Dumas v. N. E. Auto Credit, L.L.C. , 2019 Ohio 4789 ( 2019 )

[Cite as Dumas v. N. E. Auto Credit, L.L.C. , 2019-Ohio-4789.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
THEODORE DUMAS, ET AL., :
Plaintiffs-Appellees, :
Nos. 108151 and 108388
v. :
NORTH EAST AUTO CREDIT, L.L.C., :
Defendant-Appellant. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED AND REMANDED
RELEASED AND JOURNALIZED: November 21, 2019
Civil Appeal from the Cuyahoga County Common Pleas Court
Case No. CV-17-885863
Appearances:
Frederick & Berler, L.L.C., Ronald I. Frederick, Michael
Berler, and Michael L. Fine, for appellees.
The Gertsburg Law Firm Co., L.P.A., Mark M. Turner,
Eugene Friedman, Maximilian Julian, and Cynthia M.
Menta; and William J. Krueger, for appellant.
SEAN C. GALLAGHER, J.:
North East Auto Credit, L.L.C. (“NEAC”), appeals the denial of its
motion to stay the trial court proceedings under R.C. 2711.02(B) pending an
arbitration of the class-action allegations, which were advanced for the first time in
an amended complaint filed over a year after the initial pleading. Although the trial
court erred in concluding that NEAC waived its right to assert the arbitration
defense with respect to the putative class members, it nonetheless reached the
correct result. We therefore affirm.
Theodore Dumas and Charlene Parker purchased a vehicle from
NEAC. In their purchase agreement, Dumas and Parker agreed that either party
may seek to arbitrate any disputes arising thereunder, and that if the matter was
arbitrated, the plaintiffs waived any right to join a class-action lawsuit:
1. Either you or we may choose to have any dispute between us decided
by arbitration and not in court or by jury trial.
2. If a dispute is arbitrated, you will give up your right to participate as
a class representative or a class member on any class claim you have
against us including any right to class arbitration or any consolidation
of individual arbitrations.
***
Any claim or dispute, whether in contract tort, statute or otherwise
(including the interpretation and scope of the Arbitration Agreement,
and the arbitrability of the claim or dispute), between you and us or our
employees, agents, successors or assigns, which arises out of or relates
to * * * [the] purchase or condition of this vehicle, this contract or any
resulting transaction or relationship (including any such relationship
with third parties that don’t sign this contract) shall, at your or our
election, be resolved by neutral, binding arbitration and not court
action.
In light of the permissive nature of the arbitration clause, Dumas and Parker chose
to file a lawsuit to settle a disagreement with NEAC, which in turn, consented to
proceed on the individual claims despite preserving its affirmative defense of
arbitration. We note that according to the express terms of their agreement, Dumas
and Parker have not waived their right to participate as class representatives or
members, and in addition, NEAC is not asserting any right to seek a stay pending
the arbitration of Dumas and Parker’s individual claims.
During the pretrial proceedings, Dumas and Parker requested and
were granted leave to amend their complaint, although the basis of that request is
disputed. The motion for leave was made orally during a pretrial conference, and
there is no record of the proposed amendments. The amended complaint included
allegations for similarly situated, putative class members. Dumas and Parker claim
that NEAC should have been aware of the impending class-action allegations
regardless of any confusion over the substantive basis of their request, and therefore,
NEAC consented to including the class allegations. NEAC claims that Dumas and
Parker only asked for leave to amend the complaint in order to address their
individual claims; otherwise, NEAC would have objected to the inclusion of the
class-action allegations.
Because there is no record substantiating the basis of Dumas and
Parker’s oral motion, we cannot conclude that NEAC affirmatively consented to the
amended complaint including the class allegations to waive any defenses to the
amendment of the allegations. “To establish waiver, the party seeking waiver must
demonstrate (1) that the party knew of its right to assert an argument or defense and
(2) that the totality of the circumstances establish that the party acted inconsistently
with that right.” Gembarski v. PartsSource, Inc., Slip Opinion No. 2019-Ohio-3231,
¶ 25, citing Donnell v. Parkcliffe Alzheimer’s Community, 6th Dist. Wood No. WD-
17-001, 2017-Ohio-7982, ¶ 21; and Atkinson v. Dick Masheter Leasing II, Inc., 10th
Dist. Franklin No. 01AP-1016, 2002-Ohio-4299, ¶ 20. In light of the silent record,
brought on by the fact that the motion for leave to amend the pleading was made
orally with no notation in the record as to its substance, we cannot consider Dumas
and Parker’s argument that NEAC affirmatively consented to an amendment to
include the class allegations, and through that alleged consent, waived the right to
challenge the class-action allegations.
In response to the amended pleading, NEAC retained additional
counsel and immediately filed a motion to strike the class claims under Civ.R. 12(F),
or in the alternative, a motion to stay the case pending arbitration of the class claims
based on the undisputed fact that NEAC used the same arbitration language in
“virtually” all of their transactions. In the alternative to the aforementioned consent
argument, Dumas and Parker argued that NEAC waived the right to seek arbitration
of the putative class members’ claims because NEAC arguably waived its right to
compel arbitration against the individual plaintiffs. The trial court agreed, but
concluded that the court “cannot in fairness permit [NEAC’s] new counsel to be the
occasion to change the course of litigation which was filed so many months ago.” It
is not clear from the record how NEAC’s arbitration defense advanced in response
to the amended complaint, which raised the class allegations for the first time, would
have unilaterally altered the course of the litigation that had been limited to Dumas
and Parker’s individual claims. If Dumas and Parker were permitted to substantially
change the course of litigation by including class allegations over a year after the
filing of the initial complaint, it would seem that any notion of fairness or due
process would dictate that NEAC be permitted to respond in kind.
Regardless, in this appeal, the only issue that we have jurisdiction to
address is the denial of the motion to stay pending arbitration of the class
allegations. It is without question that an order granting or denying a motion for
stay pending arbitration is a final appealable order. R.C. 2711.02(C). All other
issues, including the granting of leave to amend a pleading, are interlocutory in
nature and outside the scope of our current jurisdiction.1 The trial court erred in
concluding that NEAC waived the right to assert arbitration as a defense to the class
allegations based on the Ohio Supreme Court’s decision in Gembarski. We
recognize that the trial court lacked the benefit of Gembarksi, but regardless of the
timing, Gembarksi is controlling and dispositive of the issues raised in this appeal.
In Gembarksi, Slip Opinion No. 2019-Ohio-3231, the individual
plaintiff included class allegations in the initial complaint. The Ohio Supreme Court
concluded that when a case originates with an individual plaintiff who is also named
as a class representative, the defendant need not raise an arbitration defense relating
to the putative class members during the initial stages of the litigation. Id. at ¶ 3.
1
NEAC also assigned as error the trial court’s decision granting leave to amend the
complaint and the trial court’s refusal to submit an App.R. 9(C) statement that would have
provided a factual basis for NEAC’s argument pertaining to the granting of leave to amend
the complaint. The decision to grant leave to amend the complaint is not a final
appealable order subject to our jurisdiction over the arbitration issue. See, e.g., Treasurer
of Cuyahoga Cty. v. Robshir Properties, L.L.C., 8th Dist. Cuyahoga Nos. 107056 and
107289, 2019-Ohio-535, ¶ 24. Accordingly, any error with respect to the App.R. 9(C)
statement is moot.
Arbitration of the putative class members’ claims is not available as a defense until
the class-certification stage of the proceedings. Id. This is because unnamed
putative class members are not considered parties to an action until the class is
certified under Civ.R. 23. Id. at ¶ 31. “‘Certification of the class is the critical act
which reifies the unnamed class members and, critically, renders them subject to
the court’s power.’” Id., quoting In re Checking Account Overdraft Litigation, 780
F.3d 1031, 1037 (11th Cir.2015).
Certification of the class, the point in which the unnamed putative
class members actually become parties to the action, is the first time during the
proceedings that a defendant may assert the arbitration defense against the class
members. This is because without the class being certified, there is “no justiciable
controversy between a defendant and the unnamed putative class members.” Id.,
citing Kincaid v. Erie Ins. Co., 128 Ohio St. 3d 322, 2010-Ohio-6036, 944 N.E.2d
207, ¶ 17. Thus, under Gembarksi, before the certification stages, a defendant has
no duty to raise an argument that the unnamed putative class members were parties
to arbitration agreements and that the individual plaintiffs failed to satisfy Civ.R.
23(A)’s typicality and adequacy requirements based on the individual arbitration
agreements that remain enforceable. Id. at ¶ 4.
In this case, arguably, the plaintiffs were not required to arbitrate
their claims because of the permissive nature of the particular arbitration clause and
the fact that NEAC acquiesced to the trial court action. We recognize one difference
between the current case and Gembarksi. In this case, the individual plaintiffs are
not subject to arbitration because of a waiver, whereas the individual plaintiff in
Gembarksi did not sign a contract containing an arbitration provision altogether.
The fact that the plaintiff in Gembarksi was not subject to an arbitration clause, as
opposed to Dumas and Parker who are, but enforcement was arguably waived, is
irrelevant. In both cases, the individual plaintiffs are not required to submit their
claims to arbitration proceedings although the putative class members potentially
are. Gembarksi is directly on point.
NEAC could not have waived any individual defenses against the
putative class members because those members are not yet parties in this action,
nor can Dumas and Parker elect to avoid arbitration on behalf of the putative class
members, who themselves have the individual right to request arbitration and
against whom NEAC can elect to seek individual arbitration. Rimedio v.
SummaCare, Inc., 9th Dist. Summit No. 21828, 2004-Ohio-4971, ¶ 14. In
accordance with Gembarksi, the trial court erred in concluding that NEAC waived
its right to assert an arbitration defense to the individual putative class members
before the class-certification stages.
This conclusion, however, may be of little value to NEAC’s current
appeal. Because the putative class members are not parties in this proceeding and
are not under the trial court’s authority, it necessarily follows that there is no
justiciable controversy upon which arbitration could be compelled or the action
stayed at this point in time. Gembarksi, Slip Opinion No. 2019-Ohio-3231, at ¶ 31.
As the Ohio Supreme Court also concluded, a defendant has no right to an
arbitration defense before the class-certification stage of the proceedings because
before such time, there is no justiciable controversy between the defendant and the
putative class members. Id. at ¶ 34. Since the putative class members are not a party
to the action, staying the action before the class is certified would be premature. As
the parties concede, the arbitration clause at issue in this case does not expressly
authorize a class-wide arbitration. Shakoor v. VXI Global Solutions, Inc., 7th Dist.
Mahoning No. 16MA0038, 2017-Ohio-8018, ¶ 17. The arbitration clause refers to
the individual right to assert an arbitration against each member of the putative
class, and therefore, the putative class members and NEAC cannot be forced to
arbitrate any dispute in a class format. Id. at ¶ 18. As a result, the trial court could
not compel the matter for a class-wide or consolidated arbitration, but it also cannot
stay the matter to permit the individual arbitration with respect to the putative class
members who are not currently parties to the action. Gembarksi at ¶ 31.
Until the class-certification stage, NEAC cannot waive its right to
assert an arbitration defense against the putative class members or as a basis to
demonstrate that Dumas and Parker failed to demonstrate the typicality or
adequacy requirements of Civ.R. 23. Along those same lines, because the putative
class members are not parties to the action, NEAC cannot seek to stay the action
pending arbitration of what is currently considered a nonjusticiable controversy
between it and the putative class members. Id. Any stay pending such arbitration
would be premature at this point in the litigation.
Although the trial court’s reason for denying the motion to stay
pending arbitration was erroneous in light of the later-issued decision in Gembarksi,
the correct result was nonetheless reached. Nothing in our decision should be
interpreted to mean that NEAC cannot raise the affirmative defense of arbitration
against the putative class members at the appropriate time. Our sole conclusion is
that the trial court reached the correct result in denying the motion to stay pending
arbitration because consideration of the arbitrability of the unnamed, putative class
members’ claims is premature at this point in time. We affirm the decision denying
NEAC’s motion to stay the proceeding pending the arbitration. The matter is
remanded for further proceedings.
It is ordered that appellant and appellees share 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.
SEAN C. GALLAGHER, JUDGE
MARY J. BOYLE, P.J., and
LARRY A. JONES, SR., J., CONCUR