Ohio Plumbing, Ltd. v. Fiorilli Constr., Inc.

Citations: 2018 Ohio 1748; 111 N.E.3d 763Docket: 106242

Court: Ohio Court of Appeals; May 3, 2018; Ohio; State Appellate Court

Original Court Document: View Document

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Fiorilli Construction, Inc. appeals the Cuyahoga County Court of Common Pleas' denial of its motion to stay proceedings pending arbitration in a case involving a contract dispute with Ohio Plumbing, Ltd. The contract, related to plumbing services for a SteinMart store, includes a multi-stage dispute resolution process that mandates discussions, pre-mediation, and mediation, with arbitration or litigation as the final recourse at Fiorilli's discretion if disputes remain unresolved.

Ohio Plumbing filed a complaint on May 30, 2017, claiming breach of contract and violation of the Ohio Prompt Payment Act due to Fiorilli's alleged failure to pay for completed work, seeking $5,337 plus interest and attorney fees. In response, Fiorilli moved for a change of venue to Medina County, citing a forum selection clause in the contract, and sought dismissal or a stay of proceedings pending arbitration under R.C. 2711.02. The court ultimately reversed its earlier decision and remanded the case for further proceedings.

Ohio Plumbing opposed Fiorilli's motion to compel arbitration, claiming there was no dispute to arbitrate, as the sole issue was whether Fiorilli had paid the invoices. Ohio Plumbing further contended the arbitration agreement was unconscionable, rendering its provisions unenforceable. The trial court denied Fiorilli’s motion on August 17, 2017. Fiorilli appealed, asserting the trial court erred by not enforcing the arbitration clause in their commercial contract. 

Fiorilli argued that the court should have stayed proceedings pending arbitration due to the valid arbitration agreement and that Ohio Plumbing's claims fell within its scope. Ohio Plumbing countered that (1) their claims were related to payment issues unsuitable for arbitration, (2) Fiorilli had not initiated arbitration prior to filing the stay motion, and (3) the arbitration clause was overly one-sided and thus unconscionable.

The appellate review is limited to the denial of the motion to stay arbitration, not the dismissal or venue change. The review standard for arbitration applicability questions is de novo, meaning no deference is given to the trial court’s ruling. Conversely, an abuse of discretion standard applies to claims of waiver of arbitration rights. Ohio law strongly favors arbitration and enforces arbitration provisions, presuming arbitrability when claims fall within the arbitration clause's scope. Courts must resolve any ambiguities in favor of arbitration unless there is a clear indication that the clause does not cover the dispute.

R.C. 2711.02(B) mandates that a court must stay a trial if (1) the action pertains to a dispute referable to arbitration under a written agreement, (2) the court confirms this referability, and (3) the party requesting the stay is not in default regarding arbitration. In the present case, the parties have an agreement that includes an arbitration clause. Ohio Plumbing argues that its claims, limited to a payment dispute, are not suitable for arbitration. However, the law presumes in favor of arbitration, and a party cannot be forced to arbitrate unless it consented to the arbitration of the specific dispute. The determination of whether a dispute falls within the arbitration agreement hinges on whether the action could proceed independently of the contract involved. 

Ohio Plumbing’s claims for breach of contract and violation of the Ohio Prompt Payment Act arise directly from the agreement and cannot exist without referencing it. The claim for $5,337 is rooted in the agreement, and asserting that the defendant acknowledges the debt does not negate the need for arbitration. The dispute over payment constitutes a matter under the agreement, thus falling within the arbitration clause's scope. Any preliminary conditions for arbitration are to be resolved by the arbitrator, as procedural issues related to the dispute's resolution are typically left for arbitration, not the court.

Ohio Plumbing argues that its claims are not subject to arbitration under R.C. 2711.02(B) because Fiorilli failed to formally demand arbitration or initiate proceedings before seeking a stay, thus defaulting on arbitration. Default is defined as a failure to perform a legal duty, and a party waives its right to arbitrate by acting inconsistently with that right, which can occur if they do not promptly raise the arbitration provision. However, R.C. 2711.02(B) does not require a defendant to initiate arbitration before seeking a stay of litigation. Instead, the statute allows a party to file a motion for a stay when the matter is referable to arbitration per a written agreement. Case law indicates that the responsibility to commence arbitration lies with the plaintiff, and a defendant cannot be in default for failing to initiate arbitration when it has no duty to do so. Furthermore, the agreement between the parties specifies that Ohio Plumbing waived its right to litigate unless Fiorilli consented in writing, and binding resolution could only occur after unsuccessful nonbinding attempts. There is no evidence that such preliminary discussions or mediation attempts took place.

Fiorilli did not act inconsistently regarding its right to arbitration, as its chance to waive or invoke this right arose after Ohio Plumbing filed a complaint. To properly assert its right, Fiorilli filed a motion to stay litigation pending arbitration, which was in accordance with R.C. 2711.02(B). There is no reasonable basis for the trial court to have found that Fiorilli defaulted on arbitration at the time of filing the motion.

Ohio Plumbing argued that the arbitration provision is unconscionable, rendering it unenforceable, and thus justifying the trial court's denial of Fiorilli's motion to stay arbitration. An arbitration provision is unenforceable if deemed unconscionable, which can be proven through legal or equitable grounds for contract revocation. Unconscionability consists of two prongs: substantive unconscionability (unfair contract terms) and procedural unconscionability (lack of meaningful choice). The burden of proof lies with the party claiming unconscionability, who must demonstrate both elements.

Substantive unconscionability focuses on the reasonableness of the contract terms, while procedural unconscionability examines factors such as the parties' bargaining power, experience, and understanding of the contract. No single factor alone determines procedural unconscionability; rather, the totality of circumstances is considered. The key issue is whether both parties had a reasonable opportunity to comprehend the contract terms. Ohio Plumbing failed to meet its burden of proving unconscionability in this case.

Ohio Plumbing claims the arbitration clause in its contract with Fiorilli is unconscionable, citing both substantive and procedural grounds. Substantively, it argues that the clause forces it to waive litigation rights and is part of a complex and costly dispute resolution process that discourages small claims. Procedurally, Ohio Plumbing contends that the contract is an adhesion agreement, lacking bargaining power, and was not reviewed by legal counsel. However, the court emphasizes that the mere cost of arbitration does not render a provision unenforceable unless there is specific evidence of undue burden. Furthermore, the court notes that the cases cited by Ohio Plumbing involve consumer or employee contexts, making them inapplicable to this commercial contract case. 

The court finds no supporting evidence for Ohio Plumbing's claims of procedural unconscionability, as it did not provide affidavits or request a hearing, and the contract was clearly initialed by Ohio Plumbing’s representative. Consequently, Ohio Plumbing failed to meet the two-part test for unconscionability, leading the trial court to improperly deny Fiorilli’s motion to stay arbitration. The appellate court reverses the trial court's decision, instructing it to stay litigation pending arbitration and awarding costs to Fiorilli. A special mandate is issued to enforce this judgment.