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In JRC Holdings, Inc. v. Samsel Servs. Co., 166 Ohio App. 3d 328, the court of appeals clarified that it is the substance of the complaint, not the form, that dictates the appropriate statute of limitations. In this case, the property owner, JRC, sued Samsel, an environmental remediation firm, for contaminating its property while conducting environmental testing and drilling monitoring wells. JRC brought suit more than four years after the contamination was discovered. The court held that the claim for contamination of the property was barred by the four year statute of limitations on claims for damage to real property in R.C. 2305.09(D). Even though JRC stated its claims in part as breach of contract, which has a 15 year statute of limitations, the court found that the essence of the claim was damage to real property and therefore the four year limit was applicable. JRC's claim for failure of one of the monitoring wells, which was made within the four year period, was not barred.

The real estate and construction practice group of Buckingham, Doolittle & Burroughs, LLP welcomes Jodi Diewald. Ms. Diewald most recently served as Associate General Counsel and Vice President of Global Structuring and Distribution for a global real estate company involved in the syndication of federal and state tax credits. Her real estate practice emphasizes investment, acquisition, financing, development, management and operations of multi-family housing properties and other real estate developments. Her business practice emphasizes business and corporations law, partnerships and limited liability companies law, complex business and commercial transactions, business entity selection and formation and drafting, negotiating, and structuring capital investments.

Ms. Diewald is a 1999 graduate of Capital University Law School and earned a B.S. in Business Adminstration from The Ohio State University, Fisher College of Business.

Construction law and business litigation attorney Mark F. Craig reports that the Twelfth District Court of Appeals reversed a trial court decision yesterday, holding that a mediation/arbitration clause in a home construction contract was unenforceable as unconscionable.

In Taylor Building Corp. of America v. Benfield, et al. (August 28, 2006), 12th App. No. CA2005-09-083, 2006-Ohio-4428, the Court reviewed standards of procedural and substantive unconscionability and found that the provision in question was procedurally unconscionable because it was offered on a “take it or leave it” basis by the contractor and the homeowners were not represented by counsel. The Court found that because the contract was a preprinted form contract with many clauses not subject to negotiation, it was a clear example of an adhesion contract. The contractor refused to enter into a contract without the ADR provision. Further, the contractor’s sales representative made statements attempting to minimize the importance and effect of the ADR provision in question.

The Court also found several clauses substantively unconscionable, such as a provision for equitable remedies in favor of the contractor, prohibiting possession of the property before final payment was made, liquidated damages in favor of the contractor, attorneys’ fees provision in favor of the contractor only, additional fees to protect the property from liens. The contract also prohibited the owners from interrupting construction “for any reason whatsoever,” made arbitration mandatory and binding without any indication of the costs and also waived any right to a jury trial. Several provisions also violated public policy and were unenforceable under the Fairness in Contracting Act.

Lesson learned—preprinted form contracts with non-negotiable terms that do not provide a mutuality of obligations, such as a prevailing party provision for attorneys’ fees, may be struck down by the courts for procedural and substantive unconscionability. Contracts, particularly with unsophisticated homeowners, are subject to this inquiry and if they are too one-sided, courts will strike them down as enforceable.

Construction law and business litigation attorney Mark F. Craig reports another decision regarding the enforceability of arbitration clauses in home construction contracts. In Handler v. Southerland Custom Bldrs, Inc. (Aug. 24, 2006), 2006-Ohio-4371, the Eighth District Court of Appeals reversed the Cuyahoga County Court of Common Pleas decision denying a motion to stay litigation and enforce an arbitration agreement in a home improvement contract. The trial court denied the contractor’s motion without opinion.

The homeowner argued that the contract was both substantively and procedurally unconscionable, rendering the arbitration provision unenforceable. The contract was silent on the cost of arbitration. The homeowner provided evidence that the filing fee for arbitration was much higher than that of litigation and therefore argued that the arbitration provision was unenforceable, citing the Ninth Appellate District’s decision in Eagle v. Fred Martin Motor Co. (2004), 157 Ohio App.3d 150, 169-170, 2004 Ohio 829, P47. However, the Court distinguished this case from Eagle because the Eagle plaintiff provided a detailed estimate of the costs and the time that would be incurred due to arbitration which were considered in the context of plaintiff’s income, approximately $20,000 per year. Here, the plaintiff only compared filing fees and provided no other comparative costs.

The Court also rejected the homeowner’s argument regarding procedural unconscionability. The homeowner argued that there was no meeting of the minds because the contractor used a pre-printed form contract. The Court found that there was no evidence that the contract was difficult to understand or that terms were “hidden in a maze of fine print,” as in Eagle. The Court further found that changes had been made to the form contract as a result of negotiations between the parties, including entire sections stricken. This indicated that there was a meeting of the minds and that the contract was not procedurally unconscionable.

Lesson learned—home construction contracts that contain arbitration provisions will be enforceable despite unequal bargaining power and pre-printed form contracts so long as the terms were negotiated and understood between the parties. A homeowner seeking to invalidate a contract because it is silent regarding arbitration costs bears the burden of showing the likelihood of incurring prohibitive costs.