L & M Hospitality, L.L.C. v. Lavani ( 2021 )

[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
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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
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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
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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
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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.