Court Opinion

ID: 2724207
Source: CourtListenerOpinion
Date Created: 2014-09-08 15:05:17.018231+00
Date Added: 2024-06-11T09:12:31.902000
License: Public Domain

[Cite as JJ Connor Co., Inc. v. Reginella Constr. Co., Ltd., 2014-Ohio-3873.]
                            STATE OF OHIO, MAHONING COUNTY
                                   IN THE COURT OF APPEALS
                                        SEVENTH DISTRICT

THE JJ CONNOR CO., INC.                                  )
                                                         )
        PLAINTIFF-APPELLANT,                             )
                                                         )                CASE NOS. 13 MA 75
V.                                                       )                          13 MA 77
                                                         )
REGINELLA CONSTRUCTION CO., ET                           )
AL.,                                                     )                      OPINION
                                                         )
        DEFENDANT-APPELLANT,                             )
                                                         )
                        AND                              )
                                                         )
TRAVELERS CASUALTY AND SURETY                            )
COMPANY OF AMERICA,                                      )
                                                         )
        DEFENDANT-APPELLEE.                              )

CHARACTER OF PROCEEDINGS:                                Civil Appeal from Court of Common
                                                         Pleas of Mahoning County, Ohio
                                                         Case No. 12CV1476

JUDGMENT:                                                Reversed and Remanded

APPEARANCES:
For Plaintiff-Appellant                                  Attorney Frederick S. Coombs, III
JJ Connor Co., Inc.                                      26 Market Street, Suite 1200
                                                         P.O. Box 6077
                                                         Youngstown, Ohio 44501-6077

For Defendant-Appellant                                  Attorney Steven R. Hobson II
Reginella Construction Co. Ltd.                          388 S. Main St., Suite 402
                                                         Akron, Ohio 44311

For Defendant-Appellee                Attorney Audrey E. Varwig
Travelers Casualty and Surety Company 2109 Stella Court
of America                            Columbus, Ohio 43215

JUDGES:

Hon. Gene Donofrio
Hon. Joseph J. Vukovich
                                                -2-

Hon. Mary DeGenaro

                     Dated: September 2, 2014
[Cite as JJ Connor Co., Inc. v. Reginella Constr. Co., Ltd., 2014-Ohio-3873.]
DONOFRIO, J.

        {¶1}     Plaintiff-appellant JJ Connor Co., Inc. and defendant-appellant
Reginella Construction Co., Ltd. appeal a decision of the Mahoning County Common
Pleas Court ordering defendant-appellee Travelers Casualty and Surety Company of
America be made a party to existing arbitration between JJ Connor and Reginella.
        {¶2}     This case arises from a commercial reconstruction project involving two
service plazas on the Ohio Turnpike. Reginella was the prime contractor on the
project and JJ Connor was one of its subcontractors. The subcontract between
Reginella and JJ Connor contained an arbitration provision. Travelers is a surety who
issued a contract bond on the reconstruction project on behalf of Reginella.
        {¶3}     A dispute arose involving the project resulting in JJ Connor suing
Reginella, Travelers, and the Ohio Turnpike Commission on May 15, 2012. On
September 13, 2012, the trial court granted Reginella’s motion for stay and referral to
arbitration and arbitration proceedings were scheduled to begin on March 11, 2013.
        {¶4}     On November 5, 2012, Travelers filed a motion to compel arbitration
seeking to interject itself into the arbitration proceedings between JJ Connor and
Reginella, despite not being a party to the subcontract between JJ Connor and
Reginella which provided for arbitration. JJ Connor and Reginella opposed Travelers’
attempt to join the arbitration. Apparently, while Reginella’s and Travelers’ interests
had once been aligned, they have since sued each other over other similar turnpike
construction projects which Reginella had bonded through Travelers resulting in their
relationship deteriorating and turning adversarial.
        {¶5}     On March 7, 2013, a magistrate granted Travelers’ motion without
explanation, JJ Connor and Reginella filed objections, and the trial court affirmed the
magistrate’s decision on April 16, 2013.
        {¶6}     JJ Connor appealed and the appeal was assigned case no. 13 MA 75.
Reginella also appealed and that appeal was assigned case no. 13 MA 77. This court
consolidated the appeals.
        {¶7}     JJ Connor raises two assignments of error, which state respectively:
                                                                               -2-

              The Trial Court committed reversible error in affirming the
       Magistrate’s Order permitting Travelers Casualty & Surety Company to
       participate in the Arbitration of Plaintiff’s claims against Reginella
       Construction Company, Ltd. and directing Arbitration of Plaintiff’s claims
       against Defendant/Appellee Travelers Casualty & Surety Company.
              The Trial Court abused its discretion in affirming the Magistrate’s
       Decision of March 7, 2013.

       {¶8}   Reginella raises one assignment of error which states:

              THE     TRIAL     COURT        ERRED   IN    ORDERING       THAT
       DEFENDANT TRAVELERS CASUALTY & SURETY COMPANY OF
       AMERICA BE MADE A PARTY TO THE EXISTING ARBITRATION
       [sic] BETWEEN PLAINTIFF THE JJ CONNOR CO. INC. AND
       DEFENDANT REGINELLA CONSTRUCTION COMPANY, LTD. IN
       AAA CASE NO. 55-110-389-12.

       {¶9}   Each and all of these assignments of error concern a single issue and,
therefore, will be addressed collectively.
       {¶10} If an action has been filed by one of the parties to an arbitration
agreement raising issues which may be arbitrable pursuant to their written
agreement, the other party may move the trial court for a stay of those proceedings
“until the arbitration of the issue has been had in accordance with the agreement[.]”
R.C. 2711.02(B). An order that grants or denies the stay of trial proceedings pending
arbitration is a final appealable order. Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio
St.3d 352, 2008-Ohio-938, 884 N.E.2d 12, ¶ 31; R.C. 2711.02(C).
       {¶11} Regarding the standard of review, a court of appeals generally applies
an abuse of discretion standard to a trial court’s decision regarding a stay pending
arbitration. Reynolds v. Crockett Homes, Inc., 7th Dist. No. 08 CO 8, 2009-Ohio-
1020, ¶ 11. However, there are some exceptions to this rule when the error alleged is
                                                                                    -3-

solely a matter of law. For example, where, as here, whether or not an arbitration
provision applies to a nonsignatory or nonparty involves a question of law. Berry v.
Lupica, 8th Dist. No. 90657, 2008-Ohio-5102, ¶ 7.
       {¶12} On appeal, JJ Connor and Reginella continue to object to Travelers
being made a party to the arbitration. Reginella argues that: (1) Travelers is not a
party to the contract between itself and JJ Connor which contains the arbitration
provision; (2) Travelers does not have the automatic right to participate in the
arbitration by virtue of its position as surety; (3) it is not in privity with Travelers; and
(4) adding a new party will delay the existing arbitration. JJ Connor advances
substantially similar arguments. In response, Travelers argues that the arbitration
provision in the agreement between JJ Connor and Reginella evidences their
intention that the surety would be included in any arbitration proceedings and that it
must be made a party to the arbitration proceedings in order to properly protect its
interests since its interests have become adverse to Reginella’s.
       {¶13} R.C. 2711.01, which provides for the validity of a provision in a contract
for the arbitration of controversies, clearly envisions such a provision as being
restricted to signatories or parties to the contract:

              A provision in any written contract * * * to settle by arbitration a
       controversy that subsequently arises out of the contract, or out of the
       refusal to perform the whole or any part of the contract, or any
       agreement in writing between two or more persons to submit to
       arbitration any controversy existing between them at the time of the
       agreement to submit, or arising after the agreement to submit, from a
       relationship then existing between them or that they simultaneously
       create, shall be valid, irrevocable, and enforceable, except upon
       grounds that exist at law or in equity for the revocation of any contract.

(Emphasis added.) R.C. 2711.01(A).
                                                                                 -4-

       {¶14} Case law is in accord. It is well-settled that only parties to a contract
containing an arbitration provision can compel arbitration. Council of Smaller
Enterprises v. Gates, McDonald & Co., 80 Ohio St. 3d 661, 665, 687 N.E.2d 1352
(1998); AT&T Technologies, Inc. v. Communications Workers of Am., 475 U.S. 643,
648-649, 106 S. Ct. 1415, 89 L. Ed. 2d 648 (1986). It is undisputed that Travelers was
not a party to the subcontract between JJ Connor and Reginella containing the
arbitration clause. Therefore, it cannot interject itself into arbitration between them on
that basis.
       {¶15} Despite its status as a nonsignatory or nonparty to the subcontract
between JJ Connor and Reginella, Travelers maintains that the arbitration clause and
its position as surety provide for its intervention. Travelers cites Midwest Curtainwalls,
Inc. v. Pinnacle 701, L.L.C., 8th Dist. No. 92269, 2009-Ohio-3740, in support of its
argument that because of its privity with Reginella it necessarily will be bound by any
arbitration decision concerning JJ Connor’s dispute with Reginella and will be
estopped from challenging it if it is not allowed to intercede. Although Midwest
Curtainwalls does stand for the proposition that a surety is estopped from challenging
an arbitrator’s award, it did not address the narrower issue presented by this case of
whether a surety has an affirmative right to participate in the underlying arbitration
proceeding.
       {¶16} In support, Travelers also cites a similar case involving it and Reginella
in the Eighth District Court of Appeals – 21st Century Concrete Constr., Inc. v.
Reginella Constr. Co., Ltd., 8th Dist. No. 99366, 2013-Ohio-3006, appeal not
allowed, 137 Ohio St. 3d 1423, 2013-Ohio-5285, 998 N.E.2d 1178. That case too is
distinguishable procedurally and, as such, did not address the narrow issue
presented by the present case before this court. The Eighth District case also
involved a subcontractor suing Reginella where Travelers was the surety. Once the
trial court recognized that the subcontractor and Reginella had initiated arbitration
proceedings, the court stayed the action and ordered Travelers to participate in the
arbitration, even though it was not a party to the arbitration agreement. However, in
                                                                               -5-

that case, Reginella had asked that Travelers be included in the arbitration
proceedings. Pointing to the invited error doctrine, the Eighth District declined to
reach the substantive merits of Reginella’s argument on appeal that the trial court
erred in ordering Travelers to be a part of the arbitration proceedings.
       {¶17} It should be noted that the language of the arbitration clause in the
subscontract between JJ Connor and Reginella also does not contemplate the
participation of Travelers or any surety:

              Any controversy or claim arising out of or related to this contract
       or the breach thereof, including claims against third parties whom RCC
       is obligated to defend, shall be settled by arbitration in accordance with
       the Construction Industry Arbitration Rules of the American Arbitration
       Association * * *.

       {¶18} “A third-party beneficiary is one for whose benefit a promise is made,
but who is not a party to the contract encompassing the promise. Chitlik v. Allstate
Ins. Co. (1973), 34 Ohio App. 2d 193, 196, 299 N.E.2d 295. * * * An intended
beneficiary has enforceable rights under the contract, in contrast to an incidental
beneficiary, who has no rights of enforcement. Hill v. Sonitrol of Southwestern Ohio
(1988), 36 Ohio St. 3d 36, 40, 521 N.E.2d 780.” Berge v. Columbus Community Cable
Access, 136 Ohio App. 3d 281, 303, 736 N.E.2d 517 (10th Dist.1999). “To have an
intended beneficiary, the contract must be entered into with the intent to benefit that
person. Doe v. Adkins (1996), 110 Ohio App. 3d 427, 436, 674 N.E.2d 731.” Berge, at
303, 736 N.E.2d 517. Under the subcontract between JJ Connor and Reginella,
Travelers was merely an incidental beneficiary of the construction subcontract, not an
intended third-party beneficiary and, therefore, has no right to enforce the contract’s
provision requiring arbitration.
       {¶19} In sum, there is no basis in statutory or case law for a nonsignatory or
nonparty to a contract containing an arbitration clause to compel its participation in
                                                                                  -6-

the arbitration proceedings. Accordingly, JJ Connor’s and Reginella’s assignments of
error have merit.
       {¶20} The judgment of the trial court ordering Travelers to participate in the
arbitration proceedings between JJ Connor and Reginella is reversed and this matter
is remanded for further proceedings according to law and consistent with this court’s
opinion.

Vukovich, J., concurs.
DeGenaro, P.J., concurs in judgment only with opinion.

DeGenaro, P.J., concurs in judgment only with opinion.
       {¶21} While I agree with the majority's judgment to reverse the trial court, I
cannot entirely join in the rationale for doing so. It is well settled that a non-signatory
and third-party to a contract containing an arbitration provision cannot be compelled
to participate in an arbitration; similarly, it cannot compel its inclusion in arbitration
proceedings.
       {¶22} In Kline v. Oak Ridge Bldrs., Inc., 102 Ohio App. 3d 63, 656 N.E.2d 992
(9th Dist.1995), the homeowners sued the construction company, a corporate entity,
which built their home, as well as the president of the company and his wife. Only
the homeowners and the corporate entity were signatories to the contract which
contained an arbitration clause; however the corporate entity and the individual
defendants sought a stay pending arbitration, which the trial court granted. The Ninth
District reversed in part, concluding that despite the arbitration clause contained in
the construction agreement; the president and his wife were not parties to that
contract, and thus could not have the claims asserted by the homeowners against
them individually resolved via arbitration. Id. In St. Vincent Charity Hosp. v. URS
Consultants, Inc., 111 Ohio App. 3d 791, 677 N.E.2d 381 (8th Dist.1996), the Eighth
District held that an architectural firm could not participate in an arbitration between a
hospital and another architectural firm pursuant to a contract between those two
parties which required arbitration absent evidence that it was assigned or assumed
                                                                                -7-

the other firm's liabilities under contract. Id. As such in the present action Travelers
cannot insert itself into the arbitration between JJ Connor and Reginella.
       {¶23} That said, neither collateral estoppel nor res judicata can be used to
impose the outcome of the arbitration between JJ Connor and Reginella upon
Travelers.     The majority states that Midwest Curtainwalls, Inc. v. Pinnacle 701,
L.L.C., 8th Dist. No. 92269, 2009-Ohio-3740 ¶20, stands for the general proposition
that a surety is estopped from challenging an arbitration award. However, that is not
entirely accurate. In Midwest, the Eighth District held that the surety was bound by
the arbitration award entered against its principal because the bond had been issued
after the commencement of arbitration between the subcontractor and the contractor.
Because the surety knew at the time it issued the bond that it would be bound by any
arbitration award issued against the contractor, the preclusive effect of collateral
estoppel and res judicata against the surety was warranted in Midwest based upon
those facts.
       {¶24} Here, we have the opposite circumstances. Travelers has attempted to
protect its interests by seeking to intervene in the arbitration, which we hold it cannot
do. Thus, is would be a manifest injustice in subsequent litigation among these
parties to then prevent Travelers from asserting any and all defenses. Because
Travelers has attempted to intervene in the arbitration but has been barred from
doing so, any arbitration award can have no res judicata effect upon Travelers, nor
can collateral estoppel bar any issue it may raise in subsequent proceedings.