Opinion
No. 108535
03-05-2020
BLUE TECHNOLOGIES SMART SOLUTIONS, L.L.C., Plaintiff-Appellee, v. OHIO COLLABORATIVE LEARNING SOLUTIONS, INC., ET AL., Defendants-Appellants.
Appearances: Climaco, Wilcox, Peca, Tarantino & Garofoli Co., L.P.A., John R. Climaco, and Scott D. Simpkins, for appellee. Schneider, Smeltz, Spieth, Bell, L.L.P., Mark M. Mikhaiel, and Nicholas M. Vento, for appellants.
JOURNAL ENTRY AND OPINION JUDGMENT: AFFIRMED Civil Appeal from the Cuyahoga County Common Pleas Court
Case No. CV-18-902719
Appearances:
Climaco, Wilcox, Peca, Tarantino & Garofoli Co., L.P.A., John R. Climaco, and Scott D. Simpkins, for appellee. Schneider, Smeltz, Spieth, Bell, L.L.P., Mark M. Mikhaiel, and Nicholas M. Vento, for appellants. SEAN C. GALLAGHER, J.:
{¶ 1} Defendants-appellants have appealed the trial court's denial of their motion to stay and to compel arbitration. Upon review, we affirm the trial court's decision.
The defendants named in the complaint included Ohio Collaborative Learning Solutions, Inc.; Anand Julka; Vijay Julka; Neeraj Julka, trustee of the Julka 2005 Irrevocable Gift Trust; and Anand Julka, trustee of the Anand Julka Revocable Trust. The claims against defendant Vijay Julka only were dismissed without prejudice. The remaining defendants are appellants herein.
Background
{¶ 2} On August 24, 2018, plaintiff-appellee Blue Technologies Smart Solutions, L.L.C., filed a complaint asserting claims for breach of an asset purchase agreement ("APA"), breach of a services agreement, and misappropriation of trade secrets. Along with seeking compensatory and punitive damages and other relief, plaintiff requested injunctive relief. Plaintiff sought, in part, to prevent defendants from competing with plaintiff in alleged violation of the noncompete provisions and to prevent the misappropriation of trade secrets. On September 13, 2018, the defendants filed an answer, and defendant Ohio Collaborative Learning Solutions, Inc., filed a counterclaim. Subsequently, an amended complaint was filed, and an amended complaint and counterclaim was filed.
{¶ 3} Among the allegations stated in the complaint and amended complaint was that "Relevant portions of the APA are attached hereto as Exhibit A. A complete copy of the APA with all exhibits and schedules is not attached hereto due to its length and because Defendants are already in possession of complete copy of the APA." Defendants admitted this allegation in their answer and in their amended answer. Although the APA contains an arbitration clause, defendants did not raise this as an affirmative defense.
{¶ 4} The parties proceeded with discovery in the matter. In March 2019, defendants obtained new counsel, and a notice of substitution of counsel was filed.
{¶ 5} On March 27, 2019, approximately seven months after the filing of the complaint, defendants filed a motion to stay and to compel arbitration. The motion also was filed shortly before the extended discovery deadline and the dispositive motion deadline. Defendants asserted that plaintiff's claims are subject to a mandatory arbitration provision contained in the APA. Defendants noted that the complaint did not attach the entire APA and only included excerpts. However, they did not dispute having received a copy of the entire APA, which they admitted in their answer.
{¶ 6} Section 5.6(b) of the APA states as follows:
Arbitration. Any dispute, controversy or claim arising out of or relating to this Agreement (except for such disputes or controversies which are to be resolved in a specific manner as set forth in this agreement), the performance by the parties of its or their obligations, including the determination of the scope of this agreement to arbitrate, which is not settled through mediation as provided above or issues or disputes arising pursuant to Article V, shall be resolved by binding arbitration held in Cleveland, Ohio administrated by the AAA in accordance with its published Commercial Arbitration Rules (the "AAA Rules") in effect on the Closing Date, except as specifically otherwise provided in this Article V. Notwithstanding the foregoing, any party to this Agreement may, in its discretion, apply to a court of competent jurisdiction for equitable relief concerning matters for which such equitable relief is available to any such party in accordance with applicable statutory and/or case law, including, but not limited
to, injunctive relief. The institution and maintenance of any judicial action as permitted in this Agreement and the pursuit of any such rights or remedies shall not constitute a waiver of the right or obligation of any party hereto to submit any dispute to negotiation, mediation or arbitration that may arise from the exercise of such rights or remedies. The institution and maintenance of an action for judicial relief or pursuit of provisional rights or remedies, all as provided herein, shall not constitute a waiver of the right of any party, including the plaintiff(s) seeking relief or remedies, to submit such dispute to negotiation, mediation or arbitration.
{¶ 7} Defendants sought to compel arbitration under this provision and requested the court to stay any claim that may be deemed not subject to arbitration. Defendants did not request a hearing on their motion. Defendants also made an alternative request for leave to amend their answer and counterclaim.
{¶ 8} In opposing the motion, plaintiff argued that defendants waived any right to demand arbitration by filing a counterclaim, actively participating in extensive discovery, and not timely seeking a stay pending arbitration. Plaintiff further argued that a stay at this juncture of the proceedings would be highly prejudicial to plaintiff, who was seeking, in part, injunctive relief to prevent defendants from violating the noncompete provisions of the APA and the services agreement. Plaintiff also argued that the court should reject defendants' alternative request to amend their answer and counterclaim.
{¶ 9} On April 11, 2019, the trial court denied defendants' motion to stay and to compel arbitration. The trial court recognized that the APA included a valid arbitration clause, but determined "based on the totality of the circumstances, * * * both parties waived any right to compel arbitration." The trial court cited the factors to be considered and stated as follows:
The circumstances of the instant litigation lead this Court to a finding against Defendants with respect to all four factors to be weighed. Defendants filed their Motion to Stay approximately seven months after Plaintiff filed its complaint and Motion for Temporary Restraining Order and Preliminary Injunction, a significant delay. Defendants have extensively participated in the litigation from the onset, as described above. Defendants filed two answers and counterclaims without moving to stay or including the right to arbitrate as an affirmative defense. Lastly, Plaintiff raised its prejudice in its opposition to the current motion.
Simple judicial notice of the docket in this matter would indicate arbitration at this juncture would go against Ohio and federal policy favoring arbitration by adding costs and time to a case which has been heavily litigated.
{¶ 10} Defendants timely filed this appeal.
Law and Analysis
{¶ 11} Defendants raise two assignments of error for our review. Under their first assignment of error, defendants claim the trial court erred by overruling their motion for a stay of proceedings because, according to defendants, they "properly and timely asserted their right to arbitration."
{¶ 12} R.C. 2711.01(A) provides that a provision in a contract for arbitration of a controversy "shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in equity for the revocation of any contract." A party 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.
{¶ 13} "'The right to arbitration may be waived just like any other contractual right.'" Aljaberi v. Neurocare Ctr., Inc., 5th Dist. Stark No. 2018CA00154, 2019-Ohio-2181, ¶ 22, quoting Murtha v. Ravines of McNaughton Condominium Assn., 10th Dist. Franklin No. 09AP-709, 2010-Ohio-1325. "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., 157 Ohio St.3d 255, 2019-Ohio-3231, 134 N.E.3d 1175, ¶ 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.
{¶ 14} Generally, an order "that grants or denies a stay of a trial of any action pending arbitration, including, but not limited to, an order that is based upon a determination of the court that a party has waived arbitration under the arbitration agreement, is a final order" that may be reviewed on appeal. R.C. 2711.02(C). Because "'[t]he question of waiver is usually a fact-driven issue,'" an appellate court will not reverse a trial court's decision on whether a party waived its right to arbitration absent a showing of an abuse of discretion. Neel v. A. Perrino Constr., Inc., 2018-Ohio-1826, 113 N.E.3d 70, ¶ 32 (8th Dist.), quoting Ohio Bell Tel. Co. v. Cent. Transport, Inc., 8th Dist. Cuyahoga No. 96472, 2011-Ohio-6161, ¶ 17. An "abuse of discretion" means the court's ruling "is unreasonable, arbitrary, or unconscionable." Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d 1140 (1983).
{¶ 15} In this case, defendants argue that there is a presumption in favor of arbitration, and that the failure to plead the right to arbitrate as an affirmative defense is not a waiver. The trial court recognized that the law favors arbitration, but after finding all the factors considered weighed against the defendants, the court concluded the totality of circumstances warranted a finding of waiver. The trial court engaged in the appropriate analysis. Defendants also argue that the terms of the arbitration provision expressly state that there can be no waiver. However, the arbitration provision permits a party to the APA to apply to a court of competent jurisdiction for equitable relief, and the nonwaiver of the right to arbitrate applies to "any judicial action as permitted in this Agreement" and "as provided herein." Also, under Ohio law, a party may waive a contractual right to arbitration. Aljaberi at ¶ 22.
{¶ 16} Next, defendants claim that plaintiff failed to prove defendants knew of an existing right to arbitration. The record reflects that defendants admitted in their answer that they were in possession of a complete copy of the APA. Furthermore, "a contracting party is presumed to know the reasonable import of the contents of a signed agreement, including the existence and scope of an arbitration clause." Garcia v. Wayne Homes, 2d Dist. Clark No. 2001 CA 53, 2002-Ohio-1884, ¶ 64, citing Haskins v. Prudential Ins. Co. of Am., 230 F.3d 231, 240-241 (6th Cir.2000); see also Long v. N. Illinois Classic Auto Brokers, 9th Dist. Summit No. 23259, 2006-Ohio-6907, ¶ 13; Melia v. OfficeMax N. Am., Inc., 8th Dist. Cuyahoga No. 87249, 2006-Ohio-4765, ¶ 35.
{¶ 17} Nonetheless, defendants argue that the APA does not contain an "integration clause" and that each page of the APA was not initialed, as was the case in Patrick v. Dixie Imports, Inc., 12th Dist. Butler No. CA2017-05-063, 2017-Ohio-9093, ¶ 17. However, in Patrick, these facts were addressed in relation to the parties' intent and unambiguous agreement to arbitrate, and nothing in that decision suggests that initials are required to establish knowledge of an arbitration clause. See id. at ¶ 17-18. The Patrick court determined that although the parties had entered into an unambiguous agreement to arbitrate, the defendant had waived its right to arbitrate. Id. at ¶ 19. With regard to the defendant's knowledge of an existing right to arbitration, it was stated that "[t]he trial court determined Dixie Imports was aware of the right to arbitrate the dispute as the arbitration clause was contained within the documents prepared and used by Dixie Imports." Id. at ¶ 23.
{¶ 18} Accordingly, we find no merit to defendants' argument. Defendants are presumed to have knowledge of the contents of the APA, including the existence and scope of the arbitration provision. They did not overcome that presumption.
{¶ 19} Defendants further claim that plaintiff failed to prove defendants acted inconsistently with the right to arbitrate under the totality of the circumstances. Factors that may be considered in determining whether the totality of the circumstances supports a finding of waiver include the following:
"(1) whether the party seeking arbitration invoked the jurisdiction of the trial court by filing a complaint, counterclaim, or third-party complaint without asking for a stay of proceedings; (2) the delay, if any, by the party seeking arbitration in requesting a stay of proceedings or an order compelling arbitration; (3) the extent to which the party seeking arbitration participated in the litigation, including the status of discovery, dispositive motions, and the trial date; and (4) any prejudice to the non-moving party due to the moving party's prior inconsistent actions."Am. Gen. Fin. v. Griffin, 8th Dist. Cuyahoga No. 99088, 2013-Ohio-2909, ¶ 18, quoting Ohio Bell Tel. Co., 8th Dist. Cuyahoga No. 96472, 2011-Ohio-6161, at ¶ 16.
{¶ 20} Defendants maintain that the factors weigh in their favor. Defendants argue that they did not invoke the jurisdiction of the court by filing a counterclaim because they were unaware of the arbitration clause. They also claim that they did not delay in seeking arbitration because they moved for arbitration as soon as they learned of the arbitration clause. However, as stated above, defendants acknowledged that they possessed a full copy of the APA, and there is a presumption that defendants had knowledge of the arbitration provision in the agreement.
{¶ 21} Defendants also argue that other courts have permitted arbitration after longer delays and where limited discovery has occurred. The cases cited by defendants in support of their argument are factually distinguishable. In Harsco Corp. v. Crane Carrier Co., 122 Ohio App.3d 406, 701 N.E.2d 1040 (3d Dist.1997), the court found that no waiver of the right to arbitration had occurred when the defendant had filed a motion for stay of proceedings and referral to arbitration within three months after filing its answer, during which time very limited discovery took place and a limited number of depositions were conducted. Id. at 416. However, in Harsco, the defendant had raised the arbitration agreement as an affirmative defense in its answer and had not filed a third-party complaint, counterclaim, or summary judgment motion, "any one of [which] * * * would demonstrate [defendant's] recognition of the trial court's authority to determine the suit pending before it." Id. In Travelers Cas. & Sur. Co. v. Aeroquip-Vickers, Inc., 6th Dist. Lucas No. L-06-1201, 2007-Ohio-5305, no counterclaim or cross-claims were asserted and the court noted that "the length of the delay alone is insufficient to impute waiver; rather, the totality of circumstances must be considered." Id. at ¶ 38-39. In Neel, 2018-Ohio-1826, 113 N.E.3d 70, although the defendant had filed an answer and counterclaim, the defendant expressly stated that it was not waiving its right to arbitration, its participation in the litigation was limited, and its motion was filed three months after the initiation of litigation. Id. at ¶ 5, 35. Likewise, other cases cited by defendants are distinguishable upon their facts.
{¶ 22} Although defendants herein claim that their participation prior to requesting arbitration was limited and that the prejudice to plaintiff was minimal, the trial court did not find this to be the case. There is no dispute that defendants filed two answers and a counterclaim without seeking a stay or including the right to arbitrate as an affirmative defense. The trial court considered defendants' seven-month delay in requesting arbitration and recognized defendants had "extensively participated in the litigation from the onset." Indeed, various motions were filed, pretrials were conducted, and as plaintiff states, "Defendants served numerous interrogatories, took the depositions of three of Plaintiff's employees, and served an extremely broad set of written discovery requests to which Plaintiff responded producing over 200,000 electronic files." The record reflects that defendants' motion was filed after their new counsel entered an appearance, and shortly before the extended discovery deadline and the dispositive motion deadline. The trial court noted that at that juncture of the proceedings, the case had been heavily litigated, which is reflected by the docket. Plaintiff argued that a stay of proceedings would be prejudicial at this juncture in the proceedings, and it is seeking, in part, injunctive relief to prevent defendants from alleged ongoing violations of noncompete provisions. The totality of circumstances establishes defendants acted inconsistently with their right to arbitration.
{¶ 23} Upon our review, we are unable to conclude that the trial court abused its discretion in finding a waiver occurred. Defendants' first assignment of error is overruled.
{¶ 24} Under their second assignment of error, defendants claim the trial court erred by failing to hold a hearing on their motion to compel arbitration. They argue that R.C. 2711.03 explicitly requires a hearing on a motion to compel arbitration.
{¶ 25} R.C. 2711.03(A) provides in relevant part as follows:
The court shall hear the parties, and, upon being satisfied that the making of the agreement for arbitration or the failure to comply with the agreement is not in issue, the court shall make an order directing
the parties to proceed to arbitration in accordance with the agreement.
{¶ 26} In Marks v. Morgan Stanley Dean Witter Commercial Fin. Servs., 8th Dist. Cuyahoga No. 88948, 2008-Ohio-1820, which is cited by defendants, it was stated that "[p]ursuant to R.C. 2711.03, * * * where a party has filed a motion to compel arbitration, the court must, in a hearing, make a determination as to the validity of the arbitration clause." Id. at ¶ 21, citing Maestle v. Best Buy Co., 100 Ohio St.3d 330, 2003-Ohio-6465, 800 N.E.2d 7, ¶ 18. Although the statute requires "a hearing" on a motion to compel arbitration, "because R.C. 2711.03 does not specifically provide for an oral hearing, it would appear that Civ.R. 7(B) permits a trial court to hear the matter upon a non-oral hearing." Chrysler Fin. Servs., Ams., LLC v. Henderson, 4th Dist. Athens No. 11CA4, 2011-Ohio-6813, ¶ 19; see also Church v. Fleishour Homes, Inc., 172 Ohio App.3d 205, 2007-Ohio-1806, 874 N.E.2d 795, ¶ 31 (5th Dist.) ("Although an oral hearing was never conducted, the non-oral hearing allowed the parties to be heard, as required by R.C. 2711.03.") As explained in Panzica Constr. Co. v. Zaremba, Inc., 8th Dist. Cuyahoga No. 95103, 2011-Ohio-620, "The plain language in this statute is different from language the legislature used in statutes requiring the court to hold a formal hearing." (Emphasis sic.) Id. at ¶ 32. Therefore, "a trial court need not hold an oral or evidentiary hearing regarding an R.C. 2711.03 motion absent a proper request." Chrysler Fin. Servs. at ¶ 21; see also Church at ¶ 29; Mattox v. Dillard's, Inc., 8th Dist. Cuyahoga No. 90991, 2008-Ohio-6488, ¶ 15.
{¶ 27} In this case, defendants did not request an oral hearing on their motion and the validity of the arbitration clause was not at issue. Rather, the issue was whether defendants waived their right to compel arbitration. Defendants' motion and plaintiff's opposition brief were submitted to the court. Also, the record reflects that the trial court addressed the outstanding motion at a pretrial conference held on April 4, 2019, and that defendants had filed a complete copy of the APA on the morning of the pretrial conference. Upon our review, we find that the trial court did "hear" the parties regarding defendants' motion to compel arbitration. Defendants' second assignment of error is overruled.
{¶ 28} Judgment affirmed.
It is ordered that appellee recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the common pleas 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. /s/_________
SEAN C. GALLAGHER, JUDGE EILEEN T. GALLAGHER, A.J., and
MARY EILEEN KILBANE, J., CONCUR