MARTIN J. HUGHES, III, PLAINTIFF-APPELLANT, v. CARL F. HUGHES, DEFENDANT-APPELLEE.
CASE NO. 9-19-88
IN THE COURT OF APPEALS OF OHIO THIRD APPELLATE DISTRICT MARION COUNTY
October 13, 2020
[Cite as Hughes v. Hughes, 2020-Ohio-4882.]
Appeal from Marion County Common Pleas Court, Trial Court No. 19CV0605. Judgment Affirmed.
Julia B. Meister for Appellant
Christopher J. Hogan for Appellee
{1} Plaintiff-appellant, Martin J. Hughes, III (“Martin“), appeals the December 10, 2019 decision of the Marion County Court of Common Pleas dismissing his motion to vacate an arbitrator‘s award. For the reasons that follow, we affirm.
{2} This case arises from a dispute concerning the right to vote certain shares in the Fahey Banking Company (“Fahey“). Martin and defendant-appellee, Carl F. Hughes (“Carl“), are the surviving sons of Natalie Hughes (“Natalie“). At one time, Natalie held a majority of the shares of Fahey common stock. In January 2004, Natalie was the record holder of 10,669 shares of Fahey common stock, which represented approximately 54.72 percent of the outstanding shares of Fahey common stock as of November 25, 2003. (Doс. No. 1, Ex. B). Natalie also possessed a beneficial interest in additional shares of Fahey common stock as well as potential voting rights arising from a number of proxy agreements. (Id.).
{3} On January 15, 2004, Martin, Carl, and Natalie entered into a Revised and Restated Irrevocable Stockholder‘s Agreement and Proxy (“RISAP“). (Id.). Under the terms of the RISAP, Martin and Carl were irrevocably appointed to serve as Natalie‘s proxies, and each was given the right to vote one-half of the “Subject Shares,” which were defined as “all shares of Fahey common stock that [Natalie]
{4} In addition, the RISAP contained provisions governing the transfer of the Subject Shares and the effect thаt any such transfer would have on the proxies granted to Martin and Carl. Under the RISAP, if Natalie desired to transfer any of the Subject Shares that she owned to any person other than Martin, Carl, or another of her descendants, Natalie was required to furnish Martin and Carl with a notice of her intention to transfer. (Id.). After receiving such notice, Martin and Carl would have 30 days to exercise a right of first refusal, under which Martin and Carl were
{5} Finally, the RISAP contained an arbitration clause. Under this provision, Martin, Carl, and Natalie “agree[d] that any and all disputes, claims or controversies arising out of or relating to [the RISAP] that are not resolved by * * *
{6} In May 2005, after Martin, Carl, and Natalie had entered into the RISAP, Natalie created the “Natalie A. Hughes 2005 Trust” (the “Trust“), which she amended several times, including on July 8, 2017. (See Doc. No. 17, Ex. C). In the document creating the Trust (the “Trust Agreement“), Natalie was designated as the original trustee. (Id.). The Trust Agreement specified that if Natalie ceased to act as trustee, Martin and Carl would proceed to act as successor co-trustees. (Id.). Moreover, the Trust Agreement provided that “[i]f either Carl or Martin is unable, fails, or ceases to аct as trustee, then the other shall act as sole trustee without the execution of any further instrument.” (Id.).
{7} At some point, a substantial portion of Natalie‘s Fahey interests was transferred to the Trust. (See Doc. No. 1, Exs. D, F). The Trust Agreement contained a provision directing how these interests were to be distributed, which provided, in relevant part:
This provision governs the disposition of all my rights and interests in [Fahey], * * * shares of common stock owned by me or for my benefit and any shares of [Fahey] common stock which I hold the option to
acquire and/or vote (collectively “Fahey Bank Interests“). All my Fahey Bank Interests are subject to the terms and conditions of [the RISAP] * * *, which contains restrictions on the transferability of my Fahey Bank Interests. For purposes of administering the disposition of my Fahey Bank Interests hereundеr, my intention and desire is Carl, Martin[,] and [Natalie‘s predeceased son, Paul Hughes‘s] collective descendants each receive one-third of my Fahey Bank Interests * * *.
* * *
[T]he Trustee shall distribute one-third of my Fahey Bank Interests to each of Carl and Martin and shall continue to hold the remaining one third of my Fahey Bank Interests in trust for the benefit of [Paul Hughes‘s children] * * *. Effective as of my date of death, for purposes of clarification, I desire and intend that the one-third shares of my Fahey Bank Interests distributable to Carl and Martin no longer constitute “Subject Shares” as that term is defined in the [RISAP].
(Doc. No. 17, Ex. C). Finally, like the RISAP, the Trust Agreement contained an arbitration clause. (Id.).
{8} Natalie died on July 13, 2017. (Doc. No. 1, Ex. D). Thereafter, pursuant to the terms of the Trust Agreement, Martin and Carl began serving as co-
{9} Shortly thereafter, on November 19, 2018, the 2018 annual Fahey shareholder meeting was held. (Doc. No. 1, Exs. E, F). At the meeting, Martin and his associates voted to appoint three inspectors of elections. (See Doc. No. 1); (See Doc. No. 8, Ex. D). Martin claimed that he himself controlled a majority of the voting rights present at the meeting and that, along with the votes of his supporters, there was a clear majority in favor of appointing his preferred inspectors of elections. (See Doc. No. 1); (See Doc. No. 8, Ex. D). Yet, Carl and Fahey refused to recognize the inspectors that Martin and his faction of shareholders voted to
{10} As a result of Carl‘s attempt to install his own preferred inspector of elections and his continuation of Fahey business over Martin‘s objections and requests for adjournment, Martin filed a complaint requesting that the trial court issue a temporary restraining order (“TRO“) and an injunction against Fahey and its chief oрerating officer. (See Doc. No. 1, Exs. E, F). Carl was not named as a defendant in the action, and although Carl attempted to intervene, he was unsuccessful. (See Doc. No. 1); (See Doc. No. 8, Exs. A, B). However, Martin contends that Carl “direct[ed] [Fahey‘s] litigation positions as [Fahey‘s] then-President and CEO, and ha[d] his personal counsel present through the proceedings * * *.” (Doc. No. 1). On November 20, 2018, the trial court granted Martin‘s request for a TRO, finding that “allowing certification of the results of an annual meeting of shareholders when it is doubtful that a proper inspector of elections has
{11} On December 3, 2018, the trial court held a hearing on Martin‘s request for a preliminary injunction. (Id.). On December 20, 2018, the trial court granted Martin‘s request and issued a preliminary injunction. (Id.). The trial court observed that Martin‘s claim for injunctive relief was based on his assertion that the annual meeting should have been adjourned until there was a determination whether there were sufficient votes to pass his motion to appoint his preferred inspectors. (Id.). The trial court also noted Martin‘s contention that he “had sufficient votes directly, as trustee [of trusts other than the Trust], and by proxy, to constitute a majority of shareholder votes at the meeting, and that he had the authority to vote 4,389 shares as trustee for [the Trust], pursuant to [the trust] arbitrator‘s decision issued on October 25, 2018.” (Id.).
{13} Having concluded that Martin had the right to vote all of the shares of Fahey stock held in the Trust on the date of the 2018 annual meeting, the trial court further held that Martin would have controlled a majority of the votes at the 2018 annual meeting and that, consequently, the inspector appointed by Carl‘s faction did not correctly count the number of votes that Martin was authorized to cast at the 2018 annual meeting. (Doc. No. 1, Ex. F). As a result, the trial court vacated the December 2, 2018 certification of the results of the 2018 annual meeting, ordered that the 2018 annual meeting be held in adjournment and rescheduled, and ordered that, at the rescheduled meeting, a majority of shareholders present and entitled to
{14} The rescheduled 2018 annual meeting was held on January 10, 2019. At the meeting, Martin succeeded in voting all of the Fahey shares held in the Trust. (See Doc. No. 1, Ex. A). The shareholders elected new directors, and Martin became the President of Fahey. (See Doc. No. 1, Ex. C). On January 15, 2019, Martin voluntarily dismissed the injunction action. (See Doc. No. 8, Ex. C).
{15} While Martin and Carl were arbitrating their Trust disputes and litigating the handling of the 2018 annual shareholder mеeting, a second arbitration between Martin and Carl was slowly moving forward. On February 2, 2018, Martin submitted a demand for JAMS arbitration in accordance with the terms of the RISAP. (Doc. No. 17, Ex. A). Martin demanded arbitration “to determine the voting rights regarding certain shares of stock (including options and proxies relating to stock) in the Fahey Banking Company under the [RISAP] * * *.” (Id.). Later, Martin clarified that the dispute arose after Carl “apparently caused the improper voting” of the Subject Shares and “caused Fahey * * * to prevent the shareholders from knowing how the shares were voted.” (Doc. No. 17, Ex. B). Martin sought “a declaration that [certain shares] [were] Subject Shares under the [RISAP] and that [he] and Carl [were] each entitled to vote half of these shares.” (Id.). After the trial court issued the preliminary injunction, Carl “filed an
{16} The JAMS arbitrator issued his decision on September 5, 2019. (Id.). First, the JAMS arbitrator observed that Martin “alleged that both he and * * * Carl had signed the RISAP in their ‘individual capacities‘” and found that a reading of the RISAP “confirms this fact.” (Id.). In addition, the JAMS arbitrator noted both the trial court‘s determination that “because Carl was suspended from his duties as a trustee of [the Trust], he was thus somehow under an incapacity to exercise his voting rights under the RISAP” and the fact that Carl was not a party to the injunction action “despite an application (ultimately unsuccessful) to intervene.” (Id.).
{17} After laying out this background information, the JAMS arbitrator made the following findings:
The determination of the [trial court] in the case to which * * * Carl * * * was not a party was simply in error. As * * * Martin * * * himself alleged at the beginning of this arbitration, equal voting rights to his
mother‘s shares of stock in [Fahey] were granted to him and his brother in their individual capacities by virtue of the 2004 RISAP. Those voting rights were assigned to and thus owned by both Martin and Carl in their individual capacities as of January 15, 2004. Any subsequent transfer of the shares by Natalie * * * into the [Trust] would have meant that the shares so transferred were “stripped” of their voting rights by virtue of the 2004 RISAP. Indeed, a July 8, 2017 Amendment and Restatement of the Trust * * * expressly states that all of her interests in Fahey Bank stock “are subject to the terms and conditions of the [2004 RISAP].” Carl‘s status as a temporarily suspended trustee of [the Trust] had nothing whatsoever to do with his rights under the 2004 RISAP to vote half of his mother‘s shares as he wished. The [trial court] clearly conflated the issue of ownership of the shares by the Trust (stripped as they were of their voting rights in 2004) with the separately assigned voting rights which were individually owned by Martin and Carl and not in any way assets of the Trust. Carl‘s suspension as a trustee was simply irrelevant to the issue of his voting rights. Even if the language of the 2017 Amendment and Restatement of the [Trust] wasn‘t clear and unambiguous, which it patently is, Martin‘s
current opposition to [Carl‘s] application would violate the principal [sic] of judicial estoppel.
(Id.). Furthermore, the JAMS arbitrator addressed Martin‘s argument that “any transfer of Fahey Bank stock out of [the Trust] effects a removal of such transferred stock from the voting rights provisions of the RISAP which allocates the voting rights 50 percent to him and 50 percent to his brother.” (Id.). The JAMS arbitrator concluded:
This argument misconstrues the plain language of the RISAP. * * * [T]he RISAP permitted Natalie to transfer shares “to any Family Member” (Family Member having been previously defined as Carl and Martin) or other descendant of Natalie without complying with a right of first refusal to purchase the shares [previously] granted to Carl and Martin * * *. In the event of such a transfer, the shares would no longer constitute “Subject Shares” governed by the voting rights provisions of the RISAP. * * * However, any remaining Fahey Bank stock owned by Natalie became a trust asset upon her death and any subsequent transfers of such stock out of the trust after her death simрly do not constitute transfers by her under * * * the RISAP. Stated differently, any stock transferred out of the Trust would still be
subject to the voting rights restriction of the RISAP, something which, as aforesaid, the Trust itself expressly recognized.
(Id.).
{18} Based on these findings and conclusions, the JAMS arbitrator issued the following award:
- The voting rights as to all shares in [Fahey], now held or previously held, by [the Trust] are controlled by the terms of the [RISAP], which grants Martin * * * 50 percent and Carl * * * 50 percent (plus one, in the event of an uneven number of such shares) of such voting rights;
- The voting rights established under the RISAP were not and cannot be impacted by Carl‘s temporary suspension as a co-trustee of the [Trust];
- That only a direct transfer of shares from Natalie * * * during her life to Carl, Martin, or any of her descendants is sufficient to remove said shares from the “Subject Shares” designation under the RISAP[.]
(Doc. No. 1, Ex. A).
{19} On September 20, 2019, Martin filed a “Complaint and Petition to Vacate Arbitration Award and for Injunctive Relief,” in which he sought an order
Assignment of Error
The trial court below erred in denying Martin‘s application to vacate the JAMS award.
{21} In his assignment of error, Martin argues that the trial court erred by dismissing his motion to vacate the JAMS arbitrator‘s award. Martin аrgues that there are two independent grounds supporting vacation of the JAMS arbitrator‘s award. First, Martin contends that the JAMS arbitrator‘s award should be vacated because “[t]he arbitrator exceeded his authority by making findings as to the Trust Agreement—a document over which he lacked authority to arbitrate disputes—which led him to effectively overrule a decision by an Ohio court.” (Appellant‘s Brief at 7). In addition, Martin maintains that the JAMS arbitrator‘s award should be vacated because “[t]he arbitrator manifestly misapplied the law of judicial estoppel.” (Id.).
{22} “[W]hen reviewing a decision of a common pleas court confirming, modifying, vacating, or correcting an arbitration award, an appellate court should accept findings of fact that are not clearly erronеous but decide questions of law de novo.” Portage Cty. Bd. of Dev. Disabilities v. Portage Cty. Educators’ Assn. for Dev. Disabilities, 153 Ohio St.3d 219, 2018-Ohio-1590, ¶ 26. “[H]owever, * * * our review is not a de novo review of the merits of the dispute as presented to the
{23} The statutory grounds for vacating an arbitrator‘s award are contained in
{24} “Once an arbitrator has made an award, it cannot be easily overturned * * *” Fraternal Order of Police Capital City Lodge No. 9 v. Reynoldsburg, 10th Dist. Franklin Nos. 12AP-451 and 12AP-452, 2013-Ohio-1057, ¶ 23, citing City Lodge No. 69, Fraternal Order of Police v. Cincinnati, 63 Ohio St.3d 403, 407 (1992); see Cedar Fair, L.P. v. Falfas, 140 Ohio St.3d 447, 2014-Ohio-3943, ¶ 5
{26} Though an arbitrator‘s authority is frequently expansive, he exceeds it ““if the award does not draw its essence from the * * * agreement.“” Adams Cty./Ohio Valley Local School, 2017-Ohio-6929, at ¶ 20, quoting Reynoldsburg at ¶ 23, citing City Lodge No. 69 at 406. “An arbitrator‘s award draws its essence from a[n] * * * agreement ‘when there is a rational nexus between the agreement and the award, and where the award is not arbitrary, capricious, or unlawful.‘” Id., quoting Reynoldsburg at ¶ 23, citing Mahoning Cty. Bd. of Mental Retardation & Dev. Disabilities v. Mahoning Cty. TMR Edn. Assn., 22 Ohio St.3d 80 (1986), paragraph one of the syllabus. Stated differently, “[a]n arbitrator‘s award draws its essence from an agreement when (1) the award does not conflict with the express terms of the agreement and (2) the award has rational support or can be rationally derived from the terms of the agreement.” Northwest State at ¶ 33, citing Ohio Civil Serv. Emps. Assn., Local 11 at syllabus. “Once it is determined that the arbitrator‘s award draws its essence from the * * * agreement and is not unlawful, arbitrary or capricious, a reviewing court‘s inquiry for purposes of vacating an arbitrator‘s award pursuant to
{27} As stated above, Martin advances two arguments for why the JAMS arbitrator‘s award should be vacated. We begin with Martin‘s first argument, namely, that the JAMS arbitrator exceeded his authority by interpreting the Trust Agreement, a document he had no power to interpret, in a way that conflicts with a prior decision of the trial court. Martin notes that under the terms of the RISAP, the JAMS arbitrator “had the authority to interpret the RISAP—and only the RISAP.” (Appellant‘s Brief at 8). Martin maintains, however, that the JAMS arbitrator “decided that he had the extraordinary power to interpret the Trust Agreement” and that the only way the JAMS arbitrator could reach some of his conclusions was by
{28} Martin is at least correct that, throughout his decision, the JAMS arbitrator repeatedly referred to the Trust Agreement, quoted some of the language contained in the Trust Agreement, and commented on the clarity of the language in the Trust Agreement. For example, the JAMS arbitrator quoted the Trust Agreement for the proposition that all of Natalie‘s interests in Fahey were subject to the terms and conditions of the RISAP. (Doc. No. 1, Ex. A). Furthermore, the JAMS arbitrator opined that the terms оf the Trust Agreement were “patently” “clear and unambiguous” and that the Trust Agreement “expressly recognized” that “any stock transferred out of the [Trust] would still be subject to the voting rights restriction of the RISAP.” (Id.).
{29} Nevertheless, we disagree with Martin‘s contention that these references signal that the JAMS arbitrator improperly interpreted the Trust Agreement, and we further disagree with Martin that the outcome reached by the JAMS arbitrator was possible only if the JAMS arbitrator construed the RISAP
{30} One excerpt from the award, quoted in full above, is illustrative on this point. This passage reads, “Any subsequent transfer of the shares by Natalie * * * into the [Trust] would have meant that the shares so transferred were ‘stripped’ of their voting rights by virtue of the 2004 RISAP. Indeed, a July 8, 2017 Amendment and Restatement of the Trust * * * expressly states that all of her interests in Fahey Bank stock ‘are subject to the terms and conditions of the [2004 RISAP].‘” (Doc. No. 1, Ex. A). In the first sentence, the JAMS arbitrator relied on the terms of the RISAP to determine how Natalie‘s transfer of shares to the Trust affеcted the voting rights established under the RISAP, and the subsequent quotation from the Trust Agreement in the second sentence was offered only to bolster that conclusion. Hence, this passage supports that, insofar as the JAMS arbitrator looked to the Trust
{31} This conclusion can also be drawn from the section of the award in which the JAMS arbitrator stated that the Trust Agreement “expressly recognized” that any shares of Fahey stock transferred out of the Trust would still be subject to the RISAP. Immediately prior to making this comment about the Trust Agreement, the JAMS arbitrator engaged in a construction and application of the RISAP, which he concluded by stating that “any subsequent transfers of [Fahey] stock out of the [Trust] after [Natalie‘s] death simрly do not constitute transfers by her under paragraph 3(b) of the RISAP” that would remove such shares from the voting rights provisions of the RISAP. (Id.). Again, the JAMS arbitrator referred to the Trust Agreement only after he separately interpreted and applied the RISAP.
{32} Moreover, contrary to Martin‘s assertion, we do not believe that we can infer that the JAMS arbitrator was interpreting the Trust Agreement from his statement that the Trust Agreement was “clear and unambiguous.” A statement that the terms of a document are clear and unambiguous cuts against an inference that the statement-maker interpreted the document because there is no need to interpret unambiguous language. Regardless, when the JAMS arbitrator commented that the language of the Trust Agreement was clear and unambiguous, he was plainly referring tо the part of the Trust Agreement providing that Natalie‘s Fahey interests
{33} Finally, we find further evidence for the conclusion that the JAMS arbitrator was not interpreting the Trust Agreement or construing the RISAP and Trust Agreement together in the JAMS arbitrator‘s apparent disregard of the term of the Trust Agreement providing that “[e]ffective as of [the date of Natalie‘s death], * * * the one-third shares of * * * Fahey Bank Interests distributable to Carl and Martin no longer constitute ‘Subject Shares’ as that term is defined in the [RISAP].” (Doc. No. 17, Ex. C). Martin argues that the JAMS arbitrator “analyzed [this] provision, decided that it did not apply to the shares at issue, and made rulings based on that finding.” (Appellant‘s Reply Brief at 3). He also contends that the JAMS arbitrator ignored that provision‘s “plain language.” (Id.). Yet, contrary to Martin‘s assertion, we believe that had the JAMS arbitrator given this language the effect urged by Martin, the JAMS arbitrator would have been doing precisely the thing about which Martin complains—jointly construing the RISAP and the Trust Agreement. The RISAP itself contained a provision defining “Subject Shares,” a provision addressing whether transferred shares and the recipient of such shares would be bound by the RISAP, and a provision specifying which transfers would operate to remove shares from the terms of the RISAP. (See Doc. No. 1, Ex. B). That is, the RISAP identified which Fahey shares were Subject Shares and the
{34} Having concluded that the JAMS arbitrator‘s references to the Trust Agreement do not supply a basis for finding that he exceeded his authority, we must now consider the second facet of Martin‘s first argument—to wit, that the JAMS arbitrator exceeded his authority by “overrul[ing] the decision of a sitting Ohio Marion County judge.” (Appellant‘s Brief at 9). Martin contends that the JAMS arbitrator‘s award conflicts with the trial court‘s ruling in the injunction action that “Carl‘s suspension as a trustee was a legal incapacity which meant that * * * Carl could not vote his half of the shares” at the 2018 annual shareholder meeting. (Id. at 11). He maintains that the JAMS arbitrator exceeded his authority because he nullified and “reversed [the trial court‘s decision] by retroactively reinstating Carl‘s voting rights * * *.” (Id.).
{36} Although we have rejected the premises of Martin‘s first argument, we must still determine whether the JAMS arbitrator‘s award “draws its essence” from the RISAP. In doing so, we emphasize that we are not deciding whether the JAMS
{37} With that in mind, we conclude that, irrespective of whether the JAMS arbitrator‘s interpretation and application of the RISAP was objectively correct, the JAMS arbitrator‘s award can be rationally derived from the terms of the RISAP. As indicated above, among other things, the RISAP contained terms (1) controlling whether a recipient of Subject Shares transferred by Natalie would be bound by the terms of the RISAP, including the voting rights provisions, and (2) specifying when a transfer would result in shares ceasing to be Subject Shares. In addition, the capacities in which Martin and Carl signed the RISAP, i.e., in their individual capacities or in their representative capacities as co-trustees of the Trust, can be gleaned from the terms of the RISAP. Since the JAMS arbitrator‘s award was based on his determination of the capacities in which Martin and Carl signed the RISAP, his determination of whether the RISAP dictated that the Subject Shares transferred to the Trust remain subject to the terms of the RISAP, and his determination of whether a transfer of shares out of the Trust would be a type of transfer capable of terminating the “Subject Share” designation under the RISAP, there is some rational nexus between the JAMS arbitrator‘s award and the RISAP. Accordingly, as the
{38} In his second argument for vacating the JAMS arbitrator‘s award, Martin argues that the award should be vacated because the JAMS arbitrator misapplied the doctrine of judicial estoppel. However, as Carl notes in his appellate brief, “the JAMS arbitrator * * * cited the doctrine [of judicial estoppel] as an additional and alternative ground (on top of [the RISAP‘s] plain language) [to] support[] his decision.” (Appellee‘s Brief at 19). Having already concluded that the JAMS arbitrator‘s award can be rationally derived from the terms of the RISAP, we agree with Carl that “the doctrine of judicial estoppel need not even be considered * * *.” (Id.).
{39} Martin‘s assignment of error is overruled.
{40} Having found no error prejudicial to the appellant herein in the particulars assigned and argued, we affirm the judgment of the trial court.
Judgment Affirmed
SHAW, P.J. and ZIMMERMAN, J., concur.
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