Taylor Bldg. Corp. of Am. v. Benfield

• Decision Date: 28 August 2006
• Docket Number: No. CA2005-09-083.,CA2005-09-083.
• Parties: TAYLOR BUILDING CORPORATION OF AMERICA, Appellee, v. BENFIELD et al., Appellants.
• Court: Ohio Court of Appeals

860 N.E.2d 1058

168 Ohio App.3d 517

2006-Ohio-4428

TAYLOR BUILDING CORPORATION OF AMERICA, Appellee, v. BENFIELD et al., Appellants.

No. CA2005-09-083.

Court of Appeals of Ohio, Twelfth District, Clermont County.

Decided August 28, 2006.

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

Nichols, Speidel & Nichols, and Donald W. White, Batavia, for appellants.

BRESSLER, Judge.

{¶ 1} Defendants-appellants, Marvin and Mary Ruth Benfield, appeal from a decision of the Clermont County Court of Common Pleas, granting the motion of plaintiff-appellee, Taylor Building Corporation of America, to stay judicial proceedings pending mediation and/or arbitration.

{¶ 2} Appellee is a Kentucky corporation whose principal place of business is in Louisville, Kentucky. Appellee is engaged in the business of constructing residential houses. Appellants are a married couple who reside in Cincinnati, Ohio, and own real estate in Clermont County, Ohio.

{¶ 3} On July 3, 2002, appellee entered into an agreement with appellants, whereby appellee agreed to construct a residential home for appellants on their property in Clermont County for $89,977. After commencing work, appellee sent invoices to appellants requesting progress payments as called for under the terms of the parties' construction contract. Appellants, being dissatisfied with appellee's work, refused to pay the invoices.

{¶ 4} In July 2003, appellants sent appellee a "Stop Work" letter, and ordered appellee to leave the premises and not return. As of July 31, 2003, appellants allegedly owed appellee $18,145.40 for materials and labor that appellee had furnished with respect to the parties' construction contract. In September 2003, appellee filed a mechanic's lien against appellants' Clermont County property.

{¶ 5} On November 26, 2003, appellee filed a complaint in foreclosure against appellants in the Clermont County Court of Common Pleas, raising claims of breach of contract, unjust enrichment, and quantum meruit. Appellee's complaint also sought foreclosure on the mechanic's lien that it had filed against appellants' property.

{¶ 6} At the same time it filed its complaint in foreclosure, appellee moved to stay the proceedings pending mediation and/or arbitration. Appellee based its motion on the mediation and arbitration clauses in the parties' construction agreement that required any claims or disputes arising under the agreement to be submitted to mediation, and upon failure of mediation, then to binding arbitration.

{¶ 7} On December 23, 2003, appellants filed an answer to appellee's complaint, denying the material allegations directed against them. Appellants also brought a counterclaim, alleging, among other things, that appellee: (1) had engaged in acts and practices in violation of the Ohio Consumer Sales Practices Act, (2) had breached its contractual obligations under the parties' contract, and (3) had made fraudulent misrepresentations to appellants regarding their competency as home builders.

{¶ 8} On December 24, 2003, appellants moved to dismiss Taylor's motion to stay judicial proceedings pending mediation and/or arbitration. Appellants argued, among other things, that several provisions of the parties' construction contract, including its mediation and arbitration clause, were "unconscionable" and, therefore, unenforceable.

{¶ 9} The trial court held a hearing on appellee's motion to stay the judicial proceedings pending mediation and/or arbitration. The only evidence submitted in the case was an affidavit from one of the appellants, Mary Ruth Benfield. In her affidavit, Mary Ruth adopted the allegations in appellants' answer, affirmative defenses, counterclaim, and response to appellee's motion to stay the proceedings pending mediation and/or arbitration.

{¶10} On August 17, 2005, the trial court issued a decision and entry finding that a provision in the mediation and arbitration clauses requiring that the mediation and/or arbitration take place in Kentucky was "substantively unconscionable" because it violated R.C. 4113.62. As a result, the trial court ordered that the mediation and/or arbitration proceedings must take place in Clermont County, Ohio. The trial court found that the remaining terms of the mediation and arbitration clauses and the construction contract, itself, were not unconscionable or otherwise unenforceable. Consequently, the trial court granted appellee's motion to stay the proceedings pending mediation and/or arbitration.

{¶ 11} Appellants now appeal, raising the following assignment of error:

{¶ 12} "The trial court erred as a matter of law in finding that the arbitration clause is enforceable."

{¶ 13} Appellants argue that the trial court erred in finding the mediation/arbitration clauses in the parties' contract to be enforceable, because the clauses are unconscionable as a matter of law. We agree with appellants' argument.

{¶ 14} Generally, appellate courts review a trial court's disposition of a motion to stay proceedings and compel arbitration under an abuse-of-discretion standard of review. See, e.g., Yessenow v. Aue Design Studio, Inc., 165 Ohio App.3d 757, 2006-Ohio-1202, 848 N.E.2d 563, ¶ 11; McGuffey v. LensCrafters, Inc. (2001), 141 Ohio App.3d 44, 49, 749 N.E.2d 825.

{¶ 15} However, when an appellate court is presented with a purely legal question, the appropriate standard of appellate review is de novo. Eagle v. Fred Martin Motor Co., 157 Ohio App.3d 150, 2004-Ohio-829, 809 N.E.2d 1161, ¶ 11. Under a de novo standard of review, an appellate court does not defer to a trial court's decision. Id. On questions of law, a trial court does not exercise discretion, and the appellate court's review is plenary. Id. at ¶ 12, citing McGee v. Ohio State Bd. of Psychology (1993), 82 Ohio App.3d 301, 305, 611 N.E.2d 902.

{¶ 16} The determination whether a provision in a contract is unconscionable is a question of law. Ins. Co. of N. Am. v. Automatic Sprinkler Corp. (1981), 67 Ohio St.2d 91, 98, 21 O.O.3d 58, 423 N.E.2d 151. Therefore, in reviewing the trial court's ruling on the question of unconscionability, we apply a de novo, rather than an abuse-of-discretion, standard of review. See Eagle, 157 Ohio App.3d 150, 2004-Ohio-829, 809 N.E.2d 1161, at ¶ 13; Dunkelman v. Cincinnati Bengals, Inc., 158 Ohio App.3d 604, 2004-Ohio-6425, 821 N.E.2d 198, ¶ 19-20; Vanyo v. Clear Channel Worldwide, 156 Ohio App.3d 706, 2004-Ohio-1793, 808 N.E.2d 482, ¶ 8.

{¶ 17} In Ohio, "arbitration is encouraged as a method to settle disputes. A presumption favoring arbitration arises when the claim in dispute falls within the scope of the arbitration provision. An arbitration clause in a contract is generally viewed as an expression that the parties agree to arbitrate disagreements within the scope of the arbitration clause, and, with limited exceptions, an arbitration clause is to be upheld just as any other provision in a contract should be respected." (Citation omitted.) Williams v. Aetna Fin. Co. (1998), 83 Ohio St.3d 464, 471, 700 N.E.2d 859.

{¶ 18} An arbitration clause may be unenforceable "upon grounds that exist at law or in equity for the revocation of any contract." R.C. 2711.01(A). One such ground is "unconscionability." See Eagle, 157 Ohio App.3d 150, 2004-Ohio-829, 809 N.E.2d 1161, at ¶ 16; Porpora v. Gatliff Bldg. Co., 160 Ohio App.3d 843, 2005-Ohio-2410, 828 N.E.2d 1081, ¶ 6. "Unconscionability is generally recognized to include an absence of meaningful choice on the part of one of the parties to a contract, combined with contract terms that are unreasonably favorable to the other party." Collins v. Click Camera & Video, Inc. (1993), 86 Ohio App.3d 826, 834, 621 N.E.2d 1294.

{¶ 19} An arbitration clause is unconscionable when the clause is "`so one-sided as to oppress or unfairly surprise [a] party.'" Neubrander v. Dean Witter Reynolds, Inc. (1992), 81 Ohio App.3d 308, 311-312, 610 N.E.2d 1089, quoting Black's Law Dictionary (5th Ed.Rev.1979) 1367. "The party seeking to establish that an arbitration clause is unconscionable must show that the provision is both procedurally and substantively unconscionable." Porpora, 160 Ohio App.3d 843, 2005-Ohio-2410, at ¶ 6.

{¶ 20} Procedural unconscionability concerns the formation of the agreement and occurs when no voluntary meeting of the minds is possible. Id. at ¶ 7. To determine whether a contract provision is procedurally unconscionable, courts consider the following factors: (1) the relative bargaining positions of the parties, (2) whether the terms of the provision were explained to the weaker party, and (3) whether the party claiming that the provision is unconscionable was represented by counsel at the time the contract was executed. Id.

{¶ 21} Additionally, when "there are strong indications that the contract at issue is an adhesion contract, and the arbitration clause itself appears to be adhesive in nature," there is "considerable doubt that any true agreement ever existed to submit disputes to arbitration." Williams v. Aetna Fin. Co. (1998), 83 Ohio St.3d 464, 473, 700 N.E.2d 859. Black's Law Dictionary (8th Ed.2004) 342, defines an adhesion contract as a "standard-form contract prepared by one party, to be signed by the party in a weaker position, usu[ally] a consumer, who adheres to the contract with little choice about the terms."

{¶ 22} Substantive unconscionability refers to the actual terms of the agreement. Porpora, 160 Ohio App.3d 843, 2005-Ohio-2410, 828 N.E.2d 1081, at ¶ 8. Contract terms are substantively unconscionable if they are unfair and commercially unreasonable. Dorsey v. Contemporary Obstetrics & Gynecology, Inc. (1996), 113 Ohio App.3d 75, 80, 680 N.E.2d 240. "Because the determination of commercial reasonableness varies with the content of the contract terms at issue in any given case, no generally accepted list of factors has been developed for this...