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.