Katz v. Katz
2018 Ohio 3210
Ohio Ct. App.2018Background
- Mollie K Ltd. was an LLC whose operating agreement named Randolph Katz as manager; Randolph transferred his 25% interest to his ex-wife Nancy Katz as part of their 2013 divorce decree, which also guaranteed Nancy up to $1,000,000 in distributions over ten years.
- Randolph, while still acting as Mollie K’s manager, formed Max Auto Real Estate LLC and caused Mollie K to sell its real estate to Max Auto; the LLC was later dissolved and cash distributed to members, with Nancy receiving in total more than the $1,000,000 guaranteed under the divorce entry.
- Nancy sued Randolph and Max Auto in Lucas County Common Pleas for breach of fiduciary duty, fraud, misappropriation, and related claims, alleging self-dealing and fraudulent transfers to deprive her of value.
- Defendants moved to dismiss or compel arbitration under Mollie K’s operating agreement (which contains a broad arbitration clause), and alternatively argued the domestic relations court retained exclusive jurisdiction; they also moved to strike Nancy’s jury demand as untimely.
- The trial court denied arbitration and refused to dismiss for lack of jurisdiction, and allowed the jury demand; defendants appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Nancy’s claims "arise out of or relate to" the Mollie K operating agreement (scope of arbitrability) | Nancy: her rights flow from the divorce decree; claims can be decided without referencing the operating agreement | Randolph/Max Auto: claims depend on Randolph’s managerial acts under the operating agreement and thereby fall within the arbitration clause | Held: Claims for breach of fiduciary duty, misappropriation, and fraud against Randolph arise out of/relate to the operating agreement and are arbitrable; other claims are not arbitrable and must be stayed pending arbitration |
| Whether Nancy (a non‑signatory) is bound by the operating agreement’s arbitration clause | Nancy: she never signed the operating agreement or joinder and did not agree to arbitrate | Randolph/Max Auto: Nancy was admitted/treated as a member, accepted benefits and voted; R.C. 1705.18(B) binds a transferee/substitute member | Held: Nancy is bound by the arbitration clause (estoppel/benefit acceptance and statute); she is a member/assignee and cannot avoid arbitration |
| Treatment of mixed arbitrable and non‑arbitrable claims and claims against Max Auto | Nancy: some claims arise from divorce decree and against Max Auto, not subject to arbitration | Defs: non‑party claims are ancillary to manager’s conduct and arbitration should control | Held: Arbitrable claims against Randolph must be sent to arbitration; non‑arbitrable claims (breach of settlement/divorce entry and claims against Max Auto) remain in court but the proceedings must be stayed pending arbitration outcome |
| Whether the trial court erred in denying dismissal for lack of subject‑matter jurisdiction and in refusing to strike the jury demand (appealability) | Nancy: orders are not final and thus not presently appealable | Defs: trial court lacked jurisdiction and jury demand was untimely | Held: Court found these assignments premature/not final for appeal; did not rule on merits here |
Key Cases Cited
- Academy of Medicine of Cincinnati v. Aetna Health, Inc., 108 Ohio St.3d 185 (Ohio 2006) (articulates Ohio principles guiding arbitrability and approves use of Fazio test)
- Fazio v. Lehman Bros., Inc., 340 F.3d 386 (6th Cir. 2003) (tests arbitrability by asking whether the action can be maintained without reference to the contract)
- Collins & Aikman Prods. Co. v. Bldg. Sys. Inc., 58 F.3d 16 (2d Cir. 1995) (discusses broad arbitration clauses as paradigm language)
- InterGen N.V. v. Grina, 344 F.3d 134 (1st Cir. 2003) (discusses estoppel doctrine binding nonsignatories who accept benefits)
- Cleveland-Akron-Canton Advertising Coop. v. Physician’s Weight Loss Ctrs. of Am., 184 Ohio App.3d 805 (8th Dist. 2009) (applies estoppel to bind nonsignatory to arbitration after accepting contract benefits)