Court Opinion

ID: 4910874
Source: CourtListenerOpinion
Date Created: 2021-09-14 18:28:16.441736+00
Date Added: 2024-06-11T08:13:27.940451
License: Public Domain

[Cite as Michigan Timber & Truss, Inc. v. Summit Bldg. Servs., L.L.C., 2021-Ohio-3158.]

                             IN THE COURT OF APPEALS OF OHIO

                                  TENTH APPELLATE DISTRICT

Michigan Timber & Truss, Inc.,                        :

                Plaintiff-Appellee,                   :

v.                                                    :
                                                                         No. 20AP-557
Summit Building Services, LLC, et al.,                :              (C.P.C. No. 19CV-10385)

                Defendants-Appellees/                 :
                Third-Party Plaintiffs,                        (ACCELERATED CALENDAR)
v.                                                    :

Ruscilli Construction Co., Inc., et al.,              :

                Third-Party Defendants/               :
                Appellants.
                                                      :

                                         D E C I S I O N

                                  Rendered on September 14, 2021

                On brief: McDonald Hopkins LLC, Peter D. Welin, and
                John A. Gambill; Andrew R. Fredelake, for appellant Ruscilli
                Construction Co. Argued: John A. Gambill.

                On brief: Taft Stettinius & Hollister LLP, James D. Abrams,
                and Joseph C. Pickens, for appellee Summit Building Services,
                LLC. Argued: James D. Abrams.

                  APPEAL from the Franklin County Court of Common Pleas
SADLER, J.
        {¶ 1} Appellant/third-party-counterclaim defendant, Ruscilli Construction Co.,
Inc. ("Ruscilli"), appeals from a judgment of the Franklin County Court of Common Pleas
denying its motion to stay proceedings and compel arbitration with appellee/third-party-
No. 20AP-557                                                                              2

counterclaim plaintiff, Summit Building Services, LLC ("Summit"). For the following
reasons, we reverse the trial court judgment.
I. FACTS AND PROCEDURAL HISTORY
        {¶ 2} Ruscilli is the general contractor for a commercial construction project
located at 230 E. Long Street in Columbus, Ohio. Ruscilli entered into a subcontract with
Summit pursuant to which Summit agreed to perform the rough carpentry for the project.
Summit then entered into a contract/purchase order with Michigan Timber & Truss, Inc.
("MTT") whereby MTT agreed to supply Summit with lumber materials for the carpentry
work.
        {¶ 3} A dispute arose between MTT and Summit regarding whether MTT provided
defective and/or noncompliant materials. After failing to resolve their differences, Summit
declared MTT in default of their contract and terminated the purchase order in
October 2019. A few months later, in December 2019, since Summit had not fully paid MTT
under the purchase contract, MTT filed the instant lawsuit claiming breach of contract,
conversion, and unjust enrichment against Summit, and lien on discharge bond and
violation of the Ohio Prompt Payment Act against Summit and bond-issuer Employers
Mutual Casualty Company ("EMCC").
        {¶ 4} On March 2, 2020, Summit and EMCC filed a combined answer, third-party
complaint against an insurance company, counterclaim against MTT for breach of contract
("Count I"), and—pertinent to this appeal—counterclaim for declaratory judgment against
MTT and "[t]hird-party [c]ounterclaim [d]efendants" identified as Ruscilli and the
property owner ("Count II"). (Answer & Counterclaims at 8, 12.) The counterclaim for
declaratory judgment in Count II involved "whether Ohio's Prompt Pay Act, R.C.
4113.61(A)(1)(b) required Summit to make payments to MTT when Summit has unapplied
charge-backs and other deductions that apply to MTT's pay applications and where Ruscilli
has not made payment to Summit for its pay applications that included MTT's work."
(Answer & Counterclaims at 11.) Summit asserted in pertinent part that Ruscilli was
"required to be named in this claim pursuant to R.C. 2721.12(A) because [it has] an interest
that may be effected by the declaration requested [in the counterclaim]." (Answer &
Counterclaims at 12.)
No. 20AP-557                                                                                3

       {¶ 5} On July 21, 2020, MTT filed a motion for leave to amend its complaint to join
Ruscilli and the property owner as defendants and to add a claim of unjust enrichment
against them. On August 13, 2020, Ruscilli and the property owner filed a joint motion to
dismiss Count II of Summit's counterclaim or, alternatively, to stay proceedings as to that
count and compel arbitration pursuant to the terms of the subcontract. Later that month,
Ruscilli filed a related motion to stay discovery.
       {¶ 6} Summit opposed Ruscilli's motion to dismiss or stay and compel arbitration,
arguing in pertinent part that a declaratory judgment action is not a "dispute" as set forth
in the subcontract clauses dealing with arbitration. (Memo. Contra at 2, 7-8.) Specifically,
Summit contended that the unambiguous language of the subcontract required only
disputes arising "during the 'course of construction' " to be arbitrated, and therefore that
clause is not applicable in this case since the subcontract was terminated by Ruscilli.
(Memo. Contra at 7-8, citing Subcontract, Article 11.1.)
       {¶ 7} In an October 29, 2020 decision, the trial court denied Ruscilli's motion to
stay and order arbitration, but did so for reasons other than those raised by the parties. The
trial court stated:
               Instead of addressing whether a declaratory judgment claim is
               a dispute within the contract, however, the Court finds a more
               straightforward reason that the request for a stay is not
               currently persuasive. Even if the declaratory judgment action
               was a dispute set forth in the contract, Ruscilli has shown no
               evidence that arbitration is the correct stage of the dispute
               resolution process as set forth in the contract for the matters at
               hand. Indeed, there are two conditions precedent before
               arbitration is permitted: 1) attempting to settle through direct
               discussion by and between the parties' respective Project
               Managers and 2) pursuing mediation. If the Court were to
               consider a stay, Ruscilli would need to show that it had first
               attempted to settle through direct discussion with SBS and
               then, second, mediation with SBS. Ruscilli has not currently
               met this burden, and thus the Court declines to stay the
               proceedings against Ruscilli stemming from count II of SBS's
               counterclaim.

(Oct. 29, 2020, Trial Court Judgment at 11-12.)
       {¶ 8} In response to the trial court's assertion that it "had shown no evidence" of
the conditions precedent being met, in November 2020 Ruscilli filed a "Motion to Stay
No. 20AP-557                                                                                4

Pursuant to R.C. 2711.02 and Compel Arbitration Pursuant to R.C. 2711.03" with (what it
asserts to be) evidence it satisfied all conditions precedent attached to the motion. Ruscilli
filed a notice of appeal, and the November 2020 motion to stay remains pending in the trial
court.
II. ASSIGNMENTS OF ERROR
         {¶ 9} Ruscilli submits two assignments of error for our review:
               ASSIGNMENT OF ERROR NO. 1: The Trial Court Erred In
               Denying Ruscilli's Motion To Dismiss Or, Alternatively, To Stay
               Pending Arbitration Based Upon Ruscilli's Failure To Prove
               That All Conditions Precedent Had Been Satisfied Because
               Issues Of Procedural Arbitrability Are Reserved For The
               Arbitrator.

               ASSIGNMENT OF ERROR NO. 2: The Trial Court Erred In
               Denying Ruscilli's Motion To Dismiss Or, Alternatively, To Stay
               Pending Arbitration Because Ruscilli Adequately Showed That
               Summit's Declaratory Judgment Action Is Subject To
               Mandatory And Binding Arbitration.

III.     STANDARD OF REVIEW
         {¶ 10} An appellate court generally reviews an appeal from a motion to stay
proceedings pending arbitration for an abuse of discretion. Morris v. Morris, 189 Ohio
App.3d 608, 2010-Ohio-4750, ¶ 15 (10th Dist.). An abuse of discretion implies the trial
court decision is unreasonable, arbitrary, or unconscionable. Blakemore v. Blakemore, 5
Ohio St.3d 217, 219 (1983). However, an appellate court employs a de novo standard of
review where the appeal of a motion to stay proceedings pending arbitration presents a
question of law. Morris at ¶ 15. "Thus, '[a] trial court's decision granting or denying a stay
of proceedings pending arbitration is * * * subject to de novo review on appeal with respect
to issues of law, which commonly will predominate because such cases generally turn on
issues of contractual interpretation or statutory application.' " Id. citing Hudson v. John
Hancock Fin. Servs., 10th Dist. No. 06AP-1284, 2007-Ohio-6997, ¶ 8.
IV.      ANALYSIS
         {¶ 11} Before addressing the assignments of error, we recognize that Summit, in its
appellate brief, references its December 2020 motion to dismiss this appeal for lack of
subject-matter jurisdiction. Summit contends, "since the trial court did not decide the
threshold issue of whether Summit's counterclaim for declaratory judgment is arbitrable,
No. 20AP-557                                                                                                 5

which is exclusively for the trial court to determine, this [c]ourt has nothing yet to review."
(Appellee's Brief at 1.)
        {¶ 12} This issue was already addressed and resolved in Michigan Timber & Truss,
Inc. v. Summit Bldg. Services, LLC, 10th Dist. No. 20AP-557 (Mar. 9, 2021)
(memorandum decision). Citing to R.C. 2711.02(C) and Mynes v. Brooks, 124 Ohio St.3d
13, 2009-Ohio-5946, syllabus, we determined this court has jurisdiction to determine
whether the trial court erred when it denied Ruscilli's motion to stay proceedings and
compel arbitration. Therefore, we denied Summit's motion to dismiss the appeal. Having
previously decided this issue, we proceed to the merits of the appeal.
        {¶ 13} In its first assignment of error, Ruscilli contends the trial court erred in
denying its motion to stay based on Ruscilli's failure to prove that all conditions precedent
to arbitration had been satisfied. According to Ruscilli, the trial court exceeded its well-
established role in determining whether the subject matter of a dispute is an arbitrable issue
(referred to as "substantive arbitrability" or just "arbitrability") and instead improperly
opined on a subject that should have been reserved for the arbitrator: i.e., the procedural
issue of whether (possible) conditions precedent to arbitration had been satisfied.
(Appellant's Brief at 19-21.) For the following reasons, we agree with Ruscilli.
        {¶ 14} "[B]oth the Ohio General Assembly and Ohio courts have expressed a strong
public policy favoring arbitration." Hayes v. Oakridge Home, 122 Ohio St.3d 63, 2009-
Ohio-2054, ¶ 15. "The Ohio General Assembly has evinced its endorsement of the strong
public policy favoring arbitration via R.C. 2711.01(A), which provides that an arbitration
agreement 'shall be valid, irrevocable, and enforceable, except upon grounds that exist at
law or in equity for the revocation of any contract.' " One Lifestyle, Ltd. v. Mohiuddin, 10th
Dist. No. 20AP-72, 2021-Ohio-1594, ¶ 15. A trial court is authorized to stay an action
pending arbitration if the trial court is satisfied that "the issue involved in the action is
referable to arbitration under an agreement in writing" for arbitration and "provided the
applicant for the stay is not in default in proceeding with arbitration."1 See R.C. 2711.02(B).

1 We note that Summit has not argued that Ruscilli is in default in proceeding with arbitration under

R.C. 2711.02(B). See generally Artex Oil Co. Arloma Corp. v. Energy Sys. Mgt. of Ohio, Inc., 7th Dist. No.
296, 2002-Ohio-5244, ¶ 15 and Ohio Plumbing, Ltd. v. Fiorilli Constr., Inc., 8th Dist. No. 106242, 2018-Ohio-
1748, ¶ 17-18 (equating "in default" provision of R.C. 2711.02(B) to "waiver" of a party's right to arbitrate).
No. 20AP-557                                                                                 6

       {¶ 15} Faced with a motion to stay litigation pending arbitration, "a trial court must
first determine whether the parties agreed to submit the matter to arbitration." Mohiuddin
at ¶ 18. As a general rule, "matters regarding procedural questions growing out of the
parties' dispute and bearing on its final disposition are best left to the determination of the
arbitrator." Council of Smaller Ents. v. Gates, McDonald & Co., 80 Ohio St.3d 661, 668-
69 (1998), citing John Wiley & Sons v. Livingston, 376 U.S. 543, 557 (1964). The Tenth
District Court of Appeals recognizes this guiding principle. See, e.g., FOP Capital City
Lodge No. 9 v. Reynoldsburg, 10th Dist. No. 12AP-451, 2013-Ohio-1057. Id. at ¶ 26, citing
John Wiley & Sons, Inc. ("When the subject matter of a dispute is arbitrable, procedural
questions that grow out of the dispute and bear on its final disposition are to be left to the
arbitrator.").
       {¶ 16} This court in Baker-Henning Prods. v. Jaffe, 10th Dist. No. 00AP-36, 2000
Ohio App. LEXIS 5147 (Nov. 7, 2000), found that whether a "condition precedent" to
arbitration had been met is a procedural question within the purview of the arbitrator.
Considering a contract containing a broadly-worded arbitration clause, the Jaffe court was
persuaded by the reasoning of John Wiley & Sons and a previous Tenth District decision
that explained court intervention as to procedural issues cuts against the "accepted policy
favoring arbitration and removing these issues from the court[.]" Id. at *9-10, quoting
Reynoldsburg City School Dist. Bd. of Edn. v. Reynoldsburg School Support Assn., 10th
Dist. No. 90AP-1233 (June 4, 1991).
       {¶ 17} This same reasoning prevailed in a Third District Court of Appeals case even
where the contract arguably included a "multi-step dispute resolution process" approach to
dispute resolution. Blanchard Valley Health Sys. v. Canterbury Holdings, Inc., 3d Dist.
No. 5-12-08, 2012-Ohio-5134, ¶ 22-25. The party resisting arbitration in that case argued
that the matter should not have been referred to arbitration since the contract there
contained conditions precedent to arbitration in the form of dispute resolution steps that
had not been satisfied. Citing Gates, McDonald & Co. and John Wiley & Sons, Inc., the
Third District found "it is appropriate that the arbitrator determine whether these claimed
procedural prerequisites are material and whether they have been met." Blanchard Valley
Health at ¶ 24. Concluding "[p]rocedural arbitrability falls within the purview of the
arbitrator," the Third District overruled the assigned error. Id. at ¶ 25.
No. 20AP-557                                                                                                     7

        {¶ 18} Summit counters that some courts, including the Eighth District in
Progressive Casualty Ins. Co. v. Barron, 8th Dist. No. 46521, 1983 Ohio App. LEXIS 12308
(Oct. 27, 1983), *5,2 have found that the issue of fulfillment of conditions precedent to
arbitrability may be decided by the trial court.                   Summit's citation to Barron is not
persuasive. Barron was based on Vulcan-Cincinnati, Inc. v. United Steelworkers of Am.,
113 Ohio App. 360 (1960), a case that appears to conflate conditions precedent with issues
of "arbitrability" in contrast to later Supreme Court of Ohio precedent. Compare Vulcan-
Cincinnati at 366 with Gates, McDonald & Co. at 668-89. Moreover, since Barron was
issued in 1983, the Eighth District Court of Appeals has more recently taken an approach
in line with Gates, McDonald & Co. See, e.g., Bd. of Library Trustees, Shaker Hts. Pub.
Library v. Ozanne Constr. Co., Inc., 100 Ohio App.3d 26, 30 (8th Dist.1995) and N. Elec.,
Inc. v. Amsdell Constr., Inc., 8th Dist. No. 85293, 2005-Ohio-4134, ¶ 21 (both stating,
"Once arbitration is selected as the proper forum, the arbitrator determines all issues of
procedural arbitrability, i.e., whether the party demanding arbitration has complied with
all precedent conditions set forth in the agreement itself.") (Internal citations omitted.)
        {¶ 19} In this case, we cannot say the subcontract at issue demands a departure from
the general principles discussed above. The subcontract states, in pertinent part, "If at any
point during the course of construction a dispute arises out of, or relates to [the]
Subcontract or the alleged breach thereof," the parties are required to "endeavor to settle
the dispute first" through discussions between the project managers and then higher up
representatives of each party and, if those discussions fail, "endeavor to settle the dispute
by mediation[,]" a condition precedent to arbitration. (Subcontract3 at Article 11.1.) "In the
event that a dispute is not resolved [through discussions or mediation], the method of
binding dispute resolution shall be" * * * [a]rbitration." (Subcontract at Article 11.2.)

2 Summit also submitted a notice of additional authorities to be presented at oral argument. While these
authorities were not raised and discussed at oral argument, this court did review the cited cases in considering
the appeal and do not find they support affirming the trial court in this case. For example, the only case cited
related to conditions precedent, Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511, 1516 (10th Cir.1995),
does not reference procedural conditions precedent to arbitration in the sense used in this case but essentially
discusses that arbitrability is a condition precedent to involuntary arbitration. See Id. at 1516 ("A dispute
within the scope of the contract is still a condition precedent to the involuntary arbitration of antitrust claims.
* * * arbitration is a matter of contract and that a party cannot be required to submit to arbitration any suit it
has not agreed to arbitrate.")
3 Subcontract is Ex. A to Ruscilli Construction Co., Inc. And 230 Long St. CP, LLC's Joint Motion To Dismiss

Count II Of Summit Building Services, LLC's Counterclaim Or, Alternatively, To Stay Proceedings As To
That Count And Compel Arbitration, filed Aug. 13, 2020.
No. 20AP-557                                                                                  8

"Litigation" was provided as a listed option, but not selected by the parties. (Subcontract
at Article 11.2.)
       {¶ 20} The subcontract does not expressly discuss whether the trial court or
arbitrator should determine if the stated conditions precedent to arbitration have been
satisfied. Moreover, Summit does not contend that the particular language of the contract
here required the trial court to determine issues related to conditions precedent. In such a
case, we believe the general rule that questions of arbitrability should be addressed by the
trial court and then "procedural questions that grow out of the dispute and bear on its final
disposition are to be left to the arbitrator" applies. FOP Capital City Lodge No. 9 at ¶ 26;
see also Hayes at ¶ 15 ("In light of the strong presumption favoring arbitration, all doubts
should be resolved in its favor."). We further note that the parties agree that the trial court
should not have bypassed the issue of arbitrarily as a threshold issue. (Appellee's Brief at 11;
Appellant's Brief at 19, 26; July 21, 2021 Oral Arg.) Considering all the above, and on the
facts of this case, we find the trial court erred in denying Ruscilli's motion to stay pending
arbitration based on its sua sponte determination that conditions precedent to arbitration
had not been proven by Ruscilli.
       {¶ 21} Accordingly, Ruscilli's first assignment of error is sustained.
       {¶ 22} In its second assignment of error, Ruscilli contends the trial court erred in
denying its motion to dismiss or stay pending arbitration because it showed Summit's
declaratory judgment action is subject to mandatory and binding arbitration. In this
argument, Ruscilli essentially asks this court to determine, in the first instance, the
threshold issue of whether the parties' disagreement is arbitrable.
       {¶ 23} This argument is premature. As established in the first assignment of error,
the trial court in this case bypassed the issue of arbitrability altogether and improperly
proceeded to determine whether conditions precedent to arbitrability had been met. We
decline to decide this issue in the first instance on appeal and, instead, remand this matter
for the trial court to consider and decide. City of Riverside v. State, 190 Ohio App.3d 765,
2010-Ohio-5868, ¶ 58 (10th Dist.); Saxton v. Navistar, Inc., 10th Dist. No. 11AP-923, 2013-
Ohio-352, ¶ 16; Ohio AG v. John Doe 26, 141 Ohio App.3d 242, 254 (10th Dist.2000). For
these reasons, and without expressing an opinion on the merits of the arbitrability issue,
Ruscilli's second assignment of error is overruled.
No. 20AP-557                                                                              9

V. CONCLUSION

       {¶ 24} Having sustained Ruscilli's first assignment of error and overruled Ruscilli's
second assignment of error for the limited reasons stated herein, we reverse the judgment
of the Franklin County Court of Common Pleas and remand the matter for further
proceedings consistent with this decision.
                                                                      Judgment reversed;
                                                                         cause remanded.

                           KLATT and JAMISON, JJ., concur.
                                    _____________