PS Commercial Play, L.L.C. v. Harp Contrs., Inc. , 2017 Ohio 4011 ( 2017 )

[Cite as PS Commercial Play, L.L.C. v. Harp Contrs., Inc., 2017-Ohio-4011.]
IN THE COURT OF APPEALS OF OHIO
SECOND APPELLATE DISTRICT
MONTGOMERY COUNTY
PS COMMERCIAL PLAY, LLC :
:
Plaintiff-Appellee : C.A. CASE NO. 27253
:
v. : T.C. NO. 16-CV-2584
:
HARP CONTRACTORS, INC., et al. : (Civil Appeal from
: Common Pleas Court)
Defendants-Appellants :
:
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OPINION
Rendered on the ___26th ___ day of _____May_____, 2017.
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DANIEL A. BROWN, Atty. Reg. No. 0044132, 204 S. Ludlow Street, Suite 300, Dayton,
Ohio 45402
Attorney for Plaintiff-Appellee
ANDREW J. NATALE, Atty. Reg. No. 0042110 and NORA E. LOFTUS, Atty. Reg. No.
0079985, 200 Public Square, Suite 3000, Cleveland, Ohio 44114
Attorneys for Defendant-Appellant Harp Contractors, Inc.
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DONOVAN, J.
This matter is before the Court on the Notice of Appeal of Harp Contractors,
Inc. (“Harp”), filed September 6, 2016. Harp appeals from the trial court’s August 9, 2016
decision overruling “Defendant’s Motion to Stay Pending Arbitration.” We hereby affirm
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the judgment of the trial court.
On May 23, 2016, PS Commercial Play, LLC, DBA Play & Park Structures
(“Play & Park”), filed a Complaint against Harp and Ohio Farmers Insurance Co. (“Ohio
Farmers”). The Complaint provides that “Harp was the prime contractor on a public
works project undertaken by Harp with the Ohio Facilities Commission (‘OSFC’) and the
Northmont City School District Board of Education (‘Northmont’) commonly known as
Northmont City Schools – Kleptz Early Learning Center (‘the Project’) on the real property
located at 1100 National Road, Clayton, OH 45315.” According to the Complaint, “Play
& Park was the subcontractor of Harp on the Project,” and a copy of the March 10, 2014
Subcontractor Agreement is attached to the complaint. The Complaint alleges that in “its
contract with the OSFC and Northmont, and pursuant to Ohio Revised Code Section
153.54, Harp was required to provide a Payment Bond for the Project,” and a copy of the
Payment Bond is also attached to the complaint. Play & Park asserted that Ohio
Farmers was the surety on the Payment Bond.
The Complaint alleges that Play & Park “has provided materials for the
Project for which it has not been paid,” and that it “is owed the entire amount of the
Subcontract Agreement, the principal sum of $117,285.96.” According to the complaint,
Play & Park “has demanded payment from Harp and Harp has failed or otherwise refused
to pay the sums due and owing.” The complaint provides that Play & Park also “notified
Ohio Farmers of the amount due in accordance with” R.C. 153.56(A), and that Ohio
Farmers has refused to pay the amount due. In Count I of its Complaint, Play & Park
asserts that “Harp’s failure to pay Play & Park for labor performed and/or material supplied
on the Project constitutes a breach of contract.” In Count II, Play & Park asserts that
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“Ohio Farmers owes Play & Park the principal sum of $117,285.96 under the Payment
Bond.” In Count III, Play & Park asserts that Harp has been unjustly enriched to Play &
Park’s detriment.
The attached Subcontract Agreement identifies Harp as the Contractor and
Play & Park as the Subcontractor. Article 4, paragraph 4.1 provides in part: “Payments
generally will be made within 45 days of Contractors billing to Owner for Subcontractor’s
work * * *.” Article 10, paragraph 10.7 thereof provides in part as follows:
In Contractor’s sole discretion, any and all claims or disputes
between the Contractor and the Subcontractor arising out or relating to the
Agreement or the Contract Documents, or the breach thereof, shall be
decided by in accordance with the Construction Industry Arbitration Rules
of the American Arbitration Association currently in effect unless the parties
mutually agree otherwise. Notice of the demand for arbitration shall be
filed in writing with the other party to this Agreement and with the American
Arbitration Association and shall be made within a reasonable time after the
dispute has arisen. * * *
On June 23, 2016, a “Stipulated Leave to Plead” was filed which provides:
“We, the attorneys for the respective parties, do hereby stipulate that Defendants [Harp]
and [Ohio Farmers] shall have an additional thirty (30) days, until July 25, 2016 to move,
plead or otherwise answer Plaintiff’s Complaint.”
On July 25, 2016, “Defendants’ Joint Answer to Complaint and Harp
Contractors, Inc.’s Statement regarding Counterclaims” (“Answer”) was filed, along with
“Defendants’ Motion to Stay Pending Arbitration” (“Motion”). The Answer provides in part
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that “Defendants state that Play & Park’s work was untimely and defective, and Harp has
not received payments from the owners for Play & Park’s work.” The Answer asserts the
following defense: “Play & Park’s claims are subject to mandatory and binding arbitration
per the express written subcontract between the parties.” The Answer further contains
the following statement: “Harp has claims against Play & Park that are covered by the
arbitration provision in the Subcontract, and Harp reasserts its right to pursue those
claims through arbitration as set forth in Harp’s Motion to Stay * * *. In the event that this
Court denies the Motion to Stay, Harp requests fourteen (14) days leave following the
entry of the Order denying the Motion to assert its counterclaims against Play & Park.”
The Motion provides that “Harp must be permitted to exercise its contractual
right to have Play & Park’[s] claims decided through mandatory and binding arbitration,
as required by the arbitration agreement Play & Park agreed to in writing.” According to
the Motion, “[i]n addition to the arbitration provision, the Subcontract also includes a ‘pay
if paid’ provision that states that Harp is not required to pay Play & Park for any work
unless and until Harp receives payment from the owner.” The Motion further provides
that the “Project owner has made claims against Harp relating to deficiencies in Play &
Park’s work and has withheld payment from Harp as a result of those alleged deficiencies,
which form the basis of Harp’s counterclaims against Play & Park.” The Motion provides
that Harp is not in default in proceeding with arbitration. The Motion provides as follows:
For over a year, Harp has taken every effort to get the owner to
release funds to Harp, including the mandatory and lengthy administrative
claims process. In an effort to mitigate its damages, including those
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against Play & Park, as alleged by the owner, Harp has continuously been
investigating and working to try to resolve claims upstream with the owner
so that it could then try to resolve claims downstream with the
subcontractors. For these reasons, Harp had not previously filed
arbitration. However, since it does not appear that Harp will be able to
resolve its claims with Play & Park at this time, it will be filing an arbitration
demand.
It is worthy to note that prior to filing its lawsuit, Play & Park did not
request from Harp confirmation as to whether Harp would select arbitration
to resolve the dispute, as customarily happens in the construction industry
when arbitration is at one party’s election. Typically, when a contract
includes an arbitration provision that one party can elect at its sole
discretion, or both parties must mutually agree upon, there is a pre-suit
request from one party to the other to confirm whether the dispute will
proceed to arbitration. That did not happen here.
Finally, the motion provides that Play & Park’s bond claim must also be stayed pending
arbitration.
On July 26, 2016, the trial court issued a default notice which provides that
Harp and Ohio Farmers are in default for answer or appearance.
On August 4, 2016, “Plaintiff’s Response to Defendant’s Motion to Stay
Pending Arbitration” was filed. Play & Park asserted that Harp’s motion should be denied
because Harp “waited far too long to initiate an arbitration proceeding, and that delay
must be considered a waiver of Defendant’s right to pursue a resolution of Plaintiff’s
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claims through arbitration.” Play & Park asserted that it “provided labor and materials for
the Project during the time period of July 2014 through November 2014 for which it has
not been paid. It is Play & Park’s understanding that the Project was considered
substantially complete in March 2015.” Play & Park asserted that it then “made several
demands for payment to Harp that were ignored. After waiting several months for a
potential resolution of the matter with Harp, Play & Park provided a written notice dated
October 16, 2015 to Ohio Farmers of its claim in the amount of $117, 285.96 against the
Bond,” which Ohio Farmers denied in correspondence dated October 21, 2015. Play &
Park asserted that the arbitration clause at issue “cannot be considered a mandatory
arbitration clause because its invocation is based on the contractor’s discretion and that
the parties have not otherwise agreed. Only Harp has discretion to have the dispute
referred to arbitration. Until Harp initiates the process, Play & Park, as the subcontractor,
has no notice that it should not file suit.” Play & Park asserted that “Harp’s stated
‘intention’ to file for arbitration is not enough to justify its Motion to Stay.” Play & Park
further argued that “[b]ecause the failure to provide a demand for arbitration within a
reasonable time after the dispute arose is contrary to the requirements of the [arbitration]
clause, such delay is properly construed as a default in its exercise of discretion to
demand binding arbitration of the dispute with Play & Park * * *.”
In overruling Harp’s motion, the trial court determined as follows:
Upon review, the Court finds Plaintiff’s arguments to be persuasive.
Specifically, the Court notes that, pursuant to R.C. 2711.02(B), a stay
pending arbitration is appropriate when “the applicant for the stay is not in
default in proceeding with arbitration.” However, here, Defendant did not
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demonstrate any intention to proceed with arbitration until more than a year
after the project at issue had been substantially completed, and it was
aware that Plaintiff was not satisfied with Defendant’s performance under
the contract. Accordingly, the Court finds that Defendant did not pursue
arbitration within a “reasonable time,” as required by the parties’ contractual
agreement.
The docket reflects that on August 22, 2016, the trial court referred the
matter to mediation, and on October 27, 2016, a “Termination of Mediation – Transfer of
Case from Mediation; Mediation Conference Date Vacated” was filed. The Termination
provides: “As there are many appeals pending, parties want to wait until they hear the
outcome of said appeals before coming to mediation.”
Harp asserts the following assignment of error:
THE TRIAL COURT ERRED AS A MATTER OF LAW IN DENYING
APPELLANT HARP CONTRACTORS, INC.’S (“HARP”) MOTION TO
STAY PENDING ARBITRATION BECAUSE THE CONTRACT BETWEEN
HARP AND APPELLEE PS COMMERCIAL PLAY LLC dba PLAY & PARK
STRUCTURES (“PLAY & PARK”) CONTAINS A MANDATORY AND
BINDING ARBITRATION PROVISION, AND HARP NEITHER WAIVED ITS
RIGHT TO ARBITRATE NOR WAS IN DEFAULT IN PROCEEDING WITH
ARBITRATION.
Harp asserts that it “asserted its right to arbitrate by filing its Motion to Stay
simultaneously with its Answer,” and that it “has not participated in litigation.” Harp
asserts that it is not required to “initiate a dispute with Play & Park by filing a demand for
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arbitration.” According to Harp, if “Park & Play had decided to file suit earlier than May
2016, Harp would have asserted its right to arbitration earlier as well.” Harp argues that
the “Subcontract does not require Harp to file a demand for arbitration in order to enforce
its right to arbitrate the dispute.”
Play & Park responds that “the trial court properly concludes that Harp did
not promptly assert its right to arbitration when Play & Park demanded payment of the
Subcontract amount after the Project was substantially completed in March 2015.”
As this Court has previously noted, “ ‘Ohio has a strong public policy
favoring arbitration.’ * * *. Arbitration is favored because it allows parties to bypass
expensive and time-consuming litigation and ‘provides the parties thereto with a relatively
expeditious and economical means of resolving a dispute.’ * * *.” Westerfield v. Three
Rivers Nursing & Rehab. Ctr., 2d Dist. Montgomery No. 25347, 2013-Ohio-512, ¶ 16.
“Indeed, the Ohio courts recognize a ‘presumption favoring arbitration’ that arises ‘when
the claim in dispute falls within the scope of the arbitration provision.’ * * *.” Taylor Bldg.
Corp. of Am. v. Benfield, 117 Ohio St. 3d 352, 2008-Ohio-938, 884 N.E.2d 12, ¶ 27.
“The Ohio Arbitration Act sets forth a trial court's role in construing and
enforcing arbitration agreements.” Lindsey v. Sinclair Broadcast Group, Inc., 2d Dist.
Montgomery No. 19903, 2003-Ohio-6898, ¶ 15. R.C. 2711.02(B) provides:
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
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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.
“Default” is “the omission or failure to perform a legal or contractual duty.”
Black’s Law Dictionary 376 (5th Ed. 1979).
“In determining whether a trial court has properly ruled upon a motion to
stay the proceedings and compel arbitration, the standard of review is whether the order
constitutes an abuse of discretion. Zachary v. Crocket Homes, Inc., 2003-Ohio-5237, ¶
15.” Lindsey, ¶ 19. As this Court has previously noted:
“Abuse of discretion” has been defined as an attitude that is
unreasonable, arbitrary, or unconscionable. Huffman v. Hair Surgeon,
Inc., 19 Ohio St. 3d 83, 482 N.E.2d 1248 (1985). A decision is
unreasonable if there is no sound reasoning process that would support that
decision. AAAA Enterprises, Inc. v. River Place Community Urban
Redevelopment Corp., 50 Ohio St. 3d 157, 553 N.E.2d 597 (1990);
Feldmiller v. Feldmiller, 2d Dist. Montgomery No. 24989, 2012-Ohio-4621,
¶ 7.
Routson-Gim-Belluardo, v. Jefferson Twp. Local School Dist. Bd. of Educ., 2016-Ohio-
1265, 61 N.E.3d 914, ¶ 27 (2d Dist.)
Paragraph 10.7 of the Subcontract Agreement does not contain a
mandatory and binding arbitration provision but rather granted Harp the discretion to
arbitrate any and all claims or disputes between it and Play and Park relating to the
Subcontract Agreement. If Harp chose to do so, Paragraph 10.7 set forth a contractual
duty that “Notice of the demand for arbitration shall be filed in writing with the other party
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to this Agreement and with the American Arbitration Association and shall be made within
a reasonable time after the dispute has arisen.” Harp does not dispute Play & Park’s
assertion that the work herein was substantially completed by March of 2015. In its reply
brief, Harp asserts that if “the trial court’s decision is upheld, it would essentially allow all
claimants to wait ‘more than a year after the project at issue had been substantially
completed’ before filing litigation in order to avoid an arbitration provision to which that
claimant agreed to be bound by the clear and unambiguous terms of a written contract.”
It was up to Harp to pursue arbitration by filing a demand for arbitration within a
reasonable time after the dispute arose, namely after Play & Park submitted requests for
payment for materials and labor that remained unpaid. Harp does not assert that it filed
a notice of demand for arbitration, and there is no evidence that Harp initiated the
arbitration process as required by Paragraph 10.7.
We conclude that Harp is in default in proceeding with arbitration for its
failure to file a demand for arbitration within a reasonable time after its dispute with Play
& Park arose. In other words, an abuse of discretion is not demonstrated, and Harp’s
sole assignment of error is overruled. The judgment of the trial court is affirmed.
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HALL, P.J. and WELBAUM, J., concur.
Copies mailed to:
Daniel A. Brown
Andrew J. Natale
Nora E. Loftus
Hon. Dennis J. Adkins