Ignazio v. Clear Channel Broadcasting, Inc., et al.
Supreme Court of Ohio 113 Ohio St. 3d 276 (2007)
When Clear Channel became Diane Ignazio's employer, they required her to enter into an arbitration agreement with Clear Channel. Both parties waived their right to sue for any claim covered by the agreement and agreed to enter into final and binding arbitration. Section 10B, however, allowed either party to bring an action in court to set aside the award "where the standard of review will be the same as that applied by an appellate court reviewing a decision of a trial court sitting without a jury."
Ignazio was terminated on October 7, 2003, and she filed an action against Clear Channel asserting claims of age and sex discrimination, retaliation, and wrongful termination of employment in violation of public policy. Clear Channel filed a motion to stay the action pending arbitration, as Ignazio's claims fell under the arbitration agreement. The trial court granted the motion to stay. Ignazio appealed.
The court of appeals found that section 10B violated Ohio arbitration laws (Ohio Rev. Code ch. 2711) by allowing too great a standard of judicial review, rendering any arbitration award not final and binding. An agreement that did not provide for a final and binding decision could not be classified as an arbitration agreement. The appeals court reversed the judgment of the trial court and remanded to allow Ignazio's lawsuit to proceed. Clear Channel appealed to the Ohio Supreme Court.
Justice Stratton
The issue before us is whether a clause in an arbitration agreement that provides for greater judicial review of an award than is permitted under R.C. Chapter 2711 renders the entire agreement unenforceable, or whether the offensive clause may be severed and the remainder of the agreement enforced.
Nevertheless, for purposes of this appeal, the parties do not dispute that the second sentence in Section 10B provides for a standard of review that is not permitted under Ohio's arbitration laws. We must decide whether the sentence in Section 10B is fundamental to the overall meaning of the agreement, or whether it may be severed so that the remainder of the agreement may be given effect. Whether a part of a contract may be severed from the remainder "depends generally upon the intention of the parties, and this must be ascertained by the ordinary rules of construction."
The arbitration agreement in this case expressly provides, "Should any provision of this Agreement be found to be unenforceable, such portion will be severed from the Agreement and the remaining portions shall remain in full force and effect." We presume the intent of the parties from the language employed in the contract. Clearly, the parties contemplated and provided for severing a provision that was unenforceable and giving effect to the remaining provisions.
Severing only the second sentence of Section 10B will not modify or alter the remainder of the provision for enforcing an arbitration award. The agreement still requires the parties to arbitrate disputes. Severing does not modify or change the terms of the agreement for demanding and conducting the arbitration process. The agreement continues to provide a means of enforcement in that "[e]ither party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement and to enforce an arbitration award."R.C. 2711.09, 2711.10, and 2711.11 permit a party to challenge the arbitration agreement in certain circumstances.
If the phrase is severed, the only difference will be that a party may not seek to have a court review the award using the same standard of review as an appellate court. Therefore, this single phrase in one sentence of a multipage agreement does not alter the fundamental nature of the agreement
Furthermore, severing the offending provision and enforcing the remainder of the agreement is consistent with this state's strong public policy in favor of arbitration. The law favors and encourages arbitration as a means of resolving disputes.
Therefore, we hold that the offending provision in this agreement does not fundamentally alter the otherwise valid and enforceable provisions of the agreement. Based on the express severability clause and Ohio's strong public policy in favor of arbitration of disputes, the second sentence of Section 10B is severed from the agreement, and the remaining provisions of the agreement are to be given full force and effect. Following arbitration, the parties may seek to confirm, vacate, or modify the award in court or otherwise challenge the process as provided by law
CRITICAL THINKING ABOUT THE LAW
Courts tend to hold parties to the bargain they make in a contract. In the contract in this particular case, specific language supports the idea that under certain conditions, a clause can be severed from the contract without affecting the enforceability of the rest of the contract.
1. What are the reasons for this decision? How does the attitude of the courts toward arbitration serve as a reason in this instance?
Clue: Ask yourself, "What grounds did the court provide to substantiate its conclusion?"
2. Why do the parties care whether the clause is severed? What ethical norms support the court's reasoning?
Clue: What happens if the court rules that the clause cannot be severed from the contract?