Bachrach v. Cornwell Quality Tool Co.

2011 Ohio 2498
Ohio Court of Appeals·Decided May 25, 2011·No. 25444·Published·Cited by 4 cases

Opinion

STATE OF OHIO ) IN THE COURT OF APPEALS )ss: NINTH JUDICIAL DISTRICT COUNTY OF SUMMIT )

DAVID BACHRACH, et al. C.A. No. 25444 Appellees

v. APPEAL FROM JUDGMENT ENTERED IN THE

CORNWELL QUALITY TOOL CO. COURT OF COMMON PLEAS COUNTY OF SUMMIT, OHIO

Appellant CASE No. CV 2010 01 0543

DECISION AND JOURNAL ENTRY Dated: May 25, 2011

DICKINSON, Judge.

INTRODUCTION

{¶1} Eight former Cornwell tool dealers, including David Bachrach, sued Cornwell Quality Tools Company for compensatory and punitive damages, alleging common law deceptive trade practices, violation of Ohio’s Business Opportunity Law, fraud, fraud in the inducement, consumer fraud, negligent misrepresentation, and breach of fiduciary duty. The former franchisees brought class action claims in Summit County Common Pleas Court as representatives of a proposed class of nearly 500. In response, Cornwell filed a motion to stay pending arbitration. The trial court denied the stay and scheduled a pretrial. Cornwell appealed, arguing that the trial court incorrectly denied the stay because the question should have been referred to an arbitrator, that decisions of the United States Supreme Court and Ohio Supreme Court require arbitration under the parties’ contract, and that the trial court incorrectly ruled on

the motion to stay without gathering additional evidence. This Court reverses and remands because the plaintiffs’ claims fall within the scope of the parties’ arbitration agreement.

BACKGROUND

{¶2} In their complaint, the plaintiffs alleged that all proposed class members had entered into similar franchising agreements with Cornwell to purchase its tools and sell them to customers. There is no dispute that the relevant agreements contain identical arbitration provisions: “Any claim or controversy in connection with, arising out of, or relating to the Agreement between Dealer and Cornwell shall be settled by binding arbitration in accordance with the rules pertaining to commercial dispute arbitration then existing with the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction. Such arbitration shall take place in such locations as the parties mutually agree, and in the absence of such agreement, in Akron, Ohio. The laws applicable to the arbitration procedure shall be the laws of the State of Ohio. The award of the arbitrator(s) shall be the sole remedy between the parties regarding any claims, counterclaims, issues presented or pled to the arbitrator(s).”

{¶3} In February 2010, Cornwell filed a motion to stay proceedings pending arbitration. Mr. Bachrach and the other plaintiffs responded in opposition and suggested that a case then pending in the United States Supreme Court would likely shape the trial court’s decision. Cornwell agreed with the plaintiffs on that point, and the trial court stayed proceedings pending a ruling in Stolt-Nielsen S.A. v. AnimalFeeds International Corporation, ___ U.S. ___, 130 S. Ct. 1758 (2010). After that decision was released on April 27, 2010, the trial court reactivated this matter and allowed the parties to brief the impact of the United State Supreme Court’s decision on the issues before it. The parties agreed that Stolt-Nielsen should control the

trial court’s ruling, but disagreed on the proper interpretation of the decision. Based on its review of the record, the briefing, and the Stolt-Nielsen decision, the trial court denied Cornwell’s motion for a stay and scheduled a pre-trial hearing.

APPLICABLE LAW

{¶4} The Federal Arbitration Act, codified at chapter nine of the United States Code, “supplies not simply a procedural framework applicable in federal courts; it also calls for the application, in state as well as federal courts, of federal substantive law regarding arbitration.” Preston v. Ferrer, 552 U.S. 346, 349 (2008) (citing Southland Corp. v. Keating, 465 U.S. 1, 16 (1984)). “In creating a substantive rule applicable in state as well as federal courts, Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements.” Southland Corp., 465 U.S. at 16. The Ohio Arbitration Act is substantially similar to the Federal Arbitration Act, and the policy of both is to encourage the use of arbitration. Henderson v. Lawyers Title Ins. Corp., 108 Ohio St. 3d 265, 2006-Ohio-906, at ¶48 (Lanzinger, J., dissenting) (citing R.C. 2711.01 et seq.).

WHO DECIDES?

{¶5} Cornwell’s second assignment of error is that the trial court incorrectly failed to grant its stay pending arbitration to allow an arbitrator to decide in the first instance whether the parties agreed to class arbitration. In the absence of a specific agreement to the contrary, “the question of arbitrability – whether a[n] . . . agreement creates a duty for the parties to arbitrate the particular grievance – is undeniably an issue for judicial determination.” Acad. of Med. of Cincinnati v. Aetna Health Inc., 108 Ohio St. 3d 185, 2006-Ohio-657, at ¶12 (quoting AT & T Techs. Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649 (1986)). Cornwell has not argued that the parties in this case specifically agreed to allow the arbitrator to determine arbitrability in

the first instance. Instead, it has made various arguments aimed at convincing this Court that arbitrability is not the relevant question.

{¶6} Cornwell claims to have cited “strong, binding precedent in support of its position that the issue of class arbitrability must be decided initially by an arbitrator.” In support of that statement, it has cited Greentree Financial Corporation v. Bazzle, 539 U.S. 444 (2003), and City of Fostoria v. Ohio Patrolmen’s Benevolent Association, 106 Ohio St. 3d 194, 2005-Ohio-4558. Neither case, however, supports Cornwell’s position.

{¶7} In Bazzle, the United States Supreme Court considered contracts between a commercial lender and its customers, each of which contained an arbitration clause providing for arbitration of all contract-related disputes. The lender argued that the arbitration clause forbade class arbitration, while the customers argued that the contract was silent on that issue. The Supreme Court remanded the case for an initial determination of that question by an arbitrator. Greentree Fin. Corp. v. Bazzle, 539 U.S. 444, 447 (2003). A plurality determined that the Supreme Court could not decide whether the arbitration clause allowed class action arbitration, at least partially because that was something the arbitrator should decide in the first instance. Id. The plurality decision was delivered by Justice Breyer and joined by three others. Justice Stevens concurred in the judgment only. All other Justices dissented. Therefore, there was no majority decision in Bazzle. In fact, the United States Supreme Court, in Stolt-Nielsen, commented that “Justice Stevens concurred in the judgment [in Bazzle] . . . because otherwise there would have been ‘no controlling judgment of the Court,’ but he did not endorse the plurality’s rationale.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., ___ U.S. ___, 130 S. Ct. 1758, 1772 (2010) (quoting Bazzle, 539 U.S. at 455) (Stevens, J., concurring in the judgment and dissenting in part).

{¶8} Cornwell has argued that, although the rationale of Bazzle is not controlling, “its judgment remanding for initial consideration of class arbitration by the arbitrator remains binding precedent[.]” It has pointed out that in Stolt-Nielsen the Supreme Court “found that there was no need to revisit the [Bazzle] question of who should [initially determine whether the contract required class arbitration] . . . and it declined to do so.” Cornwell has argued that the Supreme Court’s comments about Bazzle in Stolt-Nielsen support its position that this Court should rely on Bazzle as “binding precedent,” at least on that question.

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Bachrach v. Cornwell Quality Tool Co., 2011 Ohio 2498 (Ohio Ct. App. 2011).

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