Norman v. Schumacher Homes of Circleville, Inc. , 2013 Ohio 2687 ( 2013 )

[Cite as Norman v. Schumacher Homes of Circleville, Inc., 2013-Ohio-2687.]
IN THE COURT OF APPEALS OF OHIO
FOURTH APPELLATE DISTRICT
ROSS COUNTY
JESSICA M. NORMAN, : Case No. 12CA3338
:
Plaintiff-Appellant, :
: DECISION AND
v. : JUDGMENT ENTRY
:
SCHUMACHER HOMES OF :
CIRCLEVILLE, INC., : RELEASED 6/25/13
:
Defendant-Appellee. :
______________________________________________________________________
APPEARANCES:
Jason Shugart and D. Dale Seif, Jr., Seif & Shugart, LLC, Waverly, Ohio for appellant.
David E. Butz and Aletha M. Carver, Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.,
Canton, Ohio for appellee.
______________________________________________________________________
Harsha, J.
{¶1} Jessica Norman appeals the trial court’s judgment granting Schumacher
Homes of Circleville, Inc.’s (Schumacher Homes) motion to stay proceedings pending
arbitration and argues that the arbitration provision in the parties’ purchase agreement
is unenforceable.
{¶2} First, Norman argues that the arbitration provision is ambiguous about the
number of arbitrators that will hear the claim and points to the provision’s use of both
the terms “arbitrator” and “arbitrator(s).” However, the use of both of these terms
together does not create any ambiguity, as the provision states that the parties agree to
“binding arbitration by an arbitrator.” And when read in conjunction with this statement,
the term “arbitrator(s)” clearly refers to the singular form. Because the provision is not
reasonably subject to two interpretations it is not ambiguous.
Ross App. No. 12CA3338 2
{¶3} Norman next claims that costs of arbitration are prohibitive and she cannot
afford to commence arbitration. She also contends that the trial court erred by finding
that she did not prove that arbitration was cost prohibitive because she failed to submit
evidence showing the cost differential between arbitration and litigation. We agree with
Schumacher Homes that it would be unsound to find an arbitration provision
unenforceable due to prohibitive costs when the costs of litigation may be just as high or
higher, especially in light of Ohio’s strong public policy favoring arbitration. And
because Norman failed to submit any evidence of the expected costs and fees of
litigation, we agree she did not meet her burden to demonstrate that costs of arbitration
are prohibitive.
{¶4} In addition, Norman argues that in determining she failed to prove
arbitration was cost prohibitive, the trial court erred by finding that her claim of damages
in excess of $1,000,000.00 is highly speculative. The fees for arbitration increase with
the amount of the claim and Norman calculated her arbitration fees based on this value.
Thus, a court considering a party’s contention that arbitration is cost prohibitive must
take into account the amount of the party’s claim. And considering Norman’s estimation
is over seven times the purchase price of her home, the trial court did not err by finding
Norman’s estimation of damages is speculative.
{¶5} Norman also argues that Schumacher Homes fraudulently induced her
into signing the purchase agreement because it misrepresented that her home would
include a full basement. However, an arbitration clause is essentially a contract within a
contract. Therefore, a party must show that they were fraudulently induced into signing
the clause itself, rather than the contract in general. And because Norman’s allegation
Ross App. No. 12CA3338 3
of fraud relates only to the purchase agreement in general and she makes no claim that
Schumacher Homes made any misrepresentations about the arbitration provision itself,
this argument is meritless.
{¶6} Next Norman claims that based on Schaefer v. Allstate Ins. Co., 63 Ohio
St.3d 708, 590 N.E.2d 1242 (1992), the parties’ arbitration provision has no meaning
under Ohio law because it requires “non-binding” arbitration in certain circumstances.
In Schaefer, the Ohio Supreme Court held that for a dispute resolution procedure to be
classified as arbitration, the decision rendered must be final, binding and without any
qualification or condition as to the finality of an award. However unlike the arbitration
provision in Schaefer, the provision here provides that any decision rendered by the
arbitrator is “final and binding” and that non-binding arbitration is only available in the
event that binding arbitration is legally precluded. Therefore, Schaefer does not support
Norman’s argument; we reject her contention that the provision is unenforceable on this
basis.
{¶7} Finally, she argues that R.C. 2711.03(B) requires the trial court to hold a
hearing before ruling on a motion to compel arbitration; thus the trial court erred by
granting Schumacher Homes’ motion to stay proceedings pending arbitration without
first conducting such a hearing. However, a motion to stay proceedings pending
arbitration made under R.C. 2711.02 is distinct from a motion to compel arbitration
made under R.C. 2711.03. Although a trial court may in its discretion hold a hearing
when considering whether a stay is proper under R.C. 2711.02, that statute does not
require a hearing. Here Schumacher Homes captioned its motion as a motion to stay
proceedings pending arbitration, but cited both R.C. 2711.02 and 2711.03. However,
Ross App. No. 12CA3338 4
even assuming that Schumacher Homes made the motion under R.C. 2711.03, Norman
made no request for an oral hearing. And because a trial court need not hold an oral or
evidentiary hearing regarding an R.C. 2711.03 motion absent a proper request, the trial
court did not err by failing to hold an oral hearing before ruling on Schumacher Homes’
motion.
I. FACTS
{¶8} This case involves a dispute about the construction of Jessica Norman’s
home and the enforceability of the arbitration clause in the purchase agreement.
Norman and Schumacher Homes entered into a purchase agreement for the
construction of a new home on Norman’s property. Under the terms of the agreement,
Schumacher Homes was to construct the home with a full basement. However during
construction, water accumulated in the basement and a dispute arose about whether to
construct a crawl space rather than a full basement.
{¶9} Norman filed a complaint for declaratory judgment asking the trial court to
decide whether Schumacher Homes could enforce the arbitration provision in the
purchase agreement. Schumacher Homes responded by filing a motion to dismiss, or
in the alternative, to stay proceedings pending arbitration. The trial court granted
Schumacher Homes’ motion to stay, finding that the arbitration clause was neither
unconscionable nor outside the scope of Norman’s claims. Norman now appeals the
trial court’s judgment.
II. ASSIGNMENTS OF ERROR
{¶10} Norman raises seven assignments of error for our review:
1. THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY ORDERING
PLAINTIFF-APPELLANT’S CLAIMS TO ARBITRATION, WHEN THE
Ross App. No. 12CA3338 5
ARBITRATION CLAUSE FAILS TO IDENTIFY THE NUMBER OF
ARBITRATOR(S) WHICH WILL REVIEW THE CLAIMS.
2. THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY ORDERING
PLAINTIFF-APPELLANT’S CLAIMS TO ARBITRATION, WHEN THE
ARBITRATION CLAUSE IS AMBIGUOUS AND MISLEADING AS TO FEES
BECAUSE IT DEFINES ONLY WHO WILL PAY ARBITRATOR’S FEES, BUT
DOES NOT DEFINE WHICH PARTY WILL PAY THE ARBITRATION FILING
FEE AND CASE SERVICE FEE.
3. THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY ORDERING
PLAINTIFF-APPELLANT’S CLAIMS TO ARBITRATION, WHEN THE
SIGNATURES ON THE ARBITRATION CLAUSE WERE OBTAINED
THROUGH MISREPRESENTATION AND PLAINTIFF-APPELLANT
CHALLENGED THE VERY EXISTENCE OF THE CONTRACT, WHICH
WOULD RENDER THE ARBITRATION CLAUSE VOID.
4. THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY ORDERING
PLAINTIFF-APPELLANT’S CLAIMS AGAINST DEFENDANT-APPELLEE
SCHUMACHER HOMES OF CIRCLEVILLE, INC. TO ARBITRATION, WHEN
THE ARBITRATION CLAUSE REQUIRED PARTIES TO SUBMIT TO NON-
BINDING ARBITRATION.
5. THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY ORDERING
PLAINTIFF-APPELLANT’S CLAIMS TO ARBITRATION, WHEN THE TRIAL
COURT REQUIRED PLAINTIFF-APPELLANT TO PROVIDE EVIDENCE
COMPARING THE COST OF ARBITRATION TO THE COST OF LITIGATION
WHEN THE OHIO SUPREME COURT REQUIRES ONLY SPECIFIC
EVIDENCE OF LIKELY ARBITRATORS’ FEES AND PLAINTIFF’S FINANCIAL
INABILITY TO PAY THOSE FEES, INCLUDING PLAINTIFF’S PARTICULAR
FINANCIAL SITUATION.
6. THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY ORDERING
PLAINTIFF-APPELLANT’S CLAIMS TO ARBITRATION, WHEN THE TRIAL
COURT ARBITRARILY DETERMINED THAT PLAINTIFF-APPELLANT’S
CLAIM FOR DAMAGES WAS HIGHLY SPECULATIVE.
7. THE TRIAL COURT COMMITTED REVERSIBLE ERROR AND BREACHED
PLAINTIFF-APPELLANT’S DUE PROCESS RIGHTS BY FAILING TO FOLLOW
THE PROCEDURAL REQUIREMENTS UNDER R.C. 2711.03 TO CONDUCT
DISCOVERY AND BRIEF THE ISSUE OF THE VALIDITY OF THE
ARBITRATION CLAUSE WHEN DEFENDANTS-APPELLEES MOVED FOR A
STAY PURSUANT TO R.C. 2711.02 AND R.C. 2711.03.
III. LAW AND ANALYSIS
Ross App. No. 12CA3338 6
A. Legal Standard
{¶11} Many appellate courts have reviewed a trial court’s decision to grant or to
deny a motion to compel arbitration or stay the proceedings under the abuse of
discretion standard. See Fields v. Herrnstein Chrysler, Inc., 4th Dist. No. 12CA827
2013-Ohio-693, ¶ 12. However the determination of a written contract’s meaning is a
question of law, thus in reviewing whether an arbitration clause is enforceable, we apply
a de novo standard of review. See Redmond v. Big Sandy Furniture, Inc., 4th Dist. No.
08CA12, 2008-Ohio-6084, ¶ 10, citing Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio
St.3d 352, 2008-Ohio-938, 884 N.E.2d 12, ¶ 37.
{¶12} Ohio courts recognize a presumption favoring arbitration when the issue of
the parties’ dispute falls within the scope of the arbitration provision. Taylor Bldg. at ¶
27. In light of this strong presumption favoring arbitration, all doubts should be resolved
in its favor. Hayes v. Oakridge Home, 122 Ohio St.3d 63, 2009-Ohio-2054, 908 N.E.2d
408, ¶ 15.
{¶13} “Arbitration is favored because it provides the parties thereto with a
relatively expeditious and economical means of resolving a dispute.” Schaefer v.
Allstate Ins. Co., 63 Ohio St.3d 708, 712, 590 N.E.2d 1242 (1992). “Thus, ‘if a dispute
even arguably falls within the [parties’] arbitration provision, the trial court must stay the
proceedings until arbitration has been completed.’” Fields at ¶ 15, quoting Tomovich v.
USA Waterproofing & Foundation Servs, Inc., 9th Dist. No. 07CA9150, 2007-Ohio-6214,
¶ 8.
{¶14} Ohio’s strong public policy favoring arbitration is codified in Chapter 2711
of the Revised Code. Westerfield v. Three Rivers Nursing & Rehab. Ctr., LLC, 2nd Dist.
Ross App. No. 12CA3338 7
No. 25347, 2013-Ohio-512, ¶ 17. Under R.C. 2711.02(B) on application of one of the
parties, a trial court may stay litigation in favor of arbitration pursuant to a written
arbitration agreement. Taylor Bldg., 117 Ohio St.3d 352, 2008-Ohio-938, 884 N.E.2d
12, at ¶ 28. R.C. 2711.02(B) provides:
If any action is brought upon any issue referable to arbitration under an
agreement in writing for arbitration, the court in which the action is
pending, upon being satisfied that the issue involved in the action is
referable to arbitration under an agreement in writing for arbitration, shall
on application of one of the parties stay the trial of the action until the
arbitration of the issue has been had in accordance with the agreement,
provided the applicant for the stay is not in default in proceeding with
arbitration.
“Thus, R.C. 2711.02 requires a court to stay the trial of an action ‘on application of one
of the parties’ if (1) the action is brought upon any issue referable to arbitration under a
written agreement for arbitration[;] (2) the court is satisfied the issue is referable to
arbitration under the written agreement[;] and (3) the applicant is not in default in
proceeding with arbitration.” Fields, 4th Dist. No. 12CA827, 2013-Ohio-693, at ¶ 14.
{¶15} On appeal, Norman does not argue that that the parties’ dispute about the
construction of her basement falls outside scope of the arbitration clause in the
purchase agreement. Rather, she only challenges the validity of the arbitration
provision and contends that it is unenforceable for several reasons. And because it is
clear that Norman’s claim regarding the construction of her basement is covered by the
arbitration provision’s broad language, we focus our review on its enforceability.
{¶16} The enforceability of arbitration agreements is addressed in R.C.
2711.01(A) which provides that such agreements “shall be valid, irrevocable, and
enforceable, except upon grounds that exist at law or in equity for the revocation of any
contract.” See Hayes, 122 Ohio St.3d 63, 2009-Ohio-2054, 908 N.E.2d 408, at ¶ 16-17.
Ross App. No. 12CA3338 8
R.C. 2711.01 “‘acknowledges that an arbitration clause is, in effect, a contract within a
contract, subject to revocation on its own merits.’” Taylor Bldg. at ¶ 41, quoting ABM
Farms, Inc. v. Woods, 81 Ohio St.3d 498, 501-502, 692 N.E.2d 574 (1998). Thus, to
defeat a motion under R.C. 2711.02 for a stay of litigation a party must demonstrate that
the arbitration provision itself, and not merely the contract in general, is unenforceable.
Taylor Bldg. at ¶ 41.
B. Ambiguity
{¶17} Initially Norman argues that the arbitration provision in the parties’
purchase agreement is unenforceable because it is ambiguous. In her first assignment
of error she claims that the provision is ambiguous about the number of arbitrators.
Specifically, she contends that because the arbitration provision includes both the terms
“arbitrator” and “arbitrator(s)” it failed to identify the number of arbitrators who will decide
the claim and there was no “meeting of the minds” on this essential term. We disagree.
{¶18} As noted, the general principles of contract law govern the applicability of
arbitration clauses. Alexander v. Wells Fargo Fin. Ohio 1, Inc., 8th Dist. No. 89277,
2009-Ohio-4873, ¶ 10. “‘A meeting of the minds as to the essential terms of the
contract is a requirement to enforcing the contract.’” Rayess v. Educational Comm. for
Foreign Med. Graduates, 134 Ohio St.3d 509, 2012-Ohio-5676, 983 N.E.2d 1267, ¶ 19,
quoting Kostelnik v. Helper, 96 Ohio St.3d 1, 2002-Ohio-2985, 770 N.E.2d 58, ¶ 16.
Thus to be enforceable, “‘the contract must be definite and certain.’” Rayess at ¶ 19,
quoting Episcopal Retirement Homes, Inc. v. Ohio Dept. of Indus. Relations, 61 Ohio
St.3d 366, 369, 575 N.E.2d 134 (1991). “Contract language is ambiguous ‘if it is
unclear, indefinite, and reasonably subject to dual interpretations * * *.’” Scarberry v.
Ross App. No. 12CA3338 9
Lawless, 4th Dist. No. 09CA18, 2010-Ohio-3395, ¶ 24, quoting Beverly v. Parilla, 165
Ohio App.3d 802, 2006-Ohio-1286,848 N.E.2d 881, ¶ 24 (7th Dist.).
{¶19} Here, the provision is not ambiguous regarding the number of arbitrators.
In paragraph 27 of the purchase agreement, the arbitration provision states:
The Parties agree that any claim, dispute or cause of action, of any nature
* * * shall be subject to final and binding arbitration by an arbitrator
appointed by the American Arbitration Association in accordance with the
Construction Industry Rules of the American Arbitration Association and
judgment may be entered on the award in a court of appropriate venue. *
* * Each party shall be responsible for one-half of the arbitrator’s fees. * * *
The arbitrator(s) shall determine all issues regarding the arbitrability of the
dispute. The powers of the arbitrator(s) shall include all legal and
equitable remedies, including but not limited to, money damages,
declaratory relief, and injunctive relief. Should any party refuse or neglect
to appear at and participate in arbitration proceedings after due notice, the
arbitrator will make an award based on evidence introduced by the parties
who do appear and participate.”
{¶20} We do not agree with Norman that the use of the term “arbitrator(s)” in
combination with the term “arbitrator” causes any ambiguity regarding the number of
arbitrators who will review the claim. The provision clearly states that the parties agreed
to “binding arbitration by an arbitrator * * *.” (Emphasis added.) The subsequent
referral to “arbitrator(s)” in the provision does not contradict this statement. Rather, the
letter “s” in parenthesis indicates either the singular or plural form of the word may be
used. And when the term “arbitrator(s)” is read in conjunction with the rest of the
provision it is clear that the singular form is appropriate. Because this language is not
reasonably subject to two interpretations, it is not ambiguous and we overrule Norman’s
first assignment of error.
Ross App. No. 12CA3338 10
{¶21} In her second assignment of error, Norman contends that the arbitration
provision is also ambiguous because it fails to define which party will pay the arbitration
filing and case service fees.
{¶22} Under the arbitration provision “[e]ach party shall be responsible for one-
half of the arbitrator’s fees.” As Norman points out, the provision fails to discuss the
responsibility or amount of any other fees or costs. However, she fails to cite any legal
authority to support her claim that this alone renders the arbitration provision
unenforceable.
{¶23} To the contrary, “[a]n arbitration provision in a contract is not rendered
unenforceable simply because the provision is silent as to costs and fails to provide
protection from potentially substantial costs.” Post v. Procare Automotive Serv.
Solutions, 8th Dist. No. 87646, 2007-Ohio-2106, ¶ 47 (Cooney, J., concurring in part
and dissenting in part), citing Green Tree Fin. Corp-Alabama v. Randolph, 531 U.S. 79,
91, 121 S.Ct. 513, 148 L. Ed.2d 373 (2000). See also Taylor Bldg., 117 Ohio St.3d 352,
2008-Ohio-938, 884 N.E.2d 12, at ¶ 58 (finding Green Tree persuasive authority for
state-law claims). Rather, the party challenging the arbitration provision must show the
likelihood of incurring prohibitive costs. Taylor Bldg. at ¶ 58-59.
{¶24} Thus, to the extent that Norman argues the failure to address the costs
and fees of arbitration alone renders the provision unenforceable, we disagree. In the
remainder of her second assignment of error, Norman argues that the costs of
arbitration are “absurdly prohibitive” and she therefore “cannot afford to commence the
arbitration.” Because these issues are related to her fifth and sixth assignment of errors
we consider them together below.
Ross App. No. 12CA3338 11
C. Costs and Fees
{¶25} In her fifth assignment of error, Norman contends that she is unable to
initiate arbitration due to the excessive costs, and the trial court erred by finding that she
needed to show the cost differential between arbitration and litigation to demonstrate
that arbitration would be cost prohibitive. In her sixth assignment of error, she argues
that because the costs of arbitration are based in part on the amount of damages
claimed, the trial court erred by enforcing the arbitration provision after finding her claim
for damages was too speculative.
{¶26} “[A]n arbitration clause will not be held unenforceable based on
unsupported allegations of prohibitive costs.” Taylor Bldg., 117 Ohio St.3d 352, 2008-
Ohio-938, 884 N.E.2d 12, at ¶ 59. Rather, the party challenging the arbitration provision
must show that such costs would be prohibitively high. Id. This means that the party
seeking to invalidate an arbitration agreement must show either that he is unable to pay
or that the costs are so substantial as to deter him from initiating arbitration. Post, 8th
Dist. No. 87646, 2007-Ohio-2106, at ¶ 47 (Cooney, J., concurring in part and dissenting
in part). This requires the party to present evidence regarding her ability to pay the
costs and fees. Id. at ¶ 47-48. Thus, we review whether arbitration costs are prohibitive
on a case-by-case basis. Id. at ¶ 46.
{¶27} In addition, the party must show that the costs of arbitration would be
greater than the costs of litigation and that such costs would deter him or her from
submitting the claim to arbitration. Id. at ¶ 49. “‘[A]lthough the cost of arbitration may
be high, so too is the cost of litigating a claim. Indeed, it is quite possible that litigation
could result in substantial legal fees and costs that, in the end, exceed the cost of
Ross App. No. 12CA3338 12
arbitration.’” Id., quoting Handler v. Southerland Custom Bldrs., Inc., 8th Dist. No.
86956, 2006-Ohio-4371, ¶ 18.
{¶28} In her memorandum opposing Schumacher Homes’ motion to stay the
proceedings, Norman submitted evidence showing the expected costs of arbitration.
She provided a fee schedule from the American Arbitration Association indicating that
based on a claim in excess of $1,000,000.00 but less than $5,000,000.00, she would be
responsible for an initial filing fee of $8,200 and a final fee of $3,250. She also
submitted an affidavit stating her total income for 2011 was $55,722.33 and that she
“cannot afford to pay the excessive fees to commence a claim against [Schumacher
Homes].”
{¶29} The trial court found that although Norman provided evidence of her
annual income and the estimated costs of arbitration, she “provided no evidence of the
expected cost differential between arbitration and litigation in court.” On appeal,
Norman claims that she provided the necessary evidence regarding the costs of
litigation by submitting an affidavit from her attorney stating he agreed to represent her
on a contingency fee basis. Specifically she contends that because “the cost of her
attorney’s fee is nothing unless her attorney collects a judgment,” she has shown that
the costs of arbitration exceed the potential costs of litigation. Moreover, she argues
that “the case law does not require [her] to prove a cost differential between arbitration
and litigation, the trial court simply invented this metric requirement.” We find this
statement to be simply false.
{¶30} Although we have not considered this exact issue, several appellate
courts in Ohio have required a party to provide some evidence showing that the costs of
Ross App. No. 12CA3338 13
arbitration would be greater than the costs of litigation. See U.S. Bank N.A. v. Wilkens,
8th Dist. No. 96617, 2012-Ohio-1038, ¶ 39; Moran v. Riverfront Diversified, Inc., 197
Ohio App.3d 471, 2011-Ohio-6328, 968 N.E.2d 1, ¶ 29 (2nd Dist.); Handler v. Southland
Custom Builders, Inc., 8th Dist. No. 86956, 2006-Ohio-4371, ¶ 18; English v. Cornwell
Quality Tools Co., Inc., 9th Dist. No. 22578, 2005-Ohio-6983, ¶ 17-18. We adopt this
requirement because even though the costs of arbitration may be high, so may be the
costs of litigation. See Post, 8th Dist. No. 87646, 2007-Ohio-2106, at ¶ 49 (Cooney, J.,
concurring in part and dissenting in part). Thus it would be unsound to find an
arbitration provision unenforceable due to prohibitive costs when the costs of litigation
may be just as high or higher, especially in light of Ohio’s strong public policy favoring
arbitration. Again, the only evidence Norman submitted regarding the costs of litigation
was the fee arrangement with her attorney. This fails to provide any insight into other
traditional costs and fees normally associated with litigation. And because she
submitted no evidence showing what these costs and expenses may be, we agree with
the trial court that she failed to demonstrate that the costs of arbitration would be
prohibitive.
{¶31} In addition we agree that Norman’s claim of damages in excess of
$1,000,000.00 is speculative. See U.S. Bank at ¶ 38. In an affidavit attached to her
memorandum opposing Schumacher Homes’ motion, her counsel states that Norman
“has filed claims against [Schumacher Homes] in excess of $1,000,000.00.” However,
nothing in the record indicates she has actually filed a complaint seeking damages
against Schumacher Homes; rather, this case was initiated upon her complaint for
declaratory judgment to determine the enforceability of the arbitration provision in the
Ross App. No. 12CA3338 14
parties’ purchase agreement. Nowhere in the complaint for declaratory judgment does
she state a demand for damages. Furthermore, in her memorandum contra
Schumacher Homes’ motion to stay, Norman stated that she has filed a separate
complaint with the trial court “alleging claims against individuals, who are not parties to
the Purchase Agreement or the Arbitration Clause.” Thus, we consider her
$1,000,000.00 value an estimation of her claim. This is relevant because the fees
associated with arbitration increase with the amount of the party’s claim and Norman
calculated her arbitration fees based on a claim in excess of $1,000,000.00.
Considering that the parties agreed to a purchase price of approximately $140,000.00,
the estimated damages sought are over seven times the purchase price of the home.
Thus we are forced to take into account the speculative nature of her claim.
{¶32} Norman cites Cosner v. Maronda Homes of Ohio, Inc., Franklin C.P. No.
06CVH06-8278 (June 5, 2007), in support of her damages estimation and argues
Cosner resulted in a verdict over $3,000,000.00 for the plaintiff. And because she will
likewise file an Ohio Consumer Sales Protection Act claim, her “request for $1 million is
completely reasonable.” However, the decision in Cosner that she attached to her brief
grants summary judgment in part for the defendant. Nowhere in the attached decision
does the court mention the amount of the plaintiff’s claim or the facts surrounding the
case. Thus, we do not consider the case as support for the reasonableness of
Norman’s $1,000,000.00 claim. And when considered with her failure to provide some
evidence of the costs associated with litigation, we conclude she has not met her
burden to demonstrate that arbitration would be cost-prohibitive and overrule her
second, fifth, and sixth assignment of errors.
Ross App. No. 12CA3338 15
D. Fraud
{¶33} Norman argues in her third assignment of error that Schumacher Homes
fraudulently induced her into signing the purchase agreement. She contends that it
misrepresented that the home would have a full basement and she relied on these
representations when signing the contract.
{¶34} However, as we have already indicated, an arbitration provision is
effectively a contract within a contract, subject to revocation on its own merits. Taylor
Bldg., 117 Ohio St.3d 352, 2008-Ohio-938, 884 N.E.2d 12, at ¶ 41. “Because the
arbitration clause is a separate entity, it only follows that an alleged failure of the
contract in which it is contained does not affect the provision itself.” ABM Farms, 81
Ohio St.3d at 502, 692 N.E.2d 574 (1998). Thus, “to defeat a motion for stay brought
pursuant to R.C. 2711.02, a party must demonstrate that the arbitration provision itself
in the contract at issue, and not merely the contract in general, was fraudulently
induced.” Id. See also Marquez v. Koch, 4th Dist. No. 11CA3283, 2012-Ohio-5466, ¶
14.
{¶35} Here, Norman makes no claim that Schumacher Homes fraudulently
induced her to sign the arbitration provision itself, nor is there any evidence to show
this. Rather she asserts that it made misrepresentations regarding the construction of
the basement, which induced her to sign the purchase agreement. Because her
allegations of fraud relate only to the purchase agreement, and not the arbitration
provision, we find her argument to be meritless and overrule her third assignment of
error.
E. Non-Binding Arbitration
Ross App. No. 12CA3338 16
{¶36} In her fourth assignment of error, Norman claims that because the
arbitration provision requires “non-binding” arbitration in certain circumstances, it has no
meaning under Ohio law.
{¶37} Here, the arbitration provision states:
The Parties agree that any claim, dispute or cause of action, of any nature * * *
shall be subject to final and binding arbitration by an arbitrator appointed by the
American Arbitration Association in accordance with the Construction Industry
Rules of the American Arbitration Association and judgment may be entered on
the award in a court of appropriate venue. * * * If any state or federal law
prohibits binding arbitration for any of the parties’ claims, then the parties may
proceed to non-binding arbitration of those claims, and all other claims will
remain subject to binding arbitration as provided herein. Further, the parties
must proceed with non-binding arbitration as a condition precedent to filing any
claim in a court of law. The parties understand that by agreeing to binding
arbitration they are agreeing to arbitrate and not litigate their disputes and are
giving up their right to a trial by jury, and to have a trial to a judge, or to seek
remedies from a court.
{¶38} It is clear from the plain language of the provision that the parties agreed
to submit their claims to binding arbitration, unless prevented by state or federal law.
Only if binding arbitration is precluded by law, did the parties agree to non-binding
arbitration of those claims as a condition precedent to filing a claim in court. On appeal
Norman makes no argument that binding arbitration is prevented in this case, but
argues generally that the reference to non-binding arbitration renders the provision
unenforceable.
{¶39} She bases her claim on the Ohio Supreme Court’s decision in Schaefer v.
Allstate Ins. Co., 63 Ohio St.3d 708, 590 N.E.2d 1242 (1992). In that case a plurality of
the Court held that “[f]or a dispute resolution procedure to be classified as ‘arbitration,’
the decision rendered must be final, binding and without any qualification or condition as
to the finality of an award whether or not agreed to by the parties.” Id. at 711. In
Ross App. No. 12CA3338 17
Schaefer, the Court considered an arbitration provision that provided an arbitration
award was only binding if below a designated amount, but non-binding if it exceeded
such amount and that the issues could be retried de novo in court. Id. at 714. The Court
concluded that:
[the] provision in question here represents a clear attempt to bypass R.C.
Chapter 2711 by setting up an “escape hatch” for any party disappointed
with an award exceeding a specified amount. In doing so, the provision
completely frustrates the purposes of “arbitration” and every public policy
reason favoring the arbitration system of dispute resolution. By permitting
a trial de novo in some instances, the provision unnecessarily subjects the
parties to multiple proceedings in a variety of forums, increases costs,
extends the time consumed in ultimately resolving a dispute, and
eviscerates any advantage of unburdening crowded court dockets.
Accordingly, since the provision is not a provision providing for true
arbitration, the entire agreement to “arbitrate” clause is unenforceable. Id.
at 716.
{¶40} Here, the parties’ arbitration provision provides for a dispute resolution
procedure in which the decision rendered is final, binding and without any qualification
or condition to the finality of an award. The parties agreed to binding arbitration and the
provision clearly states that any decision rendered by the arbitrator is “final and binding.”
Unlike the provision in Schaefer, here the alternative procedure that provides for “non-
binding” arbitration does not create an “escape hatch” that attempts to circumvent R.C.
Chapter 2711. Under the arbitration clause, non-binding arbitration is only available in
the event that binding arbitration is legally precluded. Moreover, the issue in Schaefer
was the enforceability of the arbitrators’ award, not whether the parties were entitled to
have the matter referred for arbitration in the first instance. Travelers Cas. & Sur. Co. v.
Aeroquip-Vickers, Inc., 6th Dist. No. L-06-1201, 2007-Ohio-5305, ¶ 49. Therefore, we
do not agree that Schaefer supports Norman’s argument and overrule her fourth
assignment of error.
Ross App. No. 12CA3338 18
F. Oral or Evidentiary Hearing
{¶41} Finally, in her seventh assignment of error, Norman argues that the trial
court breached her due process rights when it granted Schumacher Homes’ motion to
stay without holding a hearing or allowing the parties to conduct discovery. She
contends that under R.C. 2711.03(B) the trial court was required to conduct a hearing
before ruling on the motion to compel arbitration.
{¶42} Chapter 2711 of the Revised Code provides a party with different
mechanisms to enforce an arbitration agreement. Under R.C. 2711.03:
(A) The party aggrieved by the alleged failure of another to perform under
a written agreement for arbitration may petition any court of common pleas
* * * for an order directing that the arbitration proceed in the manner
provided for in the written agreement. * * * The court shall hear the parties,
and, upon being satisfied that the making of the agreement for arbitration
or the failure to comply with the agreement is not in issue, the court shall
make an order directing the parties to proceed to arbitration in accordance
with the agreement.
(B) If the making of the arbitration agreement or the failure to perform it is
in issue in a petition filed under division (A) of this section, the court shall
proceed summarily to the trial of that issue. If no jury trial is demanded as
provided in this division, the court shall hear and determine that issue.
In comparison, R.C. 2711.02(B) states:
If any action is brought upon any issue referable to arbitration under an
agreement in writing for arbitration, the court in which the action is
pending, upon being satisfied that the issue involved in the action is
referable to arbitration under an agreement in writing for arbitration, shall
on application of one of the parties stay the trial of the action until the
arbitration of the issue has been had in accordance with the agreement * *
*.
{¶43} In Maestle v. Best Buy Co., 100 Ohio St.3d 330, 2003-Ohio-6465, 800
N.E.2d 7, the Ohio Supreme Court noted that although a motion to compel arbitration
and a motion to stay proceedings pending arbitration both require the trial court to
Ross App. No. 12CA3338 19
determine ultimately whether an arbitration agreement is enforceable, they are separate
and distinct procedures that serve different purposes. Id. at ¶ 14, 17. A motion to
compel arbitration under R.C. 2711.03 allows for direct enforcement of an arbitration
agreement, while a motion to stay proceedings under R.C. 2711.02 allows for indirect
enforcement. Id. Accordingly, a party seeking to enforce an arbitration provision may
move for a stay under R.C. 2711.02, or petition for an order for the parties to proceed to
arbitration under R.C. 2711.03, or seek orders under both statutes. Id. at ¶ 18. Thus,
“a trial court considering whether to grant a motion to stay proceedings pending
arbitration filed under R.C. 2711.02 need not hold a hearing pursuant to R.C. 2711.03
when the motion is not based on R.C. 2711.03. While it is within a trial court’s
discretion to hold a hearing when considering whether a R.C. 2711.02 stay is
warranted, that statute does not on its face require a hearing * * *.” Id. at ¶ 19.
{¶44} In this case, Schumacher Homes filed a “Motion to Dismiss, or in the
Alternative, to Stay Proceedings Pending Arbitration.” Although Schumacher Homes
cited both R.C. 2711.02 and 2711.03 on the face of its motion, the memorandum
attached makes it clear that it only sought a stay of the proceedings, rather than an
order compelling arbitration. Likewise when considering the motion, the trial court
treated it solely as a motion to stay proceedings made pursuant to R.C. 2711.02 and
made no order compelling the parties to arbitration.
{¶45} Moreover, even if we were to consider Schumacher Homes’ motion as a
motion to compel arbitration made under R.C. 2711.03, we have held “even subsequent
to Maestle, that a trial court need not hold an oral or evidentiary hearing regarding an
R.C. 2711.03 motion absent a proper request.” Chrysler Fin. Servs. v. Henderson, 4th
Ross App. No. 12CA3338 20
Dist. No. 11CA4, 2011-Ohio-6813, ¶ 21. Here, Norman made no such request. After
Schumacher Homes filed its motion to dismiss, or in the alternative, stay proceedings
pending arbitration, the court scheduled a non-oral hearing on the motion. Rather than
making a request for an oral or evidentiary hearing, Norman simply filed a memorandum
contra Schumacher Homes’ motion to stay. Thus, even assuming arguendo that
Schumacher Homes filed a motion to compel arbitration pursuant to R.C. 2711.03, the
parties had adequately briefed the issue and the trial court did not err by failing to hold
an oral or evidentiary hearing. And because under R.C. 2711.02, the trial court is not
required to hold a hearing before ruling on a motion to stay proceedings, we overrule
Norman’s seventh assignment of error.
IV. CONCLUSION
{¶46} Because Norman has not demonstrated that the arbitration provision in
question is unenforceable, we overrule her seven assignments of error and affirm the
trial court’s judgment.
JUDGMENT AFFIRMED.
Ross App. No. 12CA3338 21
JUDGMENT ENTRY
It is ordered that the JUDGMENT IS AFFIRMED and that Appellant shall pay the
costs.
The Court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this Court directing the Ross
County Court of Common Pleas to carry this judgment into execution.
Any stay previously granted by this Court is hereby terminated as of the date of
this entry.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
McFarland, P.J. & Abele, J.: Concur in Judgment and Opinion.
For the Court
BY: ________________________________
William H. Harsha, Judge
NOTICE TO COUNSEL
Pursuant to Local Rule No. 14, this document constitutes a final judgment
entry and the time period for further appeal commences from the date of filing
with the clerk.