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

2021 Ohio 124, 166 N.E.3d 688

• Court: Ohio Court of Appeals
• Decided: January 21, 2021
• Docket: 109362
• Status: Published

Opinion

[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