Naylor Family Partnership v. Home S. & L. Co. of Youngstown

2014 Ohio 2704

• Court: Ohio Court of Appeals
• Decided: June 23, 2014
• Docket: 2013-L-096
• Status: Published

Opinion

[Cite as Naylor Family Partnership v. Home S. & L. Co. of Youngstown, 2014-Ohio-2704.]

IN THE COURT OF APPEALS

ELEVENTH APPELLATE DISTRICT

LAKE COUNTY, OHIO

NAYLOR FAMILY PARTNERSHIP, : OPINION

Plaintiff-Appellee, : CASE NO. 2013-L-096 - vs - :

THE HOME SAVINGS AND LOAN : COMPANY OF YOUNGSTOWN, OHIO, et al., :

Defendants, :

STEVEN CALABRESE, et al., :

Defendants-Appellants. :

Civil Appeal from the Lake County Court of Common Pleas, Case No. 12 CV 001993.

Judgment: Affirmed.

David B. Hochman, Thomas A. Barni, and Benjamin D. Carnahan, Dinn, Hochman & Potter, L.L.C., 5910 Landerbrook Drive, Suite 200, Cleveland, OH 44124 (For Plaintiff- Appellee).

Charles V. Longo and Matthew D. Greenwell, Charles V. Longo Co., L.P.A., 25550 Chagrin Boulevard, Suite 320, Beachwood, OH 44122 (For Defendants-Appellants).

TIMOTHY P. CANNON, P.J.

{¶1} Appellants, Steven Calabrese, CCAG Limited Partnership, and RC

Enterprise II, appeal the judgment of the Lake County Court of Common Pleas. At

issue is whether appellants are entitled to enforce a claimed contractual right to arbitration. For the following reasons, we affirm the judgment of the trial court that

appellants are not entitled to enforce the arbitration provision at issue.

{¶2} On July 23, 2012, appellee, Naylor Family Partnership (“Naylor”), filed a

complaint against seven defendants, to wit: The Home Savings and Loan Company of

Youngstown (“Home Savings”); Richard M. Osborne; Richard M. Osborne Trust

(“Osborne Trust”); Steven Calabrese; CCAG Limited Partnership (“CCAG”); RC

Enterprise, II (“RC”); and Madison/Route 20, LLC. Before any answers were filed,

Home Savings filed a motion to dismiss on August 28, 2012. Naylor filed an opposition

to Home Savings’ motion. On September 9, 2012, appellants, through their joint

counsel, filed an answer. On October 5, 2012, Mr. Osborne and Osborne Trust filed

their answer. Finally, Madison/Route 20, LLC filed its answer on November 30, 2012.

{¶3} A case management conference was held on March 11, 2013. At that

conference, the parties discussed their plans for discovery. It was agreed that

coordinated responses to discovery were due from the defendants, with the exception of

Home Savings, on May 15, 2013. After multiple extensions of time, only Madison/Route

20, LLC made a limited response to the discovery request.

{¶4} On June 7, 2013, appellants filed a motion to stay the proceedings

pending arbitration. Madison/Route 20, LLC also joined this motion, but it has not

appealed the trial court’s decision. The remaining defendants did not request arbitration

and are not participating in this appeal. On June 21, 2013, Naylor filed an opposition to

appellants’ motion to stay the proceedings. In an opinion and judgment entry filed

September 30, 2013, the trial court denied appellants’ motion to stay the proceedings

2 pending arbitration, finding that appellants had waived their right to arbitration. This

decision is the subject of appellants’ appeal.

{¶5} The underlying dispute behind Naylor’s nine-count complaint arose out of

a complex real estate development project. However, only a simple overview of the

facts is necessary for the resolution of this appeal.

{¶6} In 2001, Naylor, Osborne Trust, CCAG, and RC formed a limited liability

company: Midway Industrial Campus Co., Ltd. (“Midway”). The operating agreement for

Midway outlined its governance. One-third of Midway is owned by Naylor, one-third by

Osborne Trust, and the remaining one-third by CCAG and RC. Each member

contributed cash and real property to the company.

{¶7} Midway’s sole asset was approximately 180 acres of property located on

the border of the cities of Willoughby and Mentor, Ohio. The Midway partners intended

to develop the property. However, on December 15, 2004, the property became subject

to a U.S. Army Corps of Engineers “Cease and Desist” order prohibiting any further

development of the property due to the “willful violation of Federal law” with regard to

the impact on wetlands located on the Midway property. The property is still

undeveloped and is entangled in multiple legal battles both here and in federal district

court.

{¶8} Despite the cease and desist order issued by the U.S. Army Corps of

Engineers, the complaint alleges Midway obtained a loan from Home Savings in the

amount of $4.2 million in June 2006, secured by the Midway property. The mortgage

contains language indicating that “[m]ortgagor hereby represents and warrants to lender

that * * * the mortgaged property is not currently in violation of any * * * wetland laws.”

3 The complaint further alleges that another loan was subsequently issued to

Madison/Route 20, LLC in the amount of $2.3 million; this loan also pledged the Midway

property as collateral.

{¶9} Naylor made a request to the other members for an accounting of Midway,

based on its belief that the loans were not in Midway’s business interests. When these

requests were ignored, Naylor filed the complaint at hand.

{¶10} Appellants now timely appeal the trial court’s judgment and raise a single

assignment of error:

{¶11} “The Trial Court erred in denying the Motion to Stay this matter pending

arbitration.”

{¶12} We have held that a ruling on a motion to stay proceedings pending

arbitration is a final, appealable order pursuant to R.C. 2711.02. River Oaks Homes,

Inc. v. Krann, 11th Dist. Lake No. 2008-L-166, 2009-Ohio-5208, ¶39. Here, appellants

moved for an order to stay proceedings pending arbitration, which was denied. That

order, therefore, falls within the purview of R.C. 2711.02, and the judgment is a final,

appealable order properly before this court.

{¶13} Under their assignment of error, appellants argue they did not waive their

right to arbitration by failing to raise the issue earlier in the proceedings. Generally, the

standard of review for a decision granting or denying a motion to stay proceedings

pending arbitration is abuse of discretion. Id. at ¶41. For example, this court reviews a

trial court’s decision as to whether a party waived arbitration for an abuse of discretion.

However, a de novo standard of review is used when a trial court’s grant or denial of a

stay is based solely upon questions of law. Buyer v. Long, 6th Dist. Fulton No. F-05-

4 012, 2006-Ohio-472, ¶6. Therefore, this court reviews de novo a trial court’s legal

conclusion as to whether a party is contractually bound by an arbitration clause.

{¶14} In the case at hand, there is no apparent dispute over issues of law.

Therefore, our review is focused on whether the trial court abused its discretion in

denying the request for arbitration. An abuse of discretion standard of review is most

appropriate in cases such as this, because it is apparent the trial court had active

involvement and discussions with the parties concerning case management, discovery,

and scheduling that are not part of our record.

{¶15} We first address whether each of the three appellants have a right to

assert arbitration. Appellants CCAG and RC are two of the four members of Midway.

Midway’s operating agreement contains the following arbitration clause:

Any dispute arising out of, relating to this Agreement, a breach hereof, or the operation of the business of the Company shall be settled by arbitration in Cleveland, Ohio, in accordance with the rules of the American Arbitration Association then existing, provided the discovery as provided for under the Ohio Rules of Civil Procedure shall be available to all parties to the arbitration. This agreement to arbitrate shall be specifically enforceable and the arbitration award shall be final and judgment may be entered upon it in any court having jurisdiction over the subject matter of the dispute.

{¶16} The dispute at issue clearly falls within this arbitration clause and therefore

governs the instant dispute as between Naylor, CCAG, and RC. Mr. Calabrese, as an

individual, is not privy to the Midway operating agreement and thus cannot rely on the

Midway operating agreement to compel arbitration. However, even if Mr. Calabrese

could assert an individual right to compel arbitration, he waived any such right, as

discussed below.

5 {¶17} We next determine whether the trial court abused its discretion in finding

that appellants waived their right to arbitration. An abuse of discretion is the trial court’s

“‘failure to exercise sound, reasonable, and legal decision-making.’” State v. Beechler,

2d Dist. Clark No. 09-CA-54, 2010-Ohio-1900, ¶62, quoting Black’s Law Dictionary, 11

(8th Ed.2004).

{¶18} With respect to waiving one’s right to arbitration, this court has stated:

It is well-established that the right to arbitration can be waived. ‘A party can waive his right to arbitrate under an arbitration clause by filing a complaint.’ Glenmoore Builders, Inc. v. Kennedy, 11th Dist. No. 2001-P-0007, 2001-Ohio-8777, 2001 Ohio App. LEXIS 5449, at *9, citing Rock, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., (1992), 79 Ohio App.3d 126, 128, 606 N.E.2d 1054.

To prove waiver, the opposing party merely needs to show: (1) that the party waiving the right knew of the existing right of arbitration and (2) that the party acted inconsistently with that right.

‘Active participation in a lawsuit [and failure to request arbitration in a timely manner,] evidencing an acquiescence to proceeding in a judicial rather than arbitration forum has been found to support a finding of waiver.’ (Citations omitted.) Griffith [v. Linton, 130 Ohio App.3d 746, 752 (1998)].

Hogan v. Cincinnati Fin. Corp., 11th Dist. Trumbull No. 2003-T-0034, 2004-Ohio-3331,

¶22-24 (citations omitted).

{¶19} We applied this standard in EMCC Invest. Ventures, LLC v. Rowe, 11th

Dist. Portage No. 2011-P-0053, 2012-Ohio-4462. In Rowe, this court found the

appellees waived their right to arbitration because the parties engaged in discovery,

filed motions, and engaged in mediation before asserting any right to arbitration. Id. at

¶49. We also considered the fact that nearly 28 months had passed from the filing of

the complaint and the filing of the appellees’ motion to compel arbitration. Id. In that

decision, we futher considered the prejudice suffered by the appellant who expended

6 considerable resources by filing numerous pleadings in the trial court. Id. at ¶51. This

court also reasoned that the appellees should not be permitted to engage in litigation

and then decide, unilaterally, that arbitration was their best option. Id. at ¶55.

{¶20} This court again applied the standard from Cincinnati Fin. Corp. in Liberty

Credit Serv. Assignee v. Yonker, 11th Dist. Portage 2012-P-0096, 2013-Ohio-3976. In

Yonker, the plaintiff filed an action in the municipal court. The defendant then removed

the case to the common pleas court. The plaintiff sought removal to federal court. Id. at

¶4. It was not until after the defendant had the case remanded from federal court and

the parties had engaged in discovery that the plaintiff attempted to compel arbitration.

Id. at ¶28. This court found the reasoning employed in Rowe applicable and held that

any right to arbitration had been waived. Id.

{¶21} In this case, the factors suggesting that appellants waived their right to

arbitration are not as strong as those in either Rowe or Yonker. Nevertheless, the trial

court’s opinion and judgment entry finding that appellants waived their right to compel

arbitration is supported by evidence on the record.

{¶22} First, the trial court considered several factors in concluding that

appellants waived their right to arbitration. The trial court applied the factors set out by

this court in Rowe:

[T]he time elapsed from the commencement of litigation to the request for arbitration; (2) the amount of litigation, including any exchanges of pleadings, substantive motions, and discovery; and (3) proof of actual prejudice, including taking advantage of pretrial discovery not available in arbitration, meritorious motions against one’s adversary, and undue delay.

Rowe, supra, ¶47, citing Danny’s Constr. Co. v. Birdair, Inc., 136 F.Supp.2d 134, 143

(W.D.N.Y.2000).

7 {¶23} The trial court considered the fact that appellants did not raise the right to

arbitration in their answer, but instead waited nearly 11 months to file a motion to stay

the proceedings pending arbitration. Appellants do not argue they were unaware of the

arbitration clause at the commencement of litigation. Rather, appellants signed the

operating agreement, which contained the arbitration clause; thus, appellants were

aware, or should have been aware, of the arbitration provision. While 11 months is

shorter than the amount of time in either Rowe or Yonker, it is not insignificant.

Appellants had ample time to raise their right to arbitration.

{¶24} The trial court also considered the fact that appellants attended a case

management conference where they agreed to provide a coordinated response to

Naylor’s discovery requests. Sometime after the case management conference,

appellants decided they would rather proceed with arbitration. However, this decision

was not made until nearly three months after agreeing to cooperate and provide

discovery. These months of inaction caused delay and forced Naylor to expend

additional resources. The trial court found that Naylor was prejudiced by appellants’

delay tactics; indeed, 11 months had already passed, and the parties were still at the

early stages of discovery. The trial court found that appellants’ excessive delay tactics

outweighed the fact that they never submitted any discovery materials to Naylor.

{¶25} Finally, one of the primary reasons arbitration is favored is to promote the

expeditious and economical resolution of litigation and disputes. Taylor Bldg. Corp. of

Am. v. Benfield, 117 Ohio St.3d 352, 2008-Ohio-938, ¶26. However, at least two of the

parties to the agreement at hand are not requesting arbitration. Further, additional

parties to the litigation are not parties to the arbitration agreement. Requiring arbitration

8 could clearly result in forcing duplicitous and potentially incompatible litigation,

frustrating the theory favoring arbitration. This factor may also have influenced the trial

court’s exercise of its discretion in finding that it should find a waiver occurred.

{¶26} Based on the totality of the circumstances, we cannot say that the trial

court’s decision reflected a failure to exercise sound, reasonable, and legal decision-

making. We therefore hold that the trial court did not abuse its discretion.

{¶27} Appellants’ assignment of error is without merit.

{¶28} For the foregoing reasons, the judgment of the Lake County Court of

Common Pleas is affirmed.

DIANE V. GRENDELL, J.,

THOMAS R. WRIGHT, J.,

concur.