Avery v. Academy Invests.
2019 Ohio 3509
Ohio Ct. App.2019Background
- Plaintiff John Avery sued for judicial dissolution and an accounting of two Ohio LLCs: Academy Investments, L.L.C. (AI) and Academy of Fetish Arts, L.L.C. (AFA), claiming he was a member of each.
- Defendants moved to dismiss or, alternatively, to stay the litigation pending arbitration and mediation under the LLCs’ operating agreements, attaching evidence that Avery’s membership had been terminated before suit.
- Both operating agreements list members, define membership rights (including access to financial records), authorize admission/removal of members, and contain broad arbitration clauses covering disputes "arising out of" or "in connection with" the agreements.
- Avery acknowledged being bound by the operating agreements and their arbitration clauses but argued that a judicial-dissolution claim under R.C. 1705.47 does not "arise" from the agreements and thus is not subject to arbitration; he also relied on agreement language referencing R.C. Chapter 1705 events.
- The trial court stayed the case pending mandatory binding arbitration of Avery’s claims. Avery appealed, asserting the stay was erroneous.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Avery’s judicial-dissolution and accounting claims are subject to arbitration | Judicial dissolution under R.C. 1705.47 is a statutory cause of action for a court and does not "arise out of" the operating agreements | Claims depend on Avery’s membership status, which is governed by the operating agreements and arbitration clauses | Stay affirmed; claims fall within broad arbitration clauses because the membership question and rights asserted require reference to the agreements |
| Whether statutory remedies can be carved out from a contract arbitration clause | Statutory nature of the relief removes it from arbitration | Arbitration covers disputes touching matters in the contract, including statutory claims when entitlement depends on contract-based membership | Rejected; statutes do not automatically exclude disputes from arbitration when resolution depends on contract rights |
| Whether operating-agreement language referencing R.C. Chapter 1705 exempts judicial dissolution from arbitration | The agreements’ reference to R.C. Chapter 1705 means judicial dissolution is not a "dispute" for arbitration | Permitting statutory dissolution does not obviate the prerequisite determination of membership under the agreement | Rejected; preliminary membership determination is for arbitration despite references to statutory dissolution |
| Standard of review for staying litigation pending arbitration | N/A (procedural) | Trial court’s stay should be reviewed for abuse of discretion; arbitrability is a question of contract reviewed de novo | Court applied de novo review to arbitrability and affirmed trial court’s stay (no abuse of discretion) |
Key Cases Cited
- AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643 (principles on arbitrability and presumption in favor of arbitration)
- United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574 (liberal interpretation of arbitration clauses)
- Aetna Health Inc. v. Academy of Medicine of Cincinnati, 108 Ohio St.3d 185 (test whether action can be maintained without reference to contract)
- Alexander v. Wells Fargo Fin. Ohio 1, Inc., 122 Ohio St.3d 341 (broad arbitration clause paradigm)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (statutory claims can be subject to arbitration when they touch matters covered by the agreement)
- Council of Smaller Ents. v. Gates, McDonald & Co., 80 Ohio St.3d 661 (framework for arbitration analysis)