Taylor Bldg. Corp. of Am. v. Benfield

• Decision Date: 12 March 2008
• Docket Number: No. 2006-2043.,No. 2006-1890.,2006-1890.,2006-2043.
• Citation: 117 Ohio St.3d 352,884 N.E.2d 12,2008 Ohio 938
• Parties: TAYLOR BUILDING CORPORATION OF AMERICA, Appellant, v. BENFIELD et al., Appellees.
• Court: Ohio Supreme Court

884 N.E.2d 12

117 Ohio St.3d 352

2008-Ohio-938

TAYLOR BUILDING CORPORATION OF AMERICA, Appellant, v. BENFIELD et al., Appellees.

No. 2006-1890.

No. 2006-2043.

Supreme Court of Ohio.

Submitted September 18, 2007.

Decided March 12, 2008.

Santen & Hughes, J. Robert Linneman, and C. Gregory Schmidt, Cincinnati, for appellant.

Nichols, Speidel & Nichols and Donald W. White, Batavia, for appellees Marvin and Mary Ruth Benfield.

Marc Dann, Attorney General, and Elise Porter, Robert J. Krummen, and Nadine L. Ballard, Assistant Attorneys General, urging affirmance for amicus curiae Ohio Attorney General.

CUPP, J.

{¶ 1} Marvin and Mary Ruth Benfield, appellees, contracted with appellant, Taylor Building Corporation of America ("Taylor") to build a house on the Benfields' land in Clermont County, Ohio. That contract contained an arbitration provision. Unsatisfied with Taylor's work, the Benfields refused to make further payments to Taylor under the contract and demanded a refund of the money they had already paid. Taylor responded by suing the Benfields to enforce its liens on the property and moving to stay the case pending arbitration. The dispute here concerns the enforceability of the arbitration provision and, particularly, the standard of review for a motion to stay judicial proceedings pending arbitration when the underlying issue is whether that provision is unconscionable.

{¶ 2} We hold that the proper standard of review of a determination of whether the arbitration agreement is enforceable in light of a claim of unconscionability is de novo, but any factual findings of the trial court must be accorded appropriate deference. Because we conclude on de novo review that the arbitration agreement is not unconscionable under Ohio law, we reverse in part the court of appeals' judgment.

I

A

{¶ 3} The Benfields contracted with Taylor, a Kentucky corporation, to build a house on the Benfields' property in Clermont County, Ohio. The contract included handwritten specifications for the particular features of the home to be constructed for the Benfields and contained an arbitration agreement. In March 2003, Taylor began construction and completed the foundation, framing, roof, and brick exterior of the house. Taylor alleges that in July 2003, the Benfields refused to make further payments on the house and issued a stop-work order, prohibiting Taylor from completing the building. The Benfields allege that the Clermont County building inspector discovered numerous building-code violations and ordered all work to cease until code violations were corrected.

{¶ 4} Taylor then filed this case in the Clermont County common pleas court seeking damages for breach of contract, recovery for unjust enrichment and quantum meruit, and foreclosure of Taylor's mechanic's lien on the property. The Benfields answered, denying that they were in breach of the contract, and asserted counterclaims for rescission and damages for violations of the Ohio Consumer Sales Practices Act, R.C. 1345.01 et seq., breach of contract, negligent construction, and fraud. The Benfields also alleged that the contract was unconscionable and unenforceable. (Taylor did not file a pleading in response to the counterclaim.) When Taylor filed the complaint, Taylor also filed a motion under R.C. 2711.02(B) to stay the litigation in favor of mediation and arbitration pursuant to the parties' contract. The Benfields opposed the motion, contending that the mediation and arbitration clauses in the agreement were unenforceable.

{¶ 5} The mediation and arbitration clauses in the contract provide:

{¶ 6} "15. (a) Mediation — That in the event of any dispute between First Party [Taylor] and Second Party [the Benfields] as to the quality of construction, quality of materials, contract disputes or similar disputes as to the construction, the parties shall endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its construction industry mediation rules. Notices of the demand for mediation shall be filed with a copy of this Construction Agreement with the American Arbitration Association and to the other party to this agreement. The site for the mediation shall be Louisville, Kentucky (Jefferson County).

{¶ 7} "(b) Arbitration — In the event the issues cannot be resolved by mediation, then any claims or disputes arising out of this Construction Agreement or the alleged breach thereunder shall be settled by mandatory and binding arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association unless both parties mutually agree otherwise. (This position shall not affect First Party's right to secure a mechanic's lien and to pursue those remedies described in Section 6 and 9 [of this Agreement].) Notices of the demand for arbitration shall be filed with a copy of this Construction Agreement with the American Arbitration Association and the other party to this Agreement. The site for the arbitration proceeding shall be Louisville, Kentucky (Jefferson County)." (Boldface sic.)

{¶ 8} The Benfields initialed this provision of the contract. The agreement also contained a broad severability clause, which provided, "The invalidity or unenforceability of any terms or provisions herein, or any clause or portion thereof, of this Agreement, shall in no way affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect."

B

{¶ 9} The trial court held a hearing on Taylor's motion to stay and granted that motion in part. The trial court concluded that the Ohio Consumer Sales Practices Act does not preclude arbitration clauses in consumer sales contracts. The trial court also rejected the Benfields' argument that Taylor waived arbitration by seeking to enforce its mechanic's lien. The Benfields did not appeal those rulings to the court of appeals.

{¶ 10} The trial court rejected the Benfields' argument that the contract was unconscionable and therefore unenforceable. Regarding the Benfields' challenges to particular contract provisions, the court first found that "the loss of the right to a jury trial is an obvious consequence" of an arbitration agreement and therefore did not render the provision unconscionable. Additionally, the trial court rejected the argument that paragraph seven of the contract, which would require the Benfields to pay Taylor's reasonable legal costs to enforce its rights under the contract, is unconscionable. The trial court concluded that the parties need not have the same obligations for there to be consideration for a contract. Additionally, the trial court noted that the contract does not limit the causes of action that would otherwise be available to the Benfields. The trial court further opined that only if the Benfields took possession of the real estate without paying Taylor for the home would the Benfields have to pay Taylor's attorney fees.

{¶ 11} The trial court held that the provision in the arbitration agreement requiring the arbitration to be held in Louisville, Jefferson County, Kentucky was unenforceable because it was in violation of R.C. 4113.62. Because the trial court found that the arbitration agreement as a whole was reasonable, the court limited the application of the venue provision. Thus, the trial court required the mediation and any arbitration to be held in Clermont County, Ohio, where the improvement to real estate at issue is located, in accordance with R.C. 4113.62(D)(2). Taylor did not cross-appeal this ruling to the court of appeals.

{¶ 12} The trial court found that the remaining provisions of the arbitration agreement were not one-sided and that "there is no evidence of a substantial fee required as a condition precedent to arbitration." Similarly, the trial court found "no evidence that the arbitration costs and fees are prohibitive, unreasonable, and unfair as applied to the [Benfields]."

{¶ 13} Rejecting the Benfields' claim of procedural unconscionability, the trial court found that Taylor did not present this contract to the Benfields on a take-it-or-leave-it basis. The court noted that there are "a multitude of homebuilders in the local area," so the Benfields did not have to enter into this contract with Taylor to build their house. The trial court found that the provisions of the contract were in standard, not fine, print, and there was no evidence that the Benfields had been rushed through the signing process. The trial court found that the record did not show that the Benfields were unaware of the impact of the arbitration clause and in fact showed that they had assented to it by initialing it. The trial court found that Taylor's salesperson's statement to the effect that there would be no need for arbitration because Taylor builds quality homes to be a statement of opinion that did not constitute a misrepresentation of fact. Accordingly, the trial court concluded that this was not a contract of adhesion and that the arbitration agreement was not procedurally unconscionable.

C

{¶ 14} On appeal, the Twelfth District Court of Appeals reversed. The appellate court concluded that the arbitration clause was unconscionable and unenforceable. Taylor Bldg. Corp. of Am. v. Benfield, 168 Ohio App.3d 517, 2006-Ohio-4428, 860 N.E.2d 1058, ¶ 13. The court of appeals determined that the issue of whether a contract provision is unconscionable is a question of law, reviewable de novo. Id. at ¶ 15-16.

{¶ 15} On de novo review, the appellate court concluded that the arbitration provision was unconscionable. Id. at ¶ 23. The appellate court held the arbitration clause procedurally unconscionable even though the Benfields could have had their house built by other homebuilders in the area. Id. at ¶ 26-27. The court opined that the Taylor salesman's representation that the arbitration clause was not important because Taylor had never had any disputes ...