Lovano v. Setjo, L.L.C.

2023 Ohio 461

• Court: Ohio Court of Appeals
• Decided: February 16, 2023
• Docket: 111666
• Status: Published

Opinion

[Cite as Lovano v. Setjo, L.L.C., 2023-Ohio-461.]

COURT OF APPEALS OF OHIO

EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA

KRISTINE M. LOVANO, ET AL., :

Plaintiffs-Appellees, : No. 111666 v. :

SETJO, LLC DBA KIA OF BEDFORD, :

Defendant-Appellant. :

JOURNAL ENTRY AND OPINION

JUDGMENT: AFFIRMED RELEASED AND JOURNALIZED: February 16, 2023

Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-21-954481

Appearances:

Law Office of Marc G. Doumbas, LLC, and Mark G. Doumbas, for appellees.

Sonkin & Koberna, LLC, Mark R. Koberna, and Sean T. Koran, for appellant.

KATHLEEN ANN KEOUGH, J.:

Defendant-appellant, Setjo, LLC d.b.a. Kia of Bedford (“Setjo”),

appeals the trial court’s decision denying its motion to dismiss the complaint or, in the alternative, motion to stay and compel arbitration. For the reasons that follow,

this court affirms the trial court’s decision.

I. Factual History and Procedural Background

In October 2021, Kristine and Nicholas Lovano (“the Lovanos”) filed

a complaint against Setjo for unfair and deceptive acts in selling and arranging

financing for their 2019 purchase of a 2017 Kia Soul. They alleged that Setjo

overcharged for the vehicle, made false disclosures on the purchase and financing

documents regarding the amounts paid and owed, and included an unwarranted

warranty on the transaction.

The Lovanos acknowledged in their complaint that the retail

installment sales contract (“contract”) that they entered into contained an

arbitration clause to resolve any disputes pertaining to the contract. The complaint

provided that in accordance with that provision, the Lovanos filed their arbitration

claim on May 26, 2021, with the American Arbitration Association (“AAA”), bearing

Case Number 01-21-0004-0771, Kristine Lovano v. Setjo, LLC dba Kia of Bedford.

The complaint alleged that Setjo failed to comply with the rules for consumer

arbitration because it did not pay the requisite arbitration fees, causing AAA on

September 20, 2021, to administratively close the case. Attached to the complaint

was a copy of the AAA letter supporting this allegation.

On April 13, 2022, Setjo moved to dismiss the complaint or, in the

alternative, moved to stay the proceedings and compel arbitration, contending that

the dispute alleged by the Lovanos was encompassed by the arbitration agreement and subject to binding arbitration. Setjo admitted that the AAA declined to

administer the arbitration because it did not pay the case processing fee, but

explained in a footnote that its nonpayment was because “management was

unaware of the invoice for the case processing fee, not because [it] did not wish to

arbitrate this matter with AAA.” Accordingly, Setjo contended that it did not waive

its right to arbitrate because even though the AAA declined to administer the

arbitration, it believed that the agreement allowed for arbitration to proceed before

JAMS or another arbitrator selected by the parties or the court. Finally, Setjo

maintained that under the totality of the circumstances, it did not act inconsistently

with its right to arbitrate. In support of its motion, Setjo attached only a copy of the

contact containing the arbitration agreement.

On April 27, 2022, the Lovanos opposed Setjo’s motion to stay and

compel arbitration, contending that (1) Setjo waived its right to arbitrate by acting

inconsistently with its right when it defaulted under the agreement and the AAA

provisions by not paying the requisite fee; and (2) arbitration had already “been had”

pursuant to the agreement and R.C. 2711.02(B). The Lovanos supported their

opposition with a copy of the arbitration demand letter and claim filed with the AAA,

and the five notices issued by the AAA to the parties. Each supporting document

indicated that it was sent to Setjo at its business address as listed on the contract.

On May 4, 2022, appellant filed “for leave to file reply to [the

Lovanos’] brief in opposition to [appellant’s] motion to dismiss or, in the alternative

motion to stay and to compel arbitration, instanter.” In its reply, Setjo contended that its management “was completely unaware [the] AAA was attempting to

administer arbitration proceedings between the parties,” and thus, it “could not

have knowingly waived its right to arbitrate this matter.” Although it acknowledged

receiving the May 29, 2021 letter from the Lovanos’ attorney that included a copy of

the demand for arbitration submitted to the AAA, as well as communicating with

the Lovanos’ attorney, Setjo argued that it assumed that the Lovanos were no longer

pursuing the matter when it did not hear from or receive any further

communications from either the Lovanos’ attorney or the AAA. In support, Setjo

attached affidavits from Casey Savelli, who averred that she handles all

correspondence for Setjo regarding legal matters; Kevin Chernikoff, an owner of

Setjo who averred that he takes the most active role in legal matters for the company;

and Sean Koran, legal counsel for Setjo. The affidavits set forth each person’s

involvement with the Lovanos’ arbitration request, receipt of documentation, and

communication with the Lovanos’ attorney.

On June 6, 2022, the Lovanos filed a “motion for leave [to] file

surreply instanter and motion to strike [Setjo’s] reply.” They maintained that Setjo

had actual knowledge of their arbitration demand based on Setjo’s own

acknowledgement that it had received their counsel’s May 29, 2021 letter, which

identified the AAA case number assigned to the matter, and included as enclosures

a copy of the demand for arbitration submitted to the AAA, the claim, and the

contract. In support, the Lovanos attached a copy of the May 29, 2021 letter. The trial court did not rule on the parties’ respective motions for leave

but summarily denied Setjo’s motion to dismiss the complaint, or in the alternative,

stay the proceedings and compel arbitration.

II. The Appeal

Setjo now appeals, raising as its sole assignment of error that the trial

court erred by denying its motion to stay the proceedings and compel arbitration.

A. Motion for Leave

As an initial matter, this court must discuss whether it is appropriate

for this court to consider the parties’ reply and surreply briefs filed with the trial

court and the supporting documentation attached to each motion. Both parties

sought leave of court to file a reply and surreply brief, in accordance with former

Loc.R. 11.0(D) of the Court of Common Pleas of Cuyahoga County, General Division,

which provided that “reply or additional briefs upon motions and submissions may

be filed with leave of court only upon showing of good cause.” However, the court

repealed this local rule on June 1, 2021 — prior to the commencement of litigation.

Nevertheless, the trial judge assigned to this case maintains a litigation preference

regarding motion practice that “movants are not to file reply briefs without prior

court approval.” According to the judge’s standing order, the parties were required

to receive leave of court prior to filing their respective reply and surreply briefs.

In this case, the trial court did not rule on these motions for leave

prior to ruling on Setjo’s motion to dismiss. We note that the docket shows a

notation that the parties’ respective leave requests were deemed “moot” on June 22, 2022 — the day the court denied Setjo’s motion to dismiss. We are cognizant,

however, that a court only speaks through its journal. See, e.g., State ex rel.

Worcester v. Donnellon, 49 Ohio St.3d 117, 118, 551 N.E.2d 183 (1990) (in Ohio a

court speaks through its journal).

In this case, the trial court did not enter a judgment entry denying

these motions but it is well-settled that that a motion not ruled upon is implicitly

deemed denied. Hignite v. Glick, Layman & Assocs., 8th Dist. Cuyahoga No. 95782,

2011-Ohio-1698, ¶ 6, citing Fitworks Holdings, L.L.C. v. Pitchford, 8th Dist.

Cuyahoga No. 88634, 2007-Ohio-2517. Once the trial court entered a denial of

Setjo’s motion to stay and compel arbitration, the trial court’s judgment became

final and appealable, and the motions for leave were implicitly deemed denied.1

“‘[W]here * * * leave of court is a prerequisite to the filing of a

[document], such [document] cannot be deemed to be filed until such leave is

granted by the court, even though the [document] is tendered with the motion [for]

leave and, in a sense, filed therewith.’” Hunter v. Shield, 10th Dist. Franklin No.

18AP-244, 2019-Ohio-1422, ¶ 26, quoting K.R.D. Hamilton & Assocs. Inc. v. Applied

Mgt. Syss. Inc., 10th Dist. Franklin No. 78AP-509, 1979 Ohio App. LEXIS 12350

(Mar. 20, 1979); accord Angles v. Dollar Tree Stores, Inc., 494 Fed.Appx. 326, 329

(4th Cir.2012) (under the federal rules an amended complaint is not actually “filed”

until the court grants “leave” for the amendment); Moore v. Indiana, 999 F.2d 1125,

1R.C. 2711.02(C) provides that an order that grants or denies a stay of proceedings based upon arbitration is a final order subject to appeal. 1131 (7th Cir.1993) (holding that an amended complaint is not technically filed until

the trial court grants the motion for leave).

Accordingly, because the trial court did not grant the parties’ motions

for leave, the reply and surreply including supporting documentation, could not be

deemed filed; thus, cannot be considered by this court.2

B. Merits of the Appeal

It is undisputed that the parties executed a contract that contained an

arbitration clause and that the Lovanos initiated arbitration proceedings in

accordance with the agreement. Accordingly, there is no dispute that the parties

agreed to submit this matter to arbitration. The issue before this court is whether

Setjo waived its right to arbitrate after being advised that the Lovanos filed a demand

with the AAA and when it did not pay the required arbitration fee.

Like any other contractual right, the right to arbitration may be

waived. Milling Away L.L.C. v. UGP Properties L.L.C., 8th Dist. Cuyahoga No.

95751, 2011-Ohio-1103, ¶ 8, citing Rock v. Merrill Lynch, Pierce, Fenner & Smith,

Inc., 79 Ohio App.3d 126, 128, 606 N.E.2d 1054 (8th Dist.1992). But in light of

Ohio’s strong policy in favor of arbitration, waiver of the right to arbitrate is not to

be lightly inferred. Id. A party asserting waiver must prove the waiving party (1)

knew of the existing right to arbitrate; and (2) acted inconsistently with that right.

Id., citing Checksmart v. Morgan, 8th Dist. Cuyahoga No. 80856, 2003-Ohio-163,

2Setjo has not assigned any error challenging the trial court’s treatment of its motion for leave to file a reply brief in support of its motion to stay and compel arbitration. ¶ 22. The question is whether, based upon the totality of the circumstances, the

party seeking arbitration has acted inconsistently with the right to arbitrate.

Gembarski v. PartsSource, Inc., 157 Ohio St.3d 255, 2019-Ohio-3231, 134 N.E.3d

1175, ¶ 25.

The question of waiver is usually a fact-driven issue, and an appellate

court will not reverse the trial court’s decision absent a showing of abuse of

discretion. Featherstone v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 159 Ohio

App.3d 27, 2004-Ohio-5953, 822 N.E.2d 841, ¶ 10 (9th Dist.). A court abuses its

discretion when its decision is unreasonable, arbitrary, or unconscionable.

Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d 1140 (1983).

In this case, there can be no dispute that Setjo knew of the existing

right to arbitrate. The subject arbitration agreement is part of the contract that Setjo

unilaterally prepares and presents to its customer in its sale and financing of motor

vehicles. Accordingly, Setjo was well aware that any dispute regarding the

transaction was covered by the arbitration agreement. Specific to this case, Setjo did

not deny that it was aware of the arbitration demand filed by the Lovanos.

Even if this court considered the arguments Setjo set forth in its reply

brief, it acknowledged that it received the May 29, 2021 letter from the Lovanos’

attorney notifying Setjo that his clients submitted a demand for arbitration with the

AAA. The letter referenced the AAA case number assigned to the arbitration

demand. More importantly, the letter included enclosures consisting of (1) a

demand for arbitration; (2) claim by the Lovanos; and (3) the retail installment sales contract. Moreover, Setjo further admitted that it had communicated with the

Lovanos’ attorney subsequent to receiving the May 29, 2021 letter. Accordingly, by

Setjo’s own admission, it was aware that the Lovanos initiated arbitration

proceedings. Whether Setjo received or did not receive subsequent documentation

from the AAA or communication from the Lovanos’ attorney did not excuse Setjo

from its duty to follow up on the matter. Accordingly, the record supports that Setjo

knew of the existing right to arbitrate.

The next issue to consider is whether Setjo acted inconsistently with

its right to arbitrate. A court may look to certain factors in making this

determination. Those factors typically look at the conduct of the arbitration-seeking

party to determine whether that party acted inconsistently during litigation with its

right to arbitration. See U.S. Bank, N.A. v. Wilkens, 8th Dist. Cuyahoga No. 93088,

2010-Ohio-262, ¶ 31, citing Phillips v. Lee Homes, Inc., 8th Dist. Cuyahoga No.

64353, 1994 Ohio App. LEXIS 596 (Feb. 17, 1994) (those factors may include

whether that party invoked the jurisdiction of the trial court by filing a complaint,

counterclaim, or third-party complaint without asking for a stay of proceedings; the

delay in requesting a stay of proceedings or an order compelling arbitration; and the

extent of participation in the litigation). None of these litigation-based-conduct

factors apply in this situation because Setjo’s inconsistent conduct occurred prior to

the Lovanos filing their complaint with the trial court — Setjo failed to pay its

obligated fee to the AAA for it to administer arbitration. Setjo does not dispute that the AAA declined to administer the

arbitration due to its nonpayment, but maintains on appeal that it was unaware of

the arbitration proceedings. Setjo did not make any such assertion in its motion to

stay proceedings and compel arbitration — this assertion was made in its reply brief

and again on appeal. In fact, in its initial motion, Setjo did not deny that it knew of

the arbitration proceedings, nor did it present any justification or explanation as to

why it did not comply with the Lovanos’ arbitration demand. Rather, Setjo’s only

comment about the Lovanos’ demand for arbitration can be found in a footnote

stating that “management was unaware of the invoice for the case processing fee,

not because [it] did not wish to arbitrate this matter with AAA.” Accordingly, for

this reason alone, we could find that Setjo acted inconsistently with its known right

to arbitrate and that the trial court acted within its discretion when it denied Setjo’s

motion to stay the proceedings and compel arbitration.

R.C. 2711.02(B), modeled on the Federal Arbitration Act, 9 U.S.C. 1,

et seq., provides that a court shall say an action provided that the applicant for the

stay is not in default of the proceeding with arbitration. Federal courts interpreting

the analogous section in 9 U.S.C. 3 have held that the failure to pay the requisite

arbitration fees is an act inconsistent with a party’s assertion of its right to arbitrate.

See, e.g., Pre-Paid Legal Servs. v. Cahill, 786 F.3d 1287 (10th Cir.2015) (failure to

pay arbitration fees constitutes a “default” under Section 3 of Chapter 9 of the

Federal Arbitration Act); see also Fayette Drywall, Inc. v. Oettinger, 2020-Ohio-

6641, 164 N.E.3d 556 (2d Dist.) (no abuse of discretion in finding party waived right to arbitrate, in part, by not filing the requisite fee). Accordingly, Setjo’s failure to

pay its share of the arbitration fee is inconsistent with this right to arbitrate.

Prejudice to the non-arbitration-seeking party may also be

considered in finding that a party acted inconsistent with its right to arbitrate. See

Wilkens at id. (prejudice to the non-party due to the arbitration-seeking party’s prior

inconsistent actions is a factor in deciding waiver). The Lovanos complied with the

arbitration provision expressly set forth in Setjo’s contract by pursuing arbitration

with the AAA and paying their portion of the arbitration fees. This demand was

pursued in May 2021. After five months of waiting for Setjo to comply with the terms

of its own arbitration agreement, the AAA declined to administer arbitration

because of Setjo’s own actions or inactions. The Lovanos then filed a lawsuit against

Setjo in October 2021 — only to wait until April 2022 for Setjo to decide to seek

arbitration. Setjo’s conduct is inconsistent with its right to arbitrate, and the delay

could be prejudicial.

Based on the record before this court and the limited arguments

considered on appeal due to the unique procedural issue, we find that the trial court

did not abuse its discretion when it denied Setjo’s motion to stay the proceedings

and compel arbitration. The assignment of error is overruled.

Judgment affirmed.

It is ordered that appellees recover from appellant 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.

KATHLEEN ANN KEOUGH, JUDGE

FRANK DANIEL CELEBREZZE, III, P.J., and MARY EILEEN KILBANE, J., CONCUR