Distinguishing between enforceable and unenforceable arbitration language in Ohio home construction contracts

Back in 2005, a divided Medina County Court of Appeals in Porpora v. Gatliff Building Co., (2005-Ohio-2410) made waves in the alternative dispute resolution world by affirming a trial court’s decision that an arbitration clause in a $297,000 home construction contract was unenforceable because it was substantively and procedurally unconscionable. The clause referred any dispute between the builder and buyer to the American Arbitration Association (“AAA”). The court held that the clause was procedurally unconscionable because the builder did not explain the arbitration clause or even bring it to the attention of the buyer. The court held that the clause was substantively unconscionable because it was the only means of redress for the buyer, but the buyer could not initiate arbitration until the builder had certified substantial completion of the house. The court was also critical of the fact that the AAA filing fees were not disclosed in the construction contract.

Some were troubled by the Porpora decision, arguing that it failed to consider the realities of the cost of litigation and the inconveniences that arbitration has the potential to eliminate. They wondered if other courts would follow the same reasoning, possibly making all arbitration clauses in home construction contracts unenforceable. Such fears are probably unfounded as illustrated by a later case, from 2012, from the same Appellate District (but again where the court was divided).

In Crouse v. Lagrange Junction Ltd (2012-Ohio-2972), the Lorain County Court of Appeals overruled the trial court’s decision that the arbitration clause in a home construction contract was unenforceable. The buyer argued that the arbitration clause was procedurally unconscionable because he did not have a lawyer, but the court identified some difficult questions for which the buyer had presented no evidence:

• Was the contract offered as take-it-or-leave-it?
• Was the buyer rushed through the contract process?
• Was the buyer unable to obtain legal counsel, and if so, why?
• What was the buyer’s business acumen?

As the plaintiff, the buyer had the burden of proving these facts to make his case for procedural unconscionability. Because he failed to, the appellate court did not have to address the substantive unconscionability question, overruled the trial court, and referred the case to arbitration.

The court distinguished this opinion from the Porpora case by noting that in Porpora, the builder testified that he would not have done business with the buyer had the buyer refused the arbitration clause, and also that there was evidence in Porpora that the buyer has no experience with construction contracts.