Hicks v. Cadle Co.

2014 Ohio 872

• Court: Ohio Court of Appeals
• Decided: March 10, 2014
• Docket: 2013-T-0017
• Status: Published

Opinion

[Cite as Hicks v. Cadle Co., 2014-Ohio-872.]

IN THE COURT OF APPEALS

ELEVENTH APPELLATE DISTRICT

TRUMBULL COUNTY, OHIO

KERRY R. HICKS, : OPINION

Plaintiff-Appellant, : CASE NO. 2013-T-0017 - vs - :

THE CADLE COMPANY, et al., :

Defendants-Appellees, :

THE HOME SAVINGS AND LOAN : COMPANY OF YOUNGSTOWN, OHIO, : Intervening Defendant.

Civil Appeal from the Trumbull County Court of Common Pleas. Case No. 2011 CV 01148.

Judgment: Affirmed.

Kris J. Kostolansky, Lewis Roca Rothgerber, LLP, 1200 Seventeenth Street, Suite 3000, Denver, CO 80202; Christopher S. Williams, Ronald M. McMillan, and John J. Eklund, Calfee, Halter & Griswold, LLP, The Calfee Building, 1405 East Sixth Street, Cleveland, OH 44114 (For Plaintiff-Appellant).

Victor O. Buente, Jr., Cadle Company, 100 North Center Street, Newton Falls, OH 44444-1321; F. Dean Armstrong, Armstrong Law Firm, 1324 Dartmouth Road, Flossmoor, IL 60422 (For Defendants-Appellees).

TIMOTHY P. CANNON, P.J.

{¶1} Appellant, Kerry R. Hicks, appeals the February 22, 2013 judgment of the

Trumbull County Court of Common Pleas denying his motion to compel arbitration with regard to the amended counterclaims filed by appellees, The Cadle Company (“TCC”),

Daniel C. Cadle (“Cadle”), and United Joint Venture Limited Partnership (“United”).

Cadle is the former president and current owner and director of TCC, a debt collection

company. TCC is the only general partner and registered agent of United, which is also

a debt collection company. Based on the following, we affirm the judgment of the trial

court.

{¶2} The counterclaims at issue alleged that appellant violated Ohio’s Pattern

of Corrupt Activities Act (R.C. 2923.31, et seq.), intentionally inflicted emotional distress,

and tortiously interfered with the business relations of appellees and The Home Savings

and Loan Company of Youngstown, Ohio (“Home Savings”).

{¶3} Litigation between the parties began in September 2003, when Buckeye

Retirement Co., LLC (“Buckeye”)1 sued appellant and his business partner, Mr. Jaeckle,

in federal district court in Tennessee seeking to collect the outstanding debt on a

promissory note. The various claims included allegations of tortious conduct on both

sides. A history of litigation between the parties is detailed in three opinions of the

United States Court of Appeals for the Tenth Circuit: Hicks v. Bank of Am. N.A. (“Hicks

I”), 218 Fed.Appx. 739 (10th Cir.2007); Hicks v. Cadle Co. (“Hicks II”), 355 Fed.Appx.

186 (10th Cir.2009); and Hicks v. Cadle (“Hicks III”), 436 Fed.Appx. 874 (10th Cir.2011).

{¶4} Appellant and others obtained a loan from Bank of America (“BOA”) in

1999; appellant was one of the signators on the note and two renewed versions thereof.

However, appellant contended he was not liable on the balance of $1,000,000.00

pursuant to an oral, collateral agreement with BOA—the amount that was outstanding

1. Buckeye is another debt collection company and an alter ego of TCC and Cadle. Although Buckeye was involved at the beginning of the dispute between the parties, it is not a party to this appeal.

2 when Buckeye purchased the note from BOA in 2002. The note contains a provision

requiring binding arbitration of:

Any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to this instrument, agreement or document or any related instruments, agreements or documents, including any claim based on or arising from an alleged tort[.]

{¶5} The note also contained a venue provision that any litigation would take

place in Tennessee. In proceedings before the Tenth Circuit, the parties agreed that

Tennessee law governed.

{¶6} Shortly after Buckeye purchased the note, TCC, acting on behalf of

Buckeye, attempted to collect the debt from appellant in an action filed in Tennessee.

The debt collection activities of TCC and Buckeye are intertwined. TCC employees

were, at times, also Buckeye employees. TCC employees, including Cadle, made

collection calls and participated in collection-related correspondence in Buckeye’s

name. TCC computer systems and phones were also used in Buckeye’s name. Three

separate arbitrations in Colorado followed Buckeye’s efforts to collect from appellant.

Appellant was successful in all three arbitrations and eventually obtained a large award

against Cadle. The amount due on the note itself, if any, was assigned back to BOA in

2003.

{¶7} This Ohio action between appellant and appellees began in May 2011

when appellant sought declaratory judgment and injunctive relief to prevent appellees

from transferring assets belonging to Cadle, a principle of TCC and United. Cadle,

TCC, and United were in negotiations with Home Savings to refinance an outstanding

debt. Appellant was apparently concerned that funds from Cadle’s IRA account would

3 be used to pay Home Savings and would therefore not be available to satisfy the

arbitration award. Appellant registered his arbitration award in the United States District

Court for the Northern District of Ohio and brought suit in Trumbull County seeking to

enforce the award. A temporary restraining order was issued, and the matter was set

for hearing on appellant’s request for a preliminary injunction. Appellees then filed an

answer, counterclaims, and a jury demand.

{¶8} At a June 28, 2011 hearing, appellant’s request for a preliminary injunction

was denied, and the temporary restraining order was dissolved. Thereafter, the

arbitration award was paid, and appellant voluntarily dismissed his claims. With regard

to appellees’ counterclaims, appellant filed a motion to stay litigation and compel

arbitration or, in the alternative, to dismiss for failure to state a claim. While the motion

was pending, appellees filed amended counterclaims. Cadle alleged violations of

Ohio’s Pattern of Corrupt Activities Act (R.C. 2923.31, et seq.) and intentional infliction

of emotional distress; furthermore, appellees together alleged tortious interference with

business relationships. Appellees’ amended counterclaims cover conduct alleged to

have occurred between 2007 and 2011. The trial court denied appellant’s motion to

compel arbitration finding that appellees’ counterclaims were not subject to the note’s

arbitration provision.

{¶9} Appellant appealed this order and asserts a single assignment of error:

{¶10} “Whether the Trial Court erred in denying Mr. Hicks’ Motion to Compel by

finding that the Amended Counterclaims do not ‘arise out of’ or ‘relate to’ the Note and

that Defendants are not bound by the Note’s broad arbitration provision.”

{¶11} Under this assignment, appellant frames two issues for our determination:

4 [1] Whether Defendants’ Amended Counterclaims, which seek adjudication of factual allegations relating to the Note that were decided by or occurred in arbitration, “arise out of” or “relate to” the Note.

[2] Whether Defendants are bound by the Note’s broad arbitration provision where TCC is an assignee of the Note and all prior courts and arbitration tribunals have held that Mr. Cadle and his agents and alter ego entities are so bound.

{¶12} A trial court’s ruling denying a motion to compel arbitration is a final,

appealable order. R.C. 2711.02(C); EMCC Inv. Ventures, LLC v. Rowe, 2012-Ohio-

4462, 11th Dist. Portage No. 2011-P-0053, 2012-Ohio-4462, ¶17. Generally, this court

reviews a trial court’s ruling on a motion to compel arbitration for an abuse of discretion.

Id. at ¶18. However, “this court reviews de novo a trial court’s legal conclusion as to

whether a party is contractually bound by an arbitration clause.” Liberty Credit Servs.

Assignee of or Successor in Interest to Capital One v. Yonker, 11th Dist. Portage No.

2012-P-0096, 2013-Ohio-3976, ¶12. When deciding motions to compel arbitration, we

look to the scope of the arbitration clause to determine whether the parties actually

agreed to arbitrate the issue. Taylor v. Ernst & Young, L.L.P., 130 Ohio St.3d 411, 417

(2011).

{¶13} We recognize a presumption in favor of arbitration when claims between

the parties to a contract fall within the scope of an arbitration clause. Id. Under both

Ohio and Federal law, whether a party may be compelled into arbitration is a matter of

contract. Id. at 416-417. Because the arbiter derives his power from the contractual

consent of the parties, a party cannot be compelled to arbitrate a dispute that the party

never agreed to submit to arbitration. Id. at 417.

To determine whether the claims asserted in the complaint fall within the scope of an arbitration clause, the Court must ‘classify

5 the particular clause as either broad or narrow.’ An arbitration clause that contains the phrase ‘any claim or controversy arising out of or relating to the agreement’ is considered the paradigm of a broad clause.

(Citations omitted). Academy of Medicine of Cincinnati v. Aetna Health, Inc., 108 Ohio

St.3d 185, 188 (2006). Even a broad arbitration clause, however, does not render all

claims subject to arbitration. Id. at 189.

{¶14} The Ohio Supreme Court has held that whether a cause of action is within

the scope of an arbitration agreement may be determined by applying the federal

standard found in Fazio v. Lehman Bros., Inc., 340 F.3d 386 (6th Cir.2003). Academy

of Medicine, supra, 188 (“[A] state court may rely on a federal standard in applying Ohio

law on the issue of arbitrability. However, that standard must be consistent with Ohio

law and must reflect a correct statement of the applicable federal jurisprudence. The

appellate court’s reliance on Fazio is appropriate in both regards.”). Fazio held that “[a]

proper method of analysis here is to ask if an action could be maintained without

reference to the contract or relationship at issue. If it could, it is likely outside the scope

of the arbitration agreement.” Fazio at 395. Fazio further stated: “Even real torts can

be covered by arbitration clauses ‘[i]f the allegations underlying the claims “touch

matters” covered by the [agreement].’” Id.

{¶15} In Fazio, the Sixth Circuit found that claims relating to the theft of

investors’ assets by their broker could not be maintained without reference to the

account agreements, which contained the arbitration clause. Id.

[I]t is evident that the fraudulent activities were a violation of the account agreements and arose out of activities contemplated by those agreements—the sale and purchase of securities and the management of accounts. The lawsuit by necessity must describe why [the defendant] was in control of the plaintiffs’ money and what

6 the brokerage houses’ obligations were. The plaintiffs therefore cannot maintain their action without reference to the account agreements[.]

Id. The Fazio Test “allows courts to make determinations of arbitrability based upon the

factual allegations in the complaint instead of on the legal theories presented. It also

establishes that the existence of a contract between the parties does not mean that

every dispute between the parties is arbitrable.” Academy of Medicine, supra, 191.

{¶16} Furthermore, when the contractual agreement containing the arbitration

provision has terminated prior to the dispute, the grievance is said to

arise under the contract only where it involves facts and occurrences that arose before expiration, where an action taken after expiration infringes a right that accrued or vested under the agreement, or where, under normal principles of contract interpretation, the disputed contractual right survives expiration of the remainder of the agreement.

Litton Fin. Printing Div. v. NLRB, 501 U.S. 190, 205-206 (1991).

{¶17} Applying these principles, appellees’ claims can be maintained without

reference to the note; the conduct of which appellees complain occurred, if at all, after

the note was assigned back to BOA in 2003. Appellant was formally relieved of any

possibility of liability on the note in 2004, when BOA assigned the note to a third-party,

acknowledging appellant’s nonliability. Although Cadle controls TCC, United, and

Buckeye, along with many other debt collection entities, he did not sign the note. The

assignments indicate that Buckeye purchased the note from BOA and that Buckeye

sold it back to BOA. Thus, at the very latest, any contractual relationship between

appellant and appellees based on the note terminated in 2004. These facts are

distinguishable from Fazio, where the conduct complained of occurred while a

contractual broker-client relationship was in force. Furthermore, no action alleged

7 “infringe[s] on a right that accrued or vested under” the promissory note, nor is there a

“disputed contractual right that survives” the note’s expiration.

{¶18} As the trial court held, “the [amended] counterclaims all involved alleged

tortious activities by [appellant] having no relationship to any particular term of the note

or any right or obligation of any party under the note.” Cadle made the following

allegations: (1) appellant falsely accused Cadle of stalking appellant’s wife and

daughter; (2) appellant lured Cadle to a public meeting of company stockholders and

there embarrassed him by having him detained and removed from the premises by

police on the basis of an ex parte civil protection order appellant had obtained without

Cadle’s knowledge; (3) appellant caused to be distributed a false report indicating that

Cadle had filed for bankruptcy; (4) appellant caused the distribution of a false report that

Cadle was a threat to the physical safety of appellant’s family and had personality traits

consistent with a killer; (5) appellant filed duplicative litigation against appellees in

Cadle’s hometown in order to embarrass Cadle; (6) appellant fraudulently obtained a

temporary restraining order, which interfered with appellees’ business relations by

enjoining the refinancing of a longstanding loan; (7) appellant threatened an IRS

investigation of Cadle’s daughter if the counterclaims were not dismissed. All of these

events are alleged to have occurred after termination of the relationship between the

parties liable on the note. Thus, the dispute at issue is not “related” to the note.

{¶19} On the basis of these allegations, appellees filed claims for intentional

infliction of emotional distress, tortious interference with business relations, and

engaging in a pattern of corrupt activity. None of these claims require reference to the

note, as none seek to enforce any right or obligation or derive any benefit from the note.

8 This also contrasts with the situation in Fazio, where the claims involved theft and

misuse of money entrusted to the broker. The relationship was based on account

agreements that contained the arbitration clause. These very account agreements were

allegedly breached by the broker’s misconduct.

{¶20} Appellant’s reliance on Alexander v. Wells Fargo Fin. Ohio 1, Inc., 122

Ohio St.3d 341 (2009), is also misplaced. In Alexander, the Ohio Supreme Court

consolidated two cases involving statutory rights. Id. at 342. The first involved an

action for failure to timely file an entry of satisfaction of a mortgage. Id. The second

involved an action for failure to timely file a termination statement. Id. at 343. The

underlying contracts—the mortgage and the loan agreement, each of which contained

an arbitration clause—were necessary to the claims because the statutory right

underlying the claims can arise only from the execution and satisfaction of such credit

agreements. Id. at 342, 345-346. Without proving the existence and terms of the

underlying agreements, neither plaintiff would have been able to demonstrate that their

creditor had failed to fulfill the statutory obligation to timely file an entry of satisfaction or

a termination statement. Id. Thus, the claims could not be maintained without

reference to the underlying agreements.

{¶21} Here, appellees’ counterclaims do not rely on a statutorily-created right

that arises only in the presence of a valid and satisfied mortgage or loan agreement.

Instead, appellees’ claims sound in tort and require no proof that the agreement existed.

If the alleged conduct occurred, it could be actionable even if there was never an

agreement between the parties. In Alexander, the claims could not exist unless the

agreements existed. That is not the case here.

9 {¶22} Appellees further assert that this case is analogous to Dodeka, L.L.C. v.

Keith, 11th Dist. Portage No. 2011-P-0043, 2012-Ohio-6216. In that case, we found

that a person who was not shown to have expressly or implicitly assented to a

contractual arrangement was not subject to an arbitration provision contained within the

purported contract. Id. at ¶35. We affirm that the claims at issue here do not fall within

the scope of the arbitration provision. The argument that appellees did not assent to

being bound by the note’s arbitration provision is moot.

{¶23} Finally, appellant, in a section of his appellate brief entitled, “Standard of

Review,” states: “Whether the Trial Court properly denied Mr. Hicks’ request for limited

discovery as to the relationship between United and Mr. Cadle and TCC is reviewed for

abuse of discretion. See Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406,

430 fn. 24 (9th Cir.1977).” There is some further discussion near the end of appellant’s

brief that indicates appellant would like further discovery as to the relationship between

Cadle and United. However, as appellant assigns no error in this regard, we decline to

address the discovery issue. See, e.g., App.R. 16.

{¶24} Appellant’s sole assignment of error is without merit. The judgment of the

trial court is affirmed.

DIANE V. GRENDELL, J.,

COLLEEN MARY O’TOOLE, J.,

concur.