Sekeres v. Arbaugh

• Decision Date: 03 June 1987
• Docket Number: No. 86-1098,86-1098
• Citation: 31 Ohio St.3d 24,31 OBR 75,508 N.E.2d 941
• Parties: , 31 O.B.R. 75 SEKERES, Appellant, v. ARBAUGH et al., Appellees.
• Court: Ohio Supreme Court

Page 24

31 Ohio St.3d 24

508 N.E.2d 941, 31 O.B.R. 75

SEKERES, Appellant, v. ARBAUGH et al., Appellees.

No. 86-1098.

Supreme Court of Ohio.

June 3, 1987.

Douglas H. Glenn & Associates, Steven L. Mills and Douglas H. Glenn, Cleveland, for appellant.

Roetzel & Andress and Thomas M. Parker, Akron, for appellees.

PER CURIAM.

The threshold question presented by this case is whether New York or Ohio law should govern the agreement of the parties. Once this issue is resolved, the question becomes whether the attorney fees provision violates the law of the applicable state. The courts below did not address the conflict of laws issue, but concluded that the provision was valid under Ohio law. We hold that the law of New York applies, and that it permits the use of a contractual attorney fees provision such as the one in question here.

I

In Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Co. (1983), 6 Ohio St.3d 436, 6 OBR 480, 453 N.E.2d 683, syllabus, we held as follows:

"The law of the state chosen by the parties to govern their contractual rights and duties will be applied unless either the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or application of the law of the chosen state would be contrary to the fundamental policy of a state having a greater material interest in the issue than the chosen state and such state would be the state of the applicable law in the absence of a choice by the parties."

As here, the parties in Schulke had agreed that their contract would be governed by the law of another state. This court adopted the tests found in Section 187(2) of the Restatement of the Law 2d, Conflict of Laws (1971) 561, to decide which state's law would be followed. Thus, the law of New York will be applied in this case if the requirements outlined in Schulke are met.

The first requirement is that the chosen state must have a substantial relationship to the parties or the transaction, or that there be some reasonable basis for the parties' choice. New York has a substantial relationship to both the parties and the transaction here. It is undisputed that New York is Merrill, Lynch's state of incorporation. Furthermore, the transaction was given final approval by Merrill, Lynch in New York. Thus, a reasonable basis exists for the choice of the parties.

The second requirement is that the application of the law of the chosen state must not violate the fundamental policy of the state which (1) has a greater material interest in the determination of the issue, and (2) is the state whose law would be applied in the absence of a choice by the parties. In other words, the application of New York law here must not violate the public policy of Ohio, but only if Ohio has a materially greater interest than New York in this matter, and only if Ohio law would have governed the agreement if the parties had not specified otherwise.

Ohio law clearly would have applied here had the parties not specified New York law in the agreement. However, Ohio does not have a materially greater interest than New York in the outcome of the case. While it is true that the agreement was signed in Ohio and that Sekeres is an Ohio resident, Ohio was neither the place of performance of the contract nor the place where it was given final approval. The commodity futures trading took place in markets from coast to coast, and the act which ultimately created the contract took place in New York when Merrill, Lynch approved it. Ohio obviously does not have a materially greater interest than New York in this matter.

Consequently, it is unnecessary under the tests outlined in Schulke to determine whether the application of New York law here would violate Ohio's public policy. As this court held in Jarvis v. Ashland Oil, Inc. (1985), 17 Ohio St.3d 189, 17 OBR 427, 478 N.E.2d 786, paragraph two of the syllabus, even if the law of the chosen state "is concededly repugnant to and in violation of the public policy of this state, the law of Ohio will only be applied when it can be shown that this state has a materially greater interest than the chosen state in the determination of a particular issue."

II

Having determined that New York law governs the agreement, we now turn to the question of whether a contractual attorney fees provision such as the one at issue here is valid in New York. We conclude that it is.

New York law clearly allows the use of attorney fees provisions in contracts. See, e.g., Avco Financial Services Trust v. Bentley (1982), 116 Misc.2d 34, 455 N.Y.S.2d 62; and Weidman v. Tomaselli (1975), 81 Misc.2d 328, 365 N.Y.S.2d 681, affirmed (1975), 84 Misc.2d 782, 386 N.Y.S.2d 276. The only requirement New York imposes upon such provisions is that they must be reasonable; that is, they must not be a penalty to the party against whom the attorney fees are assessed. See Weidman, supra, at 336-337, 365 N.Y.S.2d at 691; and 379 Madison Ave., Inc. v. Stuyvesant Co. (1934), 242 App.Div. 567, 569, 275 N.Y.S. 953, 956, affirmed (1935), 268 N.Y. 576, 198 N.E. 412.

In this case the attorney fees granted to Merrill, Lynch by the trial court were neither unreasonable nor a penalty to Sekeres. The fees bore a reasonable relationship to the costs incurred by Merrill, Lynch in defending the action. They were not an arbitrary fixed amount intended to penalize Sekeres for bringing the suit. Therefore, we hold that the attorney fees provision agreed to by the parties here is valid under New York law.

The trial court properly granted Merrill, Lynch's counterclaim for attorney fees under the terms of the agreement. Accordingly, we hereby affirm the judgment of the court of appeals, although for different reasons.

Judgment affirmed.

MOYER, C.J., and SWEENEY, LOCHER and DOUGLAS, JJ., concur.

RESNICK, WRIGHT and HERBERT R. BROWN, JJ., dissent.

ALICE ROBIE RESNICK, J., of the Sixth Appellate District, sitting for HOLMES, J.

ALICE ROBIE RESNICK, Justice, dissenting.

I respectfully dissent from the majority's finding that New York law applies.

The majority relies on Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Co. (1983), 6 Ohio St.3d 436, 6 OBR 480, 453 N.E.2d 683, in determining that New York law should apply. The Schulke decision was based upon application of the test found in Section 187(2) of the Restatement of the Law 2d, Conflict of Laws (1971) 561, which states:

"The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either

"(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or

"(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties."

The key issue upon which I disagree with the majority opinion is whether Ohio has a "materially greater interest" in the determination of the issues in this case than New York. The only contact New York, the chosen forum, had with the parties is twofold: (1) Merrill, Lynch is a New York corporation and (2) the contract was received in New York for execution. Ohio, on the other hand, had considerably more contact: (1) Sekeres was a citizen of Ohio, (2) Merrill, Lynch was doing business in Ohio, (3) Merrill, Lynch had an agent permanently located in Ohio, (4) any explanations and negotiations of the contract were conducted in Ohio, (5) appellant signed the contract in Ohio and was bound by that signature, and (6) Ohio has a substantial interest in protecting the rights and needs of its citizens. When the contacts with New York and Ohio are compared, it is evident that Ohio does in fact have a materially greater interest than New York in the resolution of this issue.

The contract was not to be performed in either Ohio or New York, but primarily in a third state. This prevents the performance of the contract from favoring either state.

Since it is apparent that Ohio has a materially greater interest than New York, it becomes necessary to determine whether application of the attorney fees provision " * * * would be contrary to a fundamental policy * * * " of Ohio. Ohio case law makes it abundantly clear that a provision requiring the payment of the opposing party's attorney fees violates the public policy of Ohio and is unenforceable. It is well-established in Ohio that attorney fees are not to be awarded to the successful party unless provided for by statute or unless the party against whom the fees are taxed was found to have acted in bad faith. See Ohio Edison Co. v. Franklin Paper Co. (1985), 18 Ohio St.3d 15, 18 OBR 13, 479 N.E.2d 843; State, ex rel. Crockett, v. Robinson (1981), 67 Ohio St.2d 363, 21 O.O.3d 228, 423 N.E.2d 1099; State, ex rel. Fraternal Order of Police, v. Dayton (1977), 49 Ohio St.2d 219, 3 O.O.3d 360, 361 N.E.2d 428; State, ex rel. Grosser, v. Boy (1976), 46 Ohio St.2d 184, 75 O.O.2d 228, 347 N.E.2d 539; Sorin v. Bd. of Edn. (1976), 46 Ohio St.2d 177, 75 O.O.2d 224, 347 N.E.2d 527; State, ex rel. Michaels, v. Morse (1956), 165 Ohio St. 599, 60 O.O. 531, 138 N.E.2d 660.

This court has previously considered Section 187(2)(b) and has determined:

"Where the law of the chosen state sought to be applied is concededly repugnant to and in violation of the public policy of this state, the law of Ohio will only be applied when it can be shown that this state has a materially greater interest than the chosen state in the determination of the particular issue. (Restatement of the Law 2d,...