Fifth Third Bank v. Senvisky

[Cite as Fifth Third Bank v. Senvisky, 2014-Ohio-1233.]

Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA

JOURNAL ENTRY AND OPINION
Nos. 100030 and 100571

FIFTH THIRD BANK, ET AL.
PLAINTIFFS-APPELLANTS

vs.

KENNETH SENVISKY, ET AL.
DEFENDANTS-APPELLEES

JUDGMENT:
AFFIRMED IN PART, REVERSED IN PART,
REMANDED

Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-11-766947

BEFORE: S. Gallagher, J., Boyle, A.J., and E.T. Gallagher, J.

RELEASED AND JOURNALIZED: March 27, 2014
ATTORNEYS FOR APPELLANTS

Christopher J. Hogan
Marion H. Little
Zeiger, Tigges & Little, L.L.P.
3500 Huntington Center
41 South High Street
Columbus, OH 43215

ATTORNEYS FOR APPELLEES

William Joseph Baker
Donald C. Bulea
Karen L. Giffen
Giffen & Kaminski L.L.C.
1300 East Ninth Street
Suite 1600
Cleveland, OH 44114
SEAN C. GALLAGHER, J.:

{¶1} Plaintiffs Fifth Third Bank and Fifth Third Bancorp (“Fifth Third”) appeal, in

appeal No. 100030, the trial court’s decision granting the joint motion to compel

arbitration of defendants Jason Seifert and Gregory Perram (also collectively

“defendants” herein), filed in response to Fifth Third’s partial motion for summary

judgment upon Count 6 of Fifth Third’s complaint. Defendants, in appeal No. 100571,

appeal the trial court’s decision denying defendants’ motion to compel arbitration as to all

other counts in Fifth Third’s complaint. We reverse the decision of the trial court

pertaining to the order compelling arbitration, affirm its decision denying defendants’

motion to dismiss, and remand for further proceedings.

{¶2} Fifth Third filed a multicount complaint alleging several non-compete and

related claims against several defendants, including as pertinent to the current appeals,

Seifert and Perram. In Count 6 of that complaint, Fifth Third also alleged that Seifert and

Perram breached the terms of forgivable loan agreements between Fifth Third and the

defendants and that the full sum of the loans was due and owed. Seifert and Perram

dispute any breach. In opposition to Fifth Third’s motion for partial summary judgment

upon that claim, defendants asserted, for the first time, a claim to compel arbitration of

Count 6 pursuant to the terms of employment agreements between Fifth Third Securities

(“FTS”) and the defendants.
 {¶3} In order to avoid over-complicating the fact pattern, it suffices that FTS hired

the defendants and that the employment agreements (“FTS defendants’ agreements”)

included an arbitration provision, apparently satisfying Financial Industry Regulatory

Authority (“FINRA”) provisions. Fifth Third, separate legal entities, then entered into

dual employment agreements with Seifert and Perram for the services underlying the

claims in Fifth Third’s complaint. The Fifth Third employment agreements with Seifert

and Perram were separate and apart from the employment agreements between the latter

and FTS. Fifth Third directly paid both Seifert and Perram as employees. It is not clear

from the record whether FTS also compensated Seifert and Perram as employees,

although both the Fifth Third defendants’ and the FTS defendants’ employment contracts

provide that FTS would compensate Seifert and Perram in addition to Fifth Third’s

payments.

{¶4} Defendants claim that the forgivable loan agreements were offered to settle a

dispute that arose over compensation between FTS and Seifert and Perram. The

defendants’ respective affidavits, attached to the underlying motion to compel arbitration,

are vague with respect to whether the loan agreements were in lieu of compensation owed

by FTS, merely referring to the payments as originating from FTS and/or Fifth

Third. The loan documents are titled as being from Fifth Third Bank, although Fifth

Third is generically referred to as originating the loan under the terms of the document.

Nonetheless, it is undisputed that the Fifth Third defendants’ agreements contained no

provision for arbitrating any disputes and FTS is not a party in the underlying litigation.
 {¶5} Before addressing the merits of any claims, it is important to specifically

consider the procedural history of this case, relying on the record provided for our

review. On October 18, 2011, Fifth Third filed the complaint including a motion for a

temporary restraining order (“TRO”). Seifert and Perram immediately filed a motion on

October 19, 2011, the same day the court granted the TRO, captioned “Motion to Dismiss

and/or Compel Arbitration and Alternatively Defendants’ Memorandum in Opposition” to

Fifth Third’s TRO and preliminary injunction. In the substantive portion of that motion,

defendants’ arbitration argument was relegated to a single line in which the defendants

claimed that “[a]ny action between the customer and [FTS] arising out of those [customer

service securities] accounts must be brought in arbitration conducted by FINRA,”

pursuant to FINRA regulations. The remaining arguments in that motion dealt with the

substantive claims raised in defense to Fifth Third’s complaint. In a footnote, the

defendants expressed the desire to file a motion to compel arbitration after they had time

to review the complaint and present a formal argument in favor thereof. The defendants

never filed such a motion.

{¶6} Instead, on November 15, 2011, defendants entered a stipulated injunctive

order, valid until October 2012. In accordance with that stipulated order, on December

29, 2011, defendants filed a complete answer to Fifth Third’s amended complaint, in

which Seifert and Perram advanced several affirmative defenses, none of which raised the

arbitration provision in their employment agreements with FTS or any other indication of

an arbitration provision defining Fifth Third’s relationship with Seifert and Perram.
 {¶7} On January 5, 2012, Fifth Third filed a motion for partial summary judgment

upon Count 6 of the complaint, based on the forgivable loan agreements between Fifth

Third and the defendants. After numerous extensions and discovery-related motion

practice, on May 20, 2013, Seifert and Perram finally filed a brief in opposition to Fifth

Third’s partial summary judgment motion. Defendants combined their joint brief in

opposition with a “renewed” request to compel arbitration pursuant to R.C.

2711.01–.03. Seifert and Perram again sought the affirmative relief of dismissal,

although limited to Count 6 of Fifth Third’s complaint. Defendants based their

“renewed” request on the newly developed theory that an arbitration clause in their

employment agreements with FTS was binding upon Fifth Third, despite the fact that

Fifth Third had separate contracts defining its relationships with the defendants and

separate loan agreements, none of which contained an arbitration provision. Defendants

apparently abandoned their original arbitration theory that the FINRA regulation required

arbitration of any disputes involving the customers and defendants, but never sought an

order compelling arbitration on any claim besides Fifth Third’s Count 6 for breach of

contract based on the forgivable loan agreements.

{¶8} On May 23, 2013, and without any briefing in opposition to the affirmative

relief, the trial court granted Seifert and Perram’s motion in part, compelling arbitration

of Count 6. It is from this decision that Fifth Third timely appeals, in appeal No. 100030,

claiming in a single assignment of error, that the trial court erred in compelling arbitration

because no arbitration agreements exist between Fifth Third and the defendants. On
September 25, 2013, the trial court entered an order summarily denying defendants’

motion to dismiss, filed on October 19, 2011. Defendants timely appealed the trial

court’s September 25, 2013 decision in appeal No. 100571, advancing a single

assignment of error, claiming that the trial court erred by not compelling arbitration of all

remaining claims in that September 25, 2013 order. This court sua sponte consolidated

both appeals because the assigned errors are interrelated.

{¶9} Both parties framed this case as an issue of whether compelling arbitration

was warranted under the applicable law, and thus our review is limited.1 Defendants

claim that the theories of alter ego, third-party beneficiary, or estoppel apply, requiring

Fifth Third to arbitrate all claims. Fifth Third disagrees. Thus, Fifth Third’s and the

defendants’ assignments of error share an inverse relationship as the issues are framed by

the parties: a decision favorable to one party necessarily negates the other’s assigned

error. In light of this relationship, we find merit to Fifth Third’s assignment of error and

none with respect to the defendants’.

{¶10} Our review of decisions to compel arbitration depends on “the type of

questions raised challenging the applicability of the arbitration provision.” Skerlec v.

Ganley Chevrolet, Inc., 8th Dist. Cuyahoga No. 98247, 2012-Ohio-5748, ¶ 6,

quoting McCaskey v. Sanford-Brown College, 8th Dist. Cuyahoga No. 97261,

1
Our decision, therefore, does not address any issues with regard to whether Seifert or Perram
waived their right to seek an order compelling arbitration pursuant to R.C. 2711.02 (staying case
pending arbitration) or 2711.03 (separate action to enforce arbitration agreement) by their delay in
raising the issue with the trial court.
2012-Ohio-1543, ¶ 7. The issue of whether a party has agreed to submit an issue to

arbitration is generally reviewed under a de novo standard of review. Id.,

citing Shumaker v. Saks Inc., 163 Ohio App.3d 173, 2005-Ohio-4391, 837 N.E.2d 393

(8th Dist.); Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio St.3d 352, 2008-Ohio-938,

884 N.E.2d 12.

{¶11} “Arbitration is a favored form of dispute settlement under Ohio law and

federal law.” Fifth Third Bank v. Rowlette, 10th Dist. Franklin No. 13AP-337,

2013-Ohio-5777, ¶ 7, citing ABM Farms, Inc. v. Woods, 81 Ohio St.3d 498, 500, 692

N.E.2d 574 (1998); Preston v. Ferrer, 552 U.S. 346, 353, 128 S.Ct. 978, 169 L.Ed.2d 917

(2008). Courts recognized, however, that arbitration is a matter of contract. Id. Thus, a

party cannot be compelled to submit a dispute to arbitration without expressly agreeing to

the arbitration terms. Id., citing Benjamin v. Pipoly, 155 Ohio App.3d 171,

2003-Ohio-5666, 800 N.E.2d 50, ¶ 32 (10th Dist.); see also Harmon v. Philip Morris,

Inc., 120 Ohio App.3d 187, 189, 697 N.E.2d 270 (8th Dist.1997); AT&T Technologies,

Inc. v. Communication Workers of Am., 475 U.S. 643, 648-649, 106 S.Ct. 1415, 89

L.Ed.2d 648 (1986) (“[a]rbitration is a matter of contract and a party cannot be required

to submit to arbitration any dispute which he has not agreed so to submit * * *”).

Especially in Ohio, “there is a counter-weighing presumption against arbitration when a

party seeks to invoke an arbitration provision against a nonsignatory.” Rowlette,

citing Taylor v. Ernst & Young, L.L.P., 130 Ohio St.3d 411, 2011-Ohio-5262, 958 N.E.2d

1203, ¶ 21. The party seeking to compel arbitration bears the burden of establishing the
existence of an enforceable arbitration agreement between the party against whom the

moving party seeks enforcement.

{¶12} The law regarding the enforceability of arbitration clauses as to a

nonsignatory is “consistent with that of ordinary contract law insofar as parties not privy

to a contract may not benefit from an arbitration agreement incorporated therein.” West v.

Household Life Ins. Co., 170 Ohio App.3d 463, 2007-Ohio-845, 867 N.E.2d 868, ¶ 14

(10th Dist.); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, 7 F.3d 1110, 1113 (3d

Cir.1993). It is into this context that defendants weave their argument that Fifth Third is

estopped from denying the arbitration provision, or the provision should apply through

the theories of alter ego or piercing the corporate veil. See World Omni Fin. Corp. v. Ace

Capital Re Inc., 64 Fed.Appx. 809, 812 (2d Cir.2003) (applying principles of contract and

agency, such as (1) incorporation by reference, (2) assumption, (3) agency, (4) veil

piercing/alter ego, and (5) estoppel, to determine whether the nonsignatory should be

bound by an arbitration agreement).

{¶13} It is undisputed that Fifth Third is a nonsignatory to the FTS defendants’

agreements, which contain the arbitration provision. Thus, it was defendants’ burden to

establish that Fifth Third was bound by the terms of the arbitration provision contained in

the FTS defendants’ agreement through estoppel or the alter ego/veil piercing

theory. Defendants did not produce evidence sufficient to withstand their burden; and

therefore, the limited order to compel arbitration of the claims encompassing the
forgivable loan agreements was in error. There is no enforceable arbitration agreement

between Fifth Third and the defendants.

{¶14} In Gerig v. Kahn, 95 Ohio St.3d 478, 2002-Ohio-2581, 769 N.E.2d 381,

upon which defendants heavily rely, the Ohio Supreme Court applied the doctrine of

equitable estoppel in holding that a plaintiff, in a medical malpractice action, seeking a

declaration that a hospital was required to insure the physician’s alleged misconduct

under an agreement between the hospital and the physician, was also bound by an

arbitration provision in that agreement. The court reasoned that it would have been

inequitable to allow nonsignatories to avoid the burden of arbitration while

simultaneously seeking a direct benefit under the agreement. Id. at ¶ 15-19.

{¶15} In this case, defendants argue that Fifth Third received the benefit of

defendants’ employment with FTS and therefore must accept the burden of the arbitration

provision within the FTS defendants’ agreements. Defendants misconstrue the nature of

the benefit described in Gerig and other cases following a similar estoppel

approach. Fifth Third asserted its rights under the employment agreements between it

and the defendants, which did not contain an agreement to arbitrate. For the purposes of

estoppel, in order to enforce the FTS defendants’ arbitration agreements against Fifth

Third, the defendants must establish that Fifth Third is asserting rights directly derived

from the FTS defendants’ agreements. See, e.g., id.; Covington v. Lucia, 151 Ohio

App.3d 409, 415, 2003-Ohio-346, 784 N.E.2d 186 (10th Dist.) (noting estoppel does not

apply because the plaintiff was not asserting any rights established by the document
containing the arbitration provision); Javitch v. First Union Secs., Inc., 315 F.3d 619 (6th

Cir.2003) (receiver bringing claims on behalf of two business entities could be bound to

arbitration agreements entered into by those entities if the claims arose from those

agreements just the same as if the entities brought the claims absent the appointment);

Wealth Rescue Strategies, Inc. v. Thompson, S.D. Tex. No. H-08-3107, 2009 U.S. Dist.

LEXIS 106989 (Nov. 17, 2009) (plaintiff’s damages flowed through the contract its agent

had with the defendant, which contained an arbitration provision).

{¶16} Defendants cite to the fact that FTS required them to maintain their FINRA

licenses pursuant to terms of their employment with FTS. Defendants claim this was for

the benefit of Fifth Third because Fifth Third then hired the defendants to sell securities,

which required the licensing. This misses the point. Fifth Third’s claims stem from a

breach of a separate non-compete agreement contained in Fifth Third’s contracts with the

defendants and breach of the forgivable loan agreements between Fifth Third and the

defendants. Fifth Third did not assert any claims regarding the licensing or registrations,

or that defendants otherwise breached any other terms under the FTS defendants’

agreements. Lucia at ¶ 22. The estoppel cases are simply inapplicable. Instead, Fifth

Third asserted claims pursuant to the contractual agreements it separately entered with the

defendants, separate and apart from the agreements defendants entered with FTS.

{¶17} With regard to defendants’ assertion that the forgivable loan agreements

dealt with a compensation dispute between defendants and FTS, undisputedly within the

gravamen of the FTS defendants’ arbitration agreements, there is no evidence in the
record that the forgivable loan agreements were in lieu of compensation owed by

FTS. Defendants’ evidence supporting their claim that the forgivable loan agreements

were in lieu of direct compensation owed by FTS was limited to (1) their individual

affidavits merely indicating the forgivable loan agreements originated from FTS and/or

Fifth Third, (2) copies of defendants’ pay stubs reflecting the loan agreements, and (3)

copies of emails from Fifth Third Private Bank representatives discussing the loan

agreements.

{¶18} Fifth Third claims, as indicated by the title of the document and the fact that

FTS was not a party to the lawsuit, that the loans originated from Fifth Third. There was

no other evidence in the record establishing that the loan agreements were compensation

for services rendered to FTS, rather than for services rendered under the defendants’

employment agreements with Fifth Third directly.

{¶19} Seifert’s and Perram’s affidavits vaguely reference whether FTS initiated

the forgivable loan agreements. In both their affidavits, the defendants claim the loans

originated from FTS and/or Fifth Third. In other words, the defendants are unsure which

entity originated the loans. The issue becomes less clear in consideration of the fact that

the copies defendants’ produced of their pay stubs fail to reflect which Fifth Third entity

claimed the payments as compensation. It is undisputed that they were salaried

employees of Fifth Third.

{¶20} The pay stubs defendants introduced only included the employer

identification number, with no evidence establishing which entity belonged to that
identification number. Moreover, defendants failed to indicate, or demonstrate with

evidentiary submissions, how the emails discussing the loans from employees of Fifth

Third Private Bank to the defendants established a connection to FTS. In short,

defendants bore the burden of demonstrating the enforceability of the arbitration

provision in the FTS defendants’ agreements against Fifth Third, and the absence of

evidence tying the loan agreements to FTS was dispositive. Relying on our de novo

review of the undisputed evidence presented to the trial court, we find no merit to

defendants’ argument that the arbitration provisions in the FTS defendants’ agreements

are enforceable against the nonsignatory Fifth Third pursuant to the doctrine of estoppel.

Fifth Third is not seeking enforcement of the FTS defendants’ agreements, nor have the

defendants established that the forgivable loan agreements were based on a salary dispute

between them and FTS.

{¶21} Finally, and in the alternative, defendants argue that the arbitration provision

in the FTS defendants’ agreements should be enforceable against Fifth Third on the basis

that Fifth Third was an alter ego of FTS, or that the corporate veil should be pierced to

impute the contractual terms of FTS’s agreement against Fifth Third.2

2
Defendants also claim on appeal that Fifth Third was a third-party beneficiary of the FTS
defendants’ agreements or that Fifth Third perpetuated a fraud by depriving them of their contractual
right to arbitrate disputes. “Ordinarily, reviewing courts do not consider questions not presented to the
court whose judgment is sought to be reversed.” State ex rel. Quarto Mining Co. v. Foreman, 79 Ohio
St.3d 78, 81, 679 N.E.2d 706 (1997), citing Goldberg v. Indus. Comm., 131 Ohio St. 399, 404, 3
N.E.2d 364 (1936). Accordingly, we cannot address defendants’ third-party beneficiary claim or
fraud allegations because they failed to raise these issues in front of the trial court. Defendants’
motion to compel arbitration on Count 6, combined with their brief in opposition to Fifth Third’s
motion for summary judgment on the same, was limited to the estoppel and alter ego theories. We
 {¶22} “Generally, a parent and subsidiary are separate and distinct legal entities.”

Mut. Holding Co. v. Limbach, 71 Ohio St.3d 59, 60, 641 N.E.2d 1080 (1994), citing

Hoover Universal, Inc. v. Limbach, 61 Ohio St.3d 563, 575 N.E.2d 811 (1991). In

certain situations, however, courts will look beyond the pro forma separation of

entities. In Ohio,

[t]he corporate form may be disregarded and individual shareholders held

liable for wrongs committed by the corporation when (1) control over the

corporation by those to be held liable was so complete that the corporation

has no separate mind, will, or existence of its own, (2) control over the

corporation by those to be held liable was exercised in such a manner as to

commit fraud or an illegal act against the person seeking to disregard the

corporate entity, and (3) injury or unjust loss resulted to the plaintiff from

such control and wrong.

Belvedere Condominium Unit Owners’ Assn. v. R.E. Roark Cos., Inc., 67 Ohio St.3d 274,

275, 617 N.E.2d 1075 (1993), paragraph three of the syllabus.

{¶23} Defendants, in this case, seek application of the “‘more relaxed, less

exacting’ application of the alter-ego doctrine applied ‘[i]n order to effectuate federal

labor policies.’” Rd. Sprinkler Fitters Local Union No. 669 U.A., AFL-CIO v. Dorn

note that the trial court’s September 25, 2013 order denying defendants’ motion to dismiss falls under
this same category. Defendants’ motion to dismiss did not include any claims for alter ego/piercing
the veil or estoppel. However, because that issue inherently intertwined with the issues raised by
Fifth Third on appeal, we combined them for the sake of simplicity.
Sprinkler Co., 669 F.3d 790, 794 (6th Cir.2012), citing NLRB v. Fullerton Transfer &

Storage Ltd., 910 F.2d 331, 337 (6th Cir.1990). In the relaxed version, when two

companies are engaged in the same business and marketplace, courts must determine

“‘whether the two enterprises have substantially identical management, business purpose,

operation, equipment, customers, supervision and ownership’ to decide whether one is the

alter ego of the other.” Id., quoting Fullerton. We need not decide which standard

applies. Under either, defendants failed to satisfy their burden of demonstrating that

Fifth Third exercised control that was so complete as to render FTS as having no separate

control over itself.

{¶24} It is undisputed that Fifth Third cannot participate in the same market as

FTS. As all parties make clear, FTS is registered with FINRA and only FTS employees

may offer securities products to customers. Defendants, in order to establish Fifth

Third’s dominion and control over FTS, referred to the dual service agreements between

Fifth Third and the defendants. The agreements, however, indicate that Fifth Third may

independently terminate the defendants’ employment, irrespective of FTS’s

decisions. Further, both employment agreements, FTS defendants’ and Fifth Third’s dual

employment agreements, indicate that each respective entity would compensate

defendants separately.

{¶25} The only other evidence submitted on this issue was the fact that certain

members of FTS’s management were also employed by Fifth Third through dual

employment agreements and that FTS was a wholly owned subsidiary of Fifth
Third. Neither of those submissions, however, is sufficient to demonstrate the type of

control necessary to satisfy the defendants’ burden in seeking enforcement of an

arbitration provision against a nonsignatory, parent corporation — it merely bolsters the

undisputed fact that FTS is a wholly owned subsidiary of Fifth Third and Fifth Third

independently hires FTS employees in a dual employment structure.

{¶26} Accordingly, there is some evidence to establish FTS’s autonomy from Fifth

Third’s actions, but no evidence that Fifth Third controls FTS’s decisions to such a

degree, if any, to establish the dominion and control sufficient to disregard the corporate

identities of Fifth Third and FTS. Upon the record presented for this appeal, defendants

failed to produce sufficient evidence to overcome the presumption that a wholly owned

subsidiary entity is a separate entity from the parent corporation. Rowlette, 10th Dist.

Franklin No. 13AP-337, 2013-Ohio-5777, ¶ 10 (finding in a similar context that Fifth

Third and FTS are sufficiently separate and distinct entities).3 The fact that Fifth Third

and FTS share management-level employees does not alone justify piercing the corporate

veil or determining that Fifth Third is an alter ego of FTS. Bacoccini v. Ice Industries,

Inc., 6th Dist. Lucas No. L-08-1401, 2009-Ohio-3800, ¶ 23.

3
Defendants’ argument that Fifth Third’s decision to omit FTS as a party in the pleadings was
a litigation-related, tactical decision to limit the impact of the defendants’ agreement to arbitrate with
FTS is misplaced. First, the omission demonstrates the separateness of Fifth Third from FTS, but
more important, it is irrelevant whether FTS is a party to the current litigation. Even if FTS were a
party, the impact of the arbitration agreement would apply only against FTS unless the nonsignatory
Fifth Third were bound through some equitable principle as addressed in the current appeal. Simply
including FTS as a party would not alter the need to determine whether FTS’s agreement to arbitrate
is enforceable against Fifth Third for the purposes of compelling arbitration.
 {¶27} Defendants’ sole assignment of error is overruled, and Fifth Third’s sole

assignment of error is sustained. The trial court erred in compelling arbitration on Count

6 of Fifth Third’s complaint, the claims based on the forgivable loan agreement. The

arbitration provision contained within the employment agreements between FTS and the

defendants is not enforceable against Fifth Third based on the claims advanced in the

complaint.

{¶28} We, therefore, affirm in part, reverse in part, and remand for further

proceedings consistent herein.

It is ordered that appellants and appellees share the costs herein taxed.

The court finds there were reasonable grounds for this appeal.

It is ordered that a special mandate issue out of this court directing the common

pleas court to carry this judgment into execution.

A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of

the Rules of Appellate Procedure.

SEAN C. GALLAGHER, JUDGE

MARY J. BOYLE, A.J., and
EILEEN T. GALLAGHER, J., CONCUR