Appellate Court Affirms Denial Of Motion To Compel Arbitration, Even Though Lower Court Reversed Itself And Refused To Hold A Hearing

The unmistakable takeaway from the Ohio Court of Appeals Decision in AJZ’s Hauling, L.L.C v. TruNorth Warranty Programs of North America is that the ends justified the means. A small, family-owned business, shortly after purchasing a used truck, “experienced significant engine- and transmission-related issues.” They filed suit against the issuer of a warranty. The warrantor successfully moved to compel arbitration in the absence of a court hearing, and the truck owner filed a notice of dismissal.

The truck owner sued again, and again the warrantor moved to compel arbitration. This time the court, in contravention of its initial ruling and ignoring the warrantor’s request for a hearing to which Ohio law entitled it, denied the motion to compel, making factual findings that:

a voluntary meeting of minds did not occur as the arbitration agreement and forum selection clause were never explained to [AJZ] and [AJZ] did not understand any information regarding arbitration proceedings or the surrendering of certain appellate rights. The language compelling arbitration was inconspicuous and the warranty was provided by a third-party and not signed by [TruNorth]. Further, [AJZ] was not provided a copy of the agreement until four days after taking possession of the vehicle at issue.

The warrantor argued on appeal that the lower court’s initial order finding the arbitration provision enforceable was res judicata, and could not be undercut by the second order contravening the first. The Court of Appeals disagreed, holding that “it would be unreasonable and unjust to rigidly apply the doctrine of res judicata to prohibit the trial court from reconsidering its prior ruling in the first case.”

Similarly, as to the warrantor’s claim that it was denied a rightful hearing, the court “acknowledge[d] that [the applicable statute] requires a court to hold a hearing on a motion to compel arbitration when the arbitration agreement’s enforceability is raised.” Nevertheless, the court found no reversible error. According to the court, a notation of “Hearing Requested” was deemed insufficient since it “did not specifically request and evidentiary or oral hearing on its motions to stay and compel arbitration.” Second, the Court of Appeals determined that “the trial court did, in fact “hear” the parties,” because the parties submitted written briefs, which included evidentiary support.

While process purists can find much to challenge about the appellate decision, the justification for the Court of Appeals willingness to overlook procedural shortcuts lies in its conclusions about the warranty provision. According to the Court of Appeals, the warranty was delivered to the purchaser only four days after the purchase, and the purchaser neither had an opportunity or was briefed on its provisions at the time of purchase. As for the provision itself…. it required the purchaser, a family-owned Pennsylvania limited liability company, to arbitrate before a three person arbitration panel in North Carolina regarding a $25,000 claim.

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