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In addressing the enforceability of an arbitration agreement that provided for heightened judicial review, the Ohio Supreme Court held that the provision for heightened review, though unenforceable under Ohio law, did not render the entire agreement unenforceable because (1) the agreement contained a severability clause and (2) the provision for heightened review was not essential to the agreement.
In Ignazio v. Clear Channel Broadcasting, Inc., 865 N.E.2d 18 (Ohio May 9, 2007), Ignazio sued Clear Channel, her former employer, for discrimination and wrongful termination.
Clear Channel filed a motion to stay the action pending arbitration pursuant to an arbitration agreement that provided for heightened judicial review. Under the provision for heightened review, arbitration awards would be subject to the same standard of review "as that applied by an appellate court reviewing a decision of a trial court sitting without a jury."
The trial court granted a stay. However, on appeal, the Ohio Court of Appeals held that the provision for heightened review was unenforceable. See Ignazio v. Clear Channel Broadcasting, Inc., 844 N.E.2d 881 (Ohio May 9, 2007). Moreover, the court of appeals relied on Schaefer v. Allstate Insurance Co., 590 N.E.2d 1242 (Ohio 1992) in holding that the provision for heightened review rendered the entire arbitration agreement unenforceable.
The Ohio Supreme Court (the Court) granted review to address the "narrow issue" of whether the provision for heightened review rendered the entire agreement unenforceable or whether the offending provision should be severed pursuant to the agreement's severability clause.
As an initial matter, the Court found that the Schaefer was factually distinguishable because (1) it involved an allegation of unconscionability and (2) there was no reference to a severability clause. The Court next turned to the question of whether the provision for heightened review was "fundamental to the overall meaning of the agreement" and thus not subject to the severability clause.
By a 6-1 majority, the Court held that the provision for heightened review was not an essential term of the agreement because severing the provision would "not fundamentally alter the otherwise valid and enforceable provisions of the agreement." As support for its holding, the Court cited Ohio's "strong public policy in favor of arbitration."
The enforceability of a provision for heightened review varies across jurisdictions. Compare Gateway Technologies, Inc. v. MCI Telecommunications Corp., 64 F.3d 993 (5th Cir. 1995) (enforceable under the Federal Arbitration Act) with Trombetta v. Raymond James Financial Services, Inc., 907 A.2d 550 (Pa. Super. Ct. 2006) (unenforceable under Pennsylvania Uniform Arbitration Act). In those jurisdictions where the enforceability of a provision for heightened review is unsettled, litigation over enforceability may be unavoidable, but parties can avoid any litigation over severability by clearly stating their intent in the agreement.
For example, if parties intend to arbitrate regardless of whether heightened review is available, they could include the following severability clause: "If any part of this agreement is found to be unenforceable, including but not limited to the provision for heightened judicial review, the unenforceable part(s) shall be severed from the agreement, and the remainder of the agreement shall remain in full force and effect."
Even in those jurisdictions where a provision for heightened review is unenforceable, parties can ensure an arbitration award free from legal error by agreeing that the arbitrator must follow the applicable substantive law, either in the arbitration agreement itself or by incorporating arbitration rules that require the arbitrator to follow the law. See, e.g., Rule 20D of the National Arbitration Forum Code of Procedure. That way, if the arbitrator ignores or misapplies the law, the award is subject to vacatur on the ground that the arbitrator exceeded their powers. See 9 U.S.C. § 10(a)(4); Ohio Rev. Code § 2711.10(D); see also KeyClick Outsourcing, Inc. v. Ochsner Health Plan, Inc., 946 So.2d 174 (La. Ct. App. 2006) (arbitrator exceeded their powers by committing legal error where arbitration agreement provided that “[t]he arbitrator shall have no authority to make material errors of law”).
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