rules of the American Arbitration Association ("AAA") then pertaining in Cleveland, Ohio, and judgment upon the award rendered by the arbitrator may be entered in any court of competent jurisdiction. Any arbitration shall take place in Cleveland, Ohio before a single arbitrator licensed to practice law in the State of Ohio (the "Arbitrator"). The Arbitrator shall be deemed to possess the powers to issue mandatory orders and restraining orders in connection with such arbitration; provided, however, that nothing in this Paragraph 15 shall be *4 construed so as to deny Employer's right and power to seek and obtain injunctive relief in a court of equity for any breach or threatened breach of Employee of any of his covenants contained in Paragraph 6."2
{¶ 5} Paragraph 15(b) of the agreement set forth the manner in which an arbitrator would be selected, and paragraph 15(c) then continued:
{¶ 6} "Employee and Employer shall equally share the fees and costs of the Arbitrator. Each party will deposit funds or post other appropriate security for its share of the Arbitrator's fee, in an amount and manner to be determined by the Arbitrator, ten (10) days prior to the first day of hearing. Each party shall pay for its own costs and attorneys' fees, if any. * * *"
{¶ 7} In its motion to compel arbitration and stay the proceedings, ProCare argued that the court should stay proceedings and compel arbitration because Anderson had signed an arbitration agreement in which he agreed to submit his claims to binding arbitration. In his brief in opposition, Anderson asserted that the arbitration clause in question is unconscionable and therefore unenforceable as a matter of law. In addition, he moved the court pursuant to R.C.
{¶ 8} ProCare now appeals from the trial court's judgment.3 It argues, in its four assignments of error, which are set forth in the appendix to this opinion, that the trial court erred in not staying Anderson's claims and compelling arbitration because: 1) the parties agreed to arbitrate their claims; 2) the arbitration agreement is not unconscionable; 3) ProCare did not waive its right to compel arbitration by filing an action against Anderson in the Clermont County Court of Common Pleas to protect its trade secrets; and 4) even if any of the terms in the agreement were objectionable, the trial court should have severed the offending terms and enforced the arbitration clause.
{¶ 9} Whether an arbitration clause is unconscionable is a question of law. Ins. Co. of North Am. v. Automatic Sprinkler Corp. (1981),
{¶ 10} Resolving disputes through the extra-judicial process of arbitration is generally favored in the law. Williams v. Aetna Fin.Co.,
{¶ 11} Nevertheless, as a matter of law, an arbitration clause is not enforceable if it is found to be unconscionable. Olah v. GanleyChevrolet, Inc., Cuyahoga App. No. 86132,
1. Substantive Unconscionability
{¶ 12} Substantive unconscionability concerns the actual terms of the agreement and whether the terms are unfair and unreasonable.Collins, supra at 834. Arbitration clauses are unconscionable where the "clauses involved are so one-sided as to oppress or unfairly surprise [a] party." Neubrander v. Dean Witter Reynolds, Inc. (1992), {¶ 13} The right to recover damages in employment discrimination actions brought pursuant to R.C.
{¶ 14} Here, however, the arbitration clause at issue provides that each party will pay its own attorney fees. It therefore deprives Anderson of his right to obtain his attorney fees from ProCare as part of the available damages, a right he unquestionably has as provided by law.
{¶ 15} "It is well-established that `a party does not forgo the substantive rights afforded by [a] statute [when he agrees to arbitrate a statutory claim but] only submits to their resolution in an arbitral, rather than a judicial, forum.' * * * The critical question is not whether a claimant may obtain some of the entire range of remedies under [the statute], but whether the limitation on remedies at issue undermines the rights protected by the statute." Morrison v. Circuit City Stores
(C.A.6, 2003),
{¶ 16} Under Ohio law, a successful plaintiff in an employment discrimination case may be awarded his attorney fees. Here, the arbitration clause unquestionably requires Anderson to surrender that right. On this basis alone, the clause is substantively unconscionable.
{¶ 17} Moreover, the imbalance of the respective rights of the parties to the employment agreement demonstrates the unconscionability of the arbitration clause. While Anderson is limited to mandatory arbitration regarding any employment *9
dispute, the agreement provides that ProCare may bypass arbitration and seek judicial remedies in court in order to obtain injunctive relief for any breach or threatened breach by Anderson of the covenants contained in the non-competition and confidentiality provisions of the employment agreement. We are not persuaded by ProCare's assertion that this provision, which allows ProCare to use a judicial forum when it is the plaintiff, but limits Anderson to arbitration when he is the plaintiff, is not unconscionable. See, e.g., Small v. HCF of Perrysburg, Inc.,
{¶ 18} Finally, we note that the arbitration clause provides that each party will equally share the costs and fees of the arbitrator, but does not disclose either the costs of arbitration or the fact that they may be substantially higher than costs associated with a regular court proceeding. For example, it does not reveal that the fees required to pursue a claim in arbitration vary with the amount of damages alleged, unlike a court proceeding. See the AAA National Rules for the Resolution of Employment Disputes, attached to Anderson's brief in opposition to ProCare's motions. Likewise, the clause does not reveal that the parties are responsible for other costs not incurred in a court proceeding, such as the arbitrator's compensation, or the cost of a stenographic record of the proceedings.
{¶ 19} In Morrison, supra, the Sixth Circuit Court of Appeals rejected a per se rule of unconscionability regarding cost-splitting provisions of arbitration agreements and held that the enforceability of a fee-splitting clause must be decided on a case-by-case *10
basis. The court stated that "[a] cost-splitting provision should be held unenforceable whenever it would have the `chilling effect' of deterring a substantial number of potential litigants from seeking to vindicate their statutory rights." Id. at 661. Reviewing courts must consider whether the litigant will incur expenses not incurred in the judicial forum "and whether that expense, taken together with the other costs and expenses of the differing fora, would deter potential litigants from bringing their statutory claims in the arbitral forum. The issue is not `the fact that [the] fees would be paid to the arbitrator,' but rather whether the `overall cost of arbitration,' from the perspective of the potential litigant, is greater than `the cost of litigation in court.'" Id. at 664, quoting Bradford v. RockwellSemiconductor Sys., Inc. (C.A.4, 2001),
{¶ 20} Here, although he alleged that the costs of arbitration would be significantly higher than litigation costs, Anderson produced no evidence demonstrating that the cost of arbitration would operate to deter him or other similarly situated individuals from seeking to vindicate his statutory rights through arbitration. Nevertheless, having already determined that the arbitration agreement is substantively unconscionable because it deprives Anderson of his right to recover attorney fees, we need not decide whether the cost-splitting arrangement is also substantively unconscionable.
2. Procedural Unconscionability *11
{¶ 21} Procedural unconscionability involves the circumstances surrounding the execution of the contract between the two parties and occurs where no voluntary meeting of the minds was possible.Collins, supra at 834. In determining procedural unconscionability, a court should consider factors bearing on the relative bargaining position of the contracting parties — including age, education, intelligence, business acumen, and experience in similar transactions — whether the terms were explained to the weaker party, and who drafted the contract. Id., citing Johnson v. Mobil Oil Corp. (E.D.Mich. 1976), {¶ 22} Here, the arbitration clause, which was drafted by ProCare, cleverly concealed the fact that by agreeing to arbitration, Anderson was giving up his right pursuant to R.C.
{¶ 23} However, the record does not contain information regarding Anderson's age, business acumen, and the circumstances surrounding the execution of the agreement.
3. Necessity of Hearing
{¶ 24} In this case, ProCare filed a joint motion to stay proceedings and compel arbitration. In Maestle v. Best Buy Co., {¶ 25} The Maestle court held that a trial court is not required to conduct a hearing when a party moves for a stay pursuant to R.C.
{¶ 26} The Maestle court noted further that "[b]y its terms, R.C.
{¶ 27} "(A) The party aggrieved by the alleged failure of another to perform under a written agreement for arbitration may petition any court of common pleas *13 having jurisdiction of the party so failing to perform for an order directing that the arbitration proceed in the manner provided for in the written agreement. * * * The court shall hear the parties, and, upon being satisfied that the making of the agreement for arbitration or the failure to comply with the agreement is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the agreement."
{¶ 28} "(B) If the making of the arbitration agreement or the failure to perform it is in issue in a petition filed under division (A) of this section, the court shall proceed summarily to the trial of that issue. * * *"
{¶ 29} Accordingly, pursuant to this section, where a party has filed a motion to compel arbitration, the court must, in a hearing, make a determination as to the validity of the arbitration clause.Maestle, supra at y 18; Benson v. Spitzer Mgt, Inc., Cuyahoga App. No. 83558,
{¶ 30} It does not appear from the record that the trial court held a hearing regarding the enforceability of the arbitration provision. Accordingly, we sustain ProCare's second assignment of error solely on that basis. Having determined that the arbitration clause is substantively unconscionable, we remand so the trial court can hold a hearing to determine whether the arbitration clause is also procedurally unconscionable.
{¶ 31} Appellants' second assignment of error is sustained.
4. Severability
{¶ 32} In its third assignment of error, ProCare contends that the trial court erred in not severing the alleged offending terms, pursuant to the severability clause contained in paragraph 9 of the employment agreement,5 and then enforcing the arbitration clause.{¶ 33} This issue is not yet ripe for our review. The trial court must first decide the severability issue in order for us to review it.
{¶ 34} Appellants' third assignment of error is overruled.
{¶ 35} Our resolution of appellants' second assignment of error renders its first and fourth assignments of error moot and therefore we need not address them. See App. R. 12(A)(1)(c). *15
{¶ 36} Having determined that the arbitration clause at issue is substantively unconscionable, we remand for a hearing regarding the "particular facts and circumstances surrounding the agreement" to determine if the clause is also procedurally unconscionable. Porpora v.Gatliff Bldg. Co.,
Reversed and remanded for proceedings consistent with this opinion.
It is ordered that the parties share equally the costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure.
MARY J. BOYLE, J., CONCURS
COLLEEN CONWAY COONEY, P.J. CONCURS IN PART AND DISSENTS IN PART WITH SEPARATE CONCURRING AND DISSENTING OPINION
Dissenting Opinion
{¶ 37} I concur in the judgment to reverse and remand, but I disagree that a hearing is required at this stage of the proceedings. I would reverse because the trial court should have granted the motion to compel arbitration and to stay proceedings.
{¶ 38} First, I think it is important to note that the arbitration clause in the instant case is found in an employment contract andnot a consumer transaction which inherently involves unequal bargaining power. Secondly, the employment agreement arose as a result of Anderson's affirmative act of informing Procare that he had another job offer from its competitor. Procare offered Anderson the written contract and agreed to pay him $120,000 per year along with performance bonuses. Anderson accepted the terms of the contract and executed it on or about June 1, 2004 according to Procare's affidavit.
{¶ 39} Thirdly, Procare submitted an affidavit and the employment contract as attachments to its motion to dismiss, or in the alternative, motion to compel arbitration and stay proceedings. Anderson responded more than two months later with his memorandum in opposition. His only attachments were the employment contract, Procare's complaint filed in Clermont County Common Pleas Court, a copy of the American Arbitration Association ("AAA") rules, and an Ohio jury instruction related to attorney fees and punitive damages. He failed to raise the customary issues by way of his own affidavit indicating his lack of education or business acumen, any alleged pressure to sign the contract, his inability to review it with an *17 attorney, as well as his inability to afford the arbitration fees. His memorandum in opposition failed to explain what he hoped to obtain through discovery that he did not already know and could present by affidavit.
{¶ 40} Under the specific facts presented in the instant case, I would find that Anderson failed to allege and prove a "quantum of both prongs" of the unconscionability test to which the majority refers. And since he has not challenged the existence of the agreement as did the plaintiffs in the consumer cases relied on by the majority, R.C.
{¶ 42} Applying these factors, I would find that there is insufficient evidence in the record to find that the arbitration provision is procedurally unconscionable. Anderson failed to offer any testimony or provide an affidavit as evidence of his bargaining position. There is nothing in the record for us to conclude that Anderson was unaware of the impact of the agreement or that he was otherwise limited in understanding its terms. See McDonough v. Thompson, Cuyahoga App. No. 84342,
{¶ 43} Because Anderson failed to satisfy his burden of demonstrating procedural unconscionability, I would find merit to this argument.
{¶ 46} We review whether arbitration costs are prohibitive on a case-by-case basis. Williams v. Aetna Fin. Co.,
{¶ 47} An arbitration provision in a contract is not rendered unenforceable simply because the provision is silent as to costs and fails to provide protection from potentially substantial costs.Green Tree Fin. Corp.-Alabama, supra. Moreover, the undisclosed costs of arbitration do not render an arbitration agreement unconscionable if the party seeking to invalidate an arbitration agreement fails to allege either that he is unable to pay or that the costs are so substantial as to deter him from initiating arbitration. Felix, supra at 4|21. That party bears the burden of showing the likelihood of incurring such costs. Id. The mere "risk" that a party will be saddled with prohibitive cost is too speculative to justify the invalidation of an arbitration agreement. Id.
{¶ 48} Anderson argues that the cost of arbitration would be prohibitive, yet he proffered no evidence suggesting that he could not afford to arbitrate his claim. Anderson claims that an arbitrator would cost between $250-$400 per hour. He also stated that the requesting party would have to bear the costs of the court reporter and he provided the trial court a copy of the AAA rules. However, Anderson failed to provide any evidence of the projected cost of arbitrating his claim. He also never alleged that he could not afford to arbitrate. Simply attaching a copy of the AAA's rules to pleadings does not provide the court with a proper estimate of the cost of arbitration. The court is not obligated to calculate an estimate of costs based on fifty pages of AAA rules. *21
{¶ 49} Anderson's blanket assertion that the costs of arbitration are prohibitive when compared to the cost of litigation is purely speculative. As we stated in Handler v. Southerland Custom Bldrs.,Inc., Cuyahoga App. No. 86956,
{¶ 50} Not only does Anderson fail to support his claim that arbitration would be prohibitively expensive, but his annual salary was $120,000 plus the potential for substantial performance bonuses. This surely does not support his argument that the costs of arbitration are prohibitive. Moreover, Anderson never alleged that he was pressured to sign the contract, prohibited from thoroughly reviewing the contract, or unable to seek legal advice before signing it. See O'Donoghue v. Smythe,Cramer Co., Cuyahoga App. No. 80453, 2002-Ohio-3447.
{¶ 52} We have previously held that it is not unconscionable for an arbitration clause to require each party to pay his or her own attorney fees. In Vanyo, supra at T|20, we held that a term requiring the parties to pay their own attorney fees does not render the agreement to arbitrate substantively unfair merely because it might impact the type of fee arrangement between the employee and that employee's attorney. See Manley v. Personacare of Ohio, Lake App. No. 2005-L-174,
{¶ 54} Merely because the employer need not arbitrate a claim for injunctive or equitable relief involving trade secrets or competition does not make the arbitration agreement unreasonable. Robbins v. CountryClub Ret. Ctr IV, Inc., Belmont App. *23
No. 04BE43,
{¶ 55} Anderson also claims that ProCare waived its right to arbitration because the company chose to file suit against him in another court. The lawsuit filed by ProCare, however, alleged a violation of Anderson's confidentiality and non-compete covenants and also named his new employer as a defendant. The contract Anderson executed expressly permits ProCare to pursue this type of action, and the new employer would not be subject to the agreement to arbitrate.
{¶ 57} Not only has Anderson failed to demonstrate that he could not obtain employment elsewhere had he refused to sign the contract, the contract arose because he had received another offer of employment. Although the circumstances in this case differ because Anderson was not a "candidate" seeking employment as were the plaintiffs inButcher and Melia, I would find that the modification did not unilaterally change his existing employment terms and Anderson received consideration for the contract.
{¶ 58} Therefore, I would find that the arbitration clause is not unconscionable and reverse the trial court's denial of Procare's motion to compel arbitration and stay proceedings. *25
II. THE TRIAL COURT ERRED IN NOT STAYING ANDERSON'S CLAIMS BECAUSE THE ARBITRATION AGREEMENT IS NOT UNCONSCIONABLE AND, THUS, IS ENFORCEABLE.
III. THE TRIAL COURT ERRED IN NOT SEVERING THE ALLEGED OFFENDING TERMS AND ENFORCING THE ARBITRATION CLAUSE.
IV. THE TRIAL COURT ERRED IN STAYING ANDERSON'S CLAIMS BECAUSE DEFENDANTS DID NOT WAIVE THEIR RIGHT TO ARBITRATION. *1