Court of Appeals Enforces Contractor’s “Sole Discretion” Arbitration Clause

On May 3, 2018, Ohio’s Court of Appeals for the Eighth Appellate District issued an important decision in Ohio Plumbing, Ltd. v. Fiorilli Construction, Inc., 2018-Ohio-1748 (8th Dist.). This decision enforced a “sole discretion” of the contractor arbitration clause and it rejected arguments of default and waiver based on the lack of an arbitration filing at the time the motion to stay was filed under the Ohio Arbitration Act, R.C. 2711.01, et seq.

In Ohio Plumbing, a subcontractor filed a lawsuit against Fiorilli Construction seeking payment for work performed on a private project. The subcontract at issue provided for a multistage dispute resolution process concluding with either arbitration or litigation at the contractor’s (Fiorilli’s) sole discretion. Fiorilli responded to the subcontractor’s complaint by filing a motion to stay pending arbitration under R.C. 2711.02(B). The subcontractor opposed the motion to stay by arguing, among other things, that Fiorilli was in default and waived the right to arbitrate by failing to file an arbitration demand prior to or contemporaneous with its motion to stay. The trial court denied Fiorilli’s motion to stay.

The trial court’s holding was consistent with Ohio’s Second District Court of Appeal’s recent holding in PS Commercial Play, LLC v. Harp Contractors, Inc., 2017-Ohio-4011. In PS Commercial Play, the Second District Court of Appeals affirmed the denial of a prime contractor’s motion to stay, holding that the prime contractor was in default under the Ohio Arbitration Act for failing to file a demand for arbitration within a reasonable time after the payment dispute with its subcontractor arose. This ruling placed the burden on the prime contractor to institute and pay for the filing of arbitration proceedings even if the prime contractor had no claims to assert.

Thankfully, the Eighth District Court of Appeals reversed the trial court’s ruling and remanding the case with instructions to stay the litigation pending arbitration. The Court properly held that there is no requirement in R.C. 2711.02(B) that a party must commence arbitration before seeking a stay. The statute plainly states that the only required filing is a motion to stay when "the action is referable to arbitration” under a written arbitration agreement. R.C. 2711.02(B).  The Court further explained that "[t]he burden is on the plaintiff [subcontractor] to commence the arbitration action.”  “Indeed, it would be nonsensical to require a defendant [contractor] to commence arbitration of a claim against himself. Thus, where a defendant properly exercises a right to arbitration, it is incumbent upon the plaintiff to pursue its claims in arbitration once a stay of the action is granted.”

Until the Ohio Supreme Court addresses the matter, this conflict among Ohio’s appellate districts will remain unsettled. But, in the interim, contractors seeking to stay subcontractor lawsuits and enforce arbitration clauses should promptly file their motion to stay in the Eighth District (Cuyahoga County) and should consider also filing an arbitration demand seeking a declaratory judgment for claims arising in the Second District (which includes Clark, Champaign, Darke, Greene, Miami and Montgomery Counties).