DeVito v. Autos Direct Online, Inc.

• Decision Date: 20 August 2015
• Docket Number: No. 100831.,100831.
• Citation: 37 N.E.3d 194
• Parties: Laura DeVITO, Plaintiff–Appellant v. AUTOS DIRECT ONLINE, INC., Defendant–Appellee.
• Court: Ohio Court of Appeals

37 N.E.3d 194

Laura DeVITO, Plaintiff–Appellant

v.AUTOS DIRECT ONLINE, INC., Defendant–Appellee.

No. 100831.

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

Aug. 20, 2015.

Ronald L. Burdge, Elizabeth A. Wells, Burdge Law Office, Dayton, OH, for appellant.

David A. Corrado, Law Offices of David A. Corrado, Cleveland, OH, for appellee.

Before EN BANC Court.

Opinion

TIM McCORMACK, J.

{¶ 1} The heart of the matter that we decide in this en banc decision is a classic contract question: did the disputing parties herein have a meeting of the minds about each of the terms of the written agreement that is before us? Or conversely, is this a purported agreement that in part or full is no agreement at all because one party was incapable of agreeing to a key term? Were certain terms so egregiously hidden or purposefully obfuscated as to preclude mutual agreement? Further, we address whether all, part, or none of the purported agreement remains standing as a result of the relationship of its divisible sections.

{¶ 2} Guided by basic contract principles and Ohio's strong presumption in favor of arbitration, we determine in this conflict that the loser-pays provision of the subject arbitration agreement is unconscionable and against public policy. That provision is hereby excised from this arbitration agreement. The non-offending terms of the arbitration agreement remain enforceable.

{¶ 3} Plaintiff-appellant, Laura Devito, purchased a used 2008 Infiniti online from defendant-appellee, Autos Direct Online, Inc. (“ADO”). Devito alleged that when the vehicle was delivered to her, mechanical problems that were to be fixed had not been fixed as promised by ADO. She then brought Consumer Sales Practices Act (“CSPA”) and fraud claims against ADO. The trial court granted ADO's motion to stay the proceedings pending arbitration. On appeal, Devito argues the arbitration agreement is invalid. A provision in the arbitration agreement of particular interest that she highlighted is the loser-pays provision. This provision mandates that the consumer pay all arbitration costs and expenses, including attorney fees, should the consumer fail to prevail.

{¶ 4} In a recent decision from this court, Hedeen v. Autos Direct Online, Inc., 2014-Ohio-4200, 19 N.E.3d 957 (8th Dist.)

, which involved an identical arbitration agreement, the majority of the panel found the entire arbitration agreement invalid because of the inclusion of the loser-pays provision. The panel found the provision to be against public policy.

{¶ 5} Pursuant to App.R. 26

and Loc.App.R. 26(B), this court sua sponte considers the present appeal en banc. We conclude that the loser-pays provision is invalid because it is both unconscionable and against public policy. We do, however, agree with the dissent in Hedeen that, absent the offending loser-pays provision, the arbitration agreement is otherwise valid and enforceable. Therefore, we affirm the judgment of the trial court staying the proceedings pending arbitration. The loser-pays provision is stricken from the arbitration agreement.

I. Factual and Procedural Background

{¶ 6} In 2013, Devito purchased a 2008 Infiniti online. She alleged that before purchasing the vehicle, she had a mechanic inspect the vehicle, which inspection revealed several mechanical problems. She asserted that, as part of the deal, ADO agreed to have all the identified problems repaired. She alleged that, before the sale, ADO represented to her that all the problems had been repaired and she purchased the vehicle based on ADO's representation. However, when the vehicle was delivered to her in Massachusetts, some of the mechanical problems had not been fixed.

{¶ 7} After being frustrated in her ability to resolve the issues with ADO, Devito brought Consumer Sales Practices Act and fraud claims, among other causes of action, against ADO. ADO moved the trial court to stay the proceedings and refer the matter to arbitration pursuant to the arbitration agreement signed by Devito.

{¶ 8} Before the sale was effectuated, ADO sales staff emailed Devito a stack of documents, among which was the arbitration agreement. According to Devito, she was unaware of the existence of the document; no one from ADO told her about arbitration or provided arbitration rules or procedures; and she was rushed through the sales paperwork under the impression the vehicle would be re-listed if the signed sales papers were not returned immediately.

{¶ 9} Devito opposed ADO's motion to stay pending arbitration. Of particular interest in this appeal is the following paragraph in the arbitration agreement:

The arbitration shall be filed and held in the County of Cuyahoga, State of Ohio. The arbitration shall be through a panel of three (3) arbitrators; one appointed by us, one appointed by you and the third chosen from the AAA list of arbitrators by those two (2) appointed arbitrators. The arbitrators shall apply relevant law. The decision of the arbitrators shall be final and binding on all parties to the proceedings. The non-prevailing party shall pay, and the arbitrators shall award the prevailing party's arbitration costs and expenses, including reasonable attorney's fees.

(Emphasis added.)

{¶ 10} The trial court granted ADO's motion and stayed proceedings pending arbitration. On appeal, Devito claims the trial court abused its discretion by granting ADO's motion to stay proceedings.¹

{¶ 11} We find the loser-pays provision unenforceable as it is substantively and procedurally unconscionable, and is further against public policy. With the removal of this offending provision, the arbitration agreement is otherwise enforceable. Therefore, we affirm the trial court's decision staying the proceedings pending arbitration, but excise the loser-pays provision from the arbitration agreement.

II. Arbitration as Favored Dispute Resolution Mechanism

{¶ 12} It is well settled that the arbitration process is a favored method to settle disputes. Both the Ohio General Assembly and the courts have expressed a strong public policy favoring arbitration. Hayes v. Oakridge Home, 122 Ohio St.3d 63, 2009-Ohio-2054, 908 N.E.2d 408, ¶ 15

. Arbitration is favored because it provides the parties “ ‘with a relatively expeditious and economical means of resolving a dispute.’ ” Id., quoting Schaefer v. Allstate Ins. Co., 63 Ohio St.3d 708, 712, 590 N.E.2d 1242 (1992)

.

{¶ 13} Arbitration is a matter of contract. United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)

. The elements of a contract are voluntary offer and acceptance, supported by valid consideration. Noroski v. Fallet, 2 Ohio St.3d 77, 79, 442 N.E.2d 1302 (1982).

III. Unconscionability: Substantive and Procedural

{¶ 14} When, however, an agreement is made under circumstances or terms that are so one-sided that the exchange of promises is involuntary, the law regards it as unfair or “unconscionable” to enforce the contract. The Supreme Court of the United States has defined an unconscionable agreement as one “ ‘such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other.’ ” Thonen v. McNeil–Akron, Inc., 661 F.Supp. 1252 (N.D.Ohio 1986)

, quoting Hume v. United States, 132 U.S. 406, 411, 10 S.Ct. 134, 33 L.Ed. 393 (1889).

{¶ 15} The notion of unconscionability includes “ ‘an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.’ ” Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio St.3d 352, 2008-Ohio-938, 884 N.E.2d 12, ¶ 33

, quoting Lake Ridge Academy v. Carney, 66 Ohio St.3d 376, 383, 613 N.E.2d 183 (1993). The doctrine embodies two concepts:

(1) unfair and unreasonable contract terms, i.e., “substantive unconscionability,” and (2) individualized circumstances surrounding each of the parties to a contract such that no voluntary meeting of the minds was possible, i.e., “procedural unconscionability,” or, * * * “bargaining naughtiness.”

Collins v. Click Camera & Video, 86 Ohio App.3d 826, 834, 621 N.E.2d 1294 (2d Dist.1993)

.

{¶ 16} The party claiming unconscionability of an agreement bears the burden of proving that the agreement is both substantively and procedurally unconscionable. Taylor Bldg. at ¶ 33. A determination of whether a written agreement is unconscionable is an issue of law, and we review de novo. Id. at ¶ 34.

{¶ 17} Substantive unconscionability goes to the terms of the contract. Ball v. Ohio State Home Servs., Inc., 168 Ohio App.3d 622, 2006-Ohio-4464, 861 N.E.2d 553, ¶ 7 (9th Dist.)

. “Substantive unconscionability involves those factors which relate to the contract terms themselves and whether they are commercially reasonable.” Collins at 834, 621 N.E.2d 1294. When a contractual term is “so one-sided as to oppress or unfairly surprise” a party, the contractual term is said to be substantively unconscionable. Neubrander v. Dean Witter Reynolds, Inc., 81 Ohio App.3d 308, 311–312, 610 N.E.2d 1089 (9th Dist.1992). Essentially, it goes to the unfairness or unreasonableness of the contractual terms. Featherstone v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 159 Ohio App.3d 27, 2004-Ohio-5953, 822 N.E.2d 841, ¶ 13 (9th Dist.).

{¶ 18} For assessing substantive unconscionability, the courts have considered factors such as: “the fairness of the terms, the charge for the service rendered, the standard in the industry, and the ability to accurately predict the extent of future liability.” Collins, 86 Ohio App.3d at 834, 621 N.E.2d 1294

, citing Fotomat Corp. of Florida v. Chanda, 464 So.2d 626 (Fla.App.1985), and Richard A. Berjian, D.O., Inc. v. Ohio Bell Tel. Co.,

54 Ohio St.2d 147, 375 N.E.2d 410 (1978).

{¶ 19} Regarding procedural unconscionability, when a party has such superior bargaining power that the other party lacks a “meaningful choice” to enter into the contract, the contract is said to be procedurally unconscionable....