Court Opinion

ID: 4467813
Source: CourtListenerOpinion
Date Created: 2019-12-26 19:08:39.973064+00
Date Added: 2024-06-11T14:35:14.912296
License: Public Domain

[Cite as Stoner v. Salon Lofts, L.L.C., 2019-Ohio-5354.]

                              IN THE COURT OF APPEALS OF OHIO

                                   TENTH APPELLATE DISTRICT

Sean A. Stoner,                                            :
                                                                      No. 19AP-262
                 Plaintiff-Appellee,                       :      (C.P.C. No. 10CV-13904)
                                                                           and
v.                                                         :          No. 19AP-263
                                                                   (C.P.C. No. 15CV-2946)
Salon Lofts, LLC, et al.,                                  :
                                                               (ACCELERATED CALENDAR)
                 Defendants- Appellants.                   :

                                            D E C I S I O N

                                   Rendered on December 26, 2019

                 On brief: Cooper & Elliott, LLC, Adam P. Richards, and
                 Barton R. Keyes, for appellee. Argued: Adam P. Richards.

                 On brief: Littler Mendelson, P.C., Thomas M. L. Metzger,
                 and Brooke E. Niedecken, for appellants. Argued:
                 Thomas M. L. Metzger.

                 APPEALS from the Franklin County Court of Common Pleas

LUPER SCHUSTER, J.
        {¶ 1} Defendants-appellants, Salon Lofts, LLC and Daniel Sadd, appeal from a
judgment of the Franklin County Court of Common Pleas denying their motion to vacate,
modify, or correct the arbitration award entered in favor of plaintiff-appellee, Sean A.
Stoner. For the following reasons, we affirm.
I. Facts and Procedural History
        {¶ 2} On April 7, 2015, Stoner filed a petition to compel arbitration regarding a
dispute on Stoner's claimed ownership interest in Salon Lofts. Prior to Stoner's petition to
compel arbitration, the parties had been involved in litigation dating back to 2010 when
Stoner and Buckheel Investments, LLC filed a complaint against appellants and Salon Lofts
Franchising, LLC seeking a declaratory judgment that Stoner owned a profit interest in
Nos. 19AP-262 and 19AP-263                                                                 2

Salon Lofts based on Salon Lofts' Operating Agreement. Appellants and Salon Lofts
Franchising filed several counterclaims in response to the initial 2010 complaint. The 2015
petition to compel arbitration related solely to Stoner's claim that he held a five-percent
interest in Salon Lofts under the terms of the Operating Agreement; the remainder of
appellants' counterclaims remain pending in the trial court.
       {¶ 3} The matter proceeded to arbitration on December 18, 2017. Following the
arbitration hearing, the arbitrators issued an April 24, 2018 decision and award
determining Stoner, a former employee of Salon Lofts, held a five-percent interest in Salon
Lofts and that Stoner was entitled to payment for his five-percent interest upon the sale of
Salon Lofts pursuant to an Asset Purchase Agreement dated February 15, 2012. Based on
that conclusion, the arbitrators awarded Stoner $709,557.00 in damages, plus statutory
interest dating from February 15, 2012 until payment of the award. Subsequently, on
August 8, 2018, the arbitrators issued a supplemental decision on Stoner's petition for
attorneys' fees and arbitration-related costs, awarding Stoner $159,554.58 in arbitration
related fees and costs.
       {¶ 4} Appellants then moved to vacate, modify, or correct both the award and
supplemental award, arguing the arbitrators exceeded their authority in calculating the
dollar amount of Stoner's award. Stoner moved the trial court to confirm both the award
and supplemental award.
       {¶ 5} In a March 7, 2019 decision and entry, the trial court granted Stoner's first
amended application to confirm the arbitration award and denied appellants' motion to
vacate, modify, or correct the arbitration award and motion to vacate or modify the
arbitrators' supplemental decision on attorneys' fees and arbitration costs. In its decision,
the trial court concluded the arbitrators did not exceed their authority in determining
whether Stoner had an interest in Salon Lofts and the dollar amount Stoner should be paid
for that interest.   Subsequently, on March 25, 2019, the trial court issued a "Final
Judgment" in favor of Stoner, ordering appellants to pay Stoner a total award of
$869,111.58 plus interest and attorneys' fees. Appellants timely appeal.
II. Assignments of Error
      {¶ 6} Appellants assign the following errors for our review:
              1. The trial court erred in denying appellants' motion to vacate,
              modify, or correct arbitration award.
Nos. 19AP-262 and 19AP-263                                                                  3

               2. The trial court erred in denying appellants' motion to vacate
               or modify the arbitrators' supplemental decision on claimant's
               petition for attorneys' fees and arbitration related costs.

               3. The trial court erred in granting plaintiff's first amended
               application to confirm award.

               4. To the extent the trial court's March 25, 2019 final order is
               considered a final judgment on all claims in this case, the trial
               court erred.

For ease of discussion, we address appellants' assignments of error out of order.
III. First and Third Assignments of Error – Arbitration Award
       {¶ 7}   In their first assignment of error, appellants argue the trial court erred in
denying their motion to vacate, modify, or correct the arbitration award. In their third
assignment of error, appellants argue the trial court erred in granting Stoner's first
amended application to confirm the award. Taken together, these two assignments of error
assert the trial court erred in confirming the arbitration award.
       {¶ 8} Generally, an appellate court reviews a trial court's decision denying a motion
to vacate an arbitration award under an abuse of discretion standard. See Licking Hts.
Local School Dist. Bd. of Edn. v. Reynoldsburg City School Dist. Bd. of Edn., 10th Dist. No.
12AP-579, 2013-Ohio-3211, ¶ 8; Buchholz v. West Chester Dental Group, 12th Dist. No.
CA2007-11-292, 2008-Ohio-5299, ¶ 22 ("[a]n appellate court will review the common pleas
court's decision to confirm, modify, vacate or enforce the arbitration award based on abuse
of discretion"). An abuse of discretion connotes a decision that is unreasonable, arbitrary,
or unconscionable. Blakemore v. Blakemore, 5 Ohio St. 3d 217, 219 (1983). However, when
the appeal presents a question of law, the de novo standard of review is proper. Licking
Hts. Local School Dist. at ¶ 9, citing Hudson v. John Hancock Fin. Servs., Inc., 10th Dist.
No. 06AP-1284, 2007-Ohio-6997, ¶ 8. See also Portage Cty. Bd. of Dev. Disabilities v.
Portage Cty. Educators' Assn. for Dev. Disabilities, 153 Ohio St. 3d 219, 2018-Ohio-1590,
¶ 26 ("when reviewing a decision of a common pleas court confirming, modifying, vacating,
or correcting an arbitration award, an appellate court should accept findings of fact that are
not clearly erroneous but decide questions of law de novo").
       {¶ 9} "Because Ohio law favors and encourages arbitration, courts only have
limited authority to vacate an arbitrator's award." Fraternal Order of Police Capital City
Nos. 19AP-262 and 19AP-263                                                                  4

Lodge No. 9 v. Reynoldsburg, 10th Dist. No. 12AP-451, 2013-Ohio-1057, ¶ 22, citing Assn.
of Cleveland Fire Fighters, Local 93 of the Internatl. Assn. of Fire Fighters v. Cleveland,
99 Ohio St. 3d 476, 2003-Ohio-4278, ¶ 13. Pursuant to R.C. 2711, a court may vacate an
arbitration award only on the grounds of fraud, corruption, misconduct, an imperfect
award, or that the arbitrator exceeded his or her authority. Id. Here, appellants requested
the trial court vacate the award for Stoner on the grounds that the arbitrators exceeded their
authority. R.C. 2711.10(D).
       {¶ 10} A reviewing court cannot easily overturn an arbitrator's award. Fraternal
Order of Police Capital City Lodge No. 9 at ¶ 23, citing Queen City Lodge No. 69, Fraternal
Order of Police, Hamilton Cty., Ohio, Inc. v. Cincinnati, 63 Ohio St. 3d 403, 407 (1992).
" 'It is only when the arbitrator has overstepped the bounds of his or her authority that a
reviewing court will vacate or modify an award.' " Id., quoting Queen City Lodge No. 69 at
407. The language of the parties' contract determines the parameters of an arbitrator's
authority. Id., citing State Farm Mut. Ins. Co. v. Blevins, 49 Ohio St. 3d 165 (1990),
paragraph one of the syllabus.
       {¶ 11} Appellants assert the Operating Agreement specifically excepted from
arbitration the calculation of the award to Stoner. Section 35 of Salon Lofts' Operating
Agreement contains an arbitration clause. In pertinent part, it states:
              Any and all disagreements or controversies arising with respect
              to the Company and/or this Agreement, or with respect to its
              application to circumstances not clearly set forth in this
              Agreement, which are not to be determined under this
              Agreement by some or all of the Members or by the Board of
              Managers, shall be settled by binding arbitration * * *.

(No. 19AP-262, Operating Agreement, Section 35, attached to Sept. 22, 2010 Compl.) The
Operating Agreement further sets forth certain decisions that are explicitly reserved for the
Board of Managers or Members. Section 31 deals with the dissolution of Salon Lofts and
states the company "shall be dissolved and its affairs wound up upon the occurrence of * * *
[t]he sale of other disposition of substantially all the assets of the Company in accordance
with the provisions of this Agreement." (Operating Agreement, Section 31(a)(iv).) Further,
Section 31 specifically provides that the Board of Managers or one or more Members shall
handle the dissolution process, stating:
Nos. 19AP-262 and 19AP-263                                                                   5

              Upon dissolution of the Company, the Board of Managers shall
              act as liquidator or may appoint one or more of the Members
              to act as liquidator. The liquidator shall proceed diligently to
              wind up the affairs of the Company and make final
              distributions as provided herein and in the Act. The costs of
              liquidation shall be borne as a Company expense. Until final
              distribution, the liquidator shall continue to operate the
              Company properties with all of the power and authority of the
              Board of Managers. A reasonable time shall be allowed for the
              orderly liquidation of the assets of the Company and the
              discharge of liabilities to creditors so as to enable the liquidator
              to minimize any losses resulting from liquidation. The
              liquidator, as promptly as possible after dissolution and again
              after final liquidation, shall cause a proper accounting to be
              made by a public accounting firm of the Company's assets,
              liabilities and operations through the last day of the calendar
              month in which the dissolution occurs or the final liquidation
              is completed, as applicable, and shall apply the proceeds of
              liquidation as provided in Section 19 and in accordance with
              the time requirements of [section] 1.704-1(b)(2)(ii)(b)(2) of the
              Regulations. If, in the reasonable judgment of the liquidator, it
              will not be possible or prudent to complete the liquidation of
              the Company's assets and the distributions to the Members
              within that prescribed time period, the liquidator shall, on or
              before the last day of such period, distribute all remaining
              assets and liabilities of the Company to a trust, with the
              liquidator or such other person as the liquidator may appoint
              serving as the trustee thereof, for the purpose of complying
              with such timing requirements.

(Operating Agreement, Section 31(b).)
       {¶ 12} Thus, pursuant to the Operating Agreement, a matter is appropriate for
arbitration unless it is specifically reserved for the Board of Managers or Members.
Further, the Operating Agreement explicitly reserves the liquidation process upon
dissolution to the Board of Managers. Importantly, appellants do not challenge the
arbitrator's determination that Stoner had a five-percent interest in Salon Lofts. Rather,
appellants assert the Operating Agreement specifically excepted from arbitration the
calculation of the dollar amount award that corresponds to Stoner's five-percent interest.
       {¶ 13} The issue becomes, then, whether calculating the dollar amount of Stoner's
ownership interest was part of the dissolution process in Section 31(b) of the Operating
Agreement. Appellants urge us to construe Section 31(b) as explicitly reserving to the Board
Nos. 19AP-262 and 19AP-263                                                                  6

of Managers or its Members the duty of determining the value of any shares at liquidation.
They argue that when the arbitrators determined the value of Stoner's five-percent interest
in Salon Lofts, they essentially determined the value of the proceeds of the liquidation, thus
exceeding their authority.
       {¶ 14} Section 31(b) of the Operating Agreement references Section 19, which covers
distribution upon winding-up. Section 19 provides:
              19. Distributions Upon Winding-Up. Upon dissolution of
              the Company and the winding-up of the Company's affairs in
              accordance with Section 31(b), the assets of the Company (after
              giving effect to the provisions of Section 15) shall, subject to the
              requirements of applicable Ohio law, be applied and
              distributed in the following order of priority:

                       (a) Creditors. To the payment of debts and liabilities
              of the Company to creditors of the Company (including those
              to Members other than liabilities to Members for
              distributions), including, without limitation, expenses of
              winding-up and the establishment of any reserves against
              liabilities and obligations of the Company which the Board of
              Managers deems appropriate.

                     (b) Members. To the Members in accordance with,
              and in proportion to, their respective positive Capital Account
              balances.
(Emphasis sic.) (Operating Agreement, Section 19.) Appellants rely on the interplay of
Sections 19 and 31(b) for the proposition that any valuation of Stoner's five-percent interest
must first account for Salon Lofts' liabilities and debts. Because the arbitrators calculated
Stoner's five-percent interest based on the 2012 sale of Salon Lofts instead of allowing the
Board of Managers to engage in the valuation process set forth in Sections 19 and 31,
appellants argue the arbitration award exceeds the arbitrators' authority.
       {¶ 15} However, appellants' argument that the interplay of Sections 19 and 31(b) of
the Operating Agreement controls the outcome of this case ignores other vital provisions of
the Operating Agreement and the Asset Purchase Agreement. In particular, Section 14 of
the Operating Agreement specifically details ownership interests and provides that Stoner's
ownership units "shall be issued on such terms and conditions and for such price (if any)
as shall be determined by the Board of Managers."            (Operating Agreement, Section
14(b)(i).) The arbitrators found, and the parties do not dispute, that Salon Lofts agreed to
Nos. 19AP-262 and 19AP-263                                                                  7

give Stoner 50 ownership units, equivalent to a five-percent interest, as incentive for Stoner
to accept employment with Salon Lofts. The nature of those units reflected a profit interest
in Salon Lofts which, upon the sale of the company under the Asset Purchase Agreement,
converted from a profits interest into an equity interest.
       {¶ 16} Stoner's employment with Salon Lofts terminated in 2010. Section 30(B)(iii)
of the Operating Agreement provides appellants with the option of purchasing the
ownership units of a "Terminated Member" within 60 days of the terminated member's
request on a decision related to the purchase option. Appellants did not exercise the option
to purchase Stoner's ownership units within that timeframe, and thus, appellants could no
longer compel Stoner to sell his units back to Salon Lofts. We agree with the arbitrators
that the Operating Agreement is ambiguous as to whether a Terminated Member under
Section 30(B)(iii) for whom Salon Lofts does not exercise the option to repurchase the
ownership units remains a Member within the meaning of Sections 19 and 31 for purposes
of winding-up and dissolution. This ambiguity permits the consideration of extrinsic
evidence to discern the parties' intent with respect to the ambiguity. Shifrin v. Forest City
Ents., Inc., 64 Ohio St. 3d 635 (1992), syllabus ("[o]nly when the language of a contract is
unclear or ambiguous, or when the circumstances surrounding the agreement invest the
language of the contract with a special meaning will extrinsic evidence be considered in an
effort to give effect to the parties' intentions").
       {¶ 17} Critically, the arbitrators made the factual finding that appellants and Stoner
agreed, upon his acceptance of the five-percent ownership interest, that appellants would
purchase Stoner's ownership interest "in connection with any type of sale by Salon Lofts."
(No. 19AP-263, Arbitrators' Award, ¶ 27(e), attached to Aug. 13, 2018 Pl.'s Mot. as Ex. C.)
The 2012 Asset Purchase Agreement, in turn, provides:
               7.8 Redemption of Seller Interests. Sellers shall have
               taken all action necessary to cause all equity interests in Sellers
               owned by any Person other than Member or another
               Seller to be redeemed prior to or immediately following the
               Closing * * *.

(Emphasis sic.) (No. 19AP-262, Asset Purchase Agreement, Section 7.8.)
       {¶ 18} Based on Section 7.8 of the Asset Purchase Agreement, the actual sale of
Salon Lofts in 2012 required the redemption of Stoner's ownership unit as part of the sale.
Nos. 19AP-262 and 19AP-263                                                                   8

Accordingly, we agree with the arbitrators' construction of both the Asset Purchase
Agreement and the Operating Agreement that redemption of Stoner's ownership interest is
a part of the sale of Salon Lofts and not a part of the subsequent winding-up provisions
outlined in Sections 19 and 31. Because the Asset Purchase Agreement required the
redemption of Stoner's ownership interest prior to the winding-up process, we further
agree with the trial court that the arbitrators did not exceed their authority in assigning a
dollar value to Stoner's five-percent interest at the time of the 2012 sale.
       {¶ 19} "So long as there is a good-faith argument that an arbitrator's award is
authorized by the contract that provides the arbitrator's authority, the award is within the
arbitrator's power." Cedar Fair, L.P. v. Falfas, 140 Ohio St. 3d 447, 2014-Ohio-3943, ¶ 7,
citing Ohio Office of Collective Bargaining v. Ohio Civ. Serv. Emps. Assn., Local 11,
AFSCME, AFL-CIO, 59 Ohio St. 3d 177 (1991), syllabus. Here, the arbitrators used the
$14,191,147.19 sale price of Salon Lofts under the 2012 Asset Purchase Agreement to
calculate the value of Stoner's five-percent interest at the time of sale as $709,557.00.
Moreover, the arbitrators noted that appellants did not provide any evidence of any debts
or liabilities that should offset the value of Stoner's five-percent interest even if they were
to subject Stoner's ownership interest to the winding up provisions of Sections 19 and 31 of
the Operating Agreement.
       {¶ 20} Thus, we find the arbitrators' award was authorized by the Operating
Agreement and within the arbitrators' power. Because the arbitrators did not exceed their
authority, the trial court did not err in granting Stoner's first amended application to
confirm the award and in denying appellants' motion to vacate, modify, or correct the
arbitration award. Therefore, we overrule appellants' first and third assignments of error.
IV. Second Assignment of Error – Attorneys' Fees and Arbitration Costs
      {¶ 21} Appellants' second assignment of error asserts the trial court erred in
denying appellants' motion to vacate or modify the arbitrators' supplemental decision on
attorneys' fees and arbitration-related costs. Although appellants assign this as error,
appellants did not separately argue this assignment of error in the body of their appellate
brief. As a result, appellants' brief violates App.R. 16(A)(7). Taneff v. Lipka, 10th Dist. No.
18AP-291, 2019-Ohio-887, ¶ 29. Although an appellate court has discretion whether to
consider an assignment of error presented for review if the party fails to argue the
assignment of error separately in the brief, here appellants conceded during oral argument
Nos. 19AP-262 and 19AP-263                                                                           9

that they are not appealing the issue of attorneys' fees and arbitration-related costs. Taneff
at ¶ 30, citing App.R. 12(A)(2). Accordingly, we overrule appellants' second assignment of
error.
V. Fourth Assignment of Error – Finality of Judgment as to All Claims
         {¶ 22} In their fourth and final assignment of error, appellants argue the trial court
erred to the extent its March 25, 2019 judgment entry could be considered a final judgment
on all claims. The parties agree that the March 25, 2019 judgment entry pertains only to
the finality of the arbitration award to Stoner in the aggregate amount of $869,111.58 plus
interest and attorneys' fees. Because the March 25, 2019 judgment entry does not purport
to dispose of the remaining claims docketed under Franklin C.P. No. 10CV-13904, we
overrule appellants' fourth and final assignment of error, and we clarify that additional
claims between the parties remain pending in Franklin C.P. No. 10CV-13904.1
VI. Disposition
         {¶ 23} Based on the foregoing reasons, the trial court did not err in determining the
arbitrators did not exceed their authority in calculating the dollar amount of Stoner's award
and did not err in confirming the arbitration award to Stoner in the amount of $869,111.58
plus interest and attorneys' fees. Having overruled appellants' four assignments of error,
we affirm the judgment of the Franklin County Court of Common Pleas.
                                                                               Judgment affirmed.

                             KLATT, P.J., and SADLER, J., concur.

1 The litigation between the two parties commenced in 2010 under Franklin C.P. No. 10CV-13904. When

the matter was ordered to arbitration, the trial court separately docketed the arbitration matter under
Franklin C.P. No. 15CV-2946.