Harsco Corp. v. Crane Carrier Co.

• Decision Date: 22 August 1997
• Docket Number: No. 14-97-8,14-97-8
• Parties: HARSCO CORPORATION, Appellee, v. CRANE CARRIER COMPANY, Appellant. *
• Court: Ohio Court of Appeals

Page 406

122 Ohio App.3d 406

701 N.E.2d 1040

HARSCO CORPORATION, Appellee, v. CRANE CARRIER COMPANY, Appellant. ^*

No. 14-97-8.

Court of Appeals of Ohio,

Third District, Union County.

Decided Aug. 22, 1997.

Charles J. Kurtz, III and Constance M. Greanery, Columbus, for appellee.

Melvin D. Weinstein, Columbus, for appellant.

HADLEY, Judge.

Defendant-appellant Crane Carrier Company ("Crane") appeals the judgment of the Union County Common Pleas Court denying Crane's motion for stay of proceedings and referral to arbitration. For the reasons that follow, we reverse the decision of the trial court and refer this matter to arbitration as provided for in the Manufacturing License Agreement entered into between Crane and plaintiff-appellee Harsco Corporation ("Harsco").

Crane and Harsco entered into a Manufacturing License Agreement on May 11, 1993. Pursuant to the terms of the agreement, Crane manufactured and sold fifty school bus chassis to Harsco. Harsco also obtained Crane's license to manufacture additional bus chassis. As part of the agreement, Crane also covenanted to indemnify Harsco for any liability "arising out of manufacturing defects in the [c]hassis made by Crane * * * and for actual defects in the design of the original Crane [c]hassis * * *." If a conflict arose between the parties as to whether a design or manufacturing defect existed, an arbitration clause in the Manufacturing License Agreement provided that three automotive engineers ¹ would conclusively determine the issue.

In June 1996, the National Highway Traffic Administration ("NHTA") tested the fuel tank barrier on the bus chassis manufactured by Harsco and designed by Crane. The NHTA concluded that the fuel barrier was defective, and the chassis did not pass inspection. The fuel barrier was tested two additional times, and both times the barrier failed inspection. Harsco claims that Crane's conduct during these inspections acted as a waiver of the arbitration clause of the Manufacturing License Agreement. Crane disputes this allegation. Therefore, Harsco claims that the arbitration clause of the Manufacturing License Agreement is no longer in force.

On November 12, 1996, Harsco filed suit against Crane in the Union County Common Pleas Court. Included in Harsco's complaint were allegations that the bus chassis which failed inspection were defectively designed. Crane filed its answer on January 16, 1997, and asserted the affirmative defense that the Manufacturing License Agreement between the parties included an arbitration clause to resolve issues of design and manufacturing defects.

For three months following the filing of its answer, Crane responded to requests for admissions, issued its own discovery requests, and defended and took depositions. On April 24, 1997, Crane moved the trial court for an order referring the issues of manufacturing defects and design defects to arbitration, and for an order staying the court proceedings until arbitration had concluded. The trial court overruled Crane's motion the next day, stating in whole that "[t]he Motion of Defendant for Stay of Proceedings and Referral to Arbitration, filed April 24, 1997 is OVERRULED. This case was filed November 12, 1996, and is scheduled for Jury Trial July 21, 1997, the Court having no indication that arbitration was even an option until now."

This appeal followed. With the journal entry of June 6, 1997 from this court, we stayed the proceedings before the trial court pending the outcome of this appeal. With the issuance of this opinion, we remove the stay of proceedings pending appeal. In its sole assignment of error, Crane alleges:

"The trial court erred by overruling appellant's motion for stay of proceedings and referral to arbitration where appellant had properly asserted its right to arbitration as an affirmative defense in its answer and filed a motion for stay of proceedings."

Before addressing the merits of this appeal we must state that the proper standard of review for this case is the "abuse of discretion" standard. ² See Bedford City School Dist. v. Trane Co. (Mar. 20, 1997), Cuyahoga App. No. 71024, unreported, 1997 WL 127194; Phillips v. Lee Homes, Inc. (Feb. 17, 1994), Cuyahoga App. No. 64353, unreported, 1994 WL 50696. "The term 'abuse of discretion' connotes more than an error of law or judgment; it implies that the court's attitude is unreasonable, arbitrary or unconscionable." Blakemore v. Blakemore (1983), 5 Ohio St.3d 217, 219, 5 OBR 481, 482, 450 N.E.2d 1140, 1142.

Crane places three issues before this court in its sole assignment of error. First, Crane contends that "Ohio law mandates that the arbitration provision in the agreement be enforced[,] and that all proceedings in the trial court be stayed until such arbitration has been had." Next, Crane alleges that it "properly preserved its right to arbitration by asserting such right as an affirmative defense in its answer and by filing a motion for stay and referral to arbitration." Finally, Crane states that it "did not waive its right to arbitration by its actions prior to the filing of the lawsuit." We will address each issue as presented by Crane in an inverted order.

As stated earlier, Crane and Harsco entered into an agreement that provided that Crane would be responsible for any liability "arising out of manufacturing defects in the [c]hassis made by Crane * * * and for actual defects in the design of the original Crane [c]hassis * * * " as determined by three automotive engineers. The parties do not dispute that this arbitration clause was in full force and effect until the NHTA tested the design of the fuel tank barrier on the bus chassis for the first time. Crane contends that this arbitration clause is still in full force and effect. We agree.

The sale of the fifty bus chassis to Harsco by Crane utilized a fuel barrier design designated as Revision C. The Manufacturing License Agreement between the parties provided that Harsco would obtain the license to the design to produce Crane bus chassis in the future. This design, however, utilized a slightly modified fuel barrier design, referred to as Revision D. Harsco began manufacturing bus chassis utilizing Revision D fuel barriers. Revision D was the design tested for approval by the NHTA, and the design which failed the test. ³ The reason the fuel barrier failed the crash-test inspection was because the welds holding the fuel barrier frame together broke. ⁴ Subsequently, a second test was conducted on a bus chassis utilizing the Revision D fuel barrier. The welds on the fuel barrier broke again, and the chassis failed the test.

In an attempt to rectify the problem with the fuel barrier, Crane and Harsco collectively tested a Revision D barrier a third time. Harsco claims that the conduct of the parties in preparation for this third test of the fuel barrier constituted a waiver of the arbitration clause in the Manufacturing License Agreement.

Crane took the responsibility of preparing the barrier to be placed on the bus chassis. Additionally, Crane had a second barrier built specifically to be analyzed for defects in the welding material or workmanship, but not to be crash-tested. Crane, however, failed to have this barrier analyzed before the third crash test occurred. When the third crash test took place, the barrier failed to pass inspection. Crane contends that its later analysis revealed that the breaks in the welds were due to the size of the welding rod utilized. Crane states that when a smaller welding rod is used, the weld is deeper and more secure. Therefore, Crane argues that its design was not defective, and that Harsco was improperly constructing the barrier by utilizing too large of a welding rod. Harsco still maintains that the design of the fuel barrier was defective or otherwise in breach of the Manufacturing License Agreement.

Correspondence between representatives for Crane and Harsco made before the third crash tests and attached to the parties' complaint and answer provide this court with the only insight to whether a waiver occurred with respect to the arbitration clause in the Manufacturing License Agreement. The correspondence reveals that Crane was trying to avoid implementing the arbitration clause or submitting the dispute to the judicial process. However, no agreement, either express or implied, was reached between the parties that acted as a waiver to the right to arbitration.

"It is the policy of the law to favor and encourage arbitration and every reasonable intendment will be indulged to give effect to such proceedings and to favor the regularity and integrity of the arbitrator's acts. * * * " Campbell v. Automatic Die & Products Co. (1954), 162 Ohio St. 321, 329, 55 O.O. 195, 198, 123 N.E.2d 401, 405, certiorari denied (1955), 349 U.S. 929, 75 S.Ct. 771, 99 L.Ed. 1260. "Arbitration is favored because its purpose is 'to avoid needless and expensive litigation.' " Fairfield Eng. Co. v. Anchor Hocking Corp. (Apr. 10, 1986), Marion App. No. 9-84-37, unreported, 1986 WL 4367, quoting Springfield v. Walker (1885), 42 Ohio St. 543, 546, 1885 WL 49.

After having examined the correspondence between the parties, the conclusion we reach is that both parties disagree about the quality of the fuel tank barrier and which party bears responsibility for its failure. The parties tried to resolve their disagreement short of having to submit the dispute to arbitration or the judicial process. Crane had no greater responsibility to submit this dispute to arbitration than did Harsco, and Crane's failure to do so cannot act as a waiver to arbitrate the issues between the parties. Crane's proposed resolutions to their dispute were never clearly accepted by Harsco. Without more, Crane's pre-litigation conduct cannot be found to constitute a waiver of its rights and duties under the arbitration clause of the Manufacturing License Agreement. The same cannot be said for Harsco.

"The general rule is said...