Party Could Decline Arbitration Even If Its Behavior May Have Constituted Bad Faith
Kegler Brown Construction Newsletter February 1, 2002
A construction contract contained an arbitration provision that allowed the owner to decline arbitration if any third party refused to participate in the arbitration. The trial court found that the owner had failed to act in good faith by encouraging third parties to refuse to participate in the arbitration, and compelled the parties to proceed to arbitration.
The Court of Appeals for Montgomery County reversed and held that even if the owner induced the third parties to decline arbitration with the intent of avoiding the arbitration and wearing the other party down through litigation, this conduct was permissible. The Court of Appeals upheld the arbitration clause — allegedly freely bargained by commercial entities at arm's length — and stated that the owner was right to decline arbitration when a third party refused to join the arbitration, for whatever reason. Montgomery Cty. v. Donnell (2001), 141 Ohio App.3d 593.
This case means that arbitration clauses which are drafted to allow one party the right to decline or "opt out" of arbitration under certain circumstances, after the dispute arises, will rarely be effectual as a practical matter.