Parties Must Proceed to Arbitration Despite Unavailability of Arbitration Forum Specifically Named in the Contract

Paulozzi v. Parkview Custom Homes, L.L.C., 2018 Ohio App. Lexis 4739 ( Nov. 1, 2018)  

 This case arose out of a dispute between homeowners and their contractor.  Dissatisfied with the work, the Paulozzis sued their contractor, Parkview Custom Homes, alleging, inter alia, breach of contract, unjust enrichment, and fraud.  In response, Parkview moved to stay the litigation and compel arbitration under the agreement’s arbitration provision.

The parties did not dispute that the contract required the Paulozzis to proceed through arbitration.  But the contract also specified that “the arbitration shall be conducted under the auspices of the Ohio Arbitration and Mediation Center in accordance with its rules, at Cleveland, Ohio.”  However, when the Paulozzis filed suit, the OAMC appeared to be defunct.

The Paulozzis argued that because the chosen forum no longer existed, the arbitration provision was unenforceable.  In response, Parkview maintained that the essential purpose of the arbitration provision was still capable of substantial accomplishment, and that the court should enforce it.  In the end, the trial court held that the original forum was defunct, and because the arbitration provision did not provide for an alternative forum, it was unenforceable under the doctrine of impossibility.  On appeal, the Ohio Court of Appeals reversed.

The Court of Appeals began its analysis by highlighting the strong public policy in favor of arbitration, and that any doubts regarding arbitration should be resolved in its favor.  Because it was still possible to arbitrate the issues, the Court determined the agreement was not unenforceable due to impossibility.  The Court explained that this conclusion was consistent with the intent of the parties as they agreed to arbitrate disputes, and a change in forum should not override the fundamental purpose of the arbitration provision.

Furthermore, the Court found that OAMC was not the “exclusive” forum, but rather a limitation on the parties’ remedy of arbitration.  Thus, it could be severed from the agreement in accordance with the severability clause, which stated: “In the event any remedy or limitation of remedy is invalid or unenforceable, such invalidity or unenforceability shall not adversely effect any other limitation or remedy of either Owner or Contractor.”  Again, the Court determined that the lack of the identified forum should not override the parties’ general intent to arbitrate.

As a result of severing the OAMC provision, the parties were left without an identified arbitrator.  However, because the arbitration provision was still enforceable, the Court explained that the trial court has the power to appoint an arbitrator to handle the dispute.  The only remaining question was whether the arbitration provision was induced by fraud; upon remand, if the trial court determined that enforcing the provision was not unconscionable, it was directed to appoint another arbitrator.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

Ryan R. Deroo

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