Sebold v. Latina Design Build Group, L.L.C.

[Cite as Sebold v. Latina Design Build Group, L.L.C. , 2021-Ohio-124.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
MIKKI SEBOLD, ET AL., :
Plaintiffs-Appellants, :
No. 109362
v. :
LATINA DESIGN BUILD
GROUP, L.L.C., ET AL., :
Defendants-Appellees. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: January 21, 2021
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-19-918180
Appearances:
The Gareau Law Firm Co., L.P.A., and David M.Gareau,
for appellants.
McCarthy, Lebit, Crystal & Liffman Co., L.P.A., David M.
Cuppage, and Nicholas R. Oleski, for appellees.
LARRY A. JONES, SR., P.J.:
Plaintiffs-appellants Mikki and Mark Sebold (“the Sebolds”) appeal
from the trial court’s order granting a stay and compelling arbitration. For the
reasons that follow, we affirm.
Substantive Facts and Procedural History
In 2016, the Sebolds contacted defendants-appellees Latina Design
Build Group, L.L.C., Anthony Latina, and Darla Kurtz (“collectively referred to as
Latina”) to inquire about a large scale remodel of their home. The parties entered
into an initial contract to construct an addition to the Sebolds’ home for
$239,909.46. The Sebolds’ lender would not underwrite the contract so the
parties amended the contract to $212,322.45, and Latina began work on the house.
The contract contained an arbitration clause that stated:
14. Arbitration
Disagreements arising out of contract or from breach thereof shall be
subject to arbitration and this agreement shall be enforceable under
prevailing arbitration law. Parties may agree on one arbitrator,
otherwise there shall be three, one named in writing by each of the
parties within five days after notice of arbitration by either party upon
the other, a third would be selected by these two arbitrators within
five days thereafter. No arbiter shall be financially interested in
contract or affairs of either party. Costs incurred to be divided equally
between contractor and owner.
According to Latina, it completed the work in the fall of 2017 but the
Sebolds paid less than the amount due on the contract. The Sebolds contend that
Latina did not complete construction and they paid almost all of what was due,
$205,952.24 of the $212,322.45 contract price. Latina filed a mechanic’s lien on
the Sebolds’ house in December 2017, demanding $58,042.76.
In January 2019, the Sebolds decided to cancel their contract with
Latina, purportedly under the Ohio Home Solicitation Sales Act (“HSSA”), by
sending a letter to Latina cancelling the contract and asking for a return of their
money. The Sebolds filed the instant lawsuit, seeking damages and equitable relief
arising from claims for violations of the Ohio Home Construction Services Supplier
Act; breach of contract; breach of implied duty to perform in a workmanlike
manner; violations of the Ohio Consumer Sales Practices Act (“CSPA”); personal
liability against Latina’s owner Anthony Latina and employee Darla Kurtz;
declaratory relief as to the validity of the mechanic’s lien filed against the property;
declaratory relief as to the terms of the parties’ agreement; violations of HSSA; and
a declaration that the cancellation of the parties’ contract by the Sebolds pursuant
to the HSSA rendered the arbitration clause void.
Latina moved to stay the case and compel arbitration, which the
Sebolds opposed. The Sebolds moved to compel responses to interrogatories and
to conduct limited discovery, which Latina opposed. The trial court denied the
Sebolds’ motions and granted Latina’s motion to stay and compel arbitration.
The Sebolds filed a notice of appeal and raise two assignments of
error for our review.
Assignments of Error
I. The trial court erred in granting Appellees’ Motion to Stay and to
Compel Arbitration because (a) the arbitration clause’s scope did not
allow referral for all matters contained in the Complaint; (b) the
arbitration clause is so deficient that it is not enforceable; and (c) the
arbitration clause is procedurally and substantively unconscionable.
II. The trial court erred in enforcing the arbitration clause when there
was unrebutted evidence that Appellees had violated the Home
Solicitation Sales Act and that Appellants had validly cancelled the
contract under the Home Solicitation Sales Act, in contravention of
this Court’s holding in Wisniewski v. Marek Builders, Inc. (2017-
Ohio-1035, 87 N.E.3d 696 (8th Dist.)).
Arbitration Generally and Standard of Review
In Ohio, there is a strong public policy favoring arbitration of
disputes. Ohio courts have recognized a “presumption favoring arbitration” that
arises “when the claim in dispute falls within the scope of the arbitration
provision.” Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio St. 3d 352, 2008-Ohio-
938, 884 N.E.2d 12, ¶ 27, citing Williams v. Aetna Fin. Co., 83 Ohio St. 3d 464, 471,
700 N.E.2d 859 (1998).
Under R.C. 2711.02, a court may stay trial of an action upon
application of a party if “(1) the action is brought upon any issue referable to
arbitration under a written agreement for arbitration, and (2) the court is satisfied
the issue is referable to arbitration under the written agreement.” Seyfried v.
O’Brien, 2017-Ohio-286, 81 N.E.3d 961, ¶ 17 (8th Dist.), citing Austin v. Squire,
118 Ohio App. 3d 35, 37, 691 N.E.2d 1085 (9th Dist.1997).
This court applies an abuse of discretion standard when addressing
whether a trial court has properly granted a motion to stay litigation pending
arbitration. Seyfried at ¶ 18, citing McCaskey v. Sanford-Brown College, 8th Dist.
Cuyahoga No. 97261, 2012-Ohio-1543, ¶ 7. This court applies a de novo standard
of review, however, when reviewing the scope of an arbitration agreement, that is,
whether a party has agreed to submit a certain issue to arbitration. Seyfried at id.,
citing McCaskey at id. This court also applies a de novo standard of review over a
trial court’s decision on unconscionability of an arbitration clause. Seyfried at id.,
citing McCaskey at ¶ 8, citing Taylor Bldg. Any doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration. Moses H. Cone Mem.
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 74 L. Ed. 2d 765
(1983).
Arbitration Clause
In the first assignment of error, the Sebolds contend that the trial
court erred in granting Latina’s motion to stay and compel arbitration.
Whether the Sebolds Agreed to Arbitrate
In Seyfried, this court noted:
To determine whether a party has agreed to arbitrate, the courts
apply ordinary principles that govern the formation of contracts. In
order for a valid contract to exist, there must be mutual assent on the
essential terms of the agreement, which is usually demonstrated by an
offer, acceptance of the offer, and consideration. “[Q]uestions of
contract formation and intent remain factual issues to be resolved by
the fact finder after careful review of the evidence.” Specifically, the
question of whether the parties agreed to arbitrate their disputes is a
matter of contract and the terms of a contract are a question of fact.
(Citations omitted). Id. at ¶ 19.
The Sebolds signed an agreement to arbitrate any “disagreements
arising out of contract or breach thereof” with Latina when they executed the
contract with Latina to remodel their home. The Sebolds claim that because the
arbitration clause was so narrowly drafted, they never agreed to arbitrate any
claims unrelated to a breach of contract, such as their claims relating to rescission
or cancellation of their contract, tort claims, other statutory claims, and claims
relating to the invalid mechanic’s lien.
For every claim, including statutory claims, courts must consider
whether the parties agreed to arbitrate the issue. Academy of Medicine v. Aetna
Health, Inc., 108 Ohio St. 3d 185, 2006-Ohio-657, 842 N.E.2d 488, ¶ 20. Courts
look at whether ‘“an action could be maintained without reference to the contract
or relationship at issue. If it could, it is likely outside the scope of the arbitration
agreement.”’ Alexander v. Wells Fargo Fin. Ohio 1, Inc., 122 Ohio St. 3d 341, 2009-
Ohio-2962, 911 N.E.2d 286, ¶ 24, quoting Fazio v. Lehman Bros., Inc., 340 F.3d
386, 395 (6th Cir.2003); see also Park Bldg. Condominium Assn. v. Howells &
Howells Ents., L.L.C., 2017-Ohio-1561, 90 N.E.3d 131, ¶ 16 (8th Dist.); Ohio
Plumbing, Ltd. v. Fiorilli Constr., Inc., 2018-Ohio-1748, 111 N.E.3d 763, ¶ 15 (8th
Dist.). Thus, in this case, the trial court had to consider whether the Sebolds’
claims stemmed from their contractual relationship with Latina.
We are not persuaded by the Sebolds’ argument that their claims fall
outside of their agreement to arbitrate ─ none of their claims could be maintained
without reference to the contract and none of the claims preclude arbitration. See
generally Zubek v. Dearborn, 8th Dist. Cuyahoga No. 107833, 2019-Ohio-3765,
¶ 24 (noting that Ohio courts have consistently held that claims under the CSPA do
not preclude arbitration) and Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, 473 U.S. 614, 628, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985) (recognizing
that statutory claims may be arbitrated and holding that while a party may exclude
statutory claims from the scope of an agreement to arbitrate, a party does not forgo
substantive rights afforded by a statute by agreeing to arbitrate a statutory claim).
In their complaint, the Sebolds allege that Latina violated the Home
Construction Service Suppliers Act because the amended contract was not in
writing and the arbitration clause was missing essential terms; Latina violated the
CSPA by breaching the contract; and Latina violated the HSSA because Latina did
not recognize the Sebolds’ attempt to cancel the contract under the HSSA. These
are all disputes that emanate from the parties’ contractual relationship; in other
words, they are “[d]isagreements arising out of contract,” and fall squarely under
the arbitration provision.
Essential Terms of the Agreement
The Sebolds also contend that the arbitration clause is missing
essential terms. According to the Sebolds, the arbitration clause (1) must expressly
state that the arbitration is binding and (2) fails to set forth the rules in arbitration.
The Sebolds cite to no authority to support this claim.
R.C. Chapter 2711 governs arbitration in Ohio. R.C. 2711.01 states:
A provision in any written contract, except as provided in division (B)
of this section, to settle by arbitration a controversy that subsequently
arises out of the contract, or out of the refusal to perform the whole or
any part of the contract, or any agreement in writing between two or
more persons to submit to arbitration any controversy existing
between them at the time of the agreement to submit, or arising after
the agreement to submit, from a relationship then existing between
them or that they simultaneously create, shall be valid, irrevocable,
and enforceable, except upon grounds that exist at law or in equity for
the revocation of any contract.
R.C. 2711.01 does not require that an agreement to arbitrate
expressly state that the parties shall proceed to “binding” arbitration in order for
the agreement to be enforceable. Rather, the statute provides that if the parties
enter into an agreement, the agreement, subject to a few exceptions, shall be valid,
irrevocable, and enforceable.
R.C. 2711.08 states that the award made in an arbitration proceeding
must be in writing and signed by a majority of the arbitrators. Either party can,
within a year after the award is issued, “apply to the court of common pleas for an
order confirming the award.” R.C. 2711.09. Thereafter, the court of common pleas
can, assuming the parties comply with the procedural requirements in R.C.
2711.14, enter a judgment confirming the award. R.C. 2711.12.
This court has noted that “[t]he very definition of arbitration
requires a ‘final and binding award.’” Delvito v. Autos Direct Online, Inc., 2015-
Ohio-3336, 37 N.E.3d 194, ¶ 41 (8th Dist.), fn. 8. We find (and the Sebolds cite no
authority that states otherwise) no requirement that the contract explicitly state
that the arbitration is binding.
The Sebolds also fail to cite any authority to support their argument
that the arbitration clause is missing an essential term because the agreement does
not state the rules of arbitration. There is no requirement under Ohio law that the
arbitration clause include the rules of arbitration. See Sikes v. Ganley Pontiac
Honda, Inc., 8th Dist. Cuyahoga No. 82889, 2004-Ohio-155, ¶ 18 (“[Plaintiff] cites
no authority supporting her proposition that the arbitration clause is required to
relay * * * an explanation of arbitration, the designated arbitration program, the
costs of arbitration, the party responsible for paying, the applicable law governing
arbitration, the discovery process, the right to bring an attorney, the right to
punitive damages, and the appeal process.”).
Unconscionability
Next, the Sebolds claim the arbitration clause is both procedurally
and substantively unconscionable.
Unconscionability embodies two separate concepts: (1) unfair and
unreasonable contract terms, i.e., substantive unconscionability; and (2) an
absence of meaningful choice on the part of one of the parties, i.e., procedural
unconscionability. Taylor Bldg., 117 Ohio St. 3d 352, 2008-Ohio-938, 884 N.E.2d
12, at ¶ 34. A party asserting the unconscionability of a contract “must prove a
quantum of both substantive and procedural unconscionability.” Hayes v.
Oakridge Home, 122 Ohio St. 3d 63, 2009-Ohio-2054, 908 N.E.2d 408, ¶ 30;
Taylor Bldg. at id. These two concepts create a two-prong conjunctive test for
unconscionability. Gates v. Ohio Savs. Assn., 11th Dist. Geauga No. 2009-G-2881,
2009-Ohio-6230, ¶ 47; Strack v. Pelton, 70 Ohio St. 3d 172, 637 N.E.2d 914 (1994).
Again, we review whether an arbitration agreement is enforceable in light of a
claim of unconscionability using a de novo standard of review. Hayes at ¶ 21,
citing Taylor Bldg. at ¶ 37.
In determining whether an agreement is procedurally
unconscionable, courts consider the relative bargaining positions of the parties
including each party’s age, education, intelligence, experience, and who drafted the
contract. Taylor Bldg. at ¶ 44. Additional factors that may contribute to a finding
of procedural unconscionability include the following:
“belief by the stronger party that there is no reasonable probability
that the weaker party will fully perform the contract; knowledge of the
stronger party that the weaker party will be unable to receive
substantial benefits from the contract; knowledge of the stronger
party that the weaker party is unable reasonably to protect his [or her]
interests by reason of physical or mental infirmities, ignorance,
illiteracy or inability to understand the language of the agreement, or
similar factors.”
Id., quoting Restatement of the Law 2d, Contracts, Section 208, Comment d
(1981).
We note, however, that “[i]nequality of bargaining power alone is
insufficient to invalidate an otherwise enforceable arbitration contract.” Neel v. A.
Perrino Constr., Inc., 2018-Ohio-1826, 113 N.E.3d 70, ¶ 24 (8th Dist.), citing
Taylor Bldg. at id.
‘“A determination of unconscionability is a fact-sensitive question
that requires a case-by-case review of the surrounding circumstances.”’ Brunke v.
Ohio State Home Servs., Inc., 9th Dist. Lorain No. 08CA009320, 2008-Ohio-
5394, ¶ 8, quoting Featherstone v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 159
Ohio App. 3d 27, 2004-Ohio-5953, 822 N.E.2d 841 (9th Dist.); Wallace v. Ganley
Auto Group, 8th Dist. Cuyahoga No. 95081, 2011-Ohio-2909, ¶ 44.
The Sebolds argue that the arbitration provision was procedurally
unconscionable because Latina drafted the contract without their input; the
arbitration clause was buried in the contract, and there were essential terms
missing from the arbitration clause. The Sebolds further claim they were not
familiar with arbitration, were not sophisticated consumers or represented by an
attorney during contract negotiation, and no one from Latina ever explained the
process of arbitration to them. The Sebolds argue that Latina had unequal
bargaining power over them because Latina had decades of experience building
homes and Anthony Latina was the president of both local and statewide home
builder associations.
This court has previously rejected similar arguments made by
consumers in a similar context. See Conte v. Blossom Homes L.L.C., 2016-Ohio-
7480, 63 N.E.3d 1245, ¶ 23 (8th Dist.), and Neel at ¶ 26. In Conte, this court found
that the consumer was unable to establish procedural unconscionability where he
alleged that his meeting with a builder was hurried, he had no knowledge of
construction contracts or regulations, he did not understand what arbitration was,
he was otherwise unable to understand the terms of the agreement, and he was
pressured to sign the contract. Id. at ¶ 20-23. Similarly in Neel, the consumers
claimed that the home builder was more knowledgeable regarding arbitration and
they were rushed through the signing of the contract. Id.
In both cases, this court found that the consumers could not
establish procedural unconscionability:
While the Neels claim they were rushed through the signing of the
contract, the record shows that they met with Perrino several times
before ultimately signing the contract. The Neels did not ask for more
time to review the contract, and nothing in the record indicates that
they could not have done so. Similarly, the Neels argue that Perrino
failed to explain the arbitration clause to them. Although they concede
that they had the opportunity to ask questions, they apparently did
not do so. Additionally, nothing in the record indicates that the Neels
were pressured to sign the contract, or that Perrino was the only
builder with whom they could have contracted. Finally, the Neels’
claim that no one pointed out the arbitration clause to them is not
persuasive to establish procedural unconscionability. The Neels were
entering into a contract for a custom-built home worth over
$300,000. Their status as consumers does not free them of their duty
to read the contract they signed.
Id.
In this case, the Sebolds met with Latina several times before
entering into the contract to remodel their home. They negotiated the contract and
then renegotiated it when the bank would not undersign the first contract. There
is no evidence they were rushed through the negotiations, pressured to sign the
contract, or did not understand the process. The Sebolds also could have hired an
attorney to review the contract had they so chosen.
Thus, under the totality of the circumstances of this case, the
arbitration provision is not procedurally unconscionable. Because the Sebolds bore
the burden of proving that the arbitration agreement was both procedurally and
substantively unconscionable, and we have found that the agreement was not
procedurally unconscionable, we need not consider whether it was also
substantively unconscionable.
In light of the above, the first assignment of error is overruled.
Ohio Home Solicitation Sales Act
In the second assignment of error, the Sebolds argue that the trial
court erred in enforcing the arbitration clause when there was unrebutted evidence
that Latina had violated the HSSA and the Sebolds had validly cancelled the
contract under the Act. The Sebolds contend that not only was the arbitration
clause unenforceable but the entire contract should be cancelled under the HSSA.
For the following reasons, we find this issue premature.
The Act was enacted to decrease high-pressure sales tactics that are
sometimes employed during in-home solicitations by providing consumers with a
cooling-off period within which the transaction may be cancelled. Wisniewski v.
Marek Builders, Inc., 2017-Ohio-1035, 87 N.E.3d 696, ¶ 7 (8th Dist.), citing
Garber v. STS Concrete Co., L.L.C., 2013-Ohio-2700, 991 N.E.2d 1225, ¶ 12 (8th
Dist.). Under the HSSA, a home solicitation sale must include a written agreement
that contains a statement of the buyer’s right to cancel the contract until midnight
of the third business day after the day on which the buyer signs the contract. R.C.
1345.22 and 1345.23. Where no such provision is contained in the agreement, the
buyer’s right to cancel the contract does not expire. R.C. 1345.23(C).
In Wisniewski, a divided panel of this court found that the HSSA
applied to a contract that contained an arbitration clause where the homeowner
sought to cancel the contact under the HSSA. This court found that because the
defendant-builder did not dispute that the contract violated the HSSA and the
homeowner exercised his right to cancel the contract, the trial court erred in
granting the builder’s motion to stay the case pending arbitration. Id. at ¶ 21.
This case is easily distinguishable. Latina disputes that its contract
violates the HSSA and disputes that the Sebolds have the right to cancel their
contract with Latina under the HSSA.
Perhaps more importantly, claims that the contract itself is void or
invalid based on an alleged HSSA violation are decisions that are best left for the
arbitrator to decide. See Taylor Bldg. Corp., 117 Ohio St. 3d 352, 2008-Ohio-938,
884 N.E.2d 12, at ¶ 41 (claims that relate to the contract generally, rather than the
arbitration clause specifically, are properly left to the arbitrator); see also
Wisniewski at ¶ 36 (Keough, J., dissenting).
“This court has repeatedly held that ‘in the face of a valid arbitration
clause, questions regarding the validity of the entire contract must be decided in
arbitration.”’ Wisniewski at ¶ 37 (Keough, J., dissenting), citing Coble v. Toyota of
Bedford, 8th Dist. Cuyahoga No. 83089, 2004-Ohio-238, ¶ 20, quoting Weiss v.
Voice/Fax Corp., 94 Ohio App. 3d 309, 313, 640 N.E.2d 875 (1st Dist.1994);
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614, 626, 105
S. Ct. 3346, 87 L. Ed. 2d 444 (1985).
We have already determined that the trial court did not err when it
determined that the arbitration clause in the contract was valid; thus, a
determination whether the HSSA applies to the subject contract and issues
surrounding whether the Sebolds could cancel the contract under the HSSA would
be premature for this court to determine at this time.
The second assignment of error is overruled.
Judgment affirmed.
It is ordered that appellees recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this
judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule
27 of the Rules of Appellate Procedure.
LARRY A. JONES, SR., PRESIDING JUDGE
EILEEN A. GALLAGHER, J., and
MICHELLE J. SHEEHAN, J., CONCUR