Dumas v. N. E. Auto Credit, L.L.C.

2019 Ohio 4789

• Court: Ohio Court of Appeals
• Decided: November 21, 2019
• Docket: 108151, 108388
• Status: Published

Opinion

[Cite as Dumas v. N. E. Auto Credit, L.L.C. , 2019-Ohio-4789.]

COURT OF APPEALS OF OHIO

EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA

THEODORE DUMAS, ET AL., :

Plaintiffs-Appellees, : Nos. 108151 and 108388 v. :

NORTH EAST AUTO CREDIT, L.L.C., :

Defendant-Appellant. :

JOURNAL ENTRY AND OPINION

JUDGMENT: AFFIRMED AND REMANDED RELEASED AND JOURNALIZED: November 21, 2019

Civil Appeal from the Cuyahoga County Common Pleas Court Case No. CV-17-885863

Appearances:

Frederick & Berler, L.L.C., Ronald I. Frederick, Michael Berler, and Michael L. Fine, for appellees.

The Gertsburg Law Firm Co., L.P.A., Mark M. Turner, Eugene Friedman, Maximilian Julian, and Cynthia M. Menta; and William J. Krueger, for appellant.

SEAN C. GALLAGHER, J.:

North East Auto Credit, L.L.C. (“NEAC”), appeals the denial of its

motion to stay the trial court proceedings under R.C. 2711.02(B) pending an

arbitration of the class-action allegations, which were advanced for the first time in

an amended complaint filed over a year after the initial pleading. Although the trial court erred in concluding that NEAC waived its right to assert the arbitration

defense with respect to the putative class members, it nonetheless reached the

correct result. We therefore affirm.

Theodore Dumas and Charlene Parker purchased a vehicle from

NEAC. In their purchase agreement, Dumas and Parker agreed that either party

may seek to arbitrate any disputes arising thereunder, and that if the matter was

arbitrated, the plaintiffs waived any right to join a class-action lawsuit:

1. Either you or we may choose to have any dispute between us decided by arbitration and not in court or by jury trial.

2. If a dispute is arbitrated, you will give up your right to participate as a class representative or a class member on any class claim you have against us including any right to class arbitration or any consolidation of individual arbitrations.

***

Any claim or dispute, whether in contract tort, statute or otherwise (including the interpretation and scope of the Arbitration Agreement, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to * * * [the] purchase or condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties that don’t sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not court action.

In light of the permissive nature of the arbitration clause, Dumas and Parker chose

to file a lawsuit to settle a disagreement with NEAC, which in turn, consented to

proceed on the individual claims despite preserving its affirmative defense of

arbitration. We note that according to the express terms of their agreement, Dumas

and Parker have not waived their right to participate as class representatives or members, and in addition, NEAC is not asserting any right to seek a stay pending

the arbitration of Dumas and Parker’s individual claims.

During the pretrial proceedings, Dumas and Parker requested and

were granted leave to amend their complaint, although the basis of that request is

disputed. The motion for leave was made orally during a pretrial conference, and

there is no record of the proposed amendments. The amended complaint included

allegations for similarly situated, putative class members. Dumas and Parker claim

that NEAC should have been aware of the impending class-action allegations

regardless of any confusion over the substantive basis of their request, and therefore,

NEAC consented to including the class allegations. NEAC claims that Dumas and

Parker only asked for leave to amend the complaint in order to address their

individual claims; otherwise, NEAC would have objected to the inclusion of the

class-action allegations.

Because there is no record substantiating the basis of Dumas and

Parker’s oral motion, we cannot conclude that NEAC affirmatively consented to the

amended complaint including the class allegations to waive any defenses to the

amendment of the allegations. “To establish waiver, the party seeking waiver must

demonstrate (1) that the party knew of its right to assert an argument or defense and

(2) that the totality of the circumstances establish that the party acted inconsistently

with that right.” Gembarski v. PartsSource, Inc., Slip Opinion No. 2019-Ohio-3231,

¶ 25, citing Donnell v. Parkcliffe Alzheimer’s Community, 6th Dist. Wood No. WD-

17-001, 2017-Ohio-7982, ¶ 21; and Atkinson v. Dick Masheter Leasing II, Inc., 10th Dist. Franklin No. 01AP-1016, 2002-Ohio-4299, ¶ 20. In light of the silent record,

brought on by the fact that the motion for leave to amend the pleading was made

orally with no notation in the record as to its substance, we cannot consider Dumas

and Parker’s argument that NEAC affirmatively consented to an amendment to

include the class allegations, and through that alleged consent, waived the right to

challenge the class-action allegations.

In response to the amended pleading, NEAC retained additional

counsel and immediately filed a motion to strike the class claims under Civ.R. 12(F),

or in the alternative, a motion to stay the case pending arbitration of the class claims

based on the undisputed fact that NEAC used the same arbitration language in

“virtually” all of their transactions. In the alternative to the aforementioned consent

argument, Dumas and Parker argued that NEAC waived the right to seek arbitration

of the putative class members’ claims because NEAC arguably waived its right to

compel arbitration against the individual plaintiffs. The trial court agreed, but

concluded that the court “cannot in fairness permit [NEAC’s] new counsel to be the

occasion to change the course of litigation which was filed so many months ago.” It

is not clear from the record how NEAC’s arbitration defense advanced in response

to the amended complaint, which raised the class allegations for the first time, would

have unilaterally altered the course of the litigation that had been limited to Dumas

and Parker’s individual claims. If Dumas and Parker were permitted to substantially

change the course of litigation by including class allegations over a year after the filing of the initial complaint, it would seem that any notion of fairness or due

process would dictate that NEAC be permitted to respond in kind.

Regardless, in this appeal, the only issue that we have jurisdiction to

address is the denial of the motion to stay pending arbitration of the class

allegations. It is without question that an order granting or denying a motion for

stay pending arbitration is a final appealable order. R.C. 2711.02(C). All other

issues, including the granting of leave to amend a pleading, are interlocutory in

nature and outside the scope of our current jurisdiction.1 The trial court erred in

concluding that NEAC waived the right to assert arbitration as a defense to the class

allegations based on the Ohio Supreme Court’s decision in Gembarski. We

recognize that the trial court lacked the benefit of Gembarksi, but regardless of the

timing, Gembarksi is controlling and dispositive of the issues raised in this appeal.

In Gembarksi, Slip Opinion No. 2019-Ohio-3231, the individual

plaintiff included class allegations in the initial complaint. The Ohio Supreme Court

concluded that when a case originates with an individual plaintiff who is also named

as a class representative, the defendant need not raise an arbitration defense relating

to the putative class members during the initial stages of the litigation. Id. at ¶ 3.

1 NEAC also assigned as error the trial court’s decision granting leave to amend the complaint and the trial court’s refusal to submit an App.R. 9(C) statement that would have provided a factual basis for NEAC’s argument pertaining to the granting of leave to amend the complaint. The decision to grant leave to amend the complaint is not a final appealable order subject to our jurisdiction over the arbitration issue. See, e.g., Treasurer of Cuyahoga Cty. v. Robshir Properties, L.L.C., 8th Dist. Cuyahoga Nos. 107056 and 107289, 2019-Ohio-535, ¶ 24. Accordingly, any error with respect to the App.R. 9(C) statement is moot. Arbitration of the putative class members’ claims is not available as a defense until

the class-certification stage of the proceedings. Id. This is because unnamed

putative class members are not considered parties to an action until the class is

certified under Civ.R. 23. Id. at ¶ 31. “‘Certification of the class is the critical act

which reifies the unnamed class members and, critically, renders them subject to

the court’s power.’” Id., quoting In re Checking Account Overdraft Litigation, 780

F.3d 1031, 1037 (11th Cir.2015).

Certification of the class, the point in which the unnamed putative

class members actually become parties to the action, is the first time during the

proceedings that a defendant may assert the arbitration defense against the class

members. This is because without the class being certified, there is “no justiciable

controversy between a defendant and the unnamed putative class members.” Id.,

citing Kincaid v. Erie Ins. Co., 128 Ohio St.3d 322, 2010-Ohio-6036, 944 N.E.2d

207, ¶ 17. Thus, under Gembarksi, before the certification stages, a defendant has

no duty to raise an argument that the unnamed putative class members were parties

to arbitration agreements and that the individual plaintiffs failed to satisfy Civ.R.

23(A)’s typicality and adequacy requirements based on the individual arbitration

agreements that remain enforceable. Id. at ¶ 4.

In this case, arguably, the plaintiffs were not required to arbitrate

their claims because of the permissive nature of the particular arbitration clause and

the fact that NEAC acquiesced to the trial court action. We recognize one difference

between the current case and Gembarksi. In this case, the individual plaintiffs are not subject to arbitration because of a waiver, whereas the individual plaintiff in

Gembarksi did not sign a contract containing an arbitration provision altogether.

The fact that the plaintiff in Gembarksi was not subject to an arbitration clause, as

opposed to Dumas and Parker who are, but enforcement was arguably waived, is

irrelevant. In both cases, the individual plaintiffs are not required to submit their

claims to arbitration proceedings although the putative class members potentially

are. Gembarksi is directly on point.

NEAC could not have waived any individual defenses against the

putative class members because those members are not yet parties in this action,

nor can Dumas and Parker elect to avoid arbitration on behalf of the putative class

members, who themselves have the individual right to request arbitration and

against whom NEAC can elect to seek individual arbitration. Rimedio v.

SummaCare, Inc., 9th Dist. Summit No. 21828, 2004-Ohio-4971, ¶ 14. In

accordance with Gembarksi, the trial court erred in concluding that NEAC waived

its right to assert an arbitration defense to the individual putative class members

before the class-certification stages.

This conclusion, however, may be of little value to NEAC’s current

appeal. Because the putative class members are not parties in this proceeding and

are not under the trial court’s authority, it necessarily follows that there is no

justiciable controversy upon which arbitration could be compelled or the action

stayed at this point in time. Gembarksi, Slip Opinion No. 2019-Ohio-3231, at ¶ 31.

As the Ohio Supreme Court also concluded, a defendant has no right to an arbitration defense before the class-certification stage of the proceedings because

before such time, there is no justiciable controversy between the defendant and the

putative class members. Id. at ¶ 34. Since the putative class members are not a party

to the action, staying the action before the class is certified would be premature. As

the parties concede, the arbitration clause at issue in this case does not expressly

authorize a class-wide arbitration. Shakoor v. VXI Global Solutions, Inc., 7th Dist.

Mahoning No. 16MA0038, 2017-Ohio-8018, ¶ 17. The arbitration clause refers to

the individual right to assert an arbitration against each member of the putative

class, and therefore, the putative class members and NEAC cannot be forced to

arbitrate any dispute in a class format. Id. at ¶ 18. As a result, the trial court could

not compel the matter for a class-wide or consolidated arbitration, but it also cannot

stay the matter to permit the individual arbitration with respect to the putative class

members who are not currently parties to the action. Gembarksi at ¶ 31.

Until the class-certification stage, NEAC cannot waive its right to

assert an arbitration defense against the putative class members or as a basis to

demonstrate that Dumas and Parker failed to demonstrate the typicality or

adequacy requirements of Civ.R. 23. Along those same lines, because the putative

class members are not parties to the action, NEAC cannot seek to stay the action

pending arbitration of what is currently considered a nonjusticiable controversy

between it and the putative class members. Id. Any stay pending such arbitration

would be premature at this point in the litigation. Although the trial court’s reason for denying the motion to stay

pending arbitration was erroneous in light of the later-issued decision in Gembarksi,

the correct result was nonetheless reached. Nothing in our decision should be

interpreted to mean that NEAC cannot raise the affirmative defense of arbitration

against the putative class members at the appropriate time. Our sole conclusion is

that the trial court reached the correct result in denying the motion to stay pending

arbitration because consideration of the arbitrability of the unnamed, putative class

members’ claims is premature at this point in time. We affirm the decision denying

NEAC’s motion to stay the proceeding pending the arbitration. The matter is

remanded for further proceedings.

It is ordered that appellant and appellees share costs herein taxed.

The court finds there were reasonable grounds for this appeal.

It is ordered that a special mandate be sent to said 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, P.J., and LARRY A. JONES, SR., J., CONCUR