Court Opinion

ID: 4186652
Source: CourtListenerOpinion
Date Created: 2017-07-17 14:16:25.672931+00
Date Added: 2024-06-11T07:47:22.214181
License: Public Domain

[Cite as Woodville Ent., L.L.C. v. Kokosing Materials, Inc., 2017-Ohio-5844.]

                       IN THE COURT OF APPEALS OF OHIO
                           SIXTH APPELLATE DISTRICT
                               SANDUSKY COUNTY

WOODVILLE ENTERPRISE, LLC,

        PLAINTIFF-APPELLANT,                                         CASE NO. 16CAS13

        v.

KOKOSING MATERIALS, INC., ET AL.,
                                                                     OPINION
        DEFENDANTS-APPELLEES.

                Appeal from Sandusky County Common Pleas Court
                             Trial Court No. 16CV84

                                      Judgment Affirmed

                               Date of Decision: July 14, 2017

APPEARANCES:

        Dennis E. Murray, Jr. for Appellant

        Andrew R. Mayle for Appellees
Case No. 16CAS13

PRESTON, P.J.

       {¶1} Plaintiff-appellant Woodville Enterprise, LLC (“Woodville”) appeals

the March 16, 2016 judgment entry of the Sandusky County Court of Common Pleas

staying the proceedings in that court pending arbitration. For the reasons that

follow, we affirm.

       {¶2} This case stems from an agreement entered into on August 29, 2008

between defendant-appellee Kokosing Materials, Inc. (“Kokosing”), and

Woodville. As part of that agreement, the parties formed two new ventures—Area

Aggregates (“Aggregates”) and Area Asphalt, LLC (“Asphalt”).               The parties

entered into a master agreement, as well as an operating agreement for Aggregates

and an operating agreement for Asphalt. Section 24 of the master agreement is an

arbitration provision which says that any claim, dispute, or demand as to any term

or condition of that agreement must be resolved through arbitration.

       {¶3} Relations between the parties began to deteriorate, and Woodville filed

its complaint against Kokosing on February 2, 2016. (Doc. No. 1). In its complaint,

Woodville alleged fraud, self-dealing, breach of fiduciary duty, and breach of

contract on the part of Kokosing, with the various allegations stemming from

Kokosing’s management of the companies created by the operating agreements.

(Id.). Woodville sought money damages, the costs of the action, and attorney fees,

as well as injunctive relief and the imposition of a constructive trust. (Id.).
                                          -2-
Case No. 16CAS13

       {¶4} Kokosing filed a motion to stay the proceedings pending arbitration on

February 4, 2016. (Doc. No. 7). In that motion, Kokosing argued that the arbitration

provision at issue is very broad and that it is applicable to disputes arising from the

operating agreements. (Id.). Woodville filed a brief in opposition to the motion to

stay the proceedings pending arbitration on February 24, 2016. (Doc. No. 13). In

that brief, Woodville argued that the arbitration provision in the master agreement

was limited by its terms to disputes arising from that agreement and was therefore

inapplicable to disputes arising from the operating agreements. (Id.).

       {¶5} The trial court granted Kokosing’s motion to stay the proceedings

pending arbitration on March 16, 2016. (Doc. No. 18).

       {¶6} Woodville filed its notice of appeal on April 11, 2016. (Doc. No. 19).

Woodville brings one assignment of error for our review.

                            Assignment of Error
       The Trial Court Erred In Interpreting The Scope Of An
       Arbitration Provision In A Written Agreement Between The
       Parties To Cover Claims Brought For Violations Related To
       Separate Contracts, Which Were Executed Contemporaneously
       With That Agreement.

       {¶7} In its sole assignment of error, Woodville argues that the trial court

erred in interpreting the arbitration provision in the parties’ master agreement to

cover claims brought for violations of other contracts executed contemporaneously

with the master agreement. Specifically, Woodville argues that the trial court erred

                                         -3-
Case No. 16CAS13

in basing its decision on cases involving single contracts rather than cases involving

multiple contracts. Woodville argues that cases involving multiple contracts must

be analyzed differently from single-contract cases because an entirely separate body

of law is applicable. Woodville further argues that the parties clearly did not intend

the arbitration clause in the master agreement to cover breaches of the operating

agreements because the operating agreements included merger clauses preventing

extraneous provisions from being read into them. Woodville further argues that the

trial court mistakenly found that a cross-default clause in the master agreement

incorporated the operating agreements by reference. Woodville last argues that the

trial court applied the wrong test in finding that this dispute was subject to arbitration

and that, even if the trial court applied the correct test, it applied that test incorrectly.

       {¶8} Whether a party has agreed to submit an issue to arbitration is an issue

we review de novo, a standard under which we accord no deference to the ruling of

the trial court. Arnold v. Burger King, 8th Dist. No. 101465, 2015-Ohio-4485, ¶ 11.

See also Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio St.3d 352, 2008-Ohio-938,

¶ 2. Arbitration is a matter of contract, and a party cannot be made to submit to

arbitration unless he has agreed to do so. Academy of Medicine of Cincinnati v.

Aetna Health, Inc., 108 Ohio St.3d 185, 2006-Ohio-657, ¶ 11. A state court may

rely on a federal standard in applying state law on the issue of arbitrability, but that

standard must be a correct statement of both Ohio law and applicable federal
                                            -4-
Case No. 16CAS13

precedent. Id. ¶ 15. When a contract contains an arbitration provision, there is a

strong presumption in favor of arbitration in the sense that arbitration should not be

denied unless it can be said with “positive assurance” that the arbitration clause is

not susceptible to an interpretation that covers the dispute in question. Id. at ¶ 14.

The inquiry is whether an action can be maintained “without reference to the

contract or relationship at issue.” Alexander v. Wells Fargo Fin., 122 Ohio St.3d

341, 2009-Ohio-2962, ¶ 25; Fazio v. Lehman Bros., Inc., 340 F.3d 386, 395 (6th

Cir.2003). If the action can be maintained without reference to the contract or

relationship at issue, then the action is likely beyond the scope of the arbitration

agreement. Fazio at 395. Doubtful cases must be resolved in favor of coverage.

Aetna at ¶ 14.

       {¶9} When determining whether an issue is fit for arbitration, we must first

determine whether the arbitration clause includes limitations as to arbitrability, such

as whether the arbitration clause removed specific types of claims from its scope.

Id. at ¶ 17. Second, we must determine whether the arbitration clause at issue is

broad or narrow, it being understood that an arbitration clause that applies to “any

claim or controversy arising out of or relating to the agreement” is the very paradigm

of a broad arbitration clause. Aetna at ¶ 18. The Supreme Court of Ohio reinforced

the same understanding of what constitutes a broad clause three years after Aetna.

Alexander at ¶ 16.
                                         -5-
Case No. 16CAS13

       {¶10} The arbitration clause at issue in this case does not, by its terms,

remove a particular subset of claims from its scope. (See Plaintiff’s Ex. 1 at 16).

Section 24 reads:

       The parties agree that any claim, dispute, or demand concerning any

       term or condition of this [a]greement, and any claim, dispute[,] or

       demand (“Claims”) concerning the breach, performance, or non-

       performance of any term of this [a]greement, by any party hereto,

       shall be resolved through arbitration.

(Id.). The same arbitration clause that removes no specific claims from the scope

of arbitrability is, without question, a broad clause. Aetna at ¶ 18. The clause at

issue uses the word “any” no fewer than four times. (Plaintiff’s Ex. 1 at 16). In this

sense, the language of section 24 is even broader than the language that the Supreme

Court of Ohio said in Aetna was the paradigm of a broad clause. Aetna at ¶ 18. The

only difference between section 24 and the language that Aetna held to be broad is

that the former concerns “this” agreement, while the later speaks of “the”

agreement. Compare (Plaintiff’s Ex. 1 at 16) with Aetna at ¶ 18.

       {¶11} Much of Woodville’s argument, whether made with reference to

merger clauses or cross-default clauses, centers on the contention that the master

agreement and the two operating agreements were three separate contracts rather

than one contract with separate parts. Even if we assume without deciding that this
                                         -6-
Case No. 16CAS13

case involves multiple contracts, the Supreme Court of Ohio did nothing to limit its

Aetna analysis to cases involving one contract. Aetna at ¶ 16-18. In fact, Aetna

itself involved multiple contracts. Id. at ¶ 3 (quoting the trial court’s finding that

the dispute did not “arise out of or relate to the contracts” between the parties).

Despite the existence of multiple contracts in Aetna, the Supreme Court of Ohio

held specifically that the test from Fazio v. Lehman Bros., Inc. was the proper one.

Id. at ¶ 24.

       {¶12} Federal precedent has held similarly. Nestle Waters North America

Inc. v. Bollman, 505 F.3d 498 (6th Cir.2007). In Nestle Waters North America, Inc.

v. Bollman, the Sixth Circuit Court of Appeals confronted a situation in which

Nestle filed suit against the Bollmans over subsurface water rights. Id. at 499. The

deed touching the water rights was silent as to arbitration, but the Bollmans argued

that an arbitration clause in the contract that first established their business

relationship with Nestle—one that predated the deed—should govern the dispute.

Id. In concluding that the arbitration clause covered the dispute at issue, the court

noted that it had adopted tests that differed from the Fazio standard in cases that

involved multiple contracts. Id. at 504. The court analyzed multiple-contract cases

by asking which agreement “determines the scope of” contested obligations, and it

rejected the view that a dispute is arbitrable simply because it “touch[es] matters

covered by” an arbitration provision. Id., citing Alticor Inc. v. Natl’ Union Fire Ins.
                                         -7-
Case No. 16CAS13

Co. 411 F.3d 669, 672-673 (6th Cir.2005). The court in Nestle further noted that

other federal appellate courts had applied still other standards, such as one which

held that “arising out of” clauses encompass “all disputes having their origin or

genesis in the contract, whether or not they implicate interpretation or performance

of the contract per se.” Id. at 504-505, quoting Sweet Dreams Unlimited, Inc. v.

Dial-A-Mattress Int’l, Ltd., 1 F.3d 639, 642 (7th Cir.1993). Despite an obvious

awareness of alternative standards and the opportunity to endorse one of them or

propound its own, the court in Nestle unambiguously declared that Fazio articulated

the proper standard in the Sixth Circuit even in cases that involved multiple

contracts. Nestle at 505. We therefore conclude that the trial court, in applying the

Fazio test, applied the proper standard for determining whether a matter is

arbitrable.

       {¶13} Woodville next argues that, if the trial court applied the proper

standard in granting the motion to stay the proceedings, it applied that standard

improperly because Woodville’s action can be maintained without reference to the

master agreement.

       {¶14} We note from the outset that the broadness of the arbitration clause

creates a presumption in favor of arbitrability. Nestle at 505. Arbitration is not

limited to claims alleging breach of contract, and pleading claims creatively will not

overcome a broad arbitration provision. Aetna at ¶ 19. Broad arbitration clauses
                                         -8-
Case No. 16CAS13

like the one at issue in this case have even been held to make alleged conversion

arbitrable. Fazio at 395 (finding that allegations of theft were arbitrable because the

lawsuit stemming from the theft would require the parties make reference to the

agreement that includes the arbitration clause).

       {¶15} Based on the principles above, we conclude that the trial court did not

err in granting the motion to stay the proceedings pending arbitration. We cannot

say with positive assurance that the arbitration provision does not encompass the

dispute at issue here. The master agreement that contains the arbitration provision

is the agreement that began the parties’ relationship, and it is highly likely that the

parties will need to reference the master agreement to at least some degree in the

course of the dispute. Nestle at 505 (finding that arbitration applied because it was

likely that the dispute would require reference to other documents, including the

document that began the relationship between the parties).

       {¶16} The cases reviewed above, together with the pro-arbitration

presumption created by the broad arbitration clause, as well as the Supreme Court

of Ohio’s command that we resolve any doubts in favor of arbitrability, convince us

that the trial court applied the proper legal test and that it applied that test correctly.

       {¶17} For the forgoing reasons, Woodville’s assignment of error is

overruled.

                                           -9-
Case No. 16CAS13

       {¶18} Having found no error prejudicial to the appellant herein in the

particulars assigned and argued, we affirm the judgment of the trial court.

                                                               Judgment Affirmed

WILLAMOWSKI and SHAW, J.J., concur.

/jlr

Judges Vernon L. Preston, John R. Willamowski and Stephen R. Shaw, from the
Third District Court of Appeals, sitting by assignment of the Chief Justice of the
Supreme Court of Ohio.

                                        -10-