Feed Fat Co., L.L.C. v. Custom Agri Sys., Inc.

2025 Ohio 897

• Court: Ohio Court of Appeals
• Decided: March 14, 2025
• Docket: 24-COA-031
• Status: Published

Opinion

[Cite as Feed Fat Co., L.L.C. v. Custom Agri Sys., Inc., 2025-Ohio-897.]

COURT OF APPEALS ASHLAND COUNTY, OHIO FIFTH APPELLATE DISTRICT

FEED FAT COMPANY, LLC : d/b/a ORIGO, : JUDGES: : Hon. William B. Hoffman, P.J. Plaintiff - Appellee : Hon. Robert G. Montgomery, J. : Hon. Kevin W. Popham, J. -vs- : : CUSTOM AGRI SYSTEMS, INC., : Case No. 24-COA-031 : Defendant - Appellant : OPINION

CHARACTER OF PROCEEDING: Appeal from the Ashland County Court of Common Pleas, Case No. 24-CIV-038

JUDGMENT: Reversed

DATE OF JUDGMENT: March 14, 2025

APPEARANCES:

For Defendant-Appellant For Plaintiff-Appellee

DAVID R. HUDSON ERIC T. MICHENER CLINTON J. WASSERMAN GAGE T. RIGHTER Reminger Co., LPA Critchfield, Critchfield & One SeaGate, Suite 1600 Johnston, Ltd. Toledo, OH 43604 225 North Market Street P.O. Box 599 Wooster, OH 44691 Montgomery, J.

STATEMENT OF THE FACTS AND THE CASE

{¶1} On January 2, 2018, MBH Acres, LLC (“MBH”) and Custom Agri Systems,

Inc. (“CAS”) executed a Written Estimate/Contract (“Contract”) for the construction of a

commercial agricultural facility located in Ashland, Ohio (“the Project”). A Supplement to

Construction Contract (“Supplement”) was executed on January 3, 2018. (The Contract

and Supplement will be collectively referred to as the “Agreement”.) At the time of the

agreement, MBH did not provide CAS with complete drawings, plans or specifications for

the Project. Michael Hippert, who served as the CEO of MBH and the general contractor

for the Project, provided an explanation to CAS of the Project. Michael Hippert is also the

CEO of Origo. Origo is the entity that would ultimately be running the business upon

completion of the Project.

{¶2} CAS began work on the Project on March 23, 2018. The Agreement

originally set a completion date of June 30, 2018. On April 2, 2018, CAS advised MBH

that the scope of the Project far exceeded the Agreement and the June 20, 2018,

completion date was not feasible. MBH and CAS did not formalize a new agreement but

utilized fourteen (14) change orders to encompass the work requested and the work that

was performed outside the scope of the Project. The Project and work performed outside

the Project was completed on or about June 6, 2019.

{¶3} Origo filed a complaint in the Ashland County Common Pleas Court

asserting breach of contract against CAS as an alleged third-party beneficiary to the

Agreement between MBH and CAS. Origo is seeking over $2 million in “lost profits”. {¶4} MBH, CAS, and Origo agreed to arbitrate the dispute pursuant to the terms

of the Agreement. CAS moved for summary judgment arguing that Origo was not entitled

to damages under the Agreement because Origo is a third-party beneficiary. Origo argued

that there is a direct conflict between Section 7 of Contract and Section 7 of the

Supplement. Origo argued that pursuant to Section 10 of the Supplement, Section 7 of

the Supplement supersedes Section 7 of the Contract.

{¶5} The three provisions of the Agreement at issue are:

Section 7 of the Contract:

In no event shall contractor and its subcontractors be liable to customer

or another party for incidental, special, exemplary, punitive or

consequential damages, including loss of income or profits, lost revenues

or any economic loss, whether such customer or party has been advised

of the possibility of such damage, and whether any claim for recovery is

based on the theories of contract, warranty, tort (including negligence or

strict liability) or otherwise. In no event shall contractor’s and its

subcontractors’ aggregate liability to customer and any third party in

connection with the contract, for all other damages, exceed the project

total contract price. The remedies stated in this contract are exclusive.

Section 7 of the Supplement:

Indemnification. Contractor hereby releases Customer, its members,

managers, partners, affiliates, employees, managers, representatives,

agents, successors, and assigns, and agrees to defend, indemnify and

hold harmless Customer, its members, managers, partners, affiliates, employees, representatives, agents and successors, and assigns, for and

against all claims, causes of actions willful misconduct or gross

negligence. Without limiting the generality, demands, judicial and

administrative proceedings, losses, liabilities, damages, costs and

expenses, *** Notwithstanding the foregoing, this provision shall not apply

to such claims that are caused by Customer’s willful misconduct or gross

negligence. Without limiting the generality of the foregoing, Contractor

further agrees to indemnify Customer, its members, managers, partners,

affiliates, employees, representatives, agents and successors, and

assigns, against and hold and save Customer, its members, managers,

partners, successors, and assigns, against and hold and save Customer,

its members, managers, partners, affiliates, employees, managers,

representatives, agents, successors, and assigns harmless from any and

all claims, causes of action, fines, costs, expenses **** arising or resulting

from, in conjunction with, or due to: (i) any act or omission of Contractor,

its officers, employees, contractors, or servants which results in (A) injury

to or death of person, including employees of Contractor, (B) damage to

any property, (C) defects of materials or workmanship required under the

Construction Contract ***; or (D) lack of full and strict compliance by

Contractor’s employees, agents, materialmen and subcontractors with all

safety, civil rights and equal employment opportunity ****; or (iii) [sic]

breach of any covenant or agreement contained in the Construction

Contract or this Supplement or misrepresentation of any material fact or omission concerning the Construction Contract, this Supplement, or the

Project.

Section 10 of the Supplement:

Construction Contract. Notwithstanding any term or condition to the

contrary contained in the Construction Contract or otherwise, any and all

terms and conditions set forth in this Supplement shall (a) supplement the

Construction Contract to the extent any term or condition set forth here

that is not set forth in the Construction Contract; (b) override, amend,

revise, change, modify, replace, and restate any and all terms and or

conditions contained in the Construction Contract that conflicts, in any

respect, with any term or condition contained herein and (c) be

incorporated into and made a part of the Construction Contract.

{¶6} The arbitrator granted summary judgment in favor of CAS on November 29,

2023, finding that the Agreement between MBH and CAS was unambiguous and

precluded claims by an alleged third-party beneficiary, including Origo. The arbitrator

specifically found that there was no genuine issue of material fact pertaining to Origo’s

status as a third-party beneficiary. (Order as to Respondent CAS’s Motion for Summary

Judgment, p.4)

{¶7} Origo filed a Motion for Reconsideration. Upon reconsideration of his

decision, the arbitrator stated that he reviewed his notes, the original ruling and the recent

briefs submitted by the parties, but his ruling is unchanged. The arbitrator issued an Order

as to [Origo’s] Motion for Reconsideration holding that “the reason for the Arbitrator’s

original decision is the Arbitrator concluded that the Indemnification provision in the Supplement did not conflict with Section 7 of the Agreement”. (Order as to Claimant’s

Motion for Reconsideration pg.1)

{¶8} Origo filed a Motion to Vacate Arbitrator’s Award Pursuant to R.C. 2711.10

in the Ashland County Court of Common Pleas on February 28, 2024. The case came

before a magistrate who found that the arbitrator’s interpretation of the Agreement did not

conflict with its’ express terms and the arbitrator’s decision can be rationally derived from

the terms of the Agreement.

{¶9} Origo timely filed Objections to the Magistrate’s Decision. The trial court

overruled the magistrate’s decision finding that the issue before the court was whether

the Agreement expressly provides Plaintiff (Origo) with an accrued right to indemnification

once it suffers a loss thereby allowing Plaintiff (Origo) to directly pursue a cause of action

against Defendant (CAS) and issued a Judgment Entry on August 13, 2024 that granted

Origo’s Motion to Vacate the Arbitrator’s Award.

{¶10} Appellant (CAS) appeals the Judgment Entry filed August 13, 2024 in the

Ashland County Common Pleas Court and asserts the following assignments of error:

{¶11} “THE TRIAL COURT ABUSED ITS AUTHORITY IN VACATING THE ARBITRATOR’S AWARD BASED ON FINDING AN “EXPRESS CONFLICT” IN THE ARBITRATOR’S INTERPRETATION OF THE AGREEMENT BETWEEN MBH ACRES, LLC AND DEFENDANT-APPELLANT CUSTOM AGRI SYSTEM, INC.

{¶12} THE TRIAL COURT ERRED IN DETERMINING THAT SECTION 7 OF THE SUPPLEMENT EXPRESSLY CONFLICTS WITH SECTION 7 OF THE CONTRACT, IN GRANTING PLAINTIFF-APPELLEE FEED FAT COMPANY D/B/A ORIGO’S MOTION TO VACATE ARBITRATOR’S AWARD PURSUANT TO R.C. 2711.10.

{¶13} THE TRIAL COURT ERRED IN DETERMINING THAT THE GENERAL INDEMNIFICATION PROVISION ALLOWS FOR A DIRECT ACTION BROUGHT BY PLAINTIFF-APPELLEE FEED FAT COMPANY, LLC. A PURPORTED THIRD-PARTY BENEFICIARY ASSERTING A “LOST PROFIT” CLAIM, DESPITE THE EXPRESS PRECLUSION IN THE AGREEMENT BETWEEN MBH ACRES, LLC AND CUSTOM AGRI SYSTEMS, INC.” STANDARD OF REVIEW

{¶14} Pursuant to R.C. 2711.15, “An appeal may be taken from an order

confirming, modifying, correcting, or vacating an award made in an arbitration proceeding

or from judgment entered upon an award.” An appellate court’s review under this statute

is confined to the trial court’s order and does not include a review of the original arbitration.

Warren Educ. Assn, 18 Ohio St. 3d at 173-174, citing Lockart v Am. Res. Ins. Co., 2 Ohio

App.3d 99, 101 (8th Dist.1981).

{¶15} “When reviewing a decision of a common pleas court * * * vacating * * * an

arbitration award, an appellate court should accept findings of fact that are not clearly

erroneous but decide questions of law de novo”. Portage Cty. Bd. Of Developmental

Disabilities, 2018-Ohio-1590, syllabus. Whether an arbitrator has exceeded his or her

authority is a question of law. Id. at 25. An appellate court’s de novo review of the

existence of statutory grounds under R.C. 2711.10(D) is not a de novo review of the merits

of the dispute as presented to the arbitrator. Zeck v. Smith Custom Homes & Design,

LLC, 2022-Ohio-622, 12 (8th Dist.)

{¶16} A trial court can only vacate an arbitration award under certain

circumstances. Subsection (D) of R.C. 2711.10 states that a court shall vacate an award

if the “arbitrators exceed their powers, or so imperfectly executed them that a mutual, final

and definite award upon the subject matter submitted was not made”.

ANALYSIS

{¶17} Judicial deference in arbitration cases is based on recognition that the

parties have agreed to have their dispute settled by an arbitrator rather than the courts

and “to accept the arbitrator’s view of the facts and the meaning of the contract regardless of the outcome of the arbitration”. United Paperworkers Internatl. Union v. Misco, Inc.,

484 U.S. 29, 37-38. (1987).

{¶18} The trial court may not substitute its judgment for that of the arbitrator except

in very limited circumstances. A reviewing court has a very limited role in reviewing a

binding arbitration award. Madison Local School Dist. Bd. Of Edn. V OAPSE/AFSCME

Local 4, 2009-Ohio-1315, paragraph 9 (11th Dist.) The arbitrator is the final judge of both

the law and the facts, and a court may not substitute its judgment for that of the arbitrator.

Id. The Madison court went on to say that “when a provision in an arbitration agreement

is subject to more than one reasonable interpretation, an arbitrator’s interpretation, rather

than that of the reviewing court, governs the rights of the parties”.

{¶19} The trial court and the arbitrator interpreted the Agreement differently. The

trial court found that “Section 7 of the Supplement to Construction Contract conflicts with

Section 7 of the original January 2, 2018 agreement. Page 5 of Judgment Entry. The

arbitrator found that “the language of the Contract was not ambiguous.” Arbitrator’s

November 29, 2023 Order, page 4. The arbitrator went on to state that “Respondent is

entitled to judgment as a matter of law and that there is no genuine issue of material fact

pertaining to Origo’s status as a third-party beneficiary to the Contract – such status is

precluded by the unambiguous language of the Contract”. Id. In applying the language of

the Madison case, the Agreement in this case is subject to two different interpretations

and the trial court, as the reviewing court, should have accepted the arbitrator’s

interpretation of the Agreement.

{¶20} A trial court shall vacate an arbitration award under certain circumstances.

R.C. 2711.10(D) states that a court shall vacate an award if the “arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon

the subject matter submitted was not made”.

{¶21} Looking at Appellant’s first assignment of error, the court finds that in the

case at hand, the trial court found that, “In deciding the Plaintiff’s Motion to Vacate

Arbitrator’s Award, the Court’s role is to determine whether the Arbitrator’s decision

conflicts with the express terms of the agreement or whether the award is without rational

support or cannot be rationally derived from the terms of the agreement”. Citing Cedar

Fair, L.P. v Falfas, 140 Ohio St. 3d 447, 449 (2014) (Pg 3 of JE). The trial court relied

upon this standard of review in finding that “the Arbitrator’s November 29, 2023 decision

conflicts with the express terms of the agreement.” Judgment Entry p.5.

{¶22} The trial court did not make a finding that the Arbitrator exceeded his powers

or that he imperfectly executed them. The trial court did not find the arbitrator’s award

was not rationally supported. The arbitrator stated in his decision that he had reviewed

the briefs, depositions, and exhibits before issuing his judgment. Arbitrator’s January 8,

2024 decision. The trial court vacated the arbitrator’s award solely on its interpretation

that “the award conflicted with the express terms of the Agreement”. Judgment Entry p.5.

The trial court substituted its’ interpretation of the Agreement for that of the arbitrator. In

doing so, the trial court did not give judicial deference to the arbitrator’s award and

erroneously vacated the award.

{¶23} In analyzing Appellant’s second assignment of error, the trial court reviewed

Section 7 of the Contract and Section 7 of the Supplement and found that these two

sections conflicted. The trial court went on to find that the conflict between these two

sections warranted vacating the arbitrator’s award. Judgment Entry p.5. {¶24} The trial court’s role in determining whether an arbitration award should be

vacated is set out in R.C. 2711.10 which states:

In any of the following cases, the court of common pleas shall make an

order vacating the award upon the application of any party to the

arbitration if:

(D) The arbitrators exceeded their powers, or so imperfectly executed

them that a mutual, final and definite award upon the subject matter

submitted was not made.

{¶25} The trial court recognized that the arbitrator found that Section 7 of the

Contract and Section 7 of the Supplement speak to legally distinct rights. The trial court

also recognized that the magistrate supported the arbitrator’s award. However, the trial

court interpreted the Agreement to say that Section 7 of the Supplement conflicts with

Section 7 of the Contract. The trial court’s August 13, 2024 Judgment Entry is the first

time that a reviewing body determined that the two sections were in conflict. The trial

court in this case substituted its’ judgment for that of the arbitrator and came to a different

conclusion. “The fact that the common pleas court may have arrived at a different

conclusion than did the arbitrator is immaterial”. Motor Wheel Corp. V. Goodyear Tire &

Rubber Co., 98 Ohio App.3d 45, 52, 647 N.E. 2d 844 (8 th Dist. 1994). Finding a direct

conflict between Section 7 of the contract and Section 7 of the Agreement is not a basis

for the trial court to vacate the arbitrator’s award pursuant R.C. 2711.10(D).

{¶26} In analyzing Appellant’s third assignment of error, the trial court erred in it’s

findings regarding the issue of indemnification. The trial court substituted it’s judgment for

that of the arbitrator and should not have made a finding regarding indemnification. The issue at hand is not whether the trial court would have arrived at a different conclusion

when reviewing an arbitrator’s decision. The trial court shall only vacate an arbitrator’s

award pursuant to R.C. 2711.10.

CONCLUSION

{¶27} Based on the foregoing, Appellant’s first, second and third assignments of

error are sustained, and the decision of the trial court is reversed.

By: Montgomery, J.

Hoffman, P.J. and

Popham, J. concur.