Posted on December 17, 2015
This blog has talked numerous times about the many facets of arbitration, including both its advantages and disadvantage, as well as how its value has changed over the last several years due to changes in the way that discovery, hearings and fees are handled. Despite these variations in the process, arbitration remains the primary choice for most contractors, subcontractors and attorneys to handle construction disputes. For this reason, nearly all construction contracts these days contain a provision which allows one, or either, party to require any dispute be resolved through arbitration over litigation.
Just because an arbitration provision is included in the contract, however, does not mean that a party will always be able to take advantage of it. In fact, just like most other contract terms, an arbitration clause can be modified, or even waived, by a party acting in a manner that is inconsistent with his/her rights under the agreement. The circumstances under which a party may lose his/her right to arbitrate are well-illustrated by a recent decision issued by Ohio’s Tenth District Court of Appeals in Hunter v. Rhino Shield, 2015-Ohio-4603.
In Hunter, the plaintiffs, Ruth and David Hunter (“Hunters”) filed suit against Tri-State Coating, Inc. (“TSC”), alleging that TSC had performed shoddy work in applying a ceramic wall covering to the exterior of the Hunters’ home. In its answer to the complaint, TSC admitted the court had jurisdiction over it and the action was properly venued. TSC’s answer made no mention of arbitration.
After engaging in written discover and disclosing lay and expert witnesses it expected to call at trial, TSC moved for a jury view of the Hunters’ house. TSC then filed a motion for partial summary judgment. Before the court ruled on the motion for summary judgment, the Hunters moved to compel discovery responses from TSC, which TSC opposed. The Hunters then moved for leave to amend their complaint to add additional defendants, and TSC filed an answer.
TSC provided further responses to the Hunters’ written discovery requests, and began coordinating the scheduling of depositions. Shortly after tentatively scheduling two depositions, TSC’s attorney cancelled all depositions and announced that TSC had decided to ask the court to enforce the arbitration provision in the parties’ contract. TSC then moved to compel arbitration pursuant to R.C. 2711.03 or, alternatively, granting a stay pending arbitration pursuant to R.C. 2711.02. TSC followed its motion to compel arbitration with an amended answer, asserting, for the first time, a defense based on the arbitration provision in the parties’ contract.
The Hunters opposed TSC’s motion on the grounds that TSC had waived the arbitration provision. The Hunters argued that TSC had conceded in its initial answer that venue and jurisdiction were proper and that TSC had actively engaged in the litigation. The Hunters concluded that that these acts were inconsistent with the right to arbitrate. The trial court agreed with the Hunters, denying TSC’s motion. TSC appealed, contending that the trial court had erred when it held that TSC had waived its right to arbitrate the dispute.
On appeal, the Tenth District affirmed the decision of the trial court, recognizing that, although both the General Assembly and Ohio courts have expressed a strong public policy favoring arbitration, the contractual right to arbitration, like any other contractual right, may be waived. The Tenth District held that TSC had acted inconsistently with its right to arbitrate by: (1) filing an answer to the original complaint that did not reference arbitration; (2) waiting seven months before filing the motion to stay; (3) exchanging discovery with the Hunters; (4) requesting a jury view of the Hunters’ home; (5) disclosing its witness list; and (6) moving for partial summary judgment.
The Tenth District also pointed out that the trial court found TSC’s filing of the motion for partial summary judgment determinative of the issue. According to the Court, “[f]iling a motion for summary judgment is inconsistent with the right to arbitrate because it places the disputes quarely before the court for resolution on the merits and demonstrates an election to proceed with litigation as opposed to arbitration.”
The decision whether to submit a dispute to arbitration, and the terms of an arbitration is something that should be discussed with experienced legal counsel. For questions regarding arbitration, or any other aspect of Ohio construction law, please contact Todd Harpst or Nick Horrigan, at Harpst Ross, Ltd. –Business Lawyers for the Construction Industry®, at (330) 983-9971 or firstname.lastname@example.org or email@example.com.
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