[Cite as Hoppel v. Feldman, 2011-Ohio-1183.]
STATE OF OHIO, COLUMBIANA COUNTY
IN THE COURT OF APPEALS
SEVENTH DISTRICT
DOUGLAS E. HOPPEL ) CASE NO. 09 CO 34
)
PLAINTIFF-APPELLANT )
)
VS. ) OPINION
)
A. RICHARD FELDMAN, et al. )
)
DEFENDANTS-APPELLEES )
CHARACTER OF PROCEEDINGS: Civil Appeal from the Court of Common
Pleas of Columbiana County, Ohio
Case No. 2009-CV-538
JUDGMENT: Affirmed.
APPEARANCES:
For Plaintiff-Appellant: Atty. Carl Frankovitch
Atty. Kevin M. Pearl
Frankovitch, Anetakis Colantonio
& Simon
337 Penco Road
Weirton, WV 26062
For Defendants-Appellees: Atty. James F. Koehler
Atty. P. Wesley Lambert
1400 Fifth Third Center
600 Superior Avenue, East
Cleveland, Ohio 44114
Atty. Gregory V. Mersol
Atty. Chris Bator
Atty. Jeffrey Vlasek
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
JUDGES:
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Hon. Cheryl L. Waite
Hon. Gene Donofrio
Hon. Mary DeGenaro
Dated: March 9, 2011
WAITE, P.J.
{1} Appellant, Douglas E. Hoppel, appeals the judgment entry of the
Columbiana County Court of Common Pleas granting a motion to stay the
proceedings and compel arbitration filed by Appellees, A Richard Feldman, The
Feldman Agency, Intersecurities, Inc. (collectively “the Feldman defendants”), and a
motion to stay the proceedings filed by Appellee, New York Life Insurance and
Annuity Corp. (“New York Life”). For the following reasons, the decision of the trial
court is affirmed.
{2} According to the complaint, Appellant is the owner of a variable annuity
with the Hartford Life and Annuity Insurance Company (“the Hartford”), brokered by
the Feldman defendants. On or about September 29, 2008, when the annuity had an
approximate value of $629,000.00, Feldman advised Appellant to transfer the funds
from the variable annuity with the Hartford to a fixed annuity with New York Life.
{3} Based on Feldman’s advice, Appellant executed all of the documents
provided by Feldman to complete the transfer. Feldman informed Appellant that the
transfer would be completed within 48 hours, and that the value of the variable
annuity would be frozen as of October 2, 2008.
{4} The transfer was not completed within the 48-hour time frame.
Appellant was subsequently notified by the Hartford that the value of his variable rate
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annuity had decreased to $546,073.62 as of October 13, 2008. On that same date,
Appellant informed Feldman that he no longer wished to proceed with the transfer
due to the diminution in the value of the variable annuity.
{5} Feldman informed Appellant that the money had not been transferred to
New York Life, but that Appellant had to contact the Harford to obtain reinstatement
of his variable annuity contract. In the interim between the liquidation, then
reinstatement, of Appellant’s variable annuity, “the price of shares in the variable
annuity account changed, and although [Appellant’s] account was reinstated at
$458,000.00, he received fewer shares.” (Compl. ¶24.) The year-end value of the
variable annuity at the Hartford was $417,794.60.
{6} In January of 2009, and again in April 2009, Appellant’s counsel sent
letters to the Feldman defendants requesting all documents related to the transfer of
Appellant’s variable annuity at the Harford to the fixed annuity at New York Life.
When the Feldman defendants did not respond to either request, Appellant filed the
complaint in the above-captioned case, alleging breach of contract, breach of
fiduciary duty, and negligence claims against the Feldman defendants and New York
Life. After filing two motions for leave to plead, the Feldman defendants filed a
motion to stay and to compel arbitration, at issue in this appeal. New York Life filed a
combined response to the motion as well as a motion to stay on its own behalf.
{7} In support of the motion to compel arbitration, the Feldman defendants
filed the affidavit of Michael Scherrmao, the vice president and chief operating officer
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of Intersecurities, Inc. Attached to the affidavit is a customer account information
form (“CAI”) signed by Appellant on July 18, 2005.
{8} There are two boxes in the top right hand corner of the CAI, captioned
“New” and “Update.” The “Update” box is marked. The last paragraph of the CAI
reads, in pertinent part:
{9} “CLIENT ACKNOWLEDGMENT: * * * THIS AGREEMENT CONTAINS
A PREDISPUTE ARBITRATION CLAUSE WHICH APPEARS ON PAGE 2,
PARAGRAPH 1, OF THIS AGREEMENT, WHICH BY SIGNING BELOW I AM
ACKNOWLEDGING THAT ON THIS DAY I HAVE RECEIVED.” (CAI, p. 1.)
{10} The arbitration clause states:
{11} “In consideration of opening one or more accounts for the undersigned,
the undersigned agree(s) that any controversy between us arising out of or relating to
my (our) account, transactions with or for me (us), or this agreement or the breach
thereof shall be settled by arbitration in accordance with the rules, then established,
of the National Association of Securities Dealers, Inc. * * *” (CAI, p. 2.)
{12} Appellant attached his own affidavit to his opposition brief. According to
the affidavit, Appellant maintained more than one investment account with the
Feldman defendants when the CAI was executed. (Hoppel Aff., ¶4.) Appellant
opened his first accounts with the Feldman defendants, including the account that is
the subject of the complaint, in 1999. (Hoppel Aff., ¶5.)
{13} In 2005, Appellant maintained a traditional Individual Retirement
Account (“IRA”) with Putnam Investments, with Lynette L. Pagley of American
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General Securities, Inc., as the broker. (Hoppel Aff., ¶6.) In July of 2005, Appellant
transferred the Putnam Investments account from Pagley at American General
Securities, Inc., to Feldman at Intersecurities, Inc. (Hoppel Aff., ¶7.) Appellant
attached the July 30, 2005 and September 30, 2005 year-to-date statements from
the Putnam Investments IRA to demonstrate that the account representative was
Pagley at the end of July, and Feldman at the end of September.
{14} Appellant asserts that the CAI was executed as a part of the 2005 IRA
transfer. (Hoppel Aff., ¶7.) Line two of the CAI reads, “Account Type,” and the
“Traditional IRA” box is marked. Although the “Variable Account” box and “Other”
box are not marked, the line following the “Other” box contains the handwritten
inscription, “transfer rep on acct.” (CAI, p. 1.)
{15} Appellant argues that the CAI was not executed for any other purpose
than the transfer of the traditional IRA, “and has no connection whatsoever with [his]
individual accounts which are the subject of the above-captioned lawsuit.” (Hoppel
Aff., ¶8.) The Feldman defendants counter that the CAI is broadly worded and refers
to the Putnam IRA and all of Appellant’s existing accounts at the time that the CAI
was executed.
{16} The affidavits of Scherrmao and Appellant, the CAI, the Putnam
investment statements, and the letters sent by Appellant’s counsel to the Feldman
defendants requesting Appellant’s file were the only evidence before the trial court.
The trial court did not conduct an oral hearing on the motions nor did it delay to allow
Appellant to conduct any discovery. The judgment entry reads, in pertinent part:
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{17} “The Court finds there is a contractual agreement between [Appellant]
and [the Feldman defendants] which would require arbitration and therefore orders
the same.
{18} “Whereas [Appellant] opposes any stay of litigation concerning his
claims against New York Life, the Court finds that the allegations of the Complaint
are such that a trial of the issues against New York Life would in all certainty require
the involvement of [the Feldman defendants] with respect to whom the Court ordered
the stay. Therefore, for reasons of fairness and judicial economy, the Court stays
this entire proceeding pending the completion of the arbitration ordered above.”
(9/16/09 J.E., pp. 1-2.)
{19} This timely appeal followed.
ASSIGNMENT OF ERROR NO. 1
{20} “The trial court erred in finding that a contract to arbitrate the claims at
issue existed between Douglas E. Hoppel and A. Richard Feldman, The Feldman
Agency, LLC, and/or InterSecurities, Inc.”
{21} “ ‘The Ohio Arbitration Act allows for either direct enforcement of
[arbitration] agreements through an order to compel arbitration under R.C. 2711.03,
or indirect enforcement through an order staying proceedings under R.C. 2711.02.’ ”
Maestle v. Best Buy Co., 100 Ohio St.3d 330, 2003-Ohio-6465, 800 N.E.2d 7, at ¶14,
quoting Brumm v. McDonald & Co. Securities, Inc. (1992), 78 Ohio App.3d 96, 100,
603 N.E.2d 1141.
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{22} R.C. 2711.02(B) provides that a court shall stay trial of an action on
application of one of the parties if (1) the action is brought regarding any issue
referable to arbitration under a written agreement for arbitration, and (2) the court is
satisfied the issue is referable to arbitration under the written agreement.
{23} If a party moves to compel arbitration pursuant to R.C. 2711.03(A),
“[t]he court shall hear the parties, and, upon being satisfied that the making of the
agreement for arbitration or the failure to comply with the agreement is not in issue,
the court shall make an order directing the parties to proceed to arbitration in
accordance with the agreement.”
{24} R.C. 2711.03(B) reads, in pertinent part, “[i]f the making of the
arbitration agreement or the failure to perform it is in issue in a petition filed under
division (A) of this section, the court shall proceed summarily to the trial of that issue.
If no jury trial is demanded as provided in this division, the court shall hear and
determine that issue.”
{25} Appellant asserted his right to a bench trial, rather than a jury trial, in his
response to the motion to compel. He claimed that, “[i]n this case there is a
substantial question as to whether the purported arbitration agreement advanced by
defendants in their motion is even applicable to the account at issue in this litigation.
Given that fact, the plaintiff should be afforded an opportunity to engage in discovery
on the issue of whether the dispute in this case is subject to arbitration, and if
necessary, to have a trial of that issue before this Court.” (Response Brf., p. 7.)
Therefore, Appellant submitted the issue of arbitrability to the trial court for resolution.
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{26} Ohio law provides that courts generally should indulge a strong
presumption in favor of arbitration. ACRS, Inc., v. Blue Cross & Blue Shield of
Minnesota (1998), 131 Ohio App.3d 450, 455, 722 N.E.2d 1040. However, an
arbitration clause should not be expanded beyond its intent. Stillings v. Franklin Twp.
Bd. of Trustees (1994), 97 Ohio App.3d 504, 508, 646 N.E.2d 1184.
{27} In Council of Smaller Enterprises v. Gates, McDonald & Co. (1998), 80
Ohio St.3d 661, 687 N.E.2d 1352, the Ohio Supreme Court set forth guidelines in
determining the arbitrability of a given dispute: (1) arbitration is a matter of contract
and a party cannot be required to submit to arbitration any dispute which he has not
agreed to submit; (2) the question whether a particular claim is arbitrable is one of
law for the court to decide; (3) when deciding whether the parties have agreed to
submit a particular claim to arbitration, a court may not rule on the potential merits of
the underlying claim; and, importantly, (4) when a contract contains an arbitration
provision, there is a presumption of arbitrability in the sense that an order to arbitrate
the particular grievance should not be denied unless it may be said with positive
assurance that the arbitration clause is not susceptible of an interpretation that
covers the asserted dispute. Id. at 665-666.
{28} The Feldman defendants argue that, based on the plain language of
the CAI, Appellant agreed to arbitrate any issue that may arise not only with respect
to his new IRA but also his previously existing accounts. Appellant contends that the
arbitration agreement applies solely to the newly-opened IRA. In his brief, Appellant
argues that because he was not a signatory to any arbitration agreement relating to
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the variable rate annuity, a presumption against arbitration arises. Appellant relies on
Council of Smaller Enterprises, supra, where the Supreme Court of Ohio decided that
no party can be required to submit to arbitration when it has not first agreed to do so.
{29} Appellant contends that the test to be applied in this appeal was first
announced by the Ohio Supreme Court in Academy of Medicine of Cincinnati v.
AETNA Health Inc., 108 Ohio St.3d 185, 2006-Ohio-657, 842 N.E.2d 488. In that
case, the Ohio Supreme Court adopted a test articulated by the Sixth Circuit Court of
Appeals in Fazio v. Lehman Bros., 340 F.3d 386 (6th Cir.2003), which is “to ask if an
action could be maintained without reference to the contract or relationship at issue.”
Academy of Medicine of Cincinnati at ¶6. If it can, the Ohio Supreme Court
reasoned, “it is likely outside the scope of the arbitration agreement.” Id.
{30} However, the Fazio test cannot be applied, here. First, the arbitration
clause at issue is admittedly not part of the original contract between the parties, but,
instead, arose in a customer account information form signed later as a result of the
ongoing relationship between the parties. Although the CAI was completed during
the processing of the IRA, the plain language of the CAI states that it governs the
new relationship between the parties and/or it updates an existing relationship as a
result of a new account or accounts. Thus, the Fazio test is unworkable in this case
because it subverts the very question raised by this appeal, that is, whether the
language of the CAI relates back to the preexisting accounts.
{31} General contract law requires a court to interpret a contract so as to
carry out the intent of the parties. Foster Wheeler Enviresponse, Inc. v. Franklin Cty.
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Convention Facilities Auth. (1997), 78 Ohio St.3d 353, 678 N.E.2d 519. “[T]he intent
of the parties to a contract resides in the language they chose to employ in the
agreement.” Shifrin v. Forest City Ent., Inc. (1992), 64 Ohio St.3d 635, 638, 597
N.E.2d 499.
{32} If the terms of a contract are unambiguous, the trial court may not
interpret the contract in a manner inconsistent with those terms. Alexander v.
Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 241, 374 N.E.2d 146. Contractual
terms are ambiguous if the terms are reasonably susceptible to more than one
interpretation. U.S. Fid. & Guar. v. Aultman St. Elizabeth Med. Ctr. (1999), 129 Ohio
App.3d 45, 55, 716 N.E.2d 1201. When the trial court finds an ambiguity in a
contract, the court may look to extrinsic evidence to determine the parties’ intent. Id.
at 55-56, 716 N.E.2d 1201.
{33} If a contract is clear and unambiguous, then its interpretation is a matter
of law that we review de novo. Nationwide Mut. Fire. Ins. Co. v. Guman Bros. Farm
(1995), 73 Ohio St.3d 107, 108, 652 N.E.2d 684. However, if the contract is
ambiguous, ascertaining the parties' intent constitutes a question of fact. Crane
Hollow, Inc. v. Marathon Ashland Pipe Line, LLC (2000), 138 Ohio App.3d 57, 74,
740 N.E.2d 328. Because Appellant did not make a jury demand with respect to the
arbitration agreement, we cannot reverse a factual finding of the trial court so long as
some competent, credible evidence supports it. C.E. Morris Co. v. Foley Constr. Co.
(1978), 54 Ohio St.2d 279, 376 N.E.2d 578, at syllabus.
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{34} Appellant correctly argues that the CAI form is ambiguous. Initially, we
note that the “Update” box on the CAI is checked, which appears to indicate that the
form addresses both the new account and the preexisting accounts. On the other
hand, under the “Account Type” section, only the “Traditional IRA” box is marked, the
“Variable Account” box is not. However, it can be argued that the “Traditional IRA”
box is marked for the purpose of updating the existing list of accounts.
{35} Next, the text of the arbitration agreement reads, in part, “[i]n
consideration of opening one or more accounts for the undersigned, the undersigned
agree(s) that any controversy between us arising out of or relating to my (our)
account, transactions with or for me (us), or this agreement or the breach thereof
shall be settled by arbitration* * *.” Although the CAI form includes alternative
language in the event that there is more than one account holder, and alternative
language in the event that more than one account is being opened when the form is
completed, the form includes no such alternative language regarding new and pre-
existing accounts. The Feldman defendants argue that the “one or more accounts”
language refers to pre-existing accounts as well as newly opened accounts.
However, this language may also be reasonably interpreted to refer solely to the
situation where the undersigned is opening more than one account when he or she
completed the form, as Appellant urges.
{36} The rules of construction to be applied in this case are also at odds. A
court must construe a contract against its drafter. Cent. Realty Co. v. Clutter (1980),
62 Ohio St.2d 411, 406 N.E.2d 515. However, Ohio courts have as earlier stated,
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favored arbitration and have given a broad construction to arbitration clauses
employing the language “any controversy regarding this agreement.” See e.g., Lowe
v. Oster Homes, 9th Dist. No. 05CA008825, 2006-Ohio-4927, ¶12.
{37} Ambiguous contracts are by their very nature susceptible to competing
interpretations. Because the CAI appears to be ambiguous, while Appellant is
correct that the trial court could have interpreted the language in the manner he
argues, we also recognize that the language of the agreement is very broad and
encompassing. The language in the CAI is readily susceptible to the trial court’s
interpretation that it encompasses both newly opened and pre-existing accounts.
The record reflects that there is competent, credible evidence supporting the trial
court’s conclusion that the issues raised in the complaint are subject to the arbitration
clause. Accordingly, Appellant’s first assignment of error is overruled.
{38} For the purpose of clarity, the remaining assignments of error are
addressed out of order.
ASSIGNMENT OF ERROR NO. 3
{39} “The trial court erred in failing to allow discovery or conduct an
evidentiary hearing before staying the case and compelling arbitration.”
{40} By its terms, R.C. 2711.03 requires a hearing on the motion to compel
arbitration. A hearing on a R.C. 2711.02 motion to stay is discretionary with the trial
court. Maestle, ¶19. The Feldman defendants cite R.C. 2711.02 in their motion
before the trial court and in their brief on appeal. Consequently, they rely exclusively
on the rule announced in Maestle to argue that the hearing in this case was
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discretionary with the trial court. However, the Feldman defendants moved the trial
court to both stay the case and to compel arbitration, hence the matter is governed
by mandatory hearing language in R.C. 2711.03.
{41} Notably, Appellant did not request a hearing in this case. At least three
Ohio courts have held that a party waives the right to a R.C. 2711.03 hearing if he or
she does not request a hearing. In reaching that conclusion, however, the courts
relied on additional facts, such as: the waiving party was permitted to conduct
discovery, Eagle v. Fred Martin Motor Co., 157 Ohio App.3d 150, 2004-Ohio-829,
809 N.E.2d 1161, ¶22; the waiving party did not request discovery, Mattox v.
Dillard’s, Inc. 8th Dist. No. 90991, 2008-Ohio-6488, ¶15; the waiving party filed a
motion for summary judgment. Liese v. Kent State University, 11th Dist. No. 2003-P-
0033, 2004-Ohio-5322 ¶44.
{42} Here, Appellant requested discovery in his response to the motions, but
the trial court never ruled on the request. The trial court ultimately reviewed the
arbitrability issue on briefs, and permitted Appellant to offer his own affidavit in
support of his opposition brief to the motion to compel arbitration. The Eighth District
has held that a party is “heard” for the purposes of R.C. 2711.03 where the trial court
accepts his or her affidavit. Mattox, ¶15. Because Appellant made no jury demand,
by law he submitted the interpretation of the CAI to the trial court. Appellant has not
shown that he was prejudiced by the trial court’s failure to permit discovery or
conduct an oral hearing because this matter rests solely on contract interpretation
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and Appellant was allowed, by affidavit, to advance his interpretation of the disputed
language. Hence, his third assignment of error is overruled.
ASSIGNMENT OF ERROR NO. 2
{43} “The trial court erred in ordering the case stayed and compelling
arbitration, as arbitration had been waived.”
{44} As a general rule, either party to a contract of arbitration may waive the
contractual right to arbitrate. Rock v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
(1992), 79 Ohio App.3d 126, 128. For instance, a plaintiff waives the right to arbitrate
by filing a complaint. Id. For the defendant, the right to arbitrate can be preserved by
seeking enforcement of the arbitration clause. Harsco Corp. v. Crane Carrier Co.
(1997), 122 Ohio App.3d 406, 412. Failure to move for a stay pursuant to R.C.
2711.02, coupled with responsive pleadings, will constitute a defendant’s waiver.
Peterson v. Crockett Constr. (Dec. 7, 1999), 7th Dist. No. 99-CO-2, citing Mills v.
Jaguar-Cleveland Motors, Inc. (1980), 69 Ohio App.2d 111, 113.
{45} To prove that a defending party waived its right to arbitration, a
complainant is required to demonstrate that the defending party knew of an existing
right to arbitration but acted inconsistently with that right. Harsco at 414. “The
essential question is whether, based on the totality of the circumstances, the party
seeking arbitration has acted inconsistently with the right to arbitrate.” Id. at 413-414.
{46} Circumstances which may be considered by the court as pertinent to
the issue are: (1) any delay in the requesting party’s demand to arbitrate via a
motion to stay judicial proceedings and an order compelling arbitration; (2) the extent
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of the requesting party’s participation in the litigation prior to its filing a motion to stay
the judicial proceeding, including a determination of the status of discovery,
dispositive motions, and the trial date; (3) whether the requesting party invoked the
jurisdiction of the court by filing a counterclaim or third-party complaint without asking
for a stay of the proceedings; and (4) whether the non-requesting party has been
prejudiced by the requesting party’s inconsistent acts. Id. In reviewing a trial court's
determination that a party has waived its right to arbitrate, an appellate court must
apply an abuse of discretion standard. Peterson, supra, at *3.
{47} Appellant cites Peterson, supra, for the proposition that the Feldman
defendants waived their right to arbitration. In Peterson, the cases pended for eleven
months, during which time the defendant filed counterclaims, a jury demand, and
responses to discovery requests. The record reflects that, here, the Feldman
defendants filed motions for leave to plead before filing the motion to compel
arbitration. The motion to compel arbitration was filed early in the litigation, and
Appellant has not established that he suffered prejudice. Appellant’s second
assignment of error is overruled.
ASSIGNMENT OF ERROR NO. 4
{48} “The trial court erred in staying the case as to New York Life Insurance
and Annuity Corporation.”
{49} At least two Ohio appellate courts have recognized that a defendant
who is not a party to the arbitration agreement can obtain a stay of litigation pending
arbitration. Scotts Co. v. Warburg (November 15, 2000), 3d Dist. No. No. 14-2000-
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19; DH-KL Corporation v. Stampp Corbin (August 12, 1997), 10th Dist. No.
97APE02-206. Both Courts adopted the reasoning in Air Freight Services, Inc. v. Air
Cargo Transport, Inc. (N.D.Ill.1996), 919 F.Supp. 321. Although the Air Cargo case
was decided under the Federal Arbitration Act, the language is virtually identical to
the Ohio statute.
{50} In this case, Appellant contends that the Feldman defendants
represented that the transfer of his annuity from the Hartford to New York Life would
be accomplished within 48 hours after the execution of the paperwork and that the
value of the annuity would be frozen as of October 2, 2008. Because any potential
liability on the part of New York Life is directly related to the representations made by
the Feldman defendants, the trial court did not err in staying the entire matter until the
claims against the Feldman defendants are resolved through arbitration. Thus,
Appellant’s fourth assignment of error is overruled.
{51} In conclusion, Appellant submitted the interpretation of the arbitration
clause in this case for a determination by the trial court. The trial court’s
interpretation of the clause must be affirmed if it is supported by competent, credible
evidence. The CAI is ambiguous, and is susceptible to the interpretations offered by
both Appellant and the Feldman defendants. The trial court resolved the matter on
briefs, but permitted Appellant to offer his own affidavit in support of his opposition
brief. Because the matter involves contract interpretation alone, Appellant has failed
to demonstrate that he suffered prejudice as a result of the trial court’s refusal to
permit additional discovery or failure to hold an oral hearing on the motion to compel.
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Finally, the Feldman defendants timely filed the motion to compel in this case.
Accordingly, the judgment of the trial court staying the matter as it pertains to the
Feldman defendants and ordering the parties to submit the matter to arbitration is
affirmed. Moreover, Appellant’s claims against New York Life are dependent upon
their claims against the Feldman defendants. Hence, the judgment of the trial court
staying the proceedings against New York Life pending the outcome of the arbitration
is also affirmed.
Donofrio, J., concurs.
DeGenaro, J., concurs.
Hoppel v. Feldman
Combined Opinion