Bunta v. Superior Vacupress L.L.C. , 117 N.E.3d 51 ( 2018 )

[Cite as Bunta v. Superior Vacupress L.L.C., 2018-Ohio-2823.]
COURT OF APPEALS
HOLMES COUNTY, OHIO
FIFTH APPELLATE DISTRICT
JUDGES:
VASILE BUNTA : Hon. John W. Wise, P.J.
: Hon. W. Scott Gwin, J.
Plaintiff-Appellee : Hon. Earle E. Wise, J.
:
-vs- :
: Case No. 17CA023
SUPERIOR VACUPRESS LLC, ET :
AL :
: OPINION
Defendants-Appellants
CHARACTER OF PROCEEDING: Civil appeal from the Homes County Court
of Common Pleas, Case No. 17CV030
JUDGMENT: Affirmed
DATE OF JUDGMENT ENTRY: July 13, 2018
APPEARANCES:
For Plaintiff-Appellee For Defendants-Appellants
THOMAS WHITE CARI EVANS
209 N. Washington St 3521 Whipple Avenue N.W.
Millersburg, OH 44654 Canton, OH 44718
[Cite as Bunta v. Superior Vacupress L.L.C., 2018-Ohio-2823.]
Gwin, P.J.
{¶1} Appellants appeal the November 30, 2017 judgment entry of the Holmes
County Court of Common Pleas denying their motion to stay proceeding and refer case
to arbitration.
Facts & Procedural History
{¶2} On June 15, 2017, appellee Vasile Bunta filed a complaint against
appellants Superior VacuPress, LLC (“VacuPress”), Firman D. Mast, Mervin D. Mast,
Dennis Mast, Sr., and Superior Lumber, LLC (“Superior Lumber”). Appellee also named
Commercial and Savings Bank (“CSB”) as a defendant to the complaint.
{¶3} The complaint alleges Firman and appellee agreed to form VacuPress with
appellee owning 34%, Firman owning 51%, and Dennis owning 15% of the company and
that appellee designed the plans for electrical and gas systems for a lumber vacuum
drying process. Further, that the parties obtained a capital loan from CSB. Appellee
alleges VacuPress was to compensate him and Firman each $2,000 per month from the
profits of the company starting in August of 2015 and $4,000 per month beginning January
of 2016.
{¶4} Appellee also states in the complaint that the VacuPress operating
agreement was amended and reinstated on January 1, 2016, with the following
allocations of 1000 units: Mervin – 106 units; Dennis – 135 units, appellee – 300 units,
and Firman – 459 units. Appellee alleges that in March of 2016, Firman told appellee he
wanted appellee out of VacuPress. Further, that on August 15, 2016, Firman sent a letter
to appellee seeking to liquidate and dissolve VacuPress.
Holmes County, Case No. 17CA023 3
{¶5} Appellee alleges that on November 1, 2016, prior to the dissolution and
liquidation of VacuPress, the Mast appellants formed Superior Lumber at the same
location as VacuPress and that Superior Lumber occupies and operates at the same
location as VacuPress did. Appellants admit in their answer that Superior Lumber was
formed on November 1, 2016; that Firman sent a letter to appellee on August 15, 2016
with a notice of intent to terminate VacuPress; and that Superior Lumber occupies and
operates at the same location as VacuPress did.
{¶6} Appellee asserts the following counts in his complaint: (1) declaratory
judgment against the Mast appellants and Superior Lumber determining the Mast
appellants abandoned VacuPress in favor of Superior Lumber with a determination that
the parties are no longer bound to the operating agreement of VacuPress; (2) a
declaration that VacuPress is dissolved and requiring the Mast appellants to fully account
for VacuPress; (3) accounting by VacuPress and the Mast appellants for all monies
received and disbursed by them; (4) breach of fiduciary duty of the Mast appellants; (5)
civil conspiracy by VacuPress, Superior Lumber, and the Mast appellants to breach the
fiduciary duty owed to appellee and/or conversion of appellee’s property; (6) conversion
by VacuPress, Superior Lumber, and the Mast appellants; and (7) unjust enrichment by
VacuPress, Superior Lumber, and the Mast appellants. Appellee requests the following
relief: a declaratory judgment that appellants abandoned VacuPress and the parties are
no longer bound by the operating agreement, judicial dissolution, accounting, and winding
up of VacuPress, and an award of compensatory damages. Appellee does not name
CSB in any of the counts, nor does he request relief from CSB. Rather, appellee only
asserts that CSB “may have an interest in the subject matter of this case.”
Holmes County, Case No. 17CA023 4
{¶7} Exhibit C to the complaint is the amended and reinstated operating
agreement of VacuPress. The operating agreement states it is entered into by and
between Mervin, Dennis, Firman, and appellee. Article 17 of the operating agreement is
entitled “Arbitration” and Section 17.1 provides the following:
Controversies. Any controversy between the Manager or Members
relating to this Agreement, the operation of the Company or the
transactions contemplated hereby shall be submitted to arbitration in
Millersburg, Ohio, in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect. The arbitrator or
arbitrators may decide due to the nature of the dispute that the Company
should be dissolved, that a winding up of the affairs should occur and that
liquidation should result. In such event the provisions of Section 15 shall
control.
{¶8} The operating agreement is signed by Mervin, Dennis, Firman, and
appellee.
{¶9} Appellants filed an answer denying the allegations in the complaint and
asserting as their first affirmative defense that the operating agreement contains a binding
arbitration clause. On July 27, 2017, appellants filed a motion to stay proceedings and
refer case to arbitration pursuant to R.C. § 2711.02(B). Appellants argued the claims
asserted by appellee are required to be submitted to arbitration pursuant to the operating
agreement.
{¶10} CSB filed a response to the motion to stay. In the response, CSB stated
they believed they had been added to the case “solely as a basis of protecting and
Holmes County, Case No. 17CA023 5
adjudicating [their] rights as a secured party and first lien holder in the assets of Superior
VacuPress, LLC and/or successors thereto in the event of a dissolution or winding up”
and “no affirmative claims of wrongdoing or relief have been made by Plaintiff in regards
to CSB.” Thus, CSB took no position on the motion to stay other than to state it is not a
signatory to the operating agreement and it is not a necessary party to arbitration.
{¶11} Appellee filed a memorandum in opposition to the motion to stay on August
9, 2017 and supplemental memorandum in opposition on November 27, 2017. Appellee
argued the case could not be referred to arbitration because the case involves parties
that are not parties to the operating agreement and because appellee requests
declaratory judgment that appellants abandoned the operating agreement. Appellants
filed a reply on November 27, 2017.
{¶12} On November 30, 2017, the trial court issued a judgment entry denying
appellants’ motion to stay proceeding and refer case to arbitration. The trial court found
the case involved Superior Lumber and CSB, parties that are not parties to the VacuPress
operating agreement. Further, that appellee requests a declaratory judgment that
appellants have abandoned the operating agreement which the, “court must first
determine said cause of action prior to determining whether referral to arbitration is
appropriate.”
{¶13} Appellants appeal the November 30, 2017 judgment entry of the Holmes
County Court of Common Pleas and assign the following as error:
{¶14} “THE TRIAL COURT ERRED IN FAILING TO STAY THE LITIGATION AND
REQUIRE ARBITRATION PURSUANT TO THE TERMS OF THE OPERATING
AGREEMENT OF SUPERIOR VACUPRESS LLC.”
Holmes County, Case No. 17CA023 6
{¶15} “A trial court’s decision granting or denying a stay of proceedings pending
arbitration is * * * subject to de novo review on appeal with respect to issues of law, which
will commonly predominate because such cases generally turn on issues of contractual
interpretation * * *.” Hudson v. John Hancock Fin. Servs., 10th Dist. Franklin No. 06AP-
1284, 2007-Ohio-6997; McFarren v. Emeritus at Canton, 5th Dist. Stark No.
2013CA00040, 2013-Ohio-3900. Further, the “issue of whether a controversy is
arbitrable under an arbitration provision of a contact is a question of law for the court to
decide upon examination.” Id.; Rona Ents., Inc. v. Vanscoy, 5th Dist. Perry Nos. 09CA6,
09CA8, 2010-Ohio-1836. In this case, both appellants and appellee agree that the trial
court’s determination to deny the motion to stay is reviewable under a de novo standard,
as the conclusions involve legal determinations. Accordingly, we need not defer to the
trial court’s decision. McFarren v. Emeritus at Canton, 5th Dist. Stark No. 2013CA00040,
2013-Ohio-3900; Estate of Heath v. Grange Mut. Cas. Co., 5th Dist. Delaware No.
02CAE05023, 2002-Ohio-5494.
{¶16} Appellants contend the trial court erred in denying their motion to stay and
refer to arbitration based upon the inclusion of defendants who are not parties to the
operating agreement and argue that the language of the operating agreement and R.C.
2711 require arbitration of appellee’s claims against them. Appellee argues the policy
favoring arbitration does not compel a party to arbitrate with parties outside the scope of
the operating agreement.
{¶17} Ohio’s public policy favoring arbitration is codified at R.C. Chapter 2711.
Under R.C. 2711.01(A), a written arbitration clause “shall be valid, irrevocable, and
enforceable, except upon grounds that exist at law or in equity for the revocation of any
Holmes County, Case No. 17CA023 7
contract.” If a party moves to stay proceedings pending arbitration, pursuant to “an
agreement in writing for arbitration,” the court must first satisfy itself “that the issue
involved in the action is referable to arbitration” under the agreement. R.C. 2711.02(B).
Thus, the trial court must “determine ultimately whether an arbitration provision is
enforceable” and be satisfied that that relief sought is appropriate before issuing an order
to stay pending arbitration. Maestle v. Best Buy Co., 100 Ohio St. 3d 330, 800 N.E.2d 7
(2003).
{¶18} The Ohio Supreme Court has recognized Ohio’s public policy favoring
arbitration. Taylor Bldg. Corp of America v. Benfield, 117 Ohio St. 3d 352, 884 N.E.2d 12
(1998). However, arbitration is a matter of contract and, despite the strong policy in its
favor, a party cannot be compelled to arbitrate any dispute that he has not agreed to
submit. Grady v. Winchester Place Nursing & Rehab. Center, 5th Dist. Fairfield No. 08
CA 59, 2009–Ohio–3660; Neofores v. Brandddirect Marketing, Inc., 5th Dist. Richland
No. 02–CA–0012, 2002–Ohio–4841; Council of Smaller Enterprises v. Gates, McDonald
& Co., 80 Ohio St. 3d 661, 687 N.E.2d 1352 (1998). This axiom “recognizes the fact that
arbitrators derive their authority to resolve disputes only because the parties have agreed
to submit such grievances to arbitration.” Id. While arbitration is encouraged as a form
of dispute resolution, the policy favoring arbitration does not trump the constitutional right
to seek redress in court. Peters v. Columbus Steel Castings Co., 115 Ohio St. 3d 134,
2007–Ohio–4787, 873 N.E.2d 1258.
{¶19} In this case, the arbitration section of the operating agreement states it
applies to any controversies between the members of the agreement and the operation
of VacuPress. However, the arbitration agreement clearly does not encompass Superior
Holmes County, Case No. 17CA023 8
Lumber, as the “company” referred to in the arbitration section of the operating agreement
is VacuPress, not Superior Lumber. Thus, while appellee’s claims against the Mast
partners individually may be contemplated by the arbitration agreement, appellee’s claims
against Superior Lumber are not covered by the arbitration agreement and are beyond
the scope of the operating agreement. Appellee cannot be forced to arbitrate his claims
against Superior Lumber, as he did not sign an arbitration agreement with Superior
Lumber.
{¶20} Appellants argues appellee cannot defeat the arbitration clause by adding
an unnecessary party as a defendant. While we agree with this assertion with regards to
CSB, considering the assertions made in the complaint by appellee regarding Superior
Lumber, we do not agree that Superior Lumber is simply an unnecessary party defendant.
Appellee alleges in his complaint that the Mast appellants created Superior Lumber
before they dissolved VacuPress and alleges the Mast appellants sold or gave all the
assets of Vacupress to Superior Lumber prior to the dissolution of VacuPress, leaving
appellee with the debt incurred by VacuPress and utilizing the technology he designed
for the electrical and gas systems for the lumber vacuum drying process in the new
company, Superior Lumber. Appellants admit that Superior Lumber was formed on
November 1, 2016 and occupies and operates at the same location as VacuPress did.
Since Superior Lumber was formed by the same individual Mast partners who were
members of VacuPress, excluding appellee, and because of the nature of the claims
asserted against Superior Lumber, the resolution of the dispute with the Mast appellants
will determine the issues against Superior Lumber, a party who is not subject to the
arbitration agreement.
Holmes County, Case No. 17CA023 9
{¶21} Appellants contend since the claims against the Mast appellants are
covered by the operating agreement and those against Superior Lumber are not, the case
must be stayed until the conclusion of the arbitration of the claims against the Mast
appellants. Appellants cite several cases in support of their argument. However, the
facts in this case are distinguishable from the cases cited by appellants in which the cases
with both non-arbitrable and arbitrable claims are stayed. In the cases cited by appellants,
there are separate claims against separate parties who were not signatories to the
arbitration agreements. In this case, the complaint contains claims against Superior
Lumber, a company consisting solely of the old partners in VacuPress, excluding
appellee.
{¶22} Because the claims against Superior Lumber are the same as those against
the Mast appellants, the normal factors favoring arbitration, such as judicial economy and
efficiency, do not apply. Further, if the claims against the Mast appellants and Superior
Lumber are concluded in different forums, it may result in inconsistent decisions on the
issue of liability that cannot be reconciled and the parties would not achieve a permanent
resolution of their dispute. See Wascovich v. Personacare of Ohio, 11th Dist. Lake No.
2010-L-006, 2010-Ohio-4563; Peters v. Columbus Steel Castings Co., 115 Ohio St. 3d
134, 2007–Ohio–4787, 873 N.E.2d 1258. Accordingly, the trial court did not err in denying
appellants’ motion based upon the inclusion of claims against Superior Lumber.
{¶23} Appellants also contend the trial court erred in denying their motion to stay
based upon the trial court’s decision that it must determine the declaratory judgment
cause of action prior to determining whether referral to arbitration is appropriate. We
disagree.
Holmes County, Case No. 17CA023 10
{¶24} Appellee’s declaratory judgment action is against both Superior Lumber and
the Mast appellants and seeks a determination that appellants abandoned VacuPress in
favor of Superior Lumber and also seeks a determination that the parties are no longer
bound to the operating agreement of VacuPress because appellants abandoned the
operating agreement. While a court may not rule on the potential merits of an underlying
claim when deciding whether the parties have agreed to submit a particular claim to
arbitration pursuant to Council of Smaller Enterprises v. Gates, McDonald & Co., 80 Ohio
St.3d 661, 687 N.E.2d 1352 (1998), “an analysis of whether a dispute falls within he scope
of an arbitration agreement should logically follow the initial determination whether the
parties ever entered into an agreement in the first place.” Trinity Health System v. MDX
Corp., 180 Ohio App. 3d 815, 2009-Ohio-417, 907 N.E.2d 746 (7th Dist.); Mason v.
Mason, 5th Dist. Stark No. 2016CA00208, 2017-Ohio-5787. In his declaratory judgment
claim, appellee essentially asserts that appellants abandoned or waived their right to
arbitrate. The trial court did not make a determination as to whether appellants
abandoned or waived their right to arbitrate. Accordingly, the trial court did not err in
finding it must determine whether appellants’ waived or abandoned their right to arbitrate
prior to determining whether arbitration is appropriate.
Holmes County, Case No. 17CA023 11
{¶25} Based on the foregoing, we overrule appellants’ assignment of error. The
November 30, 2017 judgment entry of the Holmes County Court of Common Pleas is
affirmed.
By Gwin, P.J.,
Wise, John, P.J.,
Wise, Earle, J., concur