Khaledi v. Nickris Properties, Inc. ( 2018 )

[Cite as Khaledi v. Nickris Properties, Inc., 2018-Ohio-3087.]
IN THE COURT OF APPEALS OF OHIO
SIXTH APPELLATE DISTRICT
HURON COUNTY
Jessica Khaledi, et al. Court of Appeals No. H-17-015
Appellants Trial Court No. CVH 2017 0573
v.
Nickris Properties, Inc., et al. DECISION AND JUDGMENT
Appellees Decided: August 3, 2018
*****
Daniel J. Myers and Samantha A. Vajskop, for appellants.
Philip J. Truax and Michael R. Nakon, for appellees.
*****
PIETRYKOWSKI, J.
{¶ 1} Plaintiffs-appellants, Jessica and Kayvon Khaledi, appeal the September 18,
2017 judgment of the Huron County Court of Common Pleas which granted the motion
of appellees, Nickris Properties, Inc., dba Premier Construction Services, and Mark
Smith, to stay the matter pending arbitration of the parties’ dispute. We find that the
arbitration provision was enforceable and not unconscionable and the court did not abuse
its discretion by granting the stay.
{¶ 2} The relevant facts of this case are as follows. On March 1, 2016, appellants
and appellees entered into a home remodeling contract. The contract provided the scope
of work which involved extensive renovations to several rooms in appellants’ home as
well as the construction of a two-car garage. The contract estimated the cost at $97,416
and required a 25 percent down payment. The contract provided for dispute resolution by
arbitration stating: “Arbitration by the American Arbitration Association will be used to
settle any outstanding disputes with administrative costs shared mutually by the Owner
and Premier Construction Services.”
{¶ 3} During construction, appellants made several deletions to the scope of the
work stating they were dissatisfied with the duration and other aspects of the project.
Ultimately, on June 1, 2017, appellants commenced the instant action asserting claims for
breach of contract and negligence in appellees’ alleged failure to perform in a
workmanlike manner and fraud and misrepresentation claims relating to appellees’
alleged failure to obtain the necessary work permits and making various false statements.
The complaint also contained claims under the Home Construction Service Supplier Act
(HCSSA) and the Consumer Sales Practices Act (CSPA).
{¶ 4} On July 28, 2017, appellees filed a motion pursuant to R.C. 2711.02 to stay
the proceedings pending arbitration. Appellees stated that the claims raised by appellants
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fell within the broad scope of the arbitration clause contained in the parties’ contract and,
thus, were subject to arbitration.
{¶ 5} While the motion to stay the proceedings was pending, appellees filed a
notice with the court of the July 26, 2017 cure offer sent to appellants. The letter,
tendered pursuant to R.C. 1345.092, indicated, in part:
Although Premier denies the allegations set forth in the Complaint,
Premier prefers to resolve this dispute amicably rather than through
protracted litigation or arbitration (noting that we will be filing a motion to
stay the lawsuit pending arbitration pursuant to the parties’ written
contract.)
{¶ 6} On September 18, 2017, the trial court granted the motion to stay and this
appeal followed with appellants raising one assignment of error on appeal:
The trial court committed reversible error when it granted
defendants-appellees’ motion to stay proceedings pending arbitration.
{¶ 7} At the outset we set forth the relevant standards of review. We review a
decision regarding a motion to stay proceedings pending arbitration for an abuse of
discretion. Ranazzi v. Amazon.com, Inc., 6th Dist. Lucas No. L-14-1217, 2015-Ohio-
4411, ¶ 9, citing Construction Technologies, LLC v. Southbridge Housing Partners, LP,
6th Dist. Lucas No. L-06-1080, 2006-Ohio-6630, ¶ 7. However, review of a judgment
regarding the unconscionability (a question of law) of an arbitration provision is reviewed
de novo, with the trial court’s factual findings accorded deference. Id., citing Hussein v.
3.
Hafner & Shugarman Ents., Inc., 176 Ohio App. 3d 127, 2008-Ohio-1791, 890 N.E.2d
356, ¶ 22-23 (6th Dist.).
{¶ 8} Appellants’ sole assignment of error makes several arguments as to why the
court erred when it granted appellees’ motion to stay. We will address appellants’
procedural, waiver argument first.
Waiver
{¶ 9} Appellants argue that appellees waived the right to demand arbitration by
submitting to the jurisdiction of the court. Appellants correctly state that the right to
arbitrate may be waived. Donnell v. Parkcliffe Alzheimer’s Community, 6th Dist. Wood
No. WD-17-001, 2017-Ohio-7982, ¶ 20, citing Travelers Cas. and Sur. Co. v. Aeroquip-
Vickers, Inc., 6th Dist. Lucas No. L-06-1201, 2007-Ohio-5305, ¶ 34. In Donnell, we
observed:
“Waiver may attach where there is active participation in a lawsuit
demonstrating an acquiescence to proceeding in a judicial forum.” [Buyer
v. Long, 6th Dist. Fulton No. F-05-012, 2006-Ohio-472] at ¶ 13. “A party
asserting waiver must establish that (1) the waiving party knew of the
existing right to arbitrate; and (2) the totality of the circumstances
demonstrate the party acted inconsistently with the known right.” Id. at
¶ 11, citing Atkinson v. Dick Masheter Leasing II, Inc., 10th Dist. Franklin
No. 01AP-1016, 2002-Ohio-4299, ¶ 20. When considering the totality of
the circumstances, the court may be guided by:
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“[W]hether the party seeking arbitration invoked the jurisdiction of
the court by filing a complaint, counterclaim, or third-party complaint
without asking for a stay of the proceedings; (2) the delay, if any, by the
party seeking arbitration to request a stay of the judicial proceedings, or an
order compelling arbitration; (3) the extent to which the party seeking
arbitration has participated in the litigation, including a determination of the
status of discovery, dispositive motions, and the trial date; and (4) whether
the nonmoving party would be prejudiced by the moving party’s prior
inconsistent actions.” Id. at ¶ 12.
“[A] waiver of the right to arbitrate is not to be lightly inferred.” Id.
at ¶ 13, citing Griffith v. Linton, 130 Ohio App. 3d 746, 751, 721 N.E.2d
146 (10th Dist.1998). Id. at ¶ 21.
{¶ 10} In the present case, appellants contend that the right to arbitrate was waived
because the offer to cure letter sent in accordance with the CSPA, as a remedy is limited
to cases involving court litigation.
{¶ 11} As quoted above, the cure offer was drafted and sent according to R.C.
1345.092 which provides:
(A) Not later than thirty days after service of process is completed
upon a supplier by a consumer in any action seeking a private remedy
pursuant to section 1345.09 of the Revised Code, the supplier may deliver a
cure offer to the consumer, or if the consumer is represented by an attorney,
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to the consumer’s attorney. The supplier shall send a cure offer by certified
mail, return receipt requested, to the consumer, or if the consumer is
represented by an attorney, to the consumer’s attorney. The supplier shall
file a copy of the cure offer with the court in which the action was
commenced.
{¶ 12} The section further limits damages and costs where “a judge, jury, or
arbitrator awards actual economic damages as defined in section 1345.09 of the Revised
Code that are not greater than the value of a supplier’s remedy included in a cure offer
made pursuant to this section * * *.”
{¶ 13} Ohio courts have consistently noted that the provisions of the CSPA do not
preclude arbitration. Lavelle v. Henderson, 9th Dist. Summit No, 27921, 2016-Ohio-
5313, ¶ 11, citing Eagle v. Fred Martin Motor Co., 157 Ohio App. 3d 150, 2004-Ohio-
829, 809 N.E.2d 1161, ¶ 10 (9th Dist.); Stinger v. Ultimate Warranty Corp., 161 Ohio
App.3d 122, 2005-Ohio-2595, 829 N.E.2d 735, ¶ 23 (5th Dist.).
{¶ 14} In a case involving a home construction dispute which included CSPA
claims, the court explained:
Nothing in R.C. Chapter 1345 reflects a policy that claims falling
under it be enforced in court and not in arbitration or suggests that parties to
a consumer transaction covered by the CSPA cannot agree to arbitrate such
matters. Ohio courts have uniformly held that parties to a consumer
transaction covered by the CSPA can agree to arbitrate such matters and
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that arbitration does not deprive the complainant of any remedies available
under CSPA claims. Because Appellants are able to vindicate their
statutory cause of action in the arbitral forum, the statute retains its
deterrent effect. In the instant case, the parties bound themselves to settle
any dispute arising from the contract through arbitration and did not except
CSPA claims. Therefore, Appellants’ CSPA claims are subject to
arbitration per the parties’ agreement. Garcia v. Wayne Homes, 2d Dist.
Clark No. 2001 CA 53, 2002-Ohio-1884, ¶ 77.
{¶ 15} Turning to the merits of the waiver argument, because there is a strong
public policy favoring arbitration, a heavy burden to demonstrate waiver exists and it is
not to be inferred lightly. Neel v. A. Perrino Construction, Inc., 8th Dist. Cuyahoga No.
105366, 2018-Ohio-1826, ¶ 33. Courts have looked at the totality of the circumstances to
determine whether a party has waived the right to arbitrate a contract dispute. Finding
that the appellant by participating in litigation waived the right to arbitrate, the Twelfth
Appellate District noted that the retail purchase agreement at issue did not have the
arbitration box marked and that the auto dealer failed to assert the right more than four
months following the filing of the complaint. Oney v. Dixie Imports, Inc., 12th Dist.
Butler No. CA2017-06-077, 2018-Ohio-913, ¶ 16. The court further observed that the
dealer filed an offer to cure, filed motions and memoranda for an extension of time and a
motion for a more definite statement, and participated in pretrial conferences which
included setting a trial date. Id. The court stressed that in determining whether a party
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implicitly waived the right to arbitration, there is no “‘talismanic formula’” or any one
factor to be given “‘controlling weight;’” rather, the individual factors must be examined
on a case-by-case basis to determine the extent of a party’s participation in the
proceedings. Id. at ¶ 13, quoting Georgetowne Condominium Owners Assn. v.
Georgetowne Ltd. Partnership & Homes by Calkins, Inc., 12th Dist. Warren No.
CA2002-02-010, 2002-Ohio-6683,¶ 12 and Atkinson v. Dick Masheter Leasing II, Inc.,
10th Dist. Franklin No. 01AP-1016, 2002-Ohio-4299, ¶ 21.
{¶ 16} In the present matter, in their affidavits appellants admit their knowledge
that the contract contained an arbitration clause. The action commenced on June 1, 2017,
and on July 28, 2017, appellees filed their motion to stay the proceedings pending
arbitration. On the same date, appellees filed their answer to the complaint which
contained the following footnote: “Defendants file this Answer in satisfaction of their
duties under Civil Rule 12, but are doing so subject to and without waiving their rights
under the arbitration clause contained in the contract between the Parties.” In the interim,
on July 26, 2017, appellants sent appellees a cure offer. The offer specifically noted that
appellees would be filing a motion to stay the proceedings in order to arbitrate the matter.
Based on the facts of this case, we find that appellees did not proceed inconsistently with
or waive the right to demand arbitration.
Ambiguity/Meeting of the Minds
{¶ 17} Appellants next argue that because the arbitration clause is contractual in
nature, it must contain all of the “essential terms” in order to be enforceable. Appellants
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specifically claim that the clause at issue improperly lacks terms including the applicable
procedural rules, the costs involved, the number of arbitrators, the binding or non-binding
nature of the decision, and the appealability of the arbitration decision. Appellants
similarly argue that because the arbitration clause was ambiguous and lacking in the
essential terms, there was no meeting of the minds necessary to form an agreement.
{¶ 18} Appellees counter than there is no ambiguity in the term “arbitration” and
that it is presumed to be binding. Further, appellees assert that no Ohio case law sets
forth a requirement that all the information that appellants claim is lacking is required to
be set forth in the arbitration clause in order for it to be enforceable.
{¶ 19} The parties each rely on Ohio appellate cases to support their arguments.
Appellees rely on Sikes v. Ganley Pontiac Honda, Inc., 8th Dist. Cuyahoga No. 82889,
2004-Ohio-155. Appellants cite Brunkle v. Ohio State Home Servs., 9th Dist. Lorain No.
08CA009320, 2008-Ohio-5394.
{¶ 20} In Sikes, though chiefly dealing with the issue of unconscionability, the
court dismissed appellant/buyer’s argument that the arbitration clause at issue was
unenforceable because “material terms of the contract were not disclosed” and therefore
the agreement lacked the necessary “meeting of the minds.” Id. at ¶ 18. The court noted:
“Sikes cites no authority supporting her proposition that the arbitration clause is required
to relay all of the above information [information regarding the specific arbitration
program costs, applicable law, appeal process, etc.] to be enforceable. To the contrary,
courts have consistently held that an arbitration clause does not have to include the
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specific costs.” Id., citing O’Donoghue v. Smythe, Cramer Co., 8th Dist. Cuyahoga No.
80453, 2002-Ohio-3447, ¶ 13. The court in O’Donoghue relied on a United States
Supreme Court case holding that an arbitration provision’s lack of a costs explanation did
not render it unenforceable because the argument that the costs were “prohibitive” was
purely speculation. Id. at ¶ 31, citing Green Tree Fin. Corporation-Alabama v.
Randolph, 531 U.S. 79, 90-91, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000). See Handler v.
Southerland Custom Builders, Inc., 8th Dist. Cuyahoga No. 86956, 2006-Ohio-4371.
{¶ 21} Appellants counter that a subsequent line of Ninth Appellate District cases
adds authority for the requirement that specific terms be included in an arbitration
provision in order for it to be enforceable. In Brunkle, supra, the court noted that it had
previously held that “prohibitive arbitration costs and fees alone may render an
arbitration provision substantively unconscionable on a case-by-case determination.” Id.
at ¶ 16, citing Eagle, 157 Ohio App. 3d 150, 2004-Ohio-5953, 809 N.E.2d 1161, at ¶ 51.
{¶ 22} Reviewing these cases, we find that Brunkle is distinguishable from the
current facts. As in Sikes, the discussion of the arbitration terms was the focus when
determining unconscionability. The court found substantive unconscionability where the
arbitration clause failed to set forth any of the costs of arbitration and where the provision
was not explained to the consumers. This finding was tied to the procedural
unconscionability, “meeting of the minds” analysis. The court noted that neither plaintiff
had graduated from high school, had very limited reading ability, and could not recall
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ever having seen the arbitration provision (which was located on the back of the
contract.) Id. at ¶ 12-13. These extreme facts are not present in this case.
{¶ 23} Lastly, appellants contend that due to the ambiguity of the arbitration
provision, it must be strictly construed against appellees; the strict interpretation provides
for non-binding arbitration which prohibits staying the proceedings under R.C. 2711.02
and is unenforceable under Ohio law. Appellees again contend that the arbitration clause
need not set forth all of the essential terms, including its binding effect, to be enforceable.
{¶ 24} For the same reasons that we rejected the argument that an arbitration
clause needs to contain all the “essential” terms to be enforceable, we find appellants’
argument is misplaced. Appellants cite Schaefer v. Allstate Ins. Co., 63 Ohio St. 3d 708,
590 N.E.2d 1242 (1992), to highlight their argument that because the clause should be
construed as non-binding, it is unenforceable under Ohio law. In Schaefer, the Supreme
Court of Ohio, in clarifying the provisions under R.C. Chapter 2711, stated: “A review
of these sections of R.C. Chapter 2711 clearly indicates that arbitration is intended to be
an alternate method of dispute resolution which is final (and must be accorded finality) in
all circumstances except those specifically set forth in the statute. Id. at 713-714.
{¶ 25} Accordingly, we find that the arbitration clause at issue is enforceable.
Unconscionability
{¶ 26} As set forth above, in determining whether an arbitration provision is
unconscionable, a reviewing court engages in a de novo review of the unconscionability
arguments but defers to the trial court’s factual findings. Ranazzi, 2015-Ohio-4411, 46
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N.E.3d 213, at ¶ 9. In general, unconscionability of a contract has been recognized to
include the absence of a meaningful choice on the part of one of the parties together with
contract terms which are unreasonably favorable to the other party. A party asserting
unconscionability of a contract must demonstrate a quantum of both procedural and
substantive unconscionability. Collins v. Click Camera & Video, 86 Ohio App. 3d 826,
834, 621 N.E.2d 1294 (2d Dist.1993).
{¶ 27} Procedural unconscionability relates to the formation of the contract and
whether there was a meeting of the minds. Ranazzi at ¶ 23, citing Porpora v. Gatliff
Bldg. Co., 160 Ohio App. 3d 843, 2005-Ohio-2410, 828 N.E.2d 1081, ¶ 7 (9th Dist.). In
determining whether an arbitration clause is procedurally unconscionable:
“courts consider the relative bargaining positions of the parties,
whether the terms of the provision were explained to the weaker party, and
whether the party claiming that the provision is unconscionable was
represented by counsel at the time the contract was executed.” Id., quoting
Porpora at ¶ 7.
{¶ 28} Whether a contract is procedurally unconscionable does not turn on a single
factor. Fry v. FCA US LLC, 6th Dist. Lucas No. L-16-1230, 2017-Ohio-7005, ¶ 30,
citing Hayes v. Oakridge Home, 122 Ohio St. 3d 63, 2009-Ohio-2054, 908 N.E.2d 408,
¶ 29. “Rather, procedural unconscionability is determined after consideration of the
totality of the circumstances.” Id., citing Hayes at ¶ 30.
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{¶ 29} Appellants cite to Eagle, 157 Ohio App. 3d 150, 2004-Ohio-5953, 809
N.E.2d 1161, at ¶ 51, where arbitration clause was found to be unconscionable yet
contained information regarding how the parties could locate the relevant arbitration rules
and costs. However, the Eagle facts also revealed a “huge disparity” in bargaining power
(educational and economic background, age, and sophistication and experience) between
the consumer and auto dealer and the element of “unfair surprise” having not known that
the contract contained an arbitration provision. Id. at ¶ 59.
{¶ 30} As to the clause at issue, appellants, through their affidavits, stated that
they did not draft the contract, that they believed the contract was a “standard preprinted”
form that appellees used in all their contracts, that it was represented by appellee Mark
Smith that the arbitration clause was “no big deal,” that they were not represented by an
attorney, that they did not understand the nature and effect of arbitration, they were
unaware of which rules applied or what the costs would be, and that they did not want to
arbitrate their claims.
{¶ 31} Reviewing the arguments of the parties and the evidence presented, we find
that the arbitration clause was not procedurally unconscionable. Although we do agree
that the contract is one-sided, that alone does not establish procedural unconscionability.
Ranazzi, 2015-Ohio-4411, 46 N.E.3d 213, at ¶ 30. Appellants were aware of the clause
and could have contracted with another company. Further, there was no evidence to
suggest that they were uneducated, illiterate, or vulnerable in some way.
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{¶ 32} Though not necessary upon finding that the clause is not procedurally
unconscionable, we further find that the arbitration clause was not substantively
unconscionable. Substantive unconscionability focuses on the terms of the agreement
with courts considering
“the fairness of the terms, the charge for the service rendered, the
standard in the industry, and the ability to accurately predict the extent of
future liability. John R. Davis Trust at ¶ 13; Collins v. Click Camera, 86
Ohio App. 3d at 834, 621 N.E.2d 1294. No bright-line set of factors for
determining substantive unconscionability has been adopted by this court.
The factors to be considered vary with the content of the agreement at
issue.” Ranazzi at ¶ 25, quoting Hayes, 122 Ohio St. 3d 63, 2009-Ohio-
2054, 908 N.E.2d 408, at ¶ 33.
{¶ 33} Appellants argue that the arbitration clause is substantively unconscionable
because the American Arbitration Association has “excessive and oppressive” costs for
arbitration. While there is no fixed cost which renders a clause unconscionable, courts
have generally accepted that “‘if the costs associated with the arbitration effectively deny
a claimant the right to a hearing or an adequate remedy in an efficient and cost-effective
manner,’ the clause is invalid.” Neel, 8th Dist. Cuyahoga No. 105366, 2018-Ohio-1826,
at ¶ 18, quoting Felix v. Ganley Chevrolet, Inc., 8th Dist. Cuyahoga Nos. 86990 and
86991, 2006-Ohio-4500, ¶ 21.
14.
{¶ 34} The party complaining of the costs of arbitration has the burden of
demonstrating the likelihood that they will incur oppressive costs. Neel at ¶ 19. “To
meet this burden, the [complaining party] must provide more than unsupported
allegations of prohibitive costs, because ‘the mere risk that a plaintiff would be forced to
pay exorbitant costs is too speculative to justify invalidation of the arbitration
agreement.’” Id., quoting Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio St. 3d 352,
2008-Ohio-938, 884 N.E.2d 12, at ¶ 57. See Garcia, 2d Dist. Clark No. 2001 CA 53,
2002-Ohio-1884, at ¶ 66-74 (where damage claims were not de minimus, evidence of
costs were not so substantial to establish unconscionability). See Handler, 8th Dist.
Cuyahoga No. 86956, 2006-Ohio-4371, at ¶ 16.
{¶ 35} In the present matter, appellants have alleged damages in excess of
$25,000. Appellants contend that the costs for arbitration “would be much more
expensive for them to pay out of pocket than the costs of litigation.” Based upon their
large monetary claim and speculation regarding the nature of the costs of arbitration, we
find that the arbitration clause was not substantively unconscionable.
{¶ 36} Based on the foregoing, we find that the trial court did not abuse its
discretion when it granted appellees’ motion to stay the proceedings pending arbitration.
Appellants’ assignment of error is not well-taken.
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{¶ 37} On consideration whereof, we find that substantial justice was done the
parties complaining and the judgment of the Huron County Court of Common Pleas is
affirmed. Pursuant to App.R. 24, appellants are ordered to pay the costs of this appeal.
Judgment affirmed.
A certified copy of this entry shall constitute the mandate pursuant to App.R. 27.
See also 6th Dist.Loc.App.R. 4.
Mark L. Pietrykowski, J. _______________________________
JUDGE
Arlene Singer, J.
_______________________________
James D. Jensen, J. JUDGE
CONCUR.
_______________________________
JUDGE
This decision is subject to further editing by the Supreme Court of
Ohio’s Reporter of Decisions. Parties interested in viewing the final reported
version are advised to visit the Ohio Supreme Court’s web site at:
http://www.supremecourt.ohio.gov/ROD/docs/.
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