Building arbitration in limbo
When disputes arise over the quality of home construction in Ohio, consumers often prefer to go to court while builders often prefer to go to arbitration. New judicial rulings now leave open the possibility for both. Last month, the Ohio Supreme Court let stand the ruling of a Cincinnati appeals court that said a Butler County couple's workmanship claims against their builder belonged in arbitration... So-called forced arbitration has become a standard item in the fine print of home purchase contracts. Unless an arbitration clause is "unconscionably" unfair to one party, fights over leaky roofs, cracked basements or defaulted payments go to a mutually chosen arbiter, usually a construction professional, architect or lawyer, some active, some retired.

When disputes arise over the quality of home construction in Ohio, consumers often prefer to go to court while builders often prefer to go to arbitration.

New judicial rulings now leave open the possibility for both.

Last month, the Ohio Supreme Court let stand the ruling of a Cincinnati appeals court that said a Butler County couple's workmanship claims against their builder belonged in arbitration.

Ten months earlier, a state appeals court in Middletown allowed a Clermont County couple to fight a claim against their builder in front of a common pleas judge.

The state's high court could decide to review the second case, but for now the separate legal outcomes make it clear that the circumstances specific to each case dictate whether home construction disputes belong in arbitration or in court.

So-called forced arbitration has become a standard item in the fine print of home purchase contracts. Unless an arbitration clause is "unconscionably" unfair to one party, fights over leaky roofs, cracked basements or defaulted payments go to a mutually chosen arbiter, usually a construction professional, architect or lawyer, some active, some retired.

Some say arbitration is attractive because disputes can be decided faster and cheaper than in a lawsuit.

The downside is that legal discovery is limited, damages tend to be lower and outcomes don't serve as a legal guide for similar cases in the future.

Brian and Angela Oswald said they weren't aware of the arbitration clause when they signed a contract with Meyer Builders for the construction of a $365,000 house in Liberty Township in 2004.

Their basement leaked badly during a rainstorm before their one-year warranty expired. They wound up suing Meyer in Hamilton County Common Pleas Court.

The trial judge ruled to keep the case in court, but the Ohio First District Court of Appeals in Cincinnati overturned that ruling. In its opinion, a three-judge panel of the court held that the Oswalds' claim failed to meet the state test of unconscionability. The contract terms were neither unfair nor unreasonable, it ruled, and the Oswalds weren't forced to sign the contract.

Brian Oswald, a Butler County sheriff's deputy, said he didn't know about the mandatory arbitration clause.

"We were never even told about that," he said. "Neither one of us wanted to give up our legal rights down the road."

The Oswalds appealed to the Ohio Supreme Court. But on June 25, the court refused to hear the case. Leery of arbitration, the couple is instead considering selling their house.

One appeals court district away, Marvin and Mary Benfield's case went the other way.

The Benfields had hired Louisville-based Taylor Building Corp. of America to built a house on their land in Pierce Township. Unhappy with the quality of the work, they quit making payments to Taylor. Taylor filed a foreclosure lawsuit against the Benfields and asked Clermont County Common Pleas Court to send the dispute to an arbiter in Kentucky, as called for in its sales contract. The judge granted the wish.

But the Ohio 12th District Court of Appeals in Middletown said the judge made the wrong call. The three jurists who heard the case ruled unanimously last August that the terms and presentation of Taylor's arbitration clause were "heavily skewed" in favor of Taylor.

The clause barred the Benfields from occupying their home until it was fully paid off. They had "no right" to interrupt construction, even to correct building code violations. And they would have to pay Taylor's legal costs in the event of a dispute, while no such provision applied to Taylor.

Taylor, the court noted, would not sign the contract without the arbitration clause.

"The unconscionability of the mediation/arbitration clauses and other unduly oppressive clauses ... demonstrate the complete lack of meaningful choice and ability to negotiate on (the Benfields') part in entering into this agreement," the court concluded. "Such unfairness permeates this contract to the extent that we find it void and unenforceable in its entirety."

Taylor appealed the ruling to the Supreme Court, which has scheduled oral arguments on Sept. 18. The company's lawyer, Robert Linneman of Santen & Hughes, pointed out that the Clermont County judge upheld Taylor's arbitration clause just as judges did in three other counties - Champaign, Clark and Greene.

Three months ago, the Benfields were joined by Ohio Attorney General Marc Dann. His office filed a 13-page brief in support of the 12th District opinion. Affirming it, he wrote, "ensures that the parties' - and the state's - interests in expedient and efficient dispute resolution are properly balanced with their interests in fair and conscionable dispute resolution."

Tony Covatto, a Cincinnati lawyer who has represented both builders and home buyers in 30 years of trying cases, has served as an arbiter for 20 years.

He read the Oswald and Benfield appeals court decisions at the request of The Enquirer. He agreed with both.

Although the two cases might appear to offer contradictory takes on the validity of arbitration clauses in Ohio, Covatto said their circumstances make them distinct. The Oswalds, he said, failed to prove that Meyer Builders' clause was unconscionably unfair. The Taylor Building Corp. clause, he said, was lopsided in Taylor's favor and downplayed by its salesperson.

"The lesson to be learned by people buying a home is to read the contract and make sure they have as many rights as the builder does," Covatto said. "If the builder tells them they don't need an attorney to read it, watch out. Any competent attorney can review a contract like that in an hour. It won't cost them a lot, just a few hundred bucks."
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