ALLIED INDUSTRIAL SCRAP INC v. OMNISOURCE CORPORATION (2015)

OPINION

The otherwise victorious plaintiff-appellant in this diversity case appeals the district court's ruling that a unilateral fee-shifting clause for attorney's fees was unenforceable under Ohio law as a matter of public policy. The district court relied on a previous published opinion from this Court in Scotts Co. v. Central Garden & Pet Co., 403 F.3d 781 (6th Cir.2005), that held that the Ohio Supreme Court would not enforce similar fee-shifting clauses. Three years after the Scotts case, the Ohio Supreme Court in Wilborn v. Bank One Corp., 906 N.E.2d 396 (Ohio 2009), made it clear that it would enforce such unilateral or one-sided fee-shifting contract provisions. Therefore, we must reverse.

In this case, the plaintiff offered to sell approximately 3 million pounds of scrap copper to the defendant. The defendant negotiated the core terms of the sale but did not object to the following fee-shifting provision: “In the event purchaser shall default in his obligations hereunder, purchaser shall be liable for [the plaintiff]'s costs of collection, including attorney's fees.” The contract that includes this clause was negotiated between two experienced and sophisticated commercial entities. There was no duress. The parties were on an equal footing. There was no statute or other specific public policy that would invalidate a fee-shifting provision in a multi-million-dollar contract for the sale of copper scrap. A jury trial determined that the defendant defaulted on its obligation under the contract.

It is elementary that in diversity we must apply the law of the state's highest court. In Wilborn, the Ohio Supreme Court upheld a one-sided, fee-shifting contract for attorney's fees in favor of a bank in connection with a home-equity loan agreement. As Wilborn explains, Ohio generally applies the “American rule” in which each party bears its own litigation costs, but under Ohio law contracts may shift the costs of litigation, including attorney's fees. 906 N.E.2d at 400–01. There are exceptions that prevent parties from contracting around statutory public policy determinations. See, e.g., id. at 402 (prohibiting fee shifting that conflicted with foreclosure laws); State v. Taylor, 10 Ohio 378, 380–81 (1841) (denying attorney's fees that operated to evade usury statutes). Wilborn makes it clear that when not confronted with a direct statutory conflict, Ohio law will generally give effect to such fee-shifting provisions when there is no duress.

We therefore reverse the district court's summary judgment order invalidating the fee-shifting clause and remand with instructions to determine the fair, just, and reasonable value of the attorney's fees specifically provided for in the contract.̌

MERRITT, Circuit Judge.