Court Allows Claim for Pre-arbitration Discovery and Reverses Grant of Motion to Stay

Many construction projects contain an arbitration provision. If an adversary files suit, the typical strategy is to file a Motion to Stay the litigation pending enforcement of the arbitration clause. Many state and federal courts state policies strongly favoring arbitration and such clauses are upheld in the vast majority of cases. What happens when a party seeks pre-arbitration discovery to determine the existence or test the validity of its claims before demanding arbitration? Is that proceeding also subject to a Stay? The case White v. Equity, Inc., 178 Ohio App. 3d 604, 2008-Ohio-5226 (Ct. App. Franklin Cty. 2008) recently addressed this issue and reversed the trial court’s stay to allow the action from pre-suit discovery to proceed.

White was a licensed real estate agent and had worked for Equity. She believed that she was entitled to certain commission payments under the terms of her independent contractor agreement. That agreement required that any claims regarding commissions would be decided by arbitration. White contended, however, that she needed discovery to determine whether she actually had a breach of contract claim to arbitrate and that she could not initiate the arbitration claim without the requested discovery. White further contended that Equity had willfully and maliciously redacted and destroyed her original independent contractor agreement that would interfere with her ability to seek payment of her commissions. Equity’s motion for stay was granted, and White appealed.

Ohio has both a statute, ORC 2317.48, as well as Rule 34(D), that allow a separate action seeking discovery prior to filing of an complaint seeking substantive relief. The White court noted that Rule 34(D) “expands the concept of pre-suit discovery codified in R.C. 2317.48.” Further, the White court noted that where there is conflict between the rule and the statute, “the rule prevails.” The court analyzed two prior decisions from different appellate districts which had held that an action for discovery was not an issue “referable to arbitration” under the statute governing arbitration, ORC 2711.02. The issue before the court was framed as follows:

Appellant admits that her commission claims are subject to a valid arbitration agreement and that the merits of those claims must, therefore, be resolved through arbitration. What is at issue is whether, before initiating arbitration proceedings, a plaintiff, like appellant here, may maintain an auxiliary action to discovery facts necessary before pleading her claims in arbitration…

The White court examined the policies behind the statutory right for pre-suit discovery as well as the provisions of Rule 34(D). A similar rule is not found in the Federal Rules of Civil Procedure and may not be present in the rules or statutes of other states. After analyzing the various policies and prior Ohio decisions, the White court held as follows:

We conclude that a complaint or petition for discovery, pursuant to Civ.R. 34(D) and/or R.C. 2317.48, does not present an issue referable to arbitration for purposes of R.C. 2711.02. An action for discovery is an auxiliary proceeding, separate from substantive claims referable to arbitration. [citation omitted] The purpose of R.C. 2317.48 is to allow a party who may have a cause of action to discovery the grounds thereof before commencing an action [citation omitted]. Additionally, Civ.R. 34(D) acts as a safeguard against charges that a plaintiff filed a frivolous claim where the alleged wrongdoer or third party had the ability to conceal facts that the plaintiff needs to determine the identity of the wrongdoer or exactly what wrong occurred. [citation omitted] Contrary to appellees’ position, we find that the purpose of Civ.R. 34(D) and R.C. 2317.48 is served regardless of the forum in which the plaintiff’s substantive claim is ultimately determined.

While this case did not arise in the context of a construction dispute, its application to construction disputes is readily apparent. While substantive claims may be subject to arbitration, parties may at times seek discovery from an adversary prior to demanding arbitration in order to substantiate the basis for a claim or to gather other facts and relevant documents regarding the claim. White v. Equity, Inc. holds that such auxiliary proceedings are not referable to arbitration and therefore not subject to a Motion for Stay.

Posted by: David C. Olson

Categories: Claims / Dispute Resolution, Construction Contracts, Current Developments / Legislation