[Cite as Oregon Homes, L.L.C. v. First Merit Corp., 2014-Ohio-3362.]
IN THE COURT OF APPEALS OF OHIO
SIXTH APPELLATE DISTRICT
LUCAS COUNTY
Oregon Homes, LLC Court of Appeals No. L-13-1130
Plaintiff Trial Court No. CI0201105175
v.
First Merit Corporation, et al.
Appellees
v.
Stanley Rosenfeld, et al. DECISION AND JUDGMENT
Appellants Decided: August 1, 2014
*****
Thomas M. Saxer and Andrew R. Duff, for appellees.
J. Mark Trimble and Adam V. Nowland, for appellants.
*****
PIETRYKOWSKI, J.
{¶ 1} Stanley Rosenfeld and Rob Cendol (third-party defendants-appellants),
appeal a May 20, 2013 opinion and judgment of the Lucas County Court of Common
Pleas that denied their motion to dismiss appellees’ third-party complaint against them.
Appellees are Thomas Bear, Sandra Hazra, John Biondi, and Lawrence Saltis. Together,
the parties to the third-party action constitute all six members of Oregon Homes, LLC
(“Oregon Homes”).
{¶ 2} Oregon Homes is an Ohio limited liability company. Its primary business
consists of the development of residential real estate and subdivision development.
Appellants are both 40 percent members of Oregon Homes. Appellees are the four 5
percent members.
{¶ 3} In the third-party complaint, appellees allege that appellants acted together
as majority members of Oregon Homes and breached fiduciary duties they owed to
appellees, the minority members. The action is one brought against the majority
members personally.
{¶ 4} It is alleged in the third-party complaint that Oregon Homes secured a series
of loans for which the minority members executed guaranties unconditionally
guaranteeing performance of obligations of Oregon Homes due under loan promissory
notes. Oregon Homes allegedly failed to make payments under the notes causing the
minority members to pay in excess of $400,000 as guarantors of the loans. The minority
members assert in the third-party complaint that the majority members owed a fiduciary
duty to them to act to assess each member their pro rata share of costs, expenses, or
charges with respect to the operation of Oregon Homes and breached that duty with
respect to obligations owing under the loans.
2.
Litigation History
{¶ 5} Oregon Homes initiated this case with the filing of a complaint on
August 30, 2011, naming First Merit Corporation and BBHS Investors, LLC (“BBHS”)
defendants. BBHS is a limited liability company. The four minority members of Oregon
Homes (appellees) are the members of BBHS. The action concerned issues related to the
development, sale, and payoff of certain lots in a subdivision in Oregon, Ohio.
{¶ 6} Oregon Homes amended its complaint on November 28, 2011, to name each
of the appellees personally as defendants. On January 6, 2012, appellees filed their
answer to the amended complaint, a counterclaim, and the third-party complaint.
{¶ 7} Appellants filed their answer to the third-party complaint on May 21, 2012,
and asserted as an affirmative defense that the third-party complaint is subject to
arbitration under the Oregon Homes, LLC operating agreement. Appellants did not file a
motion to compel arbitration or a motion to stay proceedings pending arbitration. Instead
appellants waited until March 14, 2013, and filed a motion to dismiss, claiming that the
trial court lacked jurisdiction to proceed with the third-party claim because the claim was
subject to arbitration under the Oregon Homes operating agreement.
{¶ 8} In the trial court’s opinion and judgment of May 20, 2013, the court denied
appellants’ motion to dismiss on the ground that appellants waived their contract right to
arbitrate claims asserted in the third-party complaint.
3.
{¶ 9} Appellants assert two assignments of error on appeal:
A. The trial court erred in holding that appellants waived their right
to arbitrate the matters contained in the third party complaint.
B. The trial court erred in denying appellants’ motion to dismiss the
third party complaint for lack of subject matter jurisdiction.
Jurisdiction
{¶ 10} Except in circumstances that do not apply, R.C. 2711.02(C) provides for
immediate appeal of a trial court order denying a stay of trial pending arbitration,
“including, but not limited to, an order that is based upon a determination of the court that
a party has waived arbitration under the arbitration agreement.” Id. A stay of trial court
proceedings where arbitration is required, not dismissal, is appropriate where a claim that
is pending before a trial court is to be arbitrated. Haines v. Haines & Co., Inc., 5th Dist.
Stark No. 2012CA00201, 2013-Ohio-2973, ¶ 18; Gujrati v. Dech, 9th Dist. Summit No.
16966, 1995 WL 500153, *3 (Aug. 16, 1995); Vukelic v. Super 8 Builders, Inc., 7th Dist.
Jefferson No. 90-J-2, 1991 WL 66190, *5 (Apr. 26, 1991).
{¶ 11} We consider the trial court’s judgment as exercising its discretion under
R.C. 2711.02 to determine whether a stay of trial court proceedings should be granted in
view of appellants’ contention that arbitration of the dispute was required by contract.
See Kozy v. Czyznik-Norton, Inc., 6th Dist. Lucas No. L-90-352, 1992 WL 37776, *2
(Feb. 28, 1992). Accordingly, we conclude that the trial court’s order denying arbitration
4.
on the basis of waiver in this case is a final appealable order under R.C. 2711.02(C) and
provides jurisdiction for this appeal.
Waiver
{¶ 12} Section 14 of the Oregon Homes operating agreement provides:
Section 14. Arbitration
Any dispute arising out of, relating to this Agreement, a breach
hereof, or the operation of the business of the Company, shall be settled by
arbitration in Lucas County, Ohio, in accordance with the rules of the
American Arbitration Association then existing, provided that discovery as
provided under the Ohio Rules of Civil Procedure shall be available to all
parties to the arbitration. The agreement to arbitrate shall be specifically
enforceable and the arbitration award shall be final and judgment may be
entered upon it in any court having jurisdiction over the subject matter of
the dispute.
{¶ 13} In its judgment, the trial court concluded that the claims asserted in the
third-party complaint come within the scope of the arbitration agreement and that no
party claimed the arbitration agreement was either unenforceable or invalid. The court
ruled, however, that appellants waived the right to arbitrate claims asserted in the third-
party complaint. Under assignment of error No. 1, appellants state they did not expressly
waive the right to arbitrate the dispute and the trial court erred in concluding they waived
the right to arbitrate by implication.
5.
{¶ 14} A trial court’s determination that a party waived a contractual right to
arbitrate a dispute is reviewed on appeal under an abuse of discretion standard. Travelers
Cas. & Sur. Co. v. Aeroquip-Vickers, Inc., 6th Dist. Lucas No. L-06-1201, 2007-Ohio-
5305, ¶ 35; Buyer v. Long, 6th Dist. Fulton No. F-05-012, 2006-Ohio-472, ¶ 7.
Resolution of disputes through arbitration is favored in Ohio. Kelm v. Kelm, 68 Ohio
St.3d 26, 27, 623 N.E.2d 39 (1993); Travelers at ¶ 34; Peridia, Inc. v. Showe Constr. Co.,
Inc., 6th Dist. Ottawa No. OT-02-027, 2003-Ohio-1415, ¶ 13. “[W]aiver of the right to
arbitrate is not to be lightly inferred.” Griffith v. Linton, 130 Ohio App.3d 746, 751, 721
N.E.2d 146 (10th Dist.1998); Harsco Corp. v. Crane Carrier Co., 122 Ohio App.3d 406,
415, 701 N.E.2d 1040 (3d Dist.1997).
{¶ 15} “A party asserting waiver must establish that (1) the waiving party knew of
the existing right to arbitrate; and (2) the totality of the circumstances demonstrate the
party acted inconsistently with the known right.” Buyer at ¶ 11; Atkinson v. Dick
Masheter Leasing II, Inc., 10th Dist. Franklin No. 01AP-1016, 2002-Ohio-4299, ¶ 20.
{¶ 16} Appellants do not dispute that they knew of the right to arbitrate disputes
under the Oregon Homes operating agreement. Appellants deny that they acted
inconsistently with the known right to arbitrate.
{¶ 17} Where an implied waiver of arbitration is claimed, a court may consider a
series of factors when considering the totality of the circumstances in determining
waiver:
6.
(1) whether the party seeking arbitration invoked the jurisdiction of the
court by filing a complaint, counterclaim, or third-party complaint without
asking for a stay of the proceedings; (2) the delay, if any, by the party
seeking arbitration to request a stay of the judicial proceedings, or an order
compelling arbitration; (3) the extent to which the party seeking arbitration
has participated in the litigation, including a determination of the status of
discovery, dispositive motions, and the trial date; and (4) whether the
nonmoving party would be prejudiced by the moving party’s prior
inconsistent actions. Buyer at ¶ 12; Travelers at ¶ 35.
{¶ 18} Appellants state that they timely answered the third-party complaint and
preserved the right to arbitrate claims under the third-party complaint by asserting the
right as an affirmative defense in their answer. Appellants assert that they were not
joined as parties to the litigation until the filing of the third-party complaint and have not
acted inconsistently to the right to arbitrate. Appellants contend that an eight-month
delay from answer until their filing the motion to dismiss was insufficient to be a basis
for waiver of the right to arbitrate. Appellants also argue that appellees were not harmed
by the delay.
{¶ 19} Appellees argue in part that appellants took no action to proceed to
arbitration and waived the right to arbitrate the dispute. Appellees state that appellants
did not act to seek a stay of court proceedings to proceed to arbitration or act to seek an
order compelling arbitration. Appellees contend that the motion to dismiss was not filed
7.
as an aid to proceed with arbitration but merely as a means to avoid adjudication on the
merits of the dispute.
{¶ 20} Appellants had notice of the right to arbitrate disputes under the Oregon
Homes operating agreement at least by April 2011. On April 15, 2011, appellees made a
formal written demand on both appellants to arbitrate breach of fiduciary duty claims
against Oregon Homes.
{¶ 21} The third-party complaint was filed on January 6, 2012. After appellants
answered the third-party complaint, the trial court set a trial date of February 25, 2013.
In January 2013, the court vacated the February 25, 2013 trial date and reset the case for
trial on April 29, 2013. Appellants did not file their motion to dismiss until March 14,
2013.
{¶ 22} As recognized in Maestle v. Best Buy Co., 100 Ohio St.3d 330, 2003-Ohio-
6465, 800 N.E.2d 7, ¶ 18, “[a] party seeking to enforce an arbitration provision may
choose to move for a stay under R.C. 2711.02, or to petition for an order for the parties to
proceed to arbitration under R.C. 2711.03, or to seek orders under both statutes.”
{¶ 23} In its judgment, the trial court concluded that appellants took no action to
arbitrate the third-party complaint:
There is nothing reflected in the Court’s record that the majority
members sought to compel arbitration or to stay the proceedings in order to
participate in arbitration. Further, there is no suggestion that the majority
members took steps to assist the apparently problematic arbitration process,
8.
to move the same forward, or to exercise their own arbitration rights under
the Operating Agreement. (Footnote omitted.)
{¶ 24} Appellants cite this court’s decision in Travelers where this court did not
find waiver in a case involving a 19-month delay after filing answer. In Travelers,
however, the party asserting the right to arbitrate not only asserted the defense in its
answer, but also subsequently filed an application for referral to arbitration and for a stay.
Travelers, 6th Dist. Lucas No. L-06-1202, 2007-Ohio-5305, ¶ 37. Furthermore,
appellants are not new to this dispute.
{¶ 25} We find no abuse of discretion in the trial court’s determination under the
totality of the circumstances that appellants waived the right to arbitrate the claims
asserted in the third-party complaint.
{¶ 26} We find assignment of error “A” not well-taken.
{¶ 27} Under assignment of error “B,” appellants contend that the trial court erred
in failing to dismiss the third-party complaint for lack of subject-matter jurisdiction.
Appellants do not dispute that a contractual right to arbitrate a dispute can be waived.
Appellants also do not dispute that the trial court had subject-matter jurisdiction to
determine whether appellants waived the right to arbitrate the claims asserted in the third-
party complaint. Appellants instead, under assignment of error “B,” reargue the merits of
the trial court’s determination of waiver.
9.
{¶ 28} For the reasons stated in our determination under assignment of error “A”
that the trial court did not err in overruling the motion to dismiss on the basis of waiver,
we find assignment of error “B” not well-taken.
{¶ 29} Justice having been afforded the parties complaining, we affirm the
judgment of the Lucas County Court of Common Pleas and remand this case to that court
for further proceedings. We order appellants to pay the costs of this appeal pursuant to
App.R. 24.
Judgment affirmed.
A certified copy of this entry shall constitute the mandate pursuant to App.R. 27.
See also 6th Dist.Loc.App.R. 4.
Mark L. Pietrykowski, J. _______________________________
JUDGE
Arlene Singer, J.
_______________________________
James D. Jensen, J. JUDGE
CONCUR.
_______________________________
JUDGE
This decision is subject to further editing by the Supreme Court of
Ohio’s Reporter of Decisions. Parties interested in viewing the final reported
version are advised to visit the Ohio Supreme Court’s web site at:
http://www.sconet.state.oh.us/rod/newpdf/?source=6.
10.
Oregon Homes, L.L.C. v. First Merit Corp.
Combined Opinion