[Cite as U.S. Bank Natl. Assn. v. Allen, 2016-Ohio-2766.]
IN THE COURT OF APPEALS OF OHIO THIRD APPELLATE DISTRICT PAULDING COUNTY
U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE ON BEHALF OF MANUFACTURED HOUSING CONTRACT SENIOR/ SUBORDINATE PASS-THROUGH CERTIFICATE 2001-1, ET AL.,
PLAINTIFFS-APPELLEES, CASE NO. 11-15-09
v.
LORINDA L. ALLEN,
DEFENDANT-APPELLANT, OPINION -and-
COMMUNITY FIRST BANK & TRUST, ET AL.,
DEFENDANTS-APPELLEES.
Appeal from Paulding County Common Pleas Court Trial Court No. CI-11-260
Judgment Affirmed in Part, Reversed in Part and Cause Remanded
Date of Decision: May 2, 2016
APPEARANCES:
George R. Smith, Jr. for Appellant
Michelle L. Polly-Murphy for Appellees, U.S. Bank, N.A. and Green Tree Servicing, LLC Case No. 11-15-09
SHAW, P.J.
{¶1} Defendant-appellant, Lorinda L. Allen (“Appellant”), appeals the November
18, 2015 judgment of the Paulding County Court of Common Pleas granting the motion
to compel arbitration filed by plaintiffs-appellees, U.S. Bank, Nation Association, as
Trustee on behalf of Manufactured Housing Contract Senior/Subordinate Pass-Though
Certificate 2001-1, and Green Tree Servicing, LLC (collectively referred to as
“Appellees”). In granting Appellees’ motion, the trial court ordered the parties to
arbitrate Appellant’s counterclaims, which were filed in response to U.S. Bank’s
foreclosure complaint. 1
{¶2} On December 14, 2011, U.S. Bank filed a complaint in foreclosure alleging
Appellant had defaulted on a promissory note executed by Appellant and her husband on
December 8, 2000, in the principal sum of $39,655.56 for the purchase of a manufactured
home.2 U.S. Bank further alleged that it was the holder of the mortgage deed securing
the property. The complaint sought judgment against Appellant for $45,472.91, which
included the assessment of 14.75% interest and late fees pursuant to the promissory note,
and foreclosure of the mortgage deed secured by the promissory note.
1 The record indicates that Green Tree Servicing was formerly known as Conseco Finance Servicing Corp. Conseco was the original lender involved in the purchasing and financing of Appellant’s manufactured home in 2000. It is not clear from the record when Conseco became the entity Green Tree, but the assignment indicates that Green Tree was the assignor of the mortgage and promissory note to U.S. Bank. U.S. Bank and Green Tree were represented by the same counsel throughout the trial court proceedings and on appeal. 2 The record indicates that Appellant’s husband is now deceased.
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{¶3} Appellant subsequently filed an answer and was later granted leave to file an
amended answer in which she asserted numerous affirmative defenses and counterclaims.
Appellant asserted the following counterclaims in her amended answer: (1) Fraud, (2)
Unconscionability, (3) Breach of Covenant of Good Faith and Fair Dealing, (4) Breach of
Contract, (5) Wrongful Foreclosure, and (6) Declaratory Judgment Relief. Appellant’s
counterclaims joined Green Tree as a party plaintiff based upon Green Tree’s interactions
and relationship with Appellant prior to the assignment of the mortgage and promissory
note to U.S. Bank.3 Green Tree filed an answer to Appellant’s counterclaims and
asserted various affirmative defenses, including arbitration. U.S. Bank also filed an
answer to Appellant’s counterclaims.
{¶4} The trial court sua sponte ordered the case to mediation which was scheduled
for February of 2013.
{¶5} On February 26, 2013, Appellees jointly filed a motion to stay the
proceedings and compel arbitration. In this motion, Appellees asserted that each of
Appellant’s counterclaims were subject to the arbitration clauses in the promissory note
and/or the Manufactured Home Service Contract, which was made between Conseco and
Appellant and referenced and incorporated by Appellant in her pleading asserting her
counterclaims. Thereafter, the parties filed a series of memoranda briefing the issue of
3 In her motion for leave to amend her answer, Appellant speculates there to be an agency relationship between Green Tree and U.S. Bank pursuant to a “Pooling and Servicing Agreement.” However, this “Pooling and Servicing Agreement” is not in the record to confirm or refute Appellant’s estimation of an agency relationship between Appellees.
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whether Appellant’s counterclaims were arbitrable under the pertinent contracts between
the parties. The record appears to suggest that several important matters related to this
issue were discussed between the trial court and the parties during numerous telephone
conferences the summer of August 2014. However, nothing related to these telephone
conferences was recorded or otherwise made a part of the record at the time through
journalization.
{¶6} The parties proceeded with discovery matters and continued to litigate the
issue of arbitration of Appellant’s counterclaims.
{¶7} On September 16, 2015, the trial court held an evidentiary hearing. 4 As a
result of the hearing, the trial court ordered Appellees’ counsel to submit a list of
arbitrators to Appellant’s counsel, scheduled another telephone conference to address the
status of arbitration, and ordered U.S. Bank’s foreclosure complaint to be set for trial
“separate and apart from the Defendant’s Counterclaims on January 28, 2016 at 9:00
a.m.” (Doc. No. 65).
{¶8} On November 18, 2015, the trial court issued a judgment entry regarding
arbitration between the parties and stated the following in its entry.
Relating to the issue of the arbitration, the Court notes that on February 26, 2013, Plaintiff[s] filed a Motion to Stay Proceedings and to Compel Arbitration. The case was to go to mediation before the issue of arbitration was addressed. The case proceeded to mediation
4 The record indicates that the hearing was scheduled for September 16, 2015; however the trial court suggests in a subsequent entry that the hearing took place on September 26, 2015. No transcript of this hearing was filed in the record on appeal.
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with no resolution. The Court held a telephone status conference on August 26, 2014. At the telephone conference, the Court entertained discussions between counsel for Plaintiff and counsel for Defendant and all seemed to agree that the counterclaims would be bifurcated from the original complaint based on an arbitration clause in the Note and the Home Services Contract and submitted to arbitration if the mediation was unsuccessful. The attorneys verbally agreed that only one arbitrator would be necessary, in order to save costs. The parties were to address choosing an arbitrator, the location of the arbitration and whether the arbitration would be bifurcated (i.e. home services contract v. counterclaims relating to enforceability of the note). The matter of arbitration was not journalized by the Court as it appears that no further agreements were reached as to the details of the arbitration.
At the evidentiary hearing on September 26, 2015, the issue was again raised by Plaintiff as to an order compelling arbitration. Through Plaintiff’s counsel, an order was proposed which indicated that the costs of the arbitration shall be shared equally by the parties and counsel for the Defendant objected. The Court then scheduled a telephone conference for October 15, 2015 to address the status of the arbitration.
(Doc. No. 71 at 2).
{¶9} The trial court explained in its judgment entry that it permitted both parties to
file additional written arguments in support of their positions regarding arbitration and
held two subsequent telephone conferences with counsel. The trial court issued the
following order.
Upon due consideration and for good cause shown, it is hereby ORDERED, ADJUDGED and DECREED as follows:
1. Pursuant to Plaintiffs’ Motion to Compel Arbitration filed February 26, 2013, Plaintiffs’ Motion to Compel Arbitration is hereby granted. Defendant Lorinda Allen’s Counterclaims asserted are
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bifurcated from the initiating action and compelled to binding arbitration.
2. Only one arbitrator shall be used.
3. The arbitration shall be conducted pursuant to the American Arbitration Association guidelines.
4. The costs of the arbitration shall be paid as follows: The Court is attempting to use an arbitrator through Northwest Ohio Mediation Services and if successful, there will be no cost to either of the parties. If arbitration is done through another entity, Plaintiff shall pay the first $1,500 of the arbitration and the remaining balance shall be divided equally between the parties.
(Id.).
{¶10} Appellant brings this appeal, asserting the following assignments of error.
ASSIGNMENT OF ERROR NO. I
THE TRIAL COURT’S STAY OF PROCEEDINGS ONLY AS TO DEFENDANT’S COUNTERCLAIMS CONSTITUTED AN ABUSE OF DISCRETION AS ALL PROCEEDINGS SHOULD BE STAYED PENDING THE OUTCOME OF ARBITRATION.
ASSIGNMENT OF ERROR NO. II
THE TRIAL COURT ABUSED ITS DISCRETION IN ORDERING ARBITRATION OF ALL DEFENDANT’S COUNTERCLAIMS AND SCHEDULING TRIAL ON PLAINTIFF’S FORECLOSURE CLAIMS AS MOST OF THE COUNTERCLAIMS WERE AFFIRMATIVE DEFENSES TO PLAINTIFF’S ACTION TO ENFORCE THE NOTE.
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ASSIGNMENT OF ERROR NO. III
THE TRIAL COURT ABUSED ITS DISCRETION IN ORDERING DEFENDANT, WHO WAS INDIGENT, TO SHARE IN THE COSTS OF ARBITRATION.
ASSIGNMENT OF ERROR NO. IV
THE TRIAL COURT ABUSED ITS DISCRETION IN ORDERING ALL OF DEFENDANT’S COUNTERCLAIMS TO BE HEARD BY ONE ARBITRATOR WHERE TWO ARBITRATION PROVISIONS PROVIDED DEFENDANT’S CLAIMS WOULD BE HEARD BY A PANEL OF THREE ARBITRATORS. A TRIAL COURT IS WITHOUT POWER TO CHANGE THE TERMS OF AN ADHESION CONTRACT BETWEEN THE PARTIES ESPECIALLY WHERE, AS HERE, THE DRAFTING PARTY INVOKED THE MANDATORY ARBITRATION PROVISION IN THE CONTRACT.
ASSIGNMENT OF ERROR NO. V
THE TRIAL COURT ABUSED ITS DISCRETION IN ORDERING ARBITRATION OF DEFENDANT’S COUNTERCLAIMS AS PLAINTIFF WAIVED ITS RIGHT TO COMPEL ARBITRATION BY ENGAGING IN CONDUCT INCONSISTENT WITH THAT RIGHT.
{¶11} For ease of discussion, we elect to discuss the assignments of error out of
order.
Waiver of the Right to Arbitrate
{¶12} In her fifth assignment of error, Appellant argues that Appellees waived
their right to arbitrate her counterclaims.
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{¶13} “ ‘[T]he 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 an abuse of
discretion.’ ” Morris v. Morris, 10th Dist. Franklin No. 10AP–15, 189 Ohio App. 3d 608,
2010-Ohio-4750, ¶ 17, quoting ACRS, Inc. v. Blue Cross & Blue Shield of Minnesota,
131 Ohio App.3d 450, 456 (8th Dist. 1998). The phrase “abuse of discretion” implies the
trial court’s attitude is arbitrary, unreasonable or unconscionable. Blakemore v.
Blakemore, 5 Ohio St.3d 217, 219 (1983). “A party asserting waiver must prove that the
waiving party knew of the existing right to arbitrate and, based on the totality of the
circumstances, acted inconsistently with that known right.” Dispatch Printing Co. v.
Recovery Ltd. Partnership, 10th Dist. Franklin No. 10AP-353, 2011-Ohio-80, ¶ 21.
{¶14} In determining whether the totality of the circumstances supports a finding
of waiver, a court may consider such factors as: (1) any delay in the requesting party’s
demand to arbitrate via a motion to stay judicial proceedings and an order compelling
arbitration; (2) the extent of the requesting party’s participation in the litigation prior to
its filing a motion to stay the judicial proceeding, including a determination of the status
of discovery, dispositive motions, and the trial date; (3) whether the requesting party
invoked the jurisdiction of the court by filing a counterclaim or third-party complaint
without asking for a stay of the proceedings; and (4) whether the non-requesting party has
been prejudiced by the requesting party’s inconsistent acts. Harsco Corp. v. Crane
Carrier Co., 122 Ohio App.3d 406, 414 (3d Dist. 1997). “Because of the strong public
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policy in favor of arbitration, the heavy burden of proving waiver of the right to
arbitration is on the party asserting waiver.” Griffith v. Linton, 130 Ohio App.3d 746,
751 (10th Dist. 1998). Therefore, a court will not lightly infer waiver of a right to
arbitrate. Harsco at 415.
{¶15} The record establishes that U.S. Bank filed its complaint for foreclosure in
December of 2011. The trial court granted Appellant leave to file an amended answer
asserting her counterclaims in November of 2012, which joined Green Tree as a party.
Appellees filed their answer to Appellant’s counterclaims shortly thereafter. The trial
court sua sponte referred the case to mediation, which was scheduled to take place in
February 2013. However, the attempt to mediate was not successful and on February 26,
2013, Appellees filed their motion to stay the proceedings and compel arbitration. The
remaining filings in the record during 2013 consisted of the parties’ memoranda on the
merits of Appellees’ request to stay the proceedings and compel arbitration.
{¶16} The record is unclear as to what transpired next. It appears that the trial
court held a series of telephone conferences in the summer 2014 with the parties, the
contents of which were not contemporaneously memorialized in the record. The trial
court again referred the case to mediation and several documents relating to contested
discovery matters were filed throughout the latter part of 2014 and the majority of 2015.
According to the trial court’s October 20, 2015 entry, the issue of Appellees’ motion to
stay and compel arbitration was discussed during an evidentiary hearing in September
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2015, a transcript of which was not filed on appeal. The trial court later ruled on the
motion to compel arbitration in November 2015.
{¶17} On appeal, Appellant claims that U.S. Bank’s actions were inconsistent with
its right to arbitrate because it failed to plead arbitration as an affirmative defense in its
answer to Appellant’s counterclaims. We note that in its answer to Appellant’s
counterclaims, Green Tree did assert arbitration as an affirmative defense. Appellant also
argues that Appellees waived their right to arbitrate because they participated in
discovery after the filing of their motion to compel arbitration.
{¶18} At the outset, we note it has been held that the right to arbitrate, as protected
by R.C. 2711.02, is not a Civ.R. 8(C) affirmative defense and, a party’s failure to include
it in the initial responsive pleading does not result in waiver. Morris, 2010-Ohio-4750 at
¶ 32. While the right to arbitrate should be affirmatively pleaded, it is not mandated by
Civ.R. 8(C) to avoid waiver. Hudson v. Ernst & Young, L.L.P., 10th Dist. Franklin No.
09AP-949, 189 Ohio App.3d 60, 2010-Ohio–2731, ¶ 37. Thus, the mere fact that U.S.
Bank did not affirmatively plead an arbitration defense, pursuant to R.C. 2711.02, in
response to Appellant’s counterclaims does not necessarily result in a finding of waiver,
especially where the record does not clearly demonstrate an abandonment of the right to
arbitrate and the trial court did not rule on the motion for almost three years.
{¶19} We also note that the arbitration clause in the promissory note expressly
states that the filing of a judicial action in foreclosure does not constitute a waiver of the
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right to arbitrate any counterclaims brought by Appellant. Specifically, the relevant
provision in the promissory note states:
The institution and maintenance of an action for judicial relief in a court to foreclose upon any collateral, to obtain a monetary judgment, or to enforce the security agreement, shall not constitute a waiver of the right of any party to compel arbitration regarding any other dispute or remedy subject to arbitration in this contract, including the filing of a counterclaim in a suit brought by you pursuant to this provision.
(Promissory Note at 3).
{¶20} Notwithstanding this fact, Appellant also argues that Appellees waived their
right to arbitrate because they participated in discovery prior to the September 2015
hearing. In making this argument, Appellant overlooks the fact that at the time of the
hearing the trial court had yet to rule on Appellees’ motion to compel arbitration and that
this motion was filed well in advance of any attempt by the parties to proceed with
discovery. The record indicates the parties had made little progress with discovery before
a dispute arose regarding the scope of discovery, which required the trial court to hold an
evidentiary hearing on the matter in September 2015, where the pending motion to
compel arbitration was again raised by Appellees. As previously mentioned, we do not
have a transcript of this hearing on appeal.
{¶21} Moreover, it appears that much of the discussion between the parties before
the trial court regarding the issue of arbitration and the prospect of moving forward with
discovery occurred during telephone conferences in the summer of 2014. Appellant now
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claims she was prejudiced because she relied on representations made during these
telephone conferences and limited her discovery as a result. However, the content of
these telephone conferences to this extent were not memorialized on the record, making
our review of this issue somewhat difficult due to the inability to assess the parties’
conduct during these proceedings. 5
{¶22} Being mindful that a court will not lightly infer waiver of a right to arbitrate
and the heavy burden placed upon Appellant to prove waiver, we cannot conclude
Appellant demonstrated Appellees’ actions were inconsistent with their right to arbitrate.
In other words, we cannot find an affirmative basis to conclude that Appellees abandoned
their right to arbitrate in order to pursue litigation of the counterclaims in the trial court
action. See U.S. Bank v. Wilkens, 8th Dist. Cuyahoga No. 93088, 2010-Ohio-262,
(holding that waiver of arbitration did not occur in spite of the bank not raising arbitration
until five months after originally answering and after participating in insignificant
discovery). Based on the totality of these circumstances, the trial court did not abuse its
discretion in finding that Appellees did not waive their right to arbitrate. Therefore,
Appellant’s fifth assignment of error is overruled.
Trial Court’s Decision to Compel Arbitration
{¶23} In her second, third, and fourth assignments of error, Appellant maintains
the trial court erred in concluding her counterclaims for (1) Fraud, (2) Unconscionability, 5 Appellees maintained in their memoranda to the trial court regarding the right to arbitrate that the trial court orally granted their motion to compel arbitration during these telephone conferences in the summer of 2014.
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(3) Breach of Covenant of Good Faith and Fair Dealing, (4) Breach of Contract, (5)
Wrongful Foreclosure, and (6) Declaratory Judgment Relief were subject to arbitration.
Specifically, Appellant asserts that her counterclaims were “brought by way of
recoupment” and were purely defensive to U.S. Bank’s complaint in foreclosure and
therefore were not subject to arbitration referral. Thus, Appellant claims the trial court
erred when it granted Appellees’ motion to stay the proceedings and compel arbitration
pursuant to R.C. 2711.02. Appellant also assigns error to the trial court’s determination
of the arbitration terms, in particular that there will be one arbitrator used and that
Appellees shall pay the first $1,500.00 of the arbitration with the remaining costs to be
dividedly equally between the parties.
{¶24} “Both the Ohio General Assembly and Ohio courts have expressed a strong
public policy favoring arbitration.” Hayes v. Oakridge Home, 122 Ohio St.3d 63, 2009-
Ohio-2054, ¶ 15, citing R.C. Chapter 2711, Taylor Bldg. Corp. of Am. v. Benfield, 117
Ohio St.3d 352, 2008-Ohio-938, ¶ 27, and Williams v. Aetna Fin. Co., 1998-Ohio-294, 83
Ohio St.3d 464, 471 (1998). A contractual arbitration clause “is generally viewed as an
expression that the parties agree to arbitrate disagreements within the scope of the
arbitration clause, and, with limited exceptions, an arbitration clause is to be upheld just
as any other provision in a contract should be respected.” Williams at 471. “ ‘Arbitration
is favored because it provides the parties thereto with a relatively expeditious and
economical means of resolving a dispute.’ ” Kelm v. Kelm, 68 Ohio St.3d 26, 29 (1993),
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quoting Schaefer v. Allstate Ins. Co., 63 Ohio St.3d 708, 712 (1992). “Arbitration also
has the additional benefit of unburdening crowded court dockets.” Hayes at ¶ 15, citing
Mahoning Cty. Bd. of Mental Retardation & Dev. Disabilities v. Mahoning Cty. TMR
Edn. Assn., 22 Ohio St.3d 80, 83 (1986). “In light of the strong presumption favoring
arbitration, all doubts should be resolved in its favor.” Hayes at ¶ 15, citing Ignazio v.
Clear Channel Broadcasting, Inc., 113 Ohio St.3d 276, 2007-Ohio-1947, ¶ 18.
{¶25} “The General Assembly has also endorsed the strong policy in favor of
arbitration of disputes in R.C. 2711.01(A), which provides that an arbitration agreement
‘shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in
equity for the revocation of any contract.’ ” Hayes at ¶ 16. Section 2711.02 of the
Revised Code provides for enforcement of an arbitration agreement. A party to such an
agreement may obtain a stay of litigation in favor of arbitration under R.C. 2711.02(B),
which states:
If any action is brought upon any issue referable to arbitration under an agreement in writing for arbitration, the court in which the action is pending, upon being satisfied that the issue involved in the action is referable to arbitration under an agreement in writing for arbitration, shall on application of one of the parties stay the trial of the action until the arbitration of the issue has been had in accordance with the agreement, provided the applicant for the stay is not in default in proceeding with arbitration.
{¶26} Moreover, an order under R.C. 2711.02(B) that grants or denies a stay of a
trial pending arbitration “is a final order and may be reviewed, affirmed, modified, or
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reversed on appeal pursuant to the Rules of Appellate Procedure and, to the extent not in
conflict with those rules, Chapter 2505 of the Revised Code.” R.C. 2711.02(C). When
addressing whether a trial court has properly granted a motion to stay litigation pending
arbitration, this court applies an abuse of discretion standard. Carter Steel & Fabricating
Co. v. Danis Bldg. Constr. Co., 126 Ohio App.3d 251, 254-55 (3d Dist. 1998). An abuse
of discretion implies the trial court’s judgment was unreasonable, arbitrary, or
unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219 (1983). Absent an
abuse of that discretion, an appellate court may not substitute its judgment for that of the
trial court. Pons v. Ohio State Med. Bd., 66 Ohio St.3d 619, 621, 1993-Ohio-122.
{¶27} Initially, we note that R.C. 2711.01(B)(1) expressly states that the
arbitration statutes do not apply to controversies involving the title to real estate.
Therefore, because a foreclosure action involves title to real estate it is not an arbitrable
matter. See Keybank v. MRN Ltd. Partnership, 8th Dist. Cuyahoga No. 88868, 2007-
Ohio-5709 (reversing a trial court’s order referring a dispute to arbitration when it
involved title to real estate in violation of R.C. 2711.01(B)(1)). Accordingly, U.S. Bank
was required to file a lawsuit to initiate the foreclosure procedure and, as already
discussed, by doing so did not waive its right to arbitrate matters that fell within the
parties’ agreement to arbitrate. See U.S. Bank, N.A. v. Wilkens, 8th Dist. Cuyahoga No.
No. 93088, 2010-Ohio-262, ¶ 20 (finding no automatic waiver of right to arbitrate the
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defendant’s counterclaims of fraud, breach of contract, intentional infliction of emotional
distress, and loss of consortium by filing the non-arbitrable foreclosure action).
{¶28} Here, Appellant filed six counterclaims against Appellees arising out of the
purchase and financing of the manufactured home on her property. Most of these claims
involved allegations of wrongdoing by Green Tree regarding their representations about
the condition of the manufactured home, its conduct during the sale, and its subsequent
servicing of the loan. According to Appellant, she also purchased a Manufactured Home
Service Contract from Green Tree which covered repairs and replacement of damaged
items. Appellant claims Green Tree failed to act in compliance with the service contract.
{¶29} There are two arbitration provisions implicated in this case. The first one
appears in the promissory note and specifically provides:
ARBITRATION: All disputes, claims, or controversies arising from or relating to this contract or the relationships which result from this contract, or the validity of this arbitration clause or the entire contract, shall be resolved by binding arbitration by one arbitrator selected by you with my consent. For purposes of this paragraph, the “parties” shall mean I, the Borrower, and you the Lender, together. This arbitration agreement is made pursuant to a transaction in interstate commerce, and shall be governed by the Federal Arbitration Act, Title 9 of the United States Code. Judgment upon the award rendered may be entered in any court having jurisdiction. The parties agree and understand that they choose arbitration instead of litigation to resolve disputes. The parties understand that they have a right or opportunity to litigate disputes in court, but that they prefer to resolve their disputes through arbitration, except as provided herein. THE PARTIES VOLUNTARILY AND KNOWINGLY WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL, EITHER PURSUANT TO ARBITRATION UNDER THIS CLAUSE OR PURSUANT TO A
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COURT ACTION BY YOU (AS PROVIDED HEREIN). The parties agree and understand that all disputes arising under case law, statutory law, and all other laws, including, but not limited to, all contract, tort, and property disputes, will be subject to binding arbitration in accord with this agreement. I agree that I shall not have the right participate as a representative or a member of any class of claimants pertaining to any claim arising from or relating to this contract. The parties agree and understand that the arbitrator shall have all powers provided by the law and the contract. These powers shall include all legal and equitable remedies, including, but not limited to, money damages, declaratory relief, and injunctive relief. Notwithstanding anything hereunder to the contrary, you retain an option to use judicial or non-judicial relief to enforce a security agreement relating to the collateral secured in a transaction underlying this arbitration agreement, to enforce the monetary obligation, or to foreclose on the collateral. Such judicial relief would take the form of a lawsuit. The institution and maintenance of an action for judicial relief in a court to foreclose upon any collateral, to obtain a money judgment, or to enforce the security agreement, shall not constitute a waiver of the right of any party to compel arbitration regarding any other dispute or remedy subject to arbitration in this contract, including the filing of a counterclaim in a suit brought by you pursuant to this provision.
(Promissory Note at 3) (emphasis added).
{¶30} The other arbitration provision appears in the “Manufactured Home Service
Contract” and provides as follows.
ARBITRATION CLAUSE
Any and all disputes, controversies or claims of any kind and nature between you and us arising out of or in any way related to the validity, interpretation, performance or breach of any provision of this service contract, and upon which a settlement has not been reached by you and us, shall be resolved, exclusively, by arbitration in accordance with the Federal Arbitration Act (9 U.S.C. sec 1 et seq).
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You shall appoint one arbitrator and we shall appoint an arbitrator. The two arbitrators appointed shall together pick a third arbitrator. The arbitration proceeding shall commence within 90 days after the first notification of one party by the other as to their election to arbitrate a dispute. Any decision of the arbitrators shall be by majority vote. In all other respects, the rules and procedures of the American Arbitration Association’s Commercial Arbitration Rules shall govern the arbitration proceeding, except to the extent that such rules and procedures conflict with the Federal Arbitration Act. Arbitration shall be held in the county where you reside, unless otherwise agreed, in writing, by the parties. In no event shall the arbitrators grant any relief not available in the courts of the state where the service contract is issued. Judgment upon the arbitration award shall be entered in a court of general jurisdiction in the state where you reside.
The cost of all arbitration proceedings shall be paid by us with the exception of the cost of your legal representation. However, the arbitrators shall have the authority to order you to pay all costs of the arbitration proceedings, if the arbitrators determine that the dispute is without substantial justification.
You and we understand that: (1) discovery in an arbitration proceeding may be more limited than and different from that in a court proceeding; (2) the arbitrators are not required to state the basis of their decision or to issue any findings of fact; and (3) both your and our right to appeal or seek modification of rulings by the arbitrators may be limited.
(Manufacture Home Service Contract at 3).
{¶31} In determining whether a dispute falls within the arbitration provision a
court must first look at the language of the arbitration agreements. Alexander v. Wells
Fargo Financial Ohio 1, Inc., 122 Ohio St.3d 341, 2009-Ohio-2962, ¶ 9. Any doubts
should be construed in favor of arbitration. Hayes, 122 Ohio St.3d 63, 2009-Ohio-2054,
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¶ 15. “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.” Alexander at ¶ 24. “Even real torts can be
covered by arbitration clauses ‘[i]f the allegations underlying the claims “touch matters”
covered by the [agreement]. Id., quoting Genesco Inc. v. T. Kakiuchi & Co., 815 F.2d
840, 846 (2d Cir.1987).
{¶32} On appeal, Appellant contends that her claims are non-arbitrable because
they are “claims of recoupment” merely asserted as defenses to U.S. Bank’s foreclosure
complaint. Appellant argues that her counterclaims are in essence affirmative defenses,
despite the manner in which she asserted them in her answer. As such, Appellant
contends her counterclaims should not be bifurcated from the proceedings relating to the
foreclosure action.
{¶33} Both arbitration provisions in the promissory note and the Manufactured
Home Service Contract represent the parties’ agreement to arbitrate all disputes, claims,
or controversies arising from or relating to those contracts. As previously mentioned, the
only reason the foreclosure action is considered non-arbitrable is due to the fact that
controversies involving the title to real estate is expressly exempted by statute.
Regardless of how she now characterizes them on appeal, it is apparent that Appellant’s
counterclaims constitute disputes, claims, or controversies arising out of one or both of
the agreements at issue and therefore do not fall outside the bounds of the arbitration
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provisions simply because the ultimate determination of foreclosure must be litigated in a
court action. As to the trial court’s determination that Appellant’s counterclaims are
subject to arbitration, we find no abuse of discretion on this basis. To this extent, we
overrule Appellant’s second assignment of error.
{¶34} Notwithstanding this fact, there are several factual ambiguities present in
the record and underlying the trial court’s determination on arbitration which must be
addressed by the trial court before the arbitration can proceed. First, despite making
reference to both “Plaintiff” and “Plaintiffs,” the trial court’s entry does not make clear
the fact that there are two entities seeking to enforce arbitration—U.S. Bank and Green
Tree. The record reflects that U.S. Bank and Green Tree jointly filed the motion to
compel arbitration. Other than being represented by the same counsel, it is not clear from
the record what the relationship is between U.S. Bank and Green Tree in this dispute.
U.S. Bank attached to its foreclosure complaint a copy of the assignment of the
promissory note and mortgage from Green Tree to U.S. Bank. However, the record
insufficiently explains how U.S. Bank would be obligated under any agreement other
than the promissory note and mortgage—i.e., the Manufactured Home Service Contract.
Stated another way, it is not clear from the record or the trial court’s entry how U.S. Bank
is a party to the Manufactured Home Service Contract and therefore accountable for
Green Tree’s actions for allegedly failing to comply with the duties thereunder.
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{¶35} This leads us to a second issue left unsettled—specifically which arbitration
provision applies to each of the Appellant’s six counterclaims. There are at least two
arbitration provisions at issue in this case, each with differing terms governing the
arbitration procedure. For instance, the arbitration provision in the promissory note calls
for the use of one arbitrator selected by the “Lender” with the “Borrower’s” consent and
is silent as to the costs, whereas the arbitration provision in the Manufactured Home
Service Contract provides for the use of three arbitrators, one chosen by the “dealer” who
sold the home, one chosen by the “owner” of the home, and the third chosen by the two
selected arbitrators. (Manuf. Hm. Srvc. Contract at 1). This arbitration provision also
requires the “dealer” to pay for the cost of the arbitration proceedings. Aside from the
fact that it is unclear how either U.S. Bank or Green Tree can be considered a “dealer,”
the Manufactured Home Service Contract indicates that the “dealer” is an entity named
Palm Harbor Village, who is not a party to this action.6 Thus, the record before us
insufficiently explains whether some or all of Appellant’s counterclaims involve U.S.
Bank, Green Tree or both. Moreover, it remains to be determined which arbitration
provision applies to each of the counterclaims. Accordingly, there needs to be a
6 Appellant argues that there is a third agreement containing an arbitration provision connected to this case. This document is referred to by Appellant as a “Retail Sales Installment Contract.” Only the page containing the arbitration provision of this document was included in the record as an exhibit to Appellant’s supplemental memorandum addressing the merits of Appellees’ motion to compel arbitration. There is no indication in the record that the trial court considered this document in its decision to compel arbitration. Moreover, it is difficult to discern from the incomplete document whether the provision is applicable to the parties involved in this controversy as the agreement appears to be between Appellant and the entity named “Palm Harbor Village.” Appellant asserted in her amended answer that Palm Harbor Village was an agent of Conseco but there is nothing in the record to substantiate this claim and no further mention of Palm Harbor Village in the record.
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determination by the trial court designating which arbitration agreement applies to the
counterclaims as well as identifying the specific parties involved in each counterclaim.
{¶36} It is clear that the trial court attempted to resolve the issue regarding the
application of multiple arbitration provisions with varying terms by ordering new terms
of arbitration, not included in either arbitration agreement, to govern the resolution of
Appellant’s counterclaims—i.e., ordering the arbitration to proceed with one arbitrator
with “Plaintiff” to pay the first $1,500.00 and the parties to equally share the remaining
costs of arbitration.7 However, this amounted to the trial court modifying the parties’
prior written agreements in the promissory note and the Manufactured Home Service
Contract—which we have found no authority permitting the trial court to do. None of the
written arbitration provisions at issue provide for the method of dividing the costs
ordered by the trial court. We acknowledge the trial court’s reference to the parties’
purported agreement to these terms during a telephone conference in August 2014, but
note that this agreement was never reduced to writing. Sections 2711.01 et seq., the
statutes governing arbitration, contemplate the existence of a written agreement to
arbitrate.
{¶37} This is not to say the parties are necessarily prohibited from modifying their
agreement to arbitrate after the fact in order to be cost effective or to facilitate the
procedure. Nevertheless, to be enforceable by a trial court the agreement setting forth the 7 Again, the trial court’s judgment entry is unclear as to which “Plaintiff” is ordered to pay the costs of arbitration— U.S. Bank, Green Tree or both.
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terms of arbitration must be in writing. See R.C. 2711.02 (authorizing the trial court to
stay the proceedings upon being satisfied that the issue involved in the action is referable
to arbitration under an agreement in writing for arbitration); see e.g., R.C. 2711.03
(permitting a party to petition a court to issue an order directing that the arbitration
proceed in the manner provided for in the written agreement). Accordingly, we find
merit in Appellant’s assertion that the trial court improperly modified the parties’ prior
written agreement to arbitrate by ordering the parties to submit to an arbitration
procedure different than the one outlined in the parties’ written agreements. Therefore,
we sustain Appellant’s third and fourth assignments of error and remand the case for the
trial court to make the previously discussed determinations of the application of the
appropriate arbitration provision and the parties involved in each of Appellant’s
counterclaims.
Failure to Stay the Foreclosure Proceeding
{¶38} In her first assignment of error, Appellant asserts that the trial court erred in
failing to stay the entire case pending arbitration. The record reflects that in its October
20, 2015 journal entry, the trial court ordered the parties to participate in a telephone
conference to address the “status of arbitration.” (Doc. No. 65). In the same entry, the
trial court set a trial date for U.S. Bank’s foreclosure complaint “separate and apart” from
Appellant’s counterclaims. (Id.). A month later, the trial court issued a journal entry
granting Appellees’ motion to compel arbitration of Appellant’s counterclaims.
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However, the trial date passed with no action being taken and there was never any further
order issued by the trial court staying the foreclosure proceeding pending arbitration.
{¶39} We review the trial court’s decision to stay proceedings and compel
arbitration in this case under an abuse of discretion standard. Eagle v. Fred Martin
Motor Company, 157 Ohio App.3d 150, 2004-Ohio-829, ¶ 10. An abuse of discretion
implies the trial court’s judgment was unreasonable, arbitrary, or unconscionable.
Blakemore v. Blakemore, 5 Ohio St.3d 217, 219 (1983).
{¶40} As previously mentioned, R.C. 2711.02(B) provides the following:
(B) If any action is brought upon any issue referable to arbitration under an agreement in writing for arbitration, the court in which the action is pending, upon being satisfied that the issue involved in the action is referable to arbitration under an agreement in writing for arbitration, shall on application of one of the parties stay the trial of the action until the arbitration of the issue has been had in accordance with the agreement, provided the applicant for the stay is not in default in proceeding with arbitration.
{¶41} On appeal, Appellant argues that R.C. 2711.02(B) mandates a trial court
stay all proceedings in the case until arbitration is complete. Thus, Appellant maintains
that the trial court erred in setting a trial date for U.S. Bank’s foreclosure complaint and
not issuing a stay of that proceeding when it granted Appellees’ motion to compel
arbitration of her counterclaims. Appellees concede that when both arbitrable and non-
arbitrable claims are involved, the statue requires the entire proceeding be stayed until
those claims subject to arbitration have been arbitrated. However, Appellees argue that
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because the trial date has passed without the trial court moving forward with the trial, its
complaint in foreclosure has effectively been stayed. Therefore, Appellees contend that
Appellant has failed to show any prejudice from the trial court failing to issue an order of
stay of the proceeding related its foreclosure complaint.
{¶42} As is apparent from the language of the statute, when a trial court
determines that certain claims are subject to arbitration, it must stay the entire proceeding
until those claims have been arbitrated, even though the action may involve both
arbitrable and non-arbitrable claims. The statute does not appear to confer any discretion
to the trial court regarding the stay. See Cheney v. Sears, Roebuck & Co., 10th Dist.
Franklin No. 04AP-1354, 2005-Ohio-3283, ¶ 12 (“[W]hen an action involves both
arbitrable and non arbitrable claims, the entire proceeding must be stayed until the issues
that are subject to arbitration are resolved.”); see also, Litman v. HCR ManorCare, Inc.,
5th Dist. Stark No. 2014CA00224, 2015-Ohio-2637, ¶ 12; Stoner v. Salon Lofts L.L.C.,
10th Dist. Franklin No. 13AP-437, 2014-Ohio-796, ¶ 33 (sua sponte raising the issue of
the trial court only staying a portion of the proceeding and remanding the matter for the
court to enter an order staying the entire action until arbitration has been completed).
Accordingly, the trial court erred in failing to issue an order of stay of the foreclosure
proceeding when it granted Appellees’ motion to compel arbitration of Appellant’s
counterclaims. The first assignment of error is sustained.
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{¶43} For all these reasons, the first, third, and fourth assignments of error are
sustained and the second and fifth assignments of error are overruled. Accordingly, the
judgment is affirmed in part and reversed in part and the cause remanded for further
proceedings consistent with this opinion.
Judgment Affirmed in Part, Reversed in Part and Cause Remanded
PRESTON and WILLAMOWSKI, J.J., concur.
/jlr
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