Court Opinion

ID: 5119701
Source: CourtListenerOpinion
Date Created: 2021-10-20 17:14:13.12087+00
Date Added: 2024-06-11T08:22:13.717116
License: Public Domain

[Cite as L & M Hospitality, L.L.C. v. Lavani, 2021-Ohio-3727.]

STATE OF OHIO                     )                        IN THE COURT OF APPEALS
                                  )ss:                     NINTH JUDICIAL DISTRICT
COUNTY OF SUMMIT                  )

L & M HOSPITALITY LLC, et al.                              C.A. No.   29861

        Appellees

        v.                                                 APPEAL FROM JUDGMENT
                                                           ENTERED IN THE
RAM A. LAVANI                                              COURT OF COMMON PLEAS
                                                           COUNTY OF SUMMIT, OHIO
        Appellant                                          CASE No.   CV 2020-07-2013

                                 DECISION AND JOURNAL ENTRY

Dated: October 20, 2021

        CARR, Presiding Judge.

        {¶1}     Appellant, Ram Lavani, appeals the judgment of the Summit County Court of

Common Pleas denying his motion to stay pending arbitration. This Court reverses and remands.

                                                      I.

        {¶2}     Until September 2018, Lavani served as the managing member and day-to-day

operator of L&M Hospitality LLC (“L&M”) and OM Harikruschn LLC (“OM”). L&M and OM

are sister companies that operate hotels in Summit County. On July 16, 2020, L&M, OM, and

several individually named plaintiffs filed a lawsuit against Lavani alleging claims of breach of

fiduciary duty, breach of contract, negligence, conversion, and enrichment. The individually

named plaintiffs own 78 percent of L&M and OM while Lavani owns the remaining 22 percent.

The central allegation in the complaint was that Lavani improperly used business funds and

assets for personal use during his time as the managing member of L&M and OM.
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       {¶3}    Lavani filed a motion to dismiss or stay the proceedings pending arbitration.

L&M filed a brief in opposition to the motion. The trial court issued a journal entry denying

Lavani’s motion on the basis that the arbitration provision had been removed from the parties’

operating agreement.

       {¶4}    Lavani filed a timely notice of appeal and raises one assignment of error.

                                                II.

                                 ASSIGNMENT OF ERROR

       THE LOWER COURT ERRED AS A MATTER OF LAW WHEN IT FOUND
       THAT “* * * ALTHOUGH THE ACTS THAT ARE SUBJECT TO THE
       COMPLAINT OCCURRED WHEN THERE WAS AN ARBITRATION
       PROVISION IN THE * * *” OPERATING AGREEMENT, A PLAIN
       READING OF THE OPERATING AGREEMENT, AS AMENDED ON
       FEBRUARY 21, 2020[,] REVEALED NO CURRENT AGREEMENT TO
       ARBITRATE DISPUTES. THIS APPLICATION EFFECTIVELY MADE THE
       REMOVAL OF THE ARBITRATION PROVISION RETROACTIVE WHEN
       THE[ ]AMENDMENT STATES THAT “OPERATING AGREEMENT
       REMAINED IN FULL FORCE AND EFFECT FROM AND AFTER THE
       DATE HEREOF EXCEPT AS SPECIFICALLY AMENDED HEREBY.”

       {¶5}    Lavani argues that the trial court erroneously concluded that the February 21,

2020 amendment to the parties’ operating agreement made the removal of the arbitration

provision retroactive. Lavani maintains that because the arbitration provision was in place at the

time that the conduct that gave rise to this action occurred, the trial court erred by denying the

motion to stay pending arbitration.

       {¶6}    The question of whether an arbitration provision is applicable presents a matter of

contract interpretation and thus necessitates a de novo review. Varga v. Drees Co., 9th Dist.

Lorain No. 13CA010385, 2014-Ohio-643, ¶ 6.

       {¶7}    R.C. 2711.01(A) states as follows:

       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
                                                    3

       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.

       {¶8}    R.C. 2711.02(B) requires the trial court to stay an action where, upon motion of

one of the parties, the trial court is satisfied that the issues involved in the action are referable to

arbitration under the parties’ written agreement.

       {¶9}    “Ohio public policy favors enforcement of arbitration provisions.” Featherstone

v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 159 Ohio App.3d 27, 2004-Ohio-5953, ¶ 5 (9th

Dist.), citing Harrison v. Toyota Motor Sales, U.S.A., Inc., 9th Dist. Summit No. 20815, 2002-

Ohio-1642, ¶ 9. “[U]nless it may be said with positive assurance that the subject arbitration

clause is not susceptible to an interpretation that covers the asserted dispute[,]” the trial court

should grant a motion to stay proceedings. Neubrander v. Dean Witter Reynolds, Inc., 81 Ohio

App.3d 308, 311 (9th Dist.1992). “If a court determines that the dispute arguably falls within the

arbitration provision, it must stay trial of the proceeding until arbitration is conducted according

to the contract.” Featherstone at ¶ 5, citing R.C. 2711.02(B).

       {¶10} In this case, the operating agreements for L&M and OM were attached to the

complaint. The agreements were originally adopted in 2014 and contained nearly identical

language. Both operating agreements contained provisions addressing arbitration, which stated:

                                       Article 15 Arbitration

       Any dispute arising out of, relating to this Agreement, a breach hereof or the
       operation of the business of the Company, shall be settled by arbitration in
       Summit County, Ohio, in accordance with the rules of the American Arbitration
       Association then existing, provided that discovery, as provided for under the Ohio
       Rules of Civil Procedure, shall be available to all parties to the arbitration. This
       Agreement to arbitrate shall be specifically enforceable and the arbitration award
                                                4

       of the Arbitrator/s shall be final and judgment may be entered upon it in any court
       having jurisdiction over the subject matter of the dispute.

(Emphasis sic.)

       {¶11} The operating agreements were initially amended on September 27, 2018, to

reflect that Lavani was no longer serving as the managing member. On February 21, 2020, the

operating agreements were amended on a second occasion as follows:

       8. Termination of Arbitration Provision. Article 15. of the Operating Agreement
       is hereby removed in its entirety.

       9. Continued Effect. The Operating Agreement shall continue in full force and
       effect from and after the date hereof except as specifically amended hereby.

While the second amendment to the operating agreements was duly approved by members who

controlled at least 75 percent of L&M and OM, in accordance with Article 4.2 of the operating

agreements, Lavani voted against the amendment.

       {¶12} L&M and OM filed the complaint in this matter several months after the second

amendment to the operating agreements was approved. Lavani promptly moved to stay the case

pending arbitration, arguing that all of the conduct at issue occurred while the arbitration

provision was still in effect. In denying Lavani’s motion, the trial court concluded that there was

“no current agreement to arbitrate disputes due to the February 21, 2020 amendment removing

Article 15 from each [operating agreement.]”

       {¶13} Under these circumstances, the trial court erred by denying the motion to stay

pending arbitration. As noted above, arbitration is favored as a matter of public policy and any

doubts relating to arbitrability should be resolved in favor of arbitration. See Kline v. Oak Ridge

Builders Inc., 102 Ohio App.3d 63, 65-66 (9th Dist.1995). R.C. 2711.01(A) provides that, “* * *

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
                                                 5

submit[] * * * shall be valid, irrevocable, and enforceable[.]” (Emphasis added.) Here, the

causes of action set forth in the complaint, which included claims for breach of fiduciary duty

and breach of contract, arose during the timeframe when Lavani was serving as managing

member and day-to-day operator of L&M and OM.              There is no dispute that the arbitration

provision was in place when the alleged conduct occurred which gave rise to those claims. While

the operating agreements were subsequently amended to remove the arbitration provision, there

is no language indicating that the second amendment to the operating agreements was intended

to apply retroactively to the period of time when Lavani was serving as managing member and

day-to-day operator. Accordingly, the trial court erred in concluding that this matter was not

subject to arbitration.

        {¶14} Lavani’s assignment of error is sustained.

                                                III.

        {¶15} Lavani’s assignment of error is sustained. The judgment of the Summit County

Court of Common Pleas is reversed and the cause remanded for further proceedings consistent

with this decision.

                                                                               Judgment reversed,
                                                                              and cause remanded.

        There were reasonable grounds for this appeal.

        We order that a special mandate issue out of this Court, directing the Court of Common

Pleas, County of Summit, State of Ohio, to carry this judgment into execution. A certified copy

of this journal entry shall constitute the mandate, pursuant to App.R. 27.
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       Immediately upon the filing hereof, this document shall constitute the journal entry of

judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the

period for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is

instructed to mail a notice of entry of this judgment to the parties and to make a notation of the

mailing in the docket, pursuant to App.R. 30.

       Costs taxed to Appellees.

                                                      DONNA J. CARR
                                                      FOR THE COURT

CALLAHAN, J.
CONCURS.

TEODOSIO, J.
DISSENTING.

       {¶16} I respectfully dissent from the opinion of the majority.            As the trial court

determined, a plain reading of the Operating Agreement as amended on February 21, 2020,

revealed no current agreement to arbitrate disputes. I would conclude there was no error in that

determination.

       {¶17} The appellant’s argument that the arbitration termination provision should not be

applied retroactively is misplaced, as I do not believe the trial court applied the provision

retroactively in the first instance.    The Operating Agreement that was in effect beginning

February 21, 2020, was specifically amended to remove the prior arbitration clause. Although

the majority is correct in stating that the prior arbitration clause was in effect when the conduct at

issue occurred, there was no arbitration clause in effect at the time the litigation was filed or
                                               7

when arbitration was requested. Thus, there was no need for the amended provision to be

applied retroactively as it was being applied at a date subsequent to the termination of the

arbitration clause.

          {¶18} Furthermore, the amended Operating Agreement contains no language indicating

that the amendment was not intended to govern the parties’ ongoing relationship, including the

potential litigation of causes of action involving conduct that occurred prior to the amendment.

Had it been intended that conduct occurring prior to the termination of the arbitration provision

remain eligible for arbitration, the amended Operating Agreement could have been drafted to that

effect.

APPEARANCES:

THOMAS A. SKIDMORE, Attorney at Law, for Appellant.

LAWRENCE J. SCANLON, MICHAEL J. ELLIOTT, and JAMES R. GALLA, III, Attorneys at
Law, for Appellees.