KIMBERLEE A. GERTSON, TRUSTEE, THE GERSTON FAMILY TRUST, DATED NOVEMBER 20, 2002, ET AL. v. PARMA VTA, L.L.C., ET AL.
No. 108823
COURT OF APPEALS OF OHIO, EIGHTH APPELLATE DISTRICT, COUNTY OF CUYAHOGA
June 25, 2020
2020-Ohio-3455
LARRY A. JONES, SR., J.; ANITA LASTER MAYS, P.J., CONCURS; MICHELLE J. SHEEHAN, J., DISSENTS WITH SEPARATE OPINION
Civil Appeal from the Cuyahoga County Court of Common Pleas, Case No. CV-14-829947; JOURNAL ENTRY AND OPINION; JUDGMENT: AFFIRMED; RELEASED AND JOURNALIZED: June 25, 2020
Goldberg Legal Co., L.P.A. and Steven M. Goldberg; Richardson, Patrick, Westbook & Brickman, L.L.C. and Karl E. Novak; Zagrans Law Firm, L.L.C. and Eric H. Zagrans; and Miller, Canfield, Paddock and Stone, P.L.C. and Conor T. Fitzpatrick, for appellees.
Walter Haverfield, L.L.P., Mark I. Wallach, and John P.L. Mills, for appellants.
{¶ 1} Defendants-appellants, Allan Robbins (“Robbins“), Leah Robbins, Parma VTA, L.L.C., and AKMS, L.P., appeal from the trial court‘s July 12, 2019 judgment denying their motion for partial stay of proceedings. For the reasons set forth below, we affirm.
PROCEDURAL AND FACTUAL HISTORY
{¶ 2} For the purpose of this appeal, we set forth the following factual and procedural background.
{¶ 3} This a complex civil case that was initiated in 2014 by plaintiff-appellee Kimberlee Gerston (“Kimberlee“), Trustee of the Gerston Family Trust (“the Trust“), against the above-named defendants, as well as appellee Parma GE 7400. As will be discussed below, Parma GE 7400 eventually became a plaintiff in this litigation.
{¶ 4} The Trust was formed in 2002 under California laws by husband Kenneth Gerston (“Gerston“) and wife Kimberlee. Each was designated as the primary trustee, and in the event of the death of one of them, the survivor was to continue to act as the primary trustee. Gerston died in 2010, and, thereafter, Kimberlee assumed the role of primary trustee.
{¶ 5} Prior to Gerston‘s death, he and Robbins had been negotiating the purchase of the centerpiece of this litigation — commercial property located at 7400 Broadview Road, Parma, Ohio. Gerston and Robbins formed companies for the sole purpose of effectuating the sale; Gerston‘s company was Parma GE 7400 and
{¶ 6} After Gerston‘s death, ownership of Parma GE 7400 became an issue and Kimberlee filed this action. In Count 1 of her complaint, Kimberlee sought a declaratory judgment declaring the Trust to be the owner of Parma GE 7400. At the defendants’ behest, the declaratory judgment portion of the case was bifurcated from the rest of the case and was tried in a bench trial; the defendants did not mention the possibility of arbitration. Their motion requested that the “issue of who the owner of [Parma GE 7400] be decided first, and all claims flowing from that determination — whether Plaintiff‘s or Defendants’ — be bifurcated and tried separately.”
{¶ 7} At the conclusion of the bench trial on the declaratory judgment portion of the case, the trial court found that the Trust was the majority legal owner of Parma GE 7400. In June 2018, this court affirmed that ruling. Gerston v. Parma VTA, L.L.C., 8th Dist. Cuyahoga No. 105572, 2018-Ohio-2185. More details about the facts of this case are set forth in that opinion.
{¶ 9} On that same date, April 11, the defendants also filed the motion for partial stay of proceedings, which is the subject of this appeal. In the motion, the defendants contended that “Plaintiffs’ Supplemental Complaint, with the participation of newly-realigned Plaintiff Parma GE 7400, has asserted claims which are clearly subject to the mandatory arbitration provision contained in the [TIC Agreement] between Plaintiff Parma GE 7400 L.L.C. and Defendant Parma VTA L.L.C.” Although not directly at issue in this appeal, for full context it is important to note that on April 5, 2019, the defendants filed a motion to compel arbitration on another matter — a “cash call” that allegedly occurred between two of the parties — but the defendants withdrew the motion to compel on April 17, 2019.
{¶ 10} The plaintiffs filed one brief in opposition to both of the above-mentioned motions — the subject motion for partial stay of proceedings and the April 5 motion to compel arbitration on the alleged “cash call” issue. The substance
LAW AND ANALYSIS
Standard of Review
{¶ 11} The defendants contend that our standard of review is de novo, while the plaintiffs contend that we review for an abuse of discretion. When reviewing a challenge to an arbitration clause, the appropriate standard of review depends on “the type of questions raised challenging the applicability of the arbitration provision.” McCaskey v. Sanford-Brown College, 8th Dist. Cuyahoga No. 97261, 2010-Ohio-1543, ¶ 7. Generally, an abuse of discretion standard applies. Id., citing Milling Away, L.L.C. v. UGP Properties, L.L.C., 8th Dist. Cuyahoga No. 95751, 2011-Ohio-1103. Whether a party has waived the right to arbitrate a dispute is subject to an abuse-of-discretion standard. Id. However, the issue of whether a party has agreed to submit an issue to arbitration or questions of unconscionability are reviewed under a de novo standard of review. Id. at ¶ 7-8, citing Shumaker v. Saks Inc., 163 Ohio App.3d 173, 2005-Ohio-4391, 837 N.E.2d 393 (8th Dist.), and Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio St.3d 352, 2008-Ohio-938, 884 N.E.2d 12.
{¶ 13} Here on appeal, the plaintiffs do not contest that Parma GE 7400 and Parma VTA agreed to arbitrate; nor do they contend that the arbitration agreement was unconscionable. Rather, the plaintiffs contend that the defendants waived their right to arbitrate. Because the defendants filed their withdrawal of their April 5 motion to compel on April 17, 2019, the same day plaintiffs filed their combined opposition to the motion to compel and motion for partial stay, and the opposition only went to the issue raised in the motion to compel, presumptively the trial court did not rely on the grounds stated therein as a reason for denying the defendants’ motion for partial stay.
{¶ 14} We therefore consider the issue as briefed by the parties on appeal — whether the defendants waived their right to arbitrate — and review for an abuse of discretion: the waiver issue is usually a fact-driven issue and we will not reverse the trial court‘s decision absent a showing of abuse of discretion. Vining v. Logan Clutch Corp., 8th Dist. Cuyahoga No. 108563, 2020-Ohio-675, ¶ 10.1
{¶ 15} Arbitration is a matter of contract and can be enforced unless explicitly or implicitly waived. Bass Energy, Inc. v. Highland Hts., 193 Ohio App.3d 725, 2010-Ohio-2102, 954 N.E.2d 130, ¶ 33 (8th Dist.). Implicit waiver occurs when a party fails to assert its rights or participates in the litigation “to such an extent that its actions are ‘completely inconsistent with any reliance’ on this right, resulting in prejudice to the opposing party.” Id., quoting General Star Natl. Ins. Co. v. Adminstratia Asigurarilor De Stat, 289 F.3d 434, 438 (6th Cir. 2002), and Gordon v. OM Fin. Life Ins. Co., 10th Dist. Franklin No. 08AP-480, 2009-Ohio-814.
{¶ 16} We are mindful, however, that there is a strong public policy that favors arbitration of disputes; therefore, we do not lightly infer that a party who has initiated litigation on a matter has waived the right to arbitration. Harsco Corp. v. Crane Carrier Co., 122 Ohio App.3d 406, 414, 701 N.E.2d 1040 (3d Dist. 1997). The party contending that waiver occurred has a “heavy burden” of demonstrating that the party requesting arbitration acted inconsistently with the right to arbitrate. U.S. Bank v. Wilkens, 8th Dist. Cuyahoga No. 93088, 2010-Ohio-262, ¶ 32.
{¶ 17} Some of the factors that courts consider in determining whether the totality of the circumstances supports a finding of waiver include the following: (1) whether the party seeking arbitration invoked the jurisdiction of the trial court by filing a complaint, counterclaim, or third-party complaint without asking for a stay
{¶ 18} Here, the underlying action was initiated by Kimberlee‘s 2014 complaint. The plaintiffs contend that the defendants litigated the action for five years without raising the arbitration provision of the TIC Agreement and, as such, the “arbitration ship sailed long ago.” The defendants, on the other hand, contend that the arbitration provision was not triggered until Parma GE 7400 was realigned to be in an adversarial position with Parma VTA, at which time it promptly raised arbitration.
{¶ 19} We first look to the language of the TIC Agreement, which provides in relevant part that, “[a]ny controversy arising out of or related to this Agreement or the breach thereof or an investment in the interests shall be settled by arbitration in Cuyahoga County * * *.” (Emphasis added.) The TIC Agreement was filed with the original complaint, which repeatedly referenced the Agreement, and contained claims based on it. For example, under Count 3 of the original complaint, Kimberlee alleged that “[t]here is due and owing to [her] from the Defendants, jointly and
{¶ 20} One of the cases the defendants cite in this appeal is Cleveland-Akron-Canton Advertising Cooperative v. Physician‘s Weight Loss Ctrs. of Am., 184 Ohio App.3d 805, 2009-Ohio-5699, 922 N.E.2d 1012 (8th Dist.). They rely on Cleveland-Akron-Canton for the proposition that an arbitration clause cannot be employed by a nonparty to the underlying agreement. That is, relative to this case, that Kimberlee, who was the sole plaintiff until 2019, was not a party to the TIC Agreement and, therefore, could not have been bound by its arbitration provision. Upon review, Cleveland-Akron-Canton is not helpful to the defendants’ position.
{¶ 21} Specifically, in Cleveland-Akron-Canton, this court noted that although it is generally true that a party who has not contractually agreed to arbitrate his or her dispute cannot be forced to arbitrate and forego judicial remedies, “[t]here are instances where equity demands that parties who have not agreed to arbitrate their disputes may be forced to do so when ‘ordinary principles of contract and agency’ require.” Id. at ¶ 14, quoting McAllisters Bros., Inc. v. A & S. Transp. Co., 621 F.2d 519, 524 (2d Cir. 1980).
{¶ 22} In Cleveland-Akron-Canton, the plaintiff cooperative entered into cooperative agreements with the northeast Ohio franchisees of Physician Weight Loss Centers of America, Inc. to satisfy the franchisees’ advertising responsibilities under their franchise agreements with the franchisor, Physician Weight Loss Centers of America, Inc. The franchise agreements contained arbitration
{¶ 23} Due to difficulties in collecting money, the cooperative initiated suit against several delinquent franchisees and the franchisor. The defendants filed a motion to dismiss or stay pending arbitration, which the trial court denied; the defendants appealed.
{¶ 24} This court found that the plaintiff cooperative wanted to enforce the franchise agreements from which it had received benefits, while simultaneously seeking to avoid their arbitration provisions. The panel held that because the cooperative knowingly accepted the benefits of the agreements, it had to endure the burdens as well, and found that the plaintiff cooperative was a third-party beneficiary under the franchise agreements. Thus, by maintaining an action for breach of contract against the franchisor for promises made in the franchise agreements, the plaintiff cooperative bound itself to the terms contained therein, and it had to submit the dispute to arbitration as outlined in the franchise agreements.
{¶ 25} Likewise, here, Kimberlee was not a party to the TIC Agreement but from the beginning of the case she relied on the Agreement in an attempt to seek benefits for the Trust and, by extension, for herself. Thus, it is possible that had the defendants raised the issue of arbitration earlier, Kimberlee would have been bound by it.
{¶ 27} Here, however, the subject parties — Kimberlee, Parma GE 7400, and Parma VTA — were parties to the case since its inception in 2014. For the reason discussed above, we are not persuaded that the issue of arbitration could not have been raised and addressed prior to 2019.
{¶ 28} We consider the case of Neel v. Perrino Constr., Inc., 8th Dist. Cuyahoga No. 105366, 2018-Ohio-1826. In Neel, the plaintiffs sued the construction company. The construction company answered, counterclaimed, and filed a third-party complaint, but maintained that it was not waiving its right to insist upon arbitration under the parties’ agreement. The company later sought to have the case stayed pending arbitration, and the trial court granted its request. The plaintiffs appealed.
{¶ 30} In the instant case, five years elapsed before the defendants even mentioned arbitration. It is true that Parma GE 7400 realigned, but it was always a party in the case and the TIC Agreement was always at issue. At the very least, the defendants could have reserved their right to arbitrate. On this record, under the totality of the circumstances, the trial court did not abuse its discretion by denying the defendants’ motion for partial stay of proceedings. Even if we reviewed under the less deferential de novo standard, we would find no error. The sole assignment of error is therefore overruled.
{¶ 31} Judgment affirmed.
It is ordered that appellees recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment into execution.
LARRY A. JONES, SR., JUDGE
ANITA LASTER MAYS, P.J., CONCURS; MICHELLE J. SHEEHAN, J., DISSENTS WITH SEPARATE OPINION
MICHELLE J. SHEEHAN, J., DISSENTING:
{¶ 32} I respectfully dissent. I would hold Parma VTA, L.L.C. (“Parma VTA“) did not waive its right to arbitration based on the facts in this case and reverse the denial of defendants’ motion to stay pending arbitration.
{¶ 33} First, the trial court‘s basis for denying defendants’ motion to stay2 is unclear. As noted by the majority, on April 17, 2019, plaintiffs3 filed a combined opposition to defendants’ motion to compel filed April 5, 2019, and motion to stay filed April 11, 2019. However, plaintiffs’ opposition only appears to address defendants’ motion to compel, not the motion to stay. Plaintiffs added one sentence in the conclusion requesting the trial court to alternatively “overrule the motions on the grounds that defendants’ attempt to invoke the Court‘s jurisdiction is inconsistent with defendants’ claimed right to arbitration, thereby creating a waiver of that right.” The same day plaintiffs filed the brief in opposition, defendants
{¶ 34} To further complicate the issue, the docket reflects that the trial court held defendants’ motion to stay in abeyance until a hearing was to be held on May 8, 2019. However, the record is void of any reference to such a hearing taking place. Both parties in their appellate briefs refer to an “argument on May 8, 2019” or a “scheduled oral argument on the pending motion to stay, which was expanded into a general discussion of the issues in the case,” but neither a journal entry nor a transcript exists regarding any “arguments” or “discussion” regarding defendants’ motion to stay. Therefore, it is unclear if the arguments on appeal were ever considered by the lower court and therefore waived, especially as the lower court provided no rationale for the ruling other than “Defendants’ Motion for Partial Stay of Proceedings, filed 4/11/2019 is denied.”
{¶ 35} Second, our standard of review appears to be a mixed standard of review. “An assertion that a party waived an argument presents a mixed question of law and fact.” Gembarski v. PartsSource, Inc., 157 Ohio St.3d 255, 2019-Ohio-3231, 134 N.E.3d 1175, ¶ 26. A reviewing court evaluates legal questions independently but defers to a trial court‘s factual findings when those findings are supported by the record. State v. Keene, 81 Ohio St.3d 646, 656, 693 N.E.2d 246 (1998).
{¶ 37} While the case has a lengthy history and has been pending over five years, it is important to note that the court ordered the issues in this case bifurcated. The first issue to be tried was who owned Parma GE 7400? Plaintiffs’ initial complaint sued Parma GE 7400 and Parma VTA, L.L.C. Plaintiff Kimberlee A. Gerston, Trustee, the Gerston Family Trust, Dated November 20, 2002 (“Kimberlee“) and Parma VTA both alleged that they owned Parma GE 7400. Kimberlee‘s original complaint sought a declaration that Kimberlee owned Parma GE 7400. It was alleged that because Kimberlee owned Parma GE 7400, and Parma GE 7400 was owed distributions from the Tenancy in Common Agreement (“TIC“), that Kimberlee is owed the distributions that should be paid to Parma GE 7400. (Claim III, original complaint, ¶ 33-34.) This is not a case whereby Kimberlee was alleging she was a third-party beneficiary to the TIC Agreement. Rather, Kimberlee and Parma VTA both alleged ownership of Parma GE 7400. Thus, Parma VTA did not have a justiciable controversy with Parma GE 7400 based on Kimberlee‘s initial complaint because Parma VTA was also alleging ownership of Parma GE 7400. It was not until the court held a trial and determined that Kimberlee was the lawful owner of Parma GE 7400 that Kimberlee filed a supplemental complaint to realign the parties and request leave for Parma GE 7400, as a plaintiff, to assert claims
{¶ 38} The Ohio Supreme Court‘s recent ruling in Gembarski, 157 Ohio St.3d 255, 2019-Ohio-3231, 134 N.E.3d 1175, is instructive. In Gembarski, the Ohio Supreme Court addressed whether PartsSource waived its right to assert arbitration as a defense to a class-action certification action. Id. at ¶ 44. Specifically, PartsSource did not raise arbitration as a defense to the plaintiff‘s claims. However, when the plaintiff sought class certification, including unnamed putative class members who had entered into an arbitration agreement with PartsSource, PartsSource raised the arbitration defense for the first time. The trial court and the court of appeals held PartsSource waived its right to assert an arbitration defense. In a case of first impression, the Ohio Supreme Court reversed the lower courts and
Arbitration; motion for stay of proceedings; waiver of arbitration.
In light of the totality of the circumstances, the trial court did not abuse its discretion where it denied appellants’ motion for partial stay of proceedings. The failure to reserve the right to arbitrate constituted a waiver.