Ball v. Ohio State Home Services, Inc.,168 Oh. App.3d 622, 2006-Ohio-4464
In light of the ever increasing litigious nature of society, arbitration clauses have become standard practice in construction contracts. For many years contractors have relied upon arbitration provisions in contracts to prevent unsatisfied homeowners from constantly running to court to file lawsuits over unsatisfactory work. Recently, in Ball v. Ohio State Home Services, the 9th District Court of Appeals reversed a trial court’s invalidation of an arbitration provision of a construction contract, reinforcing the strength of arbitration agreements. For years, the public policy of Ohio courts has strongly favored arbitration over litigation. Therefore, arbitration provisions are generally valid and enforceable pursuant to O.R.C. §2711.01(A). In fact, when examining an arbitration clause, a court must bear in mind the strong presumption in favor of arbitrability and resolve all doubts in favor of arbitrability.
Despite the court’s public policy preference for arbitration, homeowners often still prefer to have their day in court. Under Ohio law, absent waiver, a homeowner’s only chance to avoid arbitration and file a lawsuit is to convince a court that the arbitration provision in their contract is “unconscionable.” Essentially, a party seeking to invalidate an arbitration clause on grounds of unconscionability must prove that there was no “voluntary meeting of the minds” to agree to arbitration, and that contract arbitration clause contained in the contract is unfair and commercially unreasonable.
The nature of analysis as to a “meeting of the minds” and the fairness of arbitration clause means that unconsiconability of a contract is a fact sensitive question that requires a case-by- case review of the surrounding circumstances.
In the Ball case, homeowners hired a contractor to remove mold from their basement. Included as a part of the Ball’s contract was an arbitration provision for disputes arising from the contractor’s work. Following what the Ball’s believed to be unsatisfactory work, despite the arbitration clause in their contract, the Balls filed suit against the contractor alleging fraud, breach of contract, breach of warranties, and violations of the Ohio Consumer Sales Practices Act and the Magnuson-Moss Warranty Act.
Based upon the arbitration clause in the contract, the contractor moved to dismiss the Balls’ claims or in the alternative stay the proceedings pending arbitration. The homeowners opposed the motions claiming the arbitration provision was procedurally and substantively unconscionable.
When determining procedural unconscionability the reviewing court must consider factors bearing directly on the relative bargaining position of the parties. Such factors include age, education, intelligence, business acumen, experience in similar transactions, whether terms were explained to the weaker party, and who drafted the contract. In the Ball case, the homeowners claimed the arbitration clause was unconscionable because the homeowners never actually read the arbitration provision and claimed to not have understood what they were signing.
After oral hearing, the trial court agreed with the Balls and found the arbitration provision in their contract to be unconscionable and invalid.
In Ohio it is well settled law that a person who is competent to contract and who signs a written document without reading it is still bound by its terms and cannot avoid its consequences. Further, a person of ordinary intelligence cannot be heard to say that he was mislead into signing a paper which was different from what he intended, when he could have known the truth by merely looking at what he signed.
Further, the Ohio Supreme Court has held that there is no requirement that an arbitration clause be explained orally to a party prior to signing when provisions were not in fine print, were not hidden from the party, are part of an industry standard and were not misrepresented to the signatory.
Overall, a contracting party is presumed to know the contents of a signed agreement, including the existence and scope of an arbitration clause. Therefore, the trial court was reversed by the 9th District Court of Appeals (Summit County), which further strengthened the validity of arbitration clauses in construction contracts by upholding the legal and common sense theory that “one must read what one signs.”
If you would like a copy of the opinion or otherwise have any question regarding contracts in general or arbitration clauses in particular, call any member of our General Corporate or Real Estate Practice Group.