[Cite as 21st Century Concrete Constr., Inc. v. Reginella Constr. Co., Ltd., 2013-Ohio-3006.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 99366
21ST CENTURY CONCRETE
CONSTRUCTION, INC.
PLAINTIFF-APPELLEE
vs.
REGINELLA CONSTRUCTION
COMPANY, LTD., ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-779703
BEFORE: Stewart, A.J., S. Gallagher, J., and E.A. Gallagher, J.
RELEASED AND JOURNALIZED: July 11, 2013
ATTORNEYS FOR DEFENDANT-APPELLANT REGINELLA CONSTRUCTION
COMPANY, LTD.
Steven R. Hobson, II
Leiby Hanna Rasnick Towne Evanchan Palmisano & Hobson, L.L.C.
388 S. Main Street, Suite 402
Akron, OH 44311
ATTORNEYS FOR DEFENDANT-APPELLEE TRAVELERS CASUALTY &
SURETY COMPANY OF AMERICA
Audrey E. Varwig
Dickie, McCamey & Chilcote, P.C.
2109 Stella Court
Columbus, OH 43215
W. Alan Torrance
Dickie, McCamey & Chilcote, P.C.
2 PPG Place, Suite 400
Pittsburgh, PA 15222
ATTORNEYS FOR PLAINTIFF-APPELLEE
R. Russell O’Rourke
Scott R. Sylkatis
O’Rourke & Associates Co., L.P.A.
2 Summit Park Drive, Suite 650
Independence, OH 44131
ATTORNEYS FOR OHIO TURNPIKE COMMISSION
Peter J. Comodeca
Ronald M. McMillan
Calfee, Halter & Griswold, L.L.P.
The Calfee Building
1405 East 6th Street
Cleveland, OH 44114
MELODY J. STEWART, A.J.:
{¶1} Plaintiff-subcontractor 21st Century Concrete Construction, Inc., brought this
breach of contract action against defendant-general contractor Reginella Construction
Co., Ltd., alleging that Reginella breached a subcontract by making oral changes to a
work order but refusing to pay for those changes. 21st Century also named surety
Travelers Casualty & Surety Co. of America as a defendant, alleging that Travelers
refused to pay 21st Century on a performance and payment bond that it issued to
Reginella. The court, recognizing that arbitration proceedings had been initiated
between 21st Century and Reginella, stayed the action. It also ordered that Travelers
participate in the arbitration because Travelers, as surety, was in privity with Reginella
and might be bound by any decision issued by the arbitrator. Reginella appeals, arguing
that the court erred by ordering Travelers to participate in the arbitration because
Travelers is not a party to the arbitration agreement, it is not in privity with Reginella, and
that the addition of Travelers to the pending arbitration would delay the proceedings
between 21st Century and Reginella.
I
{¶2} We first consider Travelers’ argument that Reginella lacks standing to argue
that the court improperly ordered Travelers to arbitrate 21st Century’s claim on the bond.
That claim, argues Travelers, is separate from 21st Century’s breach of contract claim
against Reginella, so Reginella has no standing to complain about an order that does not
affect it. Reginella maintains that including Travelers in the arbitration will affect it by
forcing it to incur additional time and expense during that proceeding.
A
{¶3} Regardless of whether Reginella has standing to argue that the court erred by
ordering Travelers to participate in the arbitration, Reginella cannot be heard to complain
about that order because it invited the error by specifically requesting that Travelers be
included in any order compelling arbitration.
{¶4} “‘Invited error’ arises when a party tries to take advantage of an error that the
party induced the trial court to make.” State ex rel. The V Cos. v. Marshall, 81 Ohio
St.3d 467, 471, 692 N.E.2d 198 (1998). The invited error doctrine is applied when
counsel is “actively responsible” for the trial court’s error. State v. Campbell, 90 Ohio
St.3d 320, 324, 738 N.E.2d 1178 (2000).
{¶5} In its motion to stay the proceedings and compel arbitration, Reginella noted
that the terms of the contract between it and 21st Century required arbitration of “[a]ny
controversy or claim arising out of or relating to this contract, or breach thereof, including
claims against third parties whom [Reginella Construction] is obligated to defend * * *.”
Reginella told the court that the “third party” claims provision “clearly applies” to
Travelers and that any order to compel arbitration should also apply to 21st Century’s
claims against Travelers. See motion to stay and compel arbitration, at 2, fn. 1.
{¶6} Travelers agreed that it should participate in the arbitration. It cited a
decision from this court, Midwest Curtainwalls, Inc. v. Pinnacle 701, LLC, 8th Dist. No.
92269, 2009-Ohio-3740, for the proposition that a surety in privity with a general
contractor may be bound by a decision reached in an arbitration between the general
contractor and a subcontractor, even if the surety did not participate in the arbitration.
{¶7} After the court stayed the proceedings and ordered all three parties to
arbitration, 21st Century and Reginella filed a joint motion for partial reconsideration of
that part of the court order requiring Travelers to participate in the arbitration. They
argued that (1) Travelers is not a party to the arbitration agreement so the American
Arbitration Association would have no jurisdiction to decide any claims involving
Travelers; (2) Travelers waived its claim that it should be a part of the arbitration by filing
“an adversary lawsuit against Reginella in another court of law”; and (3) arbitration
between Reginella and 21st Century had been ongoing for “several months” and that
Travelers “can bring nothing to the arbitration by way of witnesses or any factual
evidence” so its presence would create an unnecessary delay. Reginella filed its notice
of appeal before the court could rule on the motion for partial reconsideration.
{¶8} Given Reginella’s initial position that Travelers should be made a part of the
arbitration, its claimed errors are barred by the invited error doctrine. Reginella filed its
demand for arbitration on May 11, 2012, nearly one month before it filed its motion to
stay proceedings and compel arbitration. And as noted, it specifically requested that any
order staying the proceedings and ordering arbitration “should apply to Plaintiff’s claims
against Defendant Travelers Casualty & Surety Co. of America in the present case as
well.” With the court having ordered arbitration in terms consistent with those requested
by Reginella, any error stemming from that order was invited by Reginella.
B
{¶9} Reginella now maintains that its interests are no longer aligned with Travelers
because Travelers filed suit against it in Pennsylvania, making them adversaries. For its
part, Travelers argues that its participation in the arbitration is required because it fears
that Reginella would not adequately represent Travelers’ interests at the arbitration.
{¶10} According to Reginella, Travelers filed the Pennsylvania action on July 16,
2012. The court did not rule on the motion to stay proceedings and compel arbitration
until December 6, 2012. At no point between asking the court to order Travelers to
submit to arbitration and receiving the court order to that effect did Reginella raise an
objection based on the Pennsylvania action. In fact, it was not until after the court
ordered Travelers to participate in the arbitration that Reginella mentioned the
Pennsylvania action and the potential that the parties would be adversaries in the
arbitration. This was not a timely objection.
{¶11} It is also unclear why Reginella and Travelers believe they would have
different interests in the outcome of the arbitration. The interests and liability of a surety
and principal are derivative and usually coextensive, such that a surety cannot be liable on
a bond if the principal is also not liable. Thomas Steel, Inc. v. Wilson Bennett, Inc., 127
Ohio App.3d 96, 107, 711 N.E.2d 1029 (8th Dist.1998). Despite the differences that
form the substance of the Pennsylvania action, Reginella presumably seeks an arbitration
decision finding that it is not in breach of its contract with 21st Century. That outcome
would also be favorable to Travelers because it would mean that Travelers has no liability
under the bond. If Reginella wins at arbitration, Travelers wins too.
{¶12} The basis for the Pennsylvania litigation is not a part of the record, but
Reginella argues that Travelers would have no real interest in defending against 21st
Century’s claims because it will seek to pursue Reginella for indemnification of any
amount it pays on the claim. This is a fanciful argument — it assumes that Travelers
would be willing to endure the time and expense of arbitration for the sole purpose of
losing the arbitration so that it can recover from Reginella. In fact, Travelers could be
justified in wishing to participate in the arbitration to ensure that Reginella properly
defends 21st Century’s claims.
{¶13} In any event, it is unclear how Travelers’ presence at the arbitration would
cause undue delay. Even Reginella concedes that Travelers’ status as a surety means that
it would have no independent evidence of the substance of the claims set forth by 21st
Century, so it is unlikely that Travelers could influence the outcome of the arbitration.
Its presence at the arbitration was ordered for the sole purpose of allowing it to participate
and protect any rights it has in relation to the preclusive effects of an arbitration decision.
We consider that purpose next.
II
{¶14} The court ordered Travelers to participate in the arbitration because it
believed that Travelers, being in privity with Reginella, could be bound by an arbitration
decision. Reginella argues that the court misread applicable precedent and thus lacked
authority to order Travelers, a nonparty to the arbitration agreement, to participate in the
arbitration.
{¶15} Arbitration is a matter of contract and a party cannot be required to arbitrate
a dispute that it has not agreed to arbitrate. As such, a guarantor who is not a signatory
to a contract containing an arbitration clause is generally not bound by the arbitration
clause. See Teramar Corp. v. Rodier Corp., 40 Ohio App.3d 39, 41, 531 N.E.2d 721
(8th Dist.1987). However, the strong policy favoring arbitration has caused courts to
enforce arbitration agreements against guarantors or sureties where the arbitration
agreement is incorporated by reference into the guaranty or performance bond. See, e.g.,
Piqua v. Ohio Farmers Ins. Co., 84 Ohio App.3d 619, 621-622, 617 N.E.2d 780 (2d
Dist.1992); United States Fid. & Guar. Co. v. W. Point Constr. Co., 837 F.2d 1507 (11th
Cir.1988) (per curiam); Exchange Mut. Ins. Co. v. Haskell Co., 742 F.2d 274 (6th
Cir.1984) (per curiam); Commercial Union Ins. Co. v. Gilbane Bldg. Co., 992 F.2d 386
(1st Cir.1993).
{¶16} The record does not contain a copy of the bond issued by Travelers, so we
are unable to determine if Travelers incorporated the terms of the construction contract
into the bond. Nevertheless, the court cited Midwest Curtainwalls for the proposition
that Travelers was in privity with Reginella and that any decision rendered in arbitration
could be held binding against Travelers.
{¶17} In Midwest Curtainwalls, we held that an arbitration award had preclusive
effect against an individual who did not participate in arbitration, but who was in privity
with a company that did. In this case, the court found that Travelers’ status as a surety
placed it in privity with Reginella such that any arbitration award against Reginella would
also be binding against Travelers.
{¶18} The court may have overbroadly applied Midwest Curtainwalls, but
nevertheless reached the correct result. A surety not only can assert the defenses of its
principal, Holben v. Interstate Motor Freight Sys., 31 Ohio St.3d 152, 156, 509 N.E.2d
938 (1987), it also possesses certain personal defenses under the bond that are not
available to the principal. For example, regardless of the outcome of the arbitration,
Travelers could offer defenses unique to the bond; for instance, statute of limitations.
The surety’s separate defenses might cause a divergence of interests such that they would
constitute an exception to the rule set forth in Midwest Curtainwalls that binds a
nonparticipating surety in privity with a principal to an arbitration award against that
principal.
{¶19} But none of the separate defenses that Travelers might assert against
Reginella are present here. As we noted, for purposes of arbitration, Travelers’ and
Reginella’s interests are aligned. Travelers is in privity with Reginella and the result of
the arbitration may well have been binding against it. Travelers understood this
potentiality and for that reason desired to be allowed to participate in the arbitration. The
court, thus, did not force Travelers to participate in the arbitration. Indeed, its order that
Travelers participate in the arbitration was in conformity with the expressed desire of
both Travelers and Reginella. For that reason, Reginella cannot complain that Travelers
was forced to arbitrate that which it had not agreed to arbitrate.
{¶20} Judgment affirmed.
It is ordered that appellee recover of appellant its 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 Cuyahoga
County Court of Common Pleas 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.
MELODY J. STEWART, ADMINISTRATIVE JUDGE
SEAN C. GALLAGHER, J., and
EILEEN A. GALLAGHER, J., CONCUR