Fries v. Greg G. Wright & Sons, L.L.C.
120 N.E.3d 426
Ohio Ct. App.2018Background
- Carl Fries was a member (36% interest) and former CEO of Greg G. Wright & Sons, LLC (GGWS); GGWS's operating agreement contained a CPR-based arbitration clause for disputes "regarding the interpretation of this Agreement or the rights of the Members hereunder."
- After Fries left GGWS, lease litigation arose in which Fries had personally guaranteed equipment leases; third parties (CFK Ohio Asset Acquisitions and Charles Fischer) later obtained judgment against Fries.
- Fries sued GGWS, Margaret Grossmann, Thomas Grossmann, CFK, and Fischer asserting six claims: breach of fiduciary duty, unjust enrichment, conversion, right of reimbursement, fraudulent concealment, and civil conspiracy.
- Defendants moved to compel arbitration and to stay proceedings under the operating agreement; the trial court denied arbitration, finding (1) waiver by defendants and (2) the record insufficient to decide arbitrability; it also granted Fries discovery.
- The court of appeals reviewed standards and scope issues, held the trial court abused discretion finding waiver, determined which claims were arbitrable (member-based claims) and which were not (guarantor/lease-related claims), and remanded with instructions to stay the action pending arbitration of the member-based claims.
Issues
| Issue | Fries's Argument | Defendants' Argument | Held |
|---|---|---|---|
| Did defendants waive the right to arbitrate by participating in litigation? | Fries: defendants actively litigated and delayed, so they waived arbitration. | Defs: limited participation and prompt motion to stay; no waiver. | Court: Abuse of discretion to find waiver; defendants did not waive arbitration. |
| Are Fries's claims subject to the operating agreement's arbitration clause? | Fries: claims are tort/contract mix but many arise from membership and should be litigated in court. | Defs: membership claims fall squarely within arbitration; lease-guarantor claims may be separate. | Court: Member-based claims (breach of fiduciary duty, unjust enrichment, conversion) are arbitrable; guarantor/lease claims (reimbursement, fraudulent concealment, civil conspiracy) are not. |
| Was further discovery required before deciding arbitrability? | Fries: trial court needed discovery to determine overlap and scope. | Defs: arbitrability is decided from the pleadings; discovery not required. | Court: No discovery required; arbitrability is determined from complaint allegations using Fazio test. |
| Are non-signatories (GGWS, Thomas Grossmann) bound to arbitrate? | Fries: Questions whether Fries remained a member and who is bound. | Defs: Nonsignatories closely related to agreement and claims; can compel arbitration. | Court: GGWS and Thomas Grossmann are bound (estoppel/third-party beneficiary/close relationship); Margaret and Fries (signatories) may enforce arbitration. |
Key Cases Cited
- Schaefer v. Allstate Ins. Co., 63 Ohio St.3d 708 (Ohio 1992) (recognizing Ohio public policy favoring arbitration)
- ABM Farms, Inc. v. Woods, 81 Ohio St.3d 498 (Ohio 1998) (arbitration favored as alternative dispute resolution)
- Academy of Medicine of Cincinnati v. Aetna Health, Inc., 108 Ohio St.3d 185 (Ohio 2006) (adopting Fazio test: ask whether claim can be maintained without reference to the contract)
- Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio St.3d 352 (Ohio 2008) (unconscionability and enforceability of arbitration agreements reviewed de novo)
- Williams v. Aetna Fin. Co., 83 Ohio St.3d 464 (Ohio 1998) (arbitration clauses are contract provisions to be respected)
- Harsco Corp. v. Crane Carrier Co., 122 Ohio App.3d 406 (Ohio Ct. App.) (factors for implied waiver by litigation conduct)