Information on Ohio's Consumer Laws from Attorney Daniel Myers, Myers Law, LLC, not legal advice
This week, the 8th District Court of Appeals ruled that a Medina County family’s fraud, consumer, and other claims filed against builder A. Perrino Construction, Inc., Pat Perrino, and architect Christopher Greenwalt must be put on hold until the claims filed against A. Perrino Construction, Inc. are decided in arbitration. The case gives some insight, guidance, and information for consumers who may be confronted with arbitration when they go to sue their construction contractors or other businesses.
In Neel v. A. Perrino Construction, Inc., 2018-Ohio-1826, available here, the 8th District Court of Appeals in Cuyahoga County affirmed in part, reversed in part, and remanded (sent back for further action) a decision of the lower court that required certain claims to be paused, or stayed, while arbitration plays out on some of the claims. The trial court did not pause the entire case, just certain claims against certain parties, and ruled that the other claims should continue in court.
For those of you unfamiliar with the underlying allegations in the case, the appellate court provided a summary:
The Neels filed a complaint . . . against . . . A. Perrino Construction, Inc. (“Perrino”), along with defendants Pat Perrino, Greenwalt Architects, Inc., and Christopher E. Greenwalt. The complaint alleged breach of contract, fraudulent misrepresentation, negligent misrepresentation, civil conspiracy, and violations of R.C. 4722.02, et seq., the Home Construction Service Suppliers Act (“the HCSSA”).
The Neels had contracted with the defendants to construct a new home in Hinckley, Ohio.
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In addition to the various allegations described above, the Neels’ complaint alleged that the parties had agreed that the home would be at least 3,000 square feet, but the home’s actual footprint was several hundred feet smaller.
The contract between the family and A. Perrino Construction, Inc. (“Perrino”) included an arbitration clause, which was the central issue on the appeal. Many contracts contain arbitration clauses, as discussed here previously, and often.
The appellate court acknowledged that the lower court was partially mistaken. Originally, the lower court only paused claims concerning Perrino, but allowed the other claims against certain other parties to continue forward. The appellate court reversed the trial court on this matter, stating that the entire case (all claims against all parties) must be stayed pending the outcome of arbitration. Perrino’s lawyer agreed that the trial court erred in not staying the entire case.
Additionally, and more importantly for most consumers out there, the Court confirmed that the American Arbitration Association (“AAA”) rules, specifically the Construction Industry Arbitration Rules, contain a provision that allows an arbitrator to award attorney fees to the winning party (loser-pays clause) so long as both sides requested attorney fees. This conflicts with the attorney fee-shifting rules under Ohio’s consumer laws, and specifically the Home Construction Service Supplier Act, which requires a contractor to pay fees if it knowingly commits an act that violates the law, but only requires a consumer to pay fees of the contractor if the consumer filed or maintained a claim that is “groundless” or made “in bad faith.”
Because there is a conflict between the consumer protection law, and the AAA arbitration rule on making the loser-pay, the appeals courted stated that “[w]e . . . find that, to the extent [AAA Construction Industry Arbitration] Rule 48(d)(ii) governs arbitration between the parties here, it is unenforceable.”
It should be noted that many of the AAA’s arbitration rules contain a rule like this, which essentially makes the loser pay the winner’s fees if the arbitrator says so. It is unclear what the impact of this ruling and similar rulings would be on the AAA rules that apply in other, non-consumer settings, when Ohio law differs from the AAA rule.
Consumers should note that it is very difficult to avoid arbitration once an arbitration agreement has been signed. However, consumers should also take note that they are still protected in many situations from threats of having to pay outrageous attorney fees of the contractors that they intend to sue, even in arbitration, at least under certain situations. It is important to speak with your attorney to determine if your situation is similar to this.