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Neglecting to address whether the parties' agreement reserved the issue of waiver for the arbitrator, an Ohio appellate court has held that a party must be given the opportunity to develop a factual record in an evidentiary hearing before a trial court when alleging waiver of the right to arbitrate through pre-litigation conduct.
In Webb v. ALC of W. Cleveland, Inc., No. 90843, 2008 WL 4358554 (Ohio Ct. App. Sept. 25, 2008), Webb purchased a vehicle from ALC. After signing a retail sales contract containing an arbitration agreement, Webb paid the agreed downpayment and left with the automobile.
About a week later, an employee of ALC called Webb and told her she needed to secure a co-signer for her purchase, or she would have to return the car. After she did not find a co-signer, she tendered the car. In the meantime, CAC, the party financing Webb's purchase, approved her purchase for financing. When Webb told CAC that she had returned the car, CAC refused to cancel the financing contract. When Webb did not make her payments, CAC repossessed the car.
Webb then filed twenty-six claims for relief at the trial court. ALC and CAC moved to stay proceedings pending arbitration of Webb's claims. The trial court granted the motion to stay, and Webb appealed.
Webb argued that ALC and CAC waived the right to arbitrate by repudiating the contract through repossession of the vehicle. The Court noted that most waiver cases turned on a party's litigation conduct, where the particular acts of the parties are apparent on the factual record. Webb's waiver allegations could not be similarly evaluated because the court stayed proceedings without developing such a record.
The Court instead held that the trial court had deprived Webb of the opportunity to develop such a record and had "abused its discretion by failing to conduct an evidentiary hearing regarding the defendants' alleged repudiation of the contract." Without addressing whether the issue of waiver itself was arbitrable in accordance with the parties' agreement, the Court vacated the trial court order staying proceedings and remanded the matter for an evidentiary hearing.
The Court also drew a fine distinction between "actions to compel arbitration" under Ohio Rev. Code § 2711.03, and "motions for a stay of proceedings pending arbitration" under Ohio Rev. Code § 2711.02. According to the Court, the former requires an evidentiary hearing to determine whether an agreement to arbitrate exists, while the latter provides that the hearing is merely discretionary. See Maestle v. Best Buy Co., 800 N.E.2d 7, 10 (Ohio 2003) (distinguishing direct enforcement through motions to compel from indirect enforcement through orders staying proceedings).
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