Finish Line, Inc. v. Patrone ( 2013 )

[Cite as Finish Line, Inc. v. Patrone, 2013-Ohio-5527.]
STATE OF OHIO, MAHONING COUNTY
IN THE COURT OF APPEALS
SEVENTH DISTRICT
THE FINISH LINE, INC. ) CASE NO. 12 MA 92
)
PLAINTIFF-APPELLANT )
)
VS. ) OPINION
)
MARRISSA PATRONE )
)
DEFENDANT-APPELLEE )
CHARACTER OF PROCEEDINGS: Civil Appeal from the Court of Common
Pleas of Mahoning County, Ohio
Case No. 11 CV 569
JUDGMENT: Affirmed.
APPEARANCES:
For Plaintiff-Appellant: Atty. William A. Nolan
Atty. Corie Ann Marty
Barnes & Thornburg, LLP
41 South High Street, Suite 3300
Columbus, Ohio 43215
For Defendant-Appellee: Atty. Martin S. Hume
Martin S. Hume Co., L.P.A.
6 Central Square, Suite 905
Youngstown, Ohio 44503
JUDGES:
Hon. Cheryl L. Waite
Hon. Gene Donofrio
Hon. Mary DeGenaro
Dated: December 13, 2013
[Cite as Finish Line, Inc. v. Patrone, 2013-Ohio-5527.]
WAITE, J.
{¶1} This case arises from an appeal of a Mahoning County Court of
Common Pleas Judgment Entry denying a motion to stay proceedings pending
arbitration. The motion for stay was filed by Appellant, The Finish Line, Inc. (“Finish
Line”) more than a year after it had filed its complaint against a former employee,
Appellee Marrissa Patrone. The trial court ruled that Appellant had waived its right to
arbitrate by filing a complaint. Finish Line now appeals this decision. Appellant
claims that it never waived its right to arbitrate, that Patrone would not be prejudiced
by arbitration, and that the trial court’s ruling is against the weight of authority which
favors arbitration.
{¶2} While there is a general bias in favor of arbitration, both at the state and
federal level, the trial court was correct in concluding that arbitration had been waived
in this case. Ohio caselaw has consistently held that when a party files a lawsuit and
fails to assert an arbitration clause, it waives its right to enforce arbitration. Finish
Line waived arbitration a second time by failing to raise arbitration as a defense in its
answer to Appellee’s counterclaim. Appellant's waiver of arbitration necessarily
disposes of the other assignments of error in this appeal, all of which are contingent
on the enforcement of arbitration. The trial court’s judgment is affirmed.
Background
{¶3} Marrissa Patrone worked for Finish Line from March of 2007 through
October of 2007 as a salaried district manager, after which she was terminated. At
hiring, Patrone signed a statement agreeing to resolve disputes by arbitration. The
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specific procedures for arbitration were set forth in a separate document, The Finish
Line Employee Dispute Resolution Plan (“The Plan”).
{¶4} On August 20, 2010, Finish Line filed an action in Struthers Municipal
Court seeking to collect amounts it alleged were owed by Appellee arising from her
time as an employee. Specifically, these claims relate to her use of an American
Express Corporate credit card issued to her during her employment. On February 9,
2011, Appellee filed an answer and counterclaim alleging wrongful discharge as well
as sex and pregnancy discrimination. Because the amount at issue in the
counterclaim exceeded the jurisdiction of the Struthers Municipal Court, Appellee
requested that the matter be removed to the Mahoning County Court of Common
Pleas.
{¶5} On April 15, 2011, Finish Line filed an answer to the counterclaim which
included fourteen defenses, but did not assert a right to arbitration as a defense. It
was not until September 6, 2011, more than a year after it filed its complaint and
more than four months after it filed its answer to Patrone’s counterclaim, that Finish
Line filed a motion to stay proceedings pending arbitration. On October 18, 2011,
Patrone filed her memorandum in opposition to the motion for stay.
{¶6} On January 23, 2012, after hearing arguments of counsel for both
parties, the magistrate issued a decision recommending that the motion be denied,
holding that Finish Line had waived its right to arbitration by filing a lawsuit. Finish
Line filed objections to the magistrate’s decision. On April 17, 2012, the trial court
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overruled Finish Line’s objections and issued its judgment entry denying the motion.
This timely appeal followed.
{¶7} This is a final appealable order pursuant to R.C. 2711.02(C). On
appeal, Finish Line raises three assignments of error.
ASSIGNMENT OF ERROR NO. 1
THE TRIAL COURT ERRED IN FINDING THAT THE FINISH LINE
WAIVED ITS RIGHTS AND OBLIGATIONS UNDER THE
ARBITRATION PLAN BY FIRST INITIATING LITIGATION, AS SUCH
FINDING IS CONTRARY TO THE WEIGHT OF FEDERAL AND
STATE AUTHORITY ON THE SPECIFIC QUESTION OF WAIVER AS
WELL AS AUTHORITY FAVORING ARBITRATION GENERALLY.
{¶8} The primary issue in this appeal is whether Appellant waived its right to
arbitration by filing a lawsuit and not raising the arbitration clause at that time. Our
standard of review in this matter is abuse of discretion: “In reviewing a trial court's
determination that a party has waived its right to arbitrate, an appellate court must
apply an abuse of discretion standard.” Hoppel v. Feldman, 7th Dist. No. 09 CO 34,
2011-Ohio-1183, ¶46 citing Peterson v. Crockett Const., Inc., 7th Dist. No. 99-CO-2,
1999 WL 1138586, at *3 (Dec. 7, 1999); see also, Harsco Corp. v. Crane Carrie Co.,
122 Ohio App.3d 406, 410 (1997). An abuse of discretion is a decision that is
unreasonable, arbitrary or unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d
217, 219, 450 N.E.2d 1140 (1983).
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{¶9} There is a long line of precedent in Ohio holding that a party waives an
arbitration clause in a contract by filing a complaint that fails to raise the arbitration
clause.
A party to a contract to arbitrate waives its right when it files a lawsuit
rather than requesting arbitration. When the other contracting party
files an answer and does not demand arbitration, it, in effect, agrees to
the waiver and a referral to arbitration under R.C. 2711.02 is
inappropriate.
Mills v. Jaguar-Cleveland Motors, Inc., 69 Ohio App.2d 111, 430 N.E.2d 965, (8th
Dist.1980), syllabus.
{¶10} The main reason why this has been considered a waiver of arbitration is
that filing a lawsuit evidences an intent to rely on the judicial process rather than
arbitration. Thus, it is incompatible with an intent to assert a right to arbitration:
[T]he conduct of a party which is inconsistent with arbitration may act as
waiver of the right to arbitrate. Thus, a trial court may deny a stay if it is
not satisfied that the issue involved in the action is referable to
arbitration or if the trial court determines that the party has waived
arbitration under the agreement. (Internal citations and quotations
omitted.)
Checksmart v. Morgan, 8th Dist. No. 80856, 2003-Ohio-163 at ¶20; see also,
Robbins v. Country Club Retirement Center IV, Inc., 7th Dist. No. 04 BE 43, 2005-
Ohio-1338.
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{¶11} We have regularly held that: “A plaintiff waives the right to arbitrate by
filing a complaint. Id.” Peterson, supra, *2. See also, Hoppel, supra, at ¶44;
Centofanti. v. Wayne Homes, 7th Dist. No. 10 MA 180, 2012-Ohio-4116, ¶19. Here,
Appellant filed a complaint against Appellee on August 20, 2010. Appellant did not
even attempt to assert the arbitration clause in any part of the complaint. On
February 9, 2011, Appellee filed an answer and a counterclaim in a timely fashion.
On April 15, 2011, Appellant filed an answer to the counterclaim listing fourteen
defenses, however, a claim for arbitration was not among them. It was not until
September 6, 2011, that the motion to stay proceedings pending arbitration was filed.
Appellant not only waived arbitration by filing the original complaint against Appellee,
but waived it a second time when it filed a response to Appellee’s counterclaim.
Therefore, the trial court was correct to deny Appellant’s motion to stay proceedings
pending arbitration.
{¶12} Appellant argues that filing the complaint was not inconsistent with its
right to arbitrate. To support this stance, Appellant relies heavily on the case
Household Realty Corp. v. Rutherford, 2nd Dist. No. 20183, 2004-Ohio-2422.
Rutherford is easily distinguishable from the instant case. The contract in Rutherford
contained an anti-waiver provision:
The use of the courts shall not constitute a waiver of the right of any
party, including the plaintiff, to submit any Claim to arbitration nor
render inapplicable the compulsory arbitration provisions contained in
this Arbitration Rider.
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Id. at ¶10.
{¶13} There is no anti-waiver provision in the employment contract at issue in
this appeal. Since Appellant cannot rely on an anti-waiver clause to support its
argument, it cannot rely on the holding and analysis in Rutherford either.
{¶14} Appellant also argues that it could have asserted the arbitration clause
as a defense to Appellee’s counterclaim, even though it might have already waived
arbitration as a plaintiff by filing the complaint. This is merely a hypothetical
argument, since Appellant did not assert arbitration in its answer.
{¶15} Appellant argues that Appellee would not be prejudiced if the case were
to be referred to arbitration. Appellant cites to Credit Acceptance Corp. v. Davisson,
644 F.Supp.2d 948, 949 (N.D.Ohio 2009), in support of the idea that a plaintiff can
ask for arbitration after filing a lawsuit, and if it does, the only remaining question is
whether the opposing party would be prejudiced. Similar to the Rutherford case on
which Appellant incorrectly relies, Davisson also involved a contract with an anti-
waiver clause that expressly stated that arbitration could be requested “before or
after a lawsuit has been started” and that the initiation of judicial relief “shall not waive
the right to submit any Dispute to arbitration[.]” Id. at 956-957. Again, the instant
appeal does not involve an anti-waiver provision. Hence we may simply rely on our
clear precedent that a party who files a complaint and fails to assert an arbitration
clause at that time waives the right to demand arbitration.
{¶16} Appellant further argues that the Federal Arbitration Act (“FAA”) prevails
in any conflict between state and federal law, citing AT&T Mobility LLC v.
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Concepcion, _U.S._, 131 S.Ct. 1740, 1747, 179 L.Ed.2d 742 (2011). However, the
text to which Appellant cites states: “When state law prohibits outright the arbitration
of a particular type of claim, the FAA displaces the conflicting rule.” Id. at 1743.
Here, the arbitration of a particular type of claim is not prohibited. There is no issue
raised as to displacement. The only issue before us is whether or not Appellant
waived its right to arbitrate. The FAA does not serve to displace this existing Ohio
law.
{¶17} Appellant further argues that federal courts prefer arbitration and that
any doubts about an agreement to arbitrate must be resolved in favor of arbitration,
citing Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir.2000). These are the general
principles of law, and we are in agreement with Appellant as to these general
principles. Appellant also cites Vaden v. Discover Bank, 556 U.S. 49, 129 S.Ct.
1262, 173 L.Ed.2d 206 (2009), for the conclusion that a party can seek to have court-
ordered arbitration even after initially filing a complaint. Vaden does not stand for this
proposition. Vaden does state: “Even before it filed its debt-recovery action in a
Maryland state court, Discover could have sought from that court an order compelling
arbitration of any agreement-related dispute between itself and cardholder Vaden.”
Id. at 71-72. Ohio law recognizes that a party may seek to enforce an arbitration
clause before filing a complaint. Ohio law allows enforcement of an arbitration clause
sought as part of filing a complaint. It is undisputed that Appellant has not done so in
this case. Vaden does not further his argument.
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{¶18} The policy reasons supporting arbitration cited by Appellant have been
noted in almost every Ohio case dealing with the enforcement of arbitration clauses.
R.C. 2711.01(A), quoting the FAA, 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.” (Emphasis added.) Waiver is an oft-used legal
premise for avoiding the application or enforcement of a contract clause. The record
reflects that there are clearly grounds at both law and equity for the trial court to have
applied Ohio's longstanding rules of waiver pertinent to arbitration clauses.
{¶19} Moreover, while the weight of authority cited by both parties supports
the concept of enforcement of arbitration generally, as to the specific issue at hand,
the weight of authority is equally clear. “Numerous courts in Ohio have held that ‘[a]
party to a contract to arbitrate waives its right when it files a lawsuit rather than
requesting arbitration.’” Farrow Builders, supra, at *2, quoting Mills, supra, syllabus.
See, also, Griffith v. Linton, 130 Ohio App.3d 746, 751 (1998); Harsco Corp. v. Crane
Carrier Co., 122 Ohio App.3d 406, 409, 701 N.E.2d 1040, (3rd Dist.1997); Jones v.
Honchell, 14 Ohio App.3d 120, 121, 470 N.E.2d 219, (12th Dist.1984), paragraph
one of the syllabus.
{¶20} Based on the record before us, the trial court did not err in determining
that when Appellant filed its lawsuit and failed to assert enforcement of an arbitration
clause at that time, such clause was waived. We overrule Appellant's first
assignment of error.
ASSIGNMENTS OF ERROR NOS. 2 AND 3
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THE TRIAL COURT ERRED IN FINDING THAT THE FINISH LINE DID
NOT DEMONSTRATE THAT PATRONE EXECUTED THE
AGREEMENT TO ARBITRATE KNOWINGLY, VOLUNTARILY, AND
INTELLIGENTLY, AS SUCH FINDING MISASSIGNS THE BURDEN
OF PROOF ON THIS ISSUE AS WELL AS THE APPLICATION OF
THE CASE LAW TO THE FACTS AT HAND.
THE TRIAL COURT ERRED IN FINDING THAT THE ARBITRATION
PLAN IS UNCONSCIONABLE AND UNENFORCEABLE DUE TO THE
FEE-SPLITTING ARRANGEMENT WOULD MAKE IT PROHIBITIVELY
EXPENSIVE FOR HER TO PURSUE HER CLAIM, AND THE FEE-
SPLITTING PROVISION COULD HAVE BEEN SEVERED FROM THE
PLAN.
{¶21} Because Appellant has waived its right to assert the arbitration clause,
Appellant's further arguments about the validity of the arbitration clause are moot.
Appellant's second and third assignments of error are also overruled.
Conclusion
{¶22} The trial court did not err in finding that Finish Line waived its right to
enforce the arbitration clause in the employment contract. Appellant acted
inconsistently with its right to demand arbitration when it filed its lawsuit against
Appellee without demanding arbitration at that time. We have held numerous times
that filing a complaint without asking for arbitration waives the right to arbitrate.
Appellant reinforced this finding in failing to raise the issue in its answer to Appellee’s
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counterclaim. For the reasons stated above, we overrule Appellant's assignments of
error and affirm the judgment of the trial court.
Donofrio, J., concurs.
DeGenaro, P.J., concurs.