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An Ohio appellate court refused to compel arbitration in a dispute where a party's claims could be maintained without reference to the contract, even though the contract contained a broadly worded arbitration agreement.
In Northland Insurance Co. v. Palm Harbor Homes, Inc., No. CA2006-07-021, 2007 WL 1041424 (Ohio Ct. App. April 09, 2007), Northland Insurance Co. (Northland) provided surety for Ripley Home Place (Ripley). Ripley brought tort actions against home manufacturer Palm Harbor Homes (PHH) after a manufacturing defect allegedly caused a PHH home to be damaged in a fire.
PHH moved to compel arbitration of the dispute based upon an arbitration agreement in a contract between PHH and Ripley.
In denying PHH's motion to compel arbitration, the Court applied the federal Fazio test, which inquires into whether a suit could be maintained without reference to the contract between the parties. Fazio v. Lehman Bros., Inc., 340 F.3d 386, 395 (6th Cir. 2003). If so, the issue is generally assumed to be outside the scope of the arbitration agreement.
The Court found that the arbitration agreement between Ripley and PHH applied only to financial disputes between the parties. Additionally, the Court noted that any subsequent purchaser of the home could bring these types of tort actions against PHH, whether or not that person had a contract with PHH.
Because Ripley's claims could be brought regardless of the existence of a contract, the contact containing the arbitration clause was unnecessary to resolution of the dispute and the dispute therefore outside the scope of the arbitration agreement.
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