Woodville Ent., L.L.C. v. Kokosing Materials, Inc.
2017 Ohio 5844
| Ohio Ct. App. | 2017Background
- In 2008 Woodville Enterprise, LLC and Kokosing Materials, Inc. entered a master agreement and two contemporaneous operating agreements creating Area Aggregates and Area Asphalt.
- Section 24 of the master agreement contained a broad arbitration clause requiring arbitration of “any claim, dispute, or demand concerning any term or condition of this [a]greement.”
- Woodville sued Kokosing in 2016 alleging fraud, self-dealing, breach of fiduciary duty, and breach of contract based on Kokosing’s management of the ventures; it sought damages, injunctive relief, and a constructive trust.
- Kokosing moved to stay the litigation pending arbitration; Woodville opposed, arguing the arbitration clause applied only to the master agreement and not to separate operating agreements (which contained merger clauses).
- The trial court granted the stay pending arbitration; Woodville appealed, challenging the scope of arbitrability and the trial court’s application of the controlling test.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration clause in the master agreement covers disputes about the operating agreements | Woodville: the arbitration clause is limited to the master agreement; separate operating agreements (with merger clauses) are not subject to that clause | Kokosing: the broad arbitration clause in the master agreement encompasses disputes that will require reference to the master agreement and thus must be arbitrated | The court held the clause is broad and, under the proper Fazio/Nestle test, the dispute is likely to require reference to the master agreement and is arbitrable |
| Proper legal test for arbitrability in multi-contract contexts | Woodville: cases involving multiple contracts should be analyzed under a different standard (not simply single-contract precedents) | Kokosing: the Fazio standard applies in the Sixth Circuit and Ohio even where multiple contracts exist | The court held Fazio (as adopted in Nestle) is the proper standard; Aetna and Fazio analyses apply to multi-contract situations |
| Whether merger or cross-default clauses prevent incorporation of operating agreements into arbitration scope | Woodville: merger clauses and separate drafting show parties did not intend arbitration to cover operating agreements | Kokosing: the master agreement began the parties’ relationship and arbitration is broad enough to cover related disputes | The court rejected Woodville’s argument; it found no positive assurance the clause is inapplicable and that reference to the master agreement will likely be necessary |
| Whether equitable or tort claims (e.g., conversion, fiduciary breach) avoid arbitration | Woodville: non-contractual claims can be litigated in court rather than arbitration | Kokosing: broad arbitration clauses cover claims beyond pure contract claims when the dispute implicates the agreement | The court held broad clauses can reach non-contract claims if resolution will reference the agreement; doubts resolved in favor of arbitration |
Key Cases Cited
- Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio St.3d 352 (Ohio 2008) (standard of review and arbitrability principles)
- Academy of Medicine of Cincinnati v. Aetna Health, Inc., 108 Ohio St.3d 185 (Ohio 2006) (presumption in favor of arbitration; broad clause interpretation)
- Alexander v. Wells Fargo Fin., 122 Ohio St.3d 341 (Ohio 2009) (arbitrability inquiry whether action can be maintained without reference to the contract)
- Fazio v. Lehman Bros., Inc., 340 F.3d 386 (6th Cir. 2003) (arbitration of non-contractual claims where resolution requires reference to agreement)
- Nestle Waters North Am., Inc. v. Bollman, 505 F.3d 498 (6th Cir. 2007) (endorsing Fazio standard in multi-contract disputes)
- Alticor, Inc. v. Nat’l Union Fire Ins., 411 F.3d 669 (6th Cir. 2005) (discussing limits of "touches matters covered by" standard)
- Sweet Dreams Unlimited, Inc. v. Dial‑A‑Mattress Int’l, Ltd., 1 F.3d 639 (7th Cir. 1993) (interpretation of "arising out of" clauses)