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Under a valid Ohio choice of law provision, forum state courts are required to apply the substantive law of that forum state to determine whether an agreement to arbitrate is enforceable, according to the Tennessee Court of Appeals.
In Credit General Ins. Co. v. Insurance Service Group, Inc., No. E2007-00033-COA-R3CV, 2007 WL 2198475 (Tenn. Ct. App. July 31, 2007), Credit General and Insurance Service entered into an agency contract, which included both a choice of law provision and an agreement to arbitrate.
The choice of law provision required that the agreement would be performed, administered, and interpreted under Ohio law. The arbitration agreement specified that all claims arising under, out of, or relating to the agreement would be resolved through arbitration.
Later, Credit General was declared insolvent and was placed in liquidation. Credit General then sued Insurance Services in a Tennessee court for breach of contract, breach of fiduciary duty, and conversion. The trial court eventually granted Insurance Services' motion to compel arbitration and Credit General appealed.
First, the Court determined that there was no dispute as to the validity and enforceability of the choice of law provision that required the Court to apply Ohio law as to whether the arbitration agreement was enforceable.
The Court then held that Ohio law dictated that the issue of arbitration was a procedural remedy, and it must be decided pursuant to the law of the forum state, in this case, Tennessee. The Court observed that the parties clearly chose and agreed to Ohio law as controlling regarding their agreement, which compelled the Court to follow Ohio's mandate requiring application of the forum state's law as to the enforceability of the arbitration agreement.
Finally, the Court found no grounds under Tennessee law by which to hold the agreement to arbitrate unenforceable. While Credit General argued that an order to compel arbitration may be denied upon grounds of laches, estoppel, waiver, fraud, duress, or unconscionability, the Court could not find any of those grounds as to this particular agreement.
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