Ninth District Opinions Released on June 10, 2013

The Court of Appeals for the Ninth Appellate District released eight opinions on June 10, 2013. Below are short summaries of the opinions. 

Vestige, Ltd. v. Mills, 2013-Ohio-2379 reversed a decision of the Medina County Common Pleas Court granting a directed verdict to the plaintiff on the defendant's counterclaim. The defendant had retained the plaintiff to perform a forensic examination of the computer belonging to the client of the defendant. The client was charged with possessing pornography involving minors on this computer. The plaintiff is a firm that offers computer forensic services. The defendant's client got convicted. The defendant believed that the plaintiff had breached its contract with the defendant by not providing its services in a competent and professional manner. 

During the presentation of the counterclaim the defendant did not call an expert witness. This led to the trial court granting the plaintiff's motion for a directed verdict. The appellate court reversed the trial court on the grounds that the allegations being made by the defendant could be understood by a lay jury and no expert witness was needed. 

Stanfield v. United States Steel Corp., 2013-Ohio-2378 reversed a decision from the Lorain County Common Pleas Court granting a motion for summary judgment filed by the defendant. The case involved whether the plaintiff was discharged for filing a workers' compensation claim. The Court of Appeals found that there were issues of material fact about whether the firing of the plaintiff was in retaliation for filing a workers' compensation and whether the employer's conduct was extreme and outrageous. The appellate court reversed and remanded for further proceedings. 

Rodriguez v. S. Star Corp., 2013-Ohio-2377 affirmed a decision of the Medina County Common Pleas Court overruling a decision of the Unemployment Compensation Review Commission that denied unemployment benefits to the plaintiff. The plaintiff was an employee of the defendant who was assigned to work with a crew chief that had repeatedly used racial slurs around the plaintiff. The plaintiff asked to be reassigned to other crews, but the supervisor refused even though he had honored such requests in the past. The plaintiff then quit. The UCRC found that he had quit without just cause. The trial court reversed that decision and the Court of Appeals affirmed the trial court. 

State v. Smetana, 2013-Ohio-2376 affirmed a decision of the Lorain County Common Pleas court that convicted the defendant of one count of sexual battery and one count of sexual imposition. The defendant appealed arguing that the trial judge had been biased against him, that his conviction was based on insufficient evidence, and that it was also against the manifest weight of the evidence. The Court of Appeals rejected all three assignments of error. 

State v. Jones, 2013-Ohio-2375 reversed a decision of the Lorain County Common Pleas Court that suppressed evidence seized as the result of a traffic stop. The trial court held that the officer did not have probable cause to make a warrantless search of the trunk of the defendant's car following the stop. The State argued that the search was justified on the basis of the automobile exception to the warrant requirement. The Ohio Highway Patrol trooper who stopped the vehicle smelled an odor of marijuana. He found marijuana "shake" in the passenger compartment of the car, but believed that the shake was not the source of the odor. He searched the trunk and found more drugs, including marijuana and heroin. By a 2 to 1 vote the Court of Appeals upheld the search. The decision contains an interesting dissent by Judge Belfance in which she reviews the history of the automobile exception to the Fourth Amendment. 

Wells Fargo Bank N.A. v. Horn, 2013-Ohio-2374 reversed of decision of the Lorain County Common Pleas Court that granted a summary judgment to Wells Fargo in a foreclosure action. The appellate court reversed and remanded with directions to dismiss the case without prejudice. The dismissal order was based on the recent Ohio Supreme Court case of Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, ¶ 40.

Committe v. Rudolchick, 2013-Ohio-2373 reversed a decision granting a motion for summary judgment to a defendant in a negligent entrustment lawsuit. The Court of Appeals reversed because the documents cited in support of the motion were not evidentiary material required by Civ. R. 56. The Court pointed out that in the Ninth District a trial court may rely on documents that are not evidence as that term is used in Civ. R. 56. Here, though, the plaintiff objected to such documents and the trial court should not have considered them. Without the contested documents, the defendant did not establish that there was no issue of material fact. 

Artim v. Lorain Cty. Bd. of Dev. Disabilities, 2013-Ohio-2372 both reversed and affirmed a decision of the Lorain County Common Pleas Court that had granted motions for summary judgment filed by the Disabilities Board and an employee of the Board. The lawsuit involved injuries received by a child of the plaintiffs' while she was undergoing therapy at a facility run by the Board. The appellate court found that the trial court properly granted summary judgment to the Board on the basis of sovereign immunity but that it erred when it granted summary judgment to the employee. The appellate court wrote that there was a material issue of fact as to whether the employee's acts were wanton and malicious. Judge Carr dissented because she found that the employee as well as the Board should have had their motions for summary judgment granted.  

Judge Kimbler Case on Arbitration Waiver

Below is the body of a judgment entry that Judge Kimbler filed in a civil case. The issue was whether the defendant had waived its rights under a provision of the contract that required that certain disputes be submitted to arbitration. Judge Kimbler found that the defendant had not waived its rights. The case is subject to appeal and could be overturned.

Procedural History

The Plaintiff filed a complaint in this Court seeking damages for a breach of contract. The contract was attached to the complaint. The Defendant filed an motion to dismiss under Civ. R. 12 (B) (6), alleging that the Complaint didn’t state a cause of action because the arbitration clause required the dispute to be referred to arbitration. This Court denied the motion on the grounds that it could not tell from the pleadings whether the arbitration clause was valid. The Defendant then filed an answer and set forth, as an affirmative defense, the arbitration clause.

The parties then took discovery and attended Court hearings regarding this case. The case was set for a non-jury trial. Prior to the trial date, however, the Defendant filed a motion to stay proceedings and refer this case to arbitration. The Defendant asserted that the discovery that was done by the parties shows that the arbitration clause is valid under the law of the United Arab Emirates and that this Court should therefore order the parties to submit to arbitration.


The Plaintiff filed a response alleging that the Defendant has waived its right to arbitration pursuant to R.C. 2711.02. The Plaintiff argues that the procedure that the Defendant should have filed was to demand that the matter be stayed and sent to arbitration rather than filing a motion to dismiss. The Plaintiff further argues that the Defendant compounded the problem it created by its own actions when it engaged in discovery and attended Court proceedings instead of filing a stay and demanding arbitration.

Findings of Fact

In considering the Defendant’s motion to stay, a timeline is helpful. Here are the key events in the case as shown by the docket of the Medina County Clerk of Courts:

1. Complaint filed on September 27, 2007;
2. Service on the Defendant noted on docket on October 12, 2007;
3. Motion to Dismiss filed on December 5, 2007;
4. Non-oral hearing set on December 11, 2007, for December 31, 2007 on Motion to Dismiss;
5. Journal Entry denying Motion to Dismiss filed on February 5, 2008;
6. Answer filed on February 15, 2008;
7. Online Case Management Conference set on March 11, 2008 for April 28, 2008;
8. Defendant requests in-person CMF on April 17, 2008;
9. In-person CMF set for April 28, 2008;
10. Court issues order setting non-jury trial date of October 15, 2008 on May 8, 2008;
11. May 15, 2008 Court orders mediation for September 8, 2008;
12. Between July 3, 2008 and September 25, 2008 parties engage in discovery;
13. On September 25, 2008 the Defendant files its motion to stay proceedings.

Conclusions of Law

With certain exceptions, which don’t apply in this case, Ohio law recognizes the validity of contractual provisions to arbitrate contractual disputes. See R.C. §2711.01 (A).

If an arbitration clause is valid under R.C. §2711.01, et seq., then the jurisdiction of a Ohio common pleas court is limited to confirmation, vacation, modification or enforcement of the award and only on terms provided by statute. See Bordonaro v. Merrill Lynch, Pierce, Fenner & Smith, 163 Ohio App. 3d 410, 2005 Ohio 410, ¶ 4.

A party to such an agreement, however, can waive its right to proceed with arbitration. Since Ohio law favors arbitration, however, a party asserting such waiver bears the burden of establishing such waiver. A party asserting waiver must show (1) the waiving party knew of the existing right to arbitrate; and (2) the totality of the circumstances demonstrate the party acted inconsistently with the known right. See Webb v. ALC of W. Cleveland, Inc., 2008 Ohio 4875, at 9.

If one party to a contract files a lawsuit and the other party believes that there is a valid arbitration clause that limits the jurisdiction of the trial court in which the lawsuit is filed, the non-suing party may file a motion for a stay under R.C. §2711.02.

R.C. §2711.02 does not specify a time period in which a motion to stay must be filed.

Ohio Courts of Appeals have issued various decisions on when a party to an arbitration agreement must file a motion to stay in order to avoid waiving the arbitration clause. The Ninth District Court of Appeals, which is the appellate court that controls decisions of the Medina County Court of Common Pleas, sitting as the Lorain County Court of Appeals, addressed this issue in Austin v. Squire (1997), 118 Ohio App. 3d 35, 691 N.E.2d 1085.

In Austin the following language appears in the opinion by Judge Reece:

Pursuant to R.C. 2711.02, a court may stay trial of an action "on application of one of the parties" if: (1) the action is brought upon any issue referable to arbitration under a written agreement for arbitration, and (2) the court is satisfied the issue is referable to arbitration under the written agreement. When a party does not properly raise the arbitration provision of a contract before the trial court, he is deemed to have waived arbitration. See Jones v. Honchell (1984), 14 Ohio App. 3d 120, 122, 470 N.E.2d 219. "The right to arbitrate can be saved by seeking enforcement of the arbitration clause. This is done under R.C. 2711.02 by application to stay the legal proceedings pending the arbitration. Failure to move for a stay, coupled with responsive pleadings, will constitute a defendant's waiver." Mills v. Jaguar-Cleveland Motors, Inc. (1980), 69 Ohio App. 2d 111, 113, 430 N.E.2d 965. (Footnotes and citations omitted.)

Holding

This Court holds that where a party has filed a motion seeking dismissal of a case because of an arbitration clause, and then, when that motion is denied, files an answer asserting the affirmative defense of the arbitration clause, conducts discovery on the issue of the validity of the arbitration clause, then files a motion to stay proceedings within seven months of the filing of the answer, it has not waived its right to have the matter arbitrated.

Discussion

The defendant in the Austin case waited until he had lost a trial in front of a magistrate of the Elyria Municipal Court before he raised the issue that the contract between the parties required that the dispute be referred to arbitration. When he raised the issue, he did it by filing an objection to the magistrate’s decision, not by filing a motion for a stay. Further, the decision of the appellate court is silent as to whether the defendant ever asserted the defense of the arbitration clause prior to filing his objections.

In this case, however, the Defendant first asserted the defense of the arbitration clause when it filed a motion to dismiss pursuant to Civ. R. 12 (B). Then, after that motion was denied, it set forth the affirmative defense of the arbitration clause in its answer. Although the Defendant did not immediately file a motion for a stay pursuant to R.C. 2711.02, the Plaintiff was clearly on notice that the Defendant believed that his claim for commissions and compensation should be arbitrated pursuant to the contract between the parties.

This Court believes that allowing parties to conduct discovery before filing a motion for a stay is the proper procedure. In conducting such discovery, the Defendant took the Plaintiff’s deposition. In that deposition the Plaintiff stated that he knew the arbitration clause existed and that he did not object to the clause being included in the contract. Further, he testified that the reason why he was filing an action in the Medina County Common Pleas Court was because it was more expedient. Such testimony cuts against any argument that the Defendant by its conduct in relation to the Plaintiff had waived its right to seek arbitration.

Requiring a party to immediately file a motion for a stay without allowing for the conducting of discovery would put trial courts in the position of not possibly having all the facts necessary to make a ruling on the motion for a stay. This particular trial court declines the opportunity to make a ruling that could put it in that position in future cases.

In a reported decision, the Third District Court of Appeals, sitting as the Union County Court of Appeals, wrote the following:

The better rule of law appears to be that a motion for stay of proceedings pending arbitration and a referral to arbitration may be filed after the defending party answers the complaint if (1) the application of the arbitration clause is affirmatively pled in the answer, and (2) the defending parties conduct, based on the totality of the circumstances under Phillips, supra, does not demonstrate a waiver of the clause. Harsco Corp. v. Crane Carrier Co., 122 Ohio App. 3d 406, 415-416 (Ohio Ct. App., Union County 1997)

This Court agrees with the Third District that allowing a party to file an answer setting forth the affirmative defense of an arbitration clause, and then examining the conduct of that party following the filing of the answer is the better way to proceed. This Court, as explained above, go even further than the Third District and hold that conducting discovery doesn’t constitute a waiver if the discovery is, at least in part, directed toward the issue of the validity of the arbitration clause.

Order

Based on the above, therefore, this Court hereby grants the motion to stay proceedings and refers this matter to arbitration as set forth in the contact between the parties.

So Ordered, Adjudged, and Decreed.



______________________________
JUDGE JAMES L. KIMBLER