Posted In: Litigation & Real Estate
Industry: Construction

RE&C In Review & Litigation Advisory Blog: Eighth District Reaffirms Alleged Cancellation of Contact Containing Arbitration Clause is Referable to Arbitration

By Teresa G. Santin on April 19, 2021

A disputed cancellation of a construction or commercial contract likely won’t excuse the contracting parties from the operation of an arbitration clause contained within that same contract. Roark et al. v. Keystate Homes LLC et al., 8th Dist. Cuyahoga No. 109488, 2021-Ohio-707.

In Roark, homeowner hopefuls entered a contract with builder Keystone to demolish an existing residence and for the construction of a new residence. The contract contained both an arbitration provision and a cancelation provision. A dispute arose between the parties and the homeowners sued, alleging that they cancelled the contract and therefore, the arbitration provision did not apply. The homeowners asserted claims including conversion, unjust enrichment, and defamation/slander of title. In addition to suing the builder, the homeowners also sued several individuals affiliated with the builder under a number of theories, including piercing the corporate veil. 

In response, the defendants filed a motion to stay pending arbitration and/or a motion to stay and compel arbitration. In that motion, the defendants argued that the arbitration clause covered the nature of the dispute. In relevant part, the arbitration clause covered “[a]ny controversy or claim arising out of or relating to this agreement; or the breach thereof.” In opposing the defendants’ motion, the homeowners argued that they cancelled the contract containing the arbitration provision and therefore it did not apply. The homeowners cited to Wisniewski v. Marek Builders, Inc., 8th Dist. No. 104197, 2017-Ohio-1035, 87 N.E.3d 696 in support of this argument. The homeowners made a number of other arguments as well, asserting that their claims did not fall within the terms of the arbitration provision because the alleged acts occurred after the cancellation of the contract, the arbitration clause was void  against public policy because it contained a loser pays provision, and defendants waived their right to arbitration by filing a mechanic’s lien.

Defendants argued in their reply that the homeowners did not cancel the contract pursuant to the terms of the cancellation provision, and the cancellation was therefore ineffective, the arbitration clause survived any alleged cancellation, they did not waive the right to arbitrate by filing a lien, and the loser pays clause was severable.

The trial court granted the motion to stay, found that the question of whether the contract was effectively cancelled was for an arbitrator to decide, severed the fee shifting provision as against public policy, found the remainder of the arbitration provision enforceable, and further found that defendants did not waive the right to arbitrate by filing a lien.

On appeal, the Eighth District affirmed, recognizing that the Ohio Supreme Court has found an arbitration provision to be a “contract within a contract” and is not affected by any alleged failure of the contract in which it lies. Citing to Sebold v. Latina Design Build Group, L.L.C., 8th Dist. Cuyahoga No. 109362, 2021-Ohio-124, a case decided two months earlier, the Eighth District ruled that the arbitrator is to decide issues surrounding the validity of the contract or the contract’s cancellation, in the face of a valid arbitration clause. In Marek, however, the Eighth District found that a contract’s cancellation also rendered the arbitration clause unenforceable. TheEighth District in Roark found the Marek case distinguishable for two reasons: first, the Marek case involved a statutory right to cancel under the Home Solicitation Sales Act; second, the parties in Marek agreed that the contract at issue was effectively cancelled.

The Eighth District in Roark next analyzed the arbitrability of the homeowners’ remaining claims, finding all of them to be arbitrable. It determined that a broad arbitration provision, like the one at issue there, will generally cover all disputes between the parties unless expressly excluded or evidence otherwise exists of a purpose to exclude a claim from arbitration.

Finally, the Eighth District examined whether the builder waived its right to arbitrate by filing a mechanic’s lien. Looking at the totality of the circumstances, the Eighth District found that the trial court acted within its discretion when it concluded that no waiver occurred.  

In sum, a broadly worded arbitration clause will likely trump an alleged cancellation. Your Brouse attorneys can review your contracts to craft appropriate arbitration or forum selection clauses for your needs, ensure compliance with all applicable statutes pertaining to cancellation or otherwise, and litigate your construction or commercial disputes to help ensure that they get sent to the most desirable forum for you or your business.

This blog is intended to provide information generally and to identify general legal requirements. It is not intended as a form of, or as a substitute for legal advice. Such advice should always come from in-house or retained counsel. Moreover, if this Blog in any way seems to contradict advice of counsel, counsel's opinion should control over anything written herein. No attorney client relationship is created or implied by this Blog. © 2024 Brouse McDowell. All rights reserved.

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