Is my conduct a violation of the Consumer Sales Practices Act?

page 1 mcglinchey.com The Bullet Point: Ohio Commercial Law Bulletin Is my conduct a violation of the Consumer Sales Practices Act? Volume 4, Issue 18 October 2, 2020 Jim Sandy and Stephanie Hand-Cannane Unconscionable arbitration agreement Klonowski v. Lynch, 8th Dist. Cuyahoga No. 109086, 2020-Ohio-4567 In this appeal, the Eighth Appellate District reversed and remanded the trial court’s decision finding that the arbitration agreement was not unconscionable, as it incorporated by reference the arbitration forum’s rules and procedures. • The Bullet Point: To successfully prove an arbitration agreement is unconscionable, a consumer must demonstrate that the agreement was both procedurally and substantively unconscionable. In analyzing an arbitration agreement for procedural unconscionability, courts look at the relative bargaining position of the contracting parties, whether the terms were explained to the weaker party, and if the weaker party had the option of obtaining the goods or services from an alternative source. A consumer who had other meaningful choices but who chose to agree to legible, clear arbitration terms in bold print cannot later argue that he was the weak party in the transaction. In addition, courts analyze an arbitration agreement for substantive unconscionability by looking at whether the terms are commercially reasonable. In Ohio, it is the industry standard and commonplace for an arbitration agreement to incorporate by reference the rules and procedures of the arbitration forum. As such, a consumer cannot allege an arbitration agreement is unconscionable simply because it incorporates by reference but does not list out the arbitration forum’s rules and procedures. Notice of Default LNV Corp. v. Kempffer, 11th Dist. Geauga No. 2019-G-0232, 2020-Ohio-4527 In this appeal, the Eleventh Appellate District affirmed the trial court’s decision, holding that the borrowers were already notified their loan had been accelerated when they received their second notice of default and that the deadline to cure the default was not extended. • The Bullet Point: Provided a mortgage requires notice before accelerating a defaulted loan, and a borrower fails to timely bring a loan current after receiving a notice of default, the mortgagee is authorized to accelerate the loan. If the borrower remits a partial payment but fails to fully pay the amount past due, the mortgagee is still within its right to accelerate the loan. Once the borrower is notified its loan has been accelerated, the mortgagee’s right to accelerate is not delayed by subsequent notices of default sent to the borrower. Stated differently, even if a second notice of default is sent because a the bullet point: ohio commercial law bulletin page 2 mcglinchey.com borrower made a partial payment, the second notice does not give the borrower additional time to cure its default once its loan has already been accelerated. Lis Pendens Clinton v. Home Invest. Fund V, Lp, Successor in Interest to Mtge. Electronic Registration Sys., 1st Dist. Hamilton No. C-190646, 2020-Ohio-4555 In this case, the First Appellate District dismissed the appeal as moot as the appellant failed to obtain a stay of execution or post a supersedeas bond in order to reinvoke lis pendens. • The Bullet Point: The doctrine of lis pendens “protects the status quo of the litigants’ interest in the subject property while an action is pending.” Under R.C. 2703.26, the filing of a lawsuit concerning specific property gives notice to others of the claim alleged in the pending lawsuit and that a purchaser takes the property subject to the outcome of the lawsuit. Simply stated, while litigants are not prevented from conveying away property that is the subject of a lawsuit, the conveyed interest becomes subject-to the outcome of the pending litigation. As the court noted, lis pendens is a procedural doctrine which operates only while the action is pending. Once final judgment has been rendered, lis pendens terminates and no longer protects the litigants’ interest. Consequently, an aggrieved party must seek a stay of judgment pending appeal in order to reinvoke lis pendens and protect its interest in the underlying property. CSPA Barlow v. Gap, Inc., 8th Dist. Cuyahoga No. 109101, 2020-Ohio-4382 In this appeal, the Eighth Appellate District affirmed the trial court’s decision, agreeing that the CSPA is not a strict liability statute and that the consumer failed to prove the supplier’s signs were false, material, or misleading. • The Bullet Point: Ohio courts have not interpreted the Consumer Sales Practices Act (“CSPA”) to be a strict-liability statute and instead consider "reasonableness" when determining whether conduct violates the CSPA. Simply put, the issue of whether a supplier’s act or omission is a violation of the CSPA depends on how a reasonable consumer would view it. Under this reasonableness standard, a consumer must prove that the supplier’s conduct was deceptive under the CSPA in that it “has the tendency or capacity to mislead consumers” and is material to the decision to purchase the product or service offered for sale. Consequently, a supplier will not be liable under the CSPA unless the consumer can prove its action was false, material to consumers’ purchasing decisions, and likely to mislead a reasonable consumer. contact James Sandy member > cleveland T (216) 378-9911 jsandy@mcglinchey.com Stephanie Hand-Cannane associate > cleveland T (216) 378-4989 shandcannane@mcglinchey.com the bullet point: ohio commercial law bulletin page 3 mcglinchey.com This material may be considered advertising under certain rules of professional conduct. No representation is made that the quality of legal services to be performed is greater than the quality of legal services performed by other attorneys. McGlinchey Stafford PLLC in AL, FL, LA, MA, MS, NY, OH, TN, TX, and DC. McGlinchey Stafford LLP in CA. [Cite as Klonowski v. Merrill Lynch, 2020-Ohio-4567.] COURT OF APPEALS OF OHIO EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA DANIEL J. KLONOWSKI, : Plaintiff-Appellee, : No. 109086 v. : MERRILL LYNCH, ET AL., : Defendants-Appellants. : JOURNAL ENTRY AND OPINION JUDGMENT: REVERSED AND REMANDED RELEASED AND JOURNALIZED: September 24, 2020 Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-19-914407 Appearances: Paul V. Wolf Co. and Paul V. Wolf, for appellee. McGlinchey Stafford, P.L.L., and Bryan T. Kostura; Bressler, Amery & Ross, P.C., and Logan S. Fisher, for appellant. PATRICIA ANN BLACKMON, P.J.: Defendants Merrill Lynch, Pierce, Fenner & Smith, Inc. and James R. Sophia, Jr. (collectively “Appellants”) appeal the trial court’s denial of their motion to compel arbitration and stay proceedings and assign the following error for our review: I. Whether the trial court’s September 23, 2019 journal entry erred by denying the Motion to Compel Arbitration and Stay Proceedings filed by Defendants/Appellants Merrill Lynch, Pierce, Fenner & Smith Incorporated and James R. Sophia, Jr. On November 12, 2007, Daniel Klonowski (“Klonowski”) opened a cash management account with Appellants. Klonowski, who is an attorney, signed Appellants’ Client Relationship Agreement (“the CRA”), which included an arbitration clause. On April 24, 2019, Klonowski filed a complaint against Merrill Lynch alleging promissory estoppel, breach of contract, negligence, and breach of fiduciary duty related to alleged mismanagement of Klonowski’s account. Appellants filed a motion to compel arbitration and stay the proceedings in the trial court. The trial court held a hearing on August 8, 2019, and denied the motion on September 23, 2019. It is from this denial that Appellants appeal. Appellants’ CRA The CRA that Klonowski signed when he opened his account with Appellants is six pages long. Within these pages, there are two references to arbitration. First, just above Klonowski’s signature, which was required on one page of the CRA, the following language is in bold print: BY SIGNING BELOW, I AGREE TO THE TERMS OF THE MERRILL LYNCH CLIENT RELATIONSHIP AGREEMENT ON THE REVERSE SIDE AND: * * * 2. THAT, IN ACCORDANCE WITH SECTION 8, PAGE 2 OF THE CLIENT RELATIONSHIP AGREEMENT, I AM AGREEING IN ADVANCE TO ARBITRATE ANY CONTROVERSIES THAT MAY ARISE WITH YOU * * *. Second, Section 8 of the CRA, which is entirely in bold print and is titled “AGREEMENT TO ARBITRATE CONTROVERSIES,” states in pertinent part as follows: This Agreement contains a predispute arbitration clause. By signing an arbitration agreement, the parties agree as follows: All parties to this Agreement are giving up the right to sue each other in court * * *. The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this agreement. Any arbitration pursuant to this provision shall be conducted only before the New York Stock Exchange, Inc., an arbitration facility provided by any other exchange of which Merrill Lynch is a member, or the National Association of Securities Dealers, Inc. * * *. Section 8 of the CRA also states that the consumer — in this case, Klonowski — may choose the forum from among those listed, and if the consumer fails to choose, Merrill Lynch will select the forum. Additionally, the CRA states that “[a]rbitration awards are generally final and binding,” subject to limited ability for appellate review; “discovery is generally more limited in arbitration than in court proceedings”; “arbitrators do not have to explain the reason(s) for their award”; “[t]he panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry”; arbitrable claims include “those involving any transaction in any of your accounts with Merrill Lynch, or the construction, performance or breach of any agreement between us”; and “Judgment upon the award of arbitrators may be entered in any court, state or federal, having jurisdiction.”...