Franklin Dissolution L.P. v. Athenian Fund Mgt. Inc. , 2022 Ohio 623 ( 2022 )

[Cite as Franklin Dissolution L.P. v. Athenian Fund Mgt. Inc., 2022-Ohio-623.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
FRANKLIN DISSOLUTION L.P., :
Petitioner-Appellee, :
No. 110641
v. :
ATHENIAN FUND MANAGEMENT, INC., :
Respondent-Appellant. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: March 3, 2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-21-942792
Appearances:
Taft, Stettinius & Hollister, L.L.P., David H. Wallace, and
Jozeff W. Gebolys, for appellee.
Arnold & Clifford L.L.P., James E. Arnold, and Damien C.
Kitte, for appellant.
MICHELLE J. SHEEHAN, J.:
Athenian Fund Management, Inc. (“AFMI”) appeals the trial court’s
order granting Franklin Dissolution L.P.’s (“Franklin Dissolution”) motion to
compel arbitration based on a dispute concerning a management agreement.
Because the arbitration provision in the Management Agreement is valid and the
dispute falls within the scope of the arbitration provision, we affirm the judgment of
the trial court compelling arbitration.
I. PROCEDURAL HISTORY AND FACTS
In December 2004, Athenian Venture Partners III L.P. (the “Fund”)
was formed as an investment fund. The Fund entered into a Management
Agreement with AFMI to act as the fund manager and to be paid quarterly fees from
the fund. In June 2018, the Fund began to plan its dissolution. In December 2018,
the Fund informed AFMI that it would suspend payment of fees to AFMI. In
January 2020, the Fund merged with Franklin Dissolution. At that time, AFMI
informed Franklin Dissolution that the Fund was still required to pay the quarterly
fees under the Management Agreement. Franklin Dissolution responded that it
believed the Management Agreement was terminated when the Fund ceased to exist
and it had no obligation to pay the management fees.
In December 2020, Franklin Dissolution informed AFMI that the
Fund had one remaining liability, AFMI’s claim for fees. Without response from
AFMI, Franklin Dissolution filed a demand for arbitration. AFMI thereafter did not
consent to the arbitration, and the procedure was halted.
On January 11, 2021, Franklin Dissolution filed a petition to compel
arbitration in the court of common pleas. In its petition, Franklin Dissolution
alleged that it was the successor to the Fund, that a dispute arose between it and
AFMI as to whether fees were due AFMI, and asked the trial court to order
arbitration.
On February 22, 2021, AFMI filed an answer to the petition and
asserted counterclaims against the “Fund and/or” Franklin Dissolution for breach
of contract. AFMI sought recovery of unpaid fees and a declaratory judgment that
Franklin Dissolution is not entitled to the benefit of the Management Agreement’s
arbitration clause without accepting its obligation to pay the management fees due
AFMI. AFMI did not join the Fund as a party to the lawsuit.
The terms of the Management Agreement attached to the petition
provide in paragraph 12 that “[s]ubject to the provisions of Section 13 hereof, the
term of this Agreement shall be co-extensive with the term of existence of the” Fund.
Paragraph 13 provides a mechanism for termination of the Management Agreement
upon occurrence of certain specified events. The Management Agreement further
provides that “[s]ubject to the provisions of this Section 15, this Agreement shall
inure to the benefit of and be binding upon the parties hereto and their successors
and permitted assigns.” Additionally, the Management Agreement provides in
paragraph 14 that
[a]ny dispute between the parties arising out of or relating to this
Agreement or the affairs and activities of the Partnership shall be
settled by arbitration in Athens County, Ohio, in accordance with the
provisions of the Ohio Arbitration Act, Chapter 2711 of the Ohio.
Revised Code. This agreement to arbitrate shall be specifically
enforceable, the arbitration decision shall be final and judgment may
be entered upon the arbitration decision in any court having
jurisdiction over the subject matter of the dispute.
The trial court held a hearing and granted the petition, ordered
arbitration, and stayed ruling on Franklin Dissolution’s motion to dismiss
counterclaims. The trial court denied AFMI leave to conduct discovery to determine
whether the dispute was subject to the arbitration provision in the Management
Agreement. After the hearing, Franklin Dissolution filed an affidavit to which it
attached a copy of Franklin Dissolution’s partnership agreement indicating it to be
the successor to the Fund pursuant to a merger. In ruling upon the petition, the trial
court found that
[h]ere, the arbitration provision of the Management Agreement
specifically sets out what disputes are arbitrable, the rules governing
any potential arbitration, and where the arbitration would take place.
Also, the Management Agreement was entered into by two entities
formed by the same individual with seemingly comparable bargaining
power.
The trial court held that “the Management Agreement contains a valid
arbitration provision and that petitioner is aggrieved by respondent’s failure to
comply with it.” It further held that “the underlying dispute could not be maintained
without reference to the Management Agreement, and thus, that the dispute falls
within the scope of the arbitration provision.”
AFMI appeals the trial court’s judgment ordering arbitration.
II. LAW AND ARGUMENT
A. Assignments of Error
AFMI raises two assignments of error:
Assignment of Error 1: The trial court erred by granting Franklin
[Dissolution’s] motion to compel arbitration.
Assignment of Error 2: The trial court erred by not permitting
discovery on the arbitrability of the parties’ dispute.
AFMI argues under these assignments of error that the trial court
conducted too narrow of an inquiry in granting the petition because it maintains
that Franklin Dissolution was formed for the purpose of avoiding payment of fees
due under the Management Agreement. It argues that discovery was required to
develop the record of its assertion and to determine if Franklin Dissolution is the
successor to the Fund.
Franklin Dissolution argues that the trial court properly granted the
petition because resolution of the dispute and claims of the parties are dependent
upon the terms and conditions contained in the Management Agreement. It argues
that, therefore, the arbitration provision is enforceable. It further argues that there
is no dispute as to the validity of the Management Agreement or its enforceability,
that it is the successor to the Fund, and therefore the trial court did not abuse its
discretion in denying AFMI the ability to conduct discovery.
B. Applicable Law and Standard of Review
Ohio law allows for the enforcement of an arbitration provision in a
written agreement. R.C. 2711.01(A) reads in relevant part:
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 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.
A trial court may summarily resolve a petition to enforce an arbitration
provision where no jury demand has been made. R.C. 2711.03 (B). If the court is
“satisfied that the making of the agreement for arbitration or the failure to comply
with the agreement is not in issue, the court shall make an order directing the parties
to proceed to arbitration in accordance with the agreement.” R.C. 2711.03 (A).
The Ohio Supreme Court set forth the principles underlying a court’s
determination of whether to order arbitration pursuant to a written agreement as
1) whether the parties agreed to submit any dispute to arbitration; 2) whether the
agreement creates an obligation to arbitrate a particular grievance; 3) when deciding
if the parties agreed to submit a particular grievance to arbitration, the court is not
to rule on the potential merits of underlying claims; and 4) that where an arbitration
provision is contained in a contract, there is a presumption of arbitrability.
Academy of Medicine of Cincinnati v. Aetna Health, Inc., 108 Ohio St.3d 185, 2006-
Ohio-657, 842 N.E.2d 488, ¶ 1o – 14, citing Council of Smaller Ents. v. Gates,
McDonald & Co., 80 Ohio St.3d 661, 687 N.E.2d 1352 (1998).
We review a trial court’s ruling on a motion to stay and compel
arbitration under a de novo standard. Wisniewski v. Marek Builders, Inc., 2017-
Ohio-1035, 87 N.E.3d 696, ¶ 5 (8th Dist.), citing McCaskey v. Sanford-Brown
College, 8th Dist. Cuyahoga No. 97261, 2012-Ohio-1543. But factual findings of the
trial court under this standard of review are to be given deference. Gibbs v.
Firefighters Community Credit Union, 2021-Ohio-2679, 177 N.E.3d 294, ¶ 13 (8th
Dist.), citing Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio St.3d 352, 2008-Ohio-
938, 884 N.E.2d 12, ¶ 38.
In contrast to the de novo review standard of review employed to
determine the validity of a court’s ruling on the validity of an arbitration provision,
an appellate court reviews a decision to deny discovery under an abuse of discretion
standard. Roark v. Keystate Homes, L.L.C., 2021-Ohio-707, 169 N.E.3d 1, ¶ 31 (8th
Dist.); see Wozniak v. Tonidandel, 121 Ohio App.3d 221, 227, 699 N.E.2d 555 (8th
Dist.1997), citing State ex rel. Daggett v. Gessaman, 34 Ohio St. 2d 55, 295 N.E.2d
659 (1973). “[T]he term ‘abuse of discretion’ implies that the court’s attitude was
unreasonable, arbitrary or unconscionable.” Blakemore v. Blakemore, 5 Ohio St.3d
217, 450 N.E.2d 1140 (1983). “A decision is unreasonable if there is no sound
reasoning process that would support that decision.” AAAA Ents., Inc. v. River Place
Community Urban Redevelopment Corp., 50 Ohio St.3d 157, 161, 553 N.E.2d 597(1990).
C. The trial court properly ordered arbitration
Ohio has a strong public policy favoring arbitration of disputes, and
there is a presumption favoring arbitration that arises when the dispute falls within
the scope of an arbitration provision. Benfield, 117 Ohio St.3d 352, 2008-Ohio-938,
884 N.E.2d 12, at ¶ 25 – 27. “Any doubts concerning the scope of arbitrable issues
should be resolved in favor of arbitration.” Sebold v. Latina Design Build Group,
L.L.C., 2021-Ohio-124, 166 N.E.3d 688, ¶ 10 (8th Dist.), citing Moses H. Cone Mem.
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765(1983).
In this case, the petition to compel arbitration identifies a dispute
between Franklin Dissolution and AFMI. AFMI asserts that Franklin Dissolution
owes it fees under the Management Agreement from January 2019. Franklin
Dissolution asserts that under the terms of the Management Agreement it has no
obligation as successor to the Fund to pay those fees.
The Management Agreement contains an arbitration provision.
Although both AFMI and Franklin Dissolution dispute the meaning of the terms
within the Management Agreement and their respective rights and obligations
under that agreement, neither AFMI or Franklin Dissolution contest the validity of
the Management Agreement or the arbitration provision. Aetna Health, Inc., 198
Ohio St.3d 185, 2006-Ohio-657, 842 N.E.2d 488, at ¶ 11. Further, the arbitration
agreement required arbitration for the resolution of “[a]ny dispute between the
parties arising out of or relating to this Agreement or the affairs and activities of the
Partnership shall be settled by arbitration * * *.” Id. at ¶ 12. The trial court found
that the resolution of the dispute cannot be resolved without reference to the terms
of the Management Agreement. Id. at ¶ 13. As such, the trial court properly granted
the motion to compel arbitration. See Sebold, 2021-Ohio-124, 166 N.E.3d 688, at
¶ 15 (“We are not persuaded by the Sebold’s argument that their claims fall outside
of their agreement to arbitrate — none of their claims could be maintained without
reference to the contract and none of the claims preclude arbitration.”).
AFMI’s arguments against enforcing the arbitration provision in the
Management Agreement do not dissuade us that the trial court properly ordered
arbitration in this case. AFMI’s arguments that contest the intent in the formation
of Franklin Dissolution to avoid the payment of fees by the Fund to avoid arbitration
are related to the “the affairs and activities of the [Fund]” that are within the scope
of the arbitration agreement. There is a presumption of arbitrability under Ohio
law. Id. at ¶ 14; Sebold at ¶ 10. As such, any argument over the intent in dissolving
the Fund by merger with Franklin Dissolution is subject to the arbitration provision
in the Management Agreement.
AFMI argues that because Franklin is denying responsibility for
payment of fees under the Management Agreement because the agreement
terminated, it is estopped from attempting to enforce the arbitration provision.
However, a party does not waive enforcement of an agreement’s arbitration
provisions simply because that agreement has been terminated. Colegrove v.
Handler, 34 Ohio App.3d 142, 145, 517 N.E.2d 979, 983 (10th Dist.1986).
Finally, AFMI asserts the trial court should have allowed discovery
because of the alleged ill intent in the formation of Franklin Dissolution and to
determine whether Franklin Dissolution is the successor to the Fund. But the
argument regarding intent in the formation of Franklin Dissolution does not identify
any issue in the formation of the Management Agreement or the enforceability of
the arbitration provision therein. As to the necessity for further discovery to
determine whether Franklin Dissolution is the successor to the Fund, Franklin
Dissolution asserted in the petition to compel arbitration that it was the successor
to the Fund, asserted at the hearing held to the trial court that it “stood in the same
shoes” as the Fund, and thereafter filed its partnership agreement indicating it is the
entity that merged with the Fund. As such, we cannot find that the trial court’s
decision to deny AFMI discovery before ruling upon Franklin Dissolution’s motion
to compel arbitration was an abuse of the trial court’s discretion. See Roark, 2021-
Ohio-707, 169 N.E.3d 1, at ¶ 31.
The first and second assignments of error are overruled.
III. CONCLUSION
The trial court properly granted Franklin’s motion to compel
arbitration because there was no evidence presented to the trial court that the
arbitration provision in the Management Agreement was invalid or otherwise not
subject to enforcement. Further, the trial court did not err by denying AFMI’s
request for discovery where AFMI did not dispute the applicability or validity of the
arbitration provision.
Judgment affirmed.
It is ordered that appellee recover of appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
common pleas court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
__________________________________
MICHELLE J. SHEEHAN, JUDGE
ANITA LASTER MAYS, P.J., and
EMANUELLA D. GROVES, J., CONCUR
KEYWORDS:
Petition to compel arbitration; R.C. 2711.03(A) and (B); denial of discovery request;
abuse of discretion.
Successor to investor fund filed petition to compel arbitration to resolve fund
manager’s claim for fees. The trial court properly limited its inquiry to determining
the validity of the arbitration agreement in granting the petition to compel
arbitration and properly found that it was necessary to apply terms of the contract
containing the arbitration provision to resolve the parties’ dispute. The trial court
did not abuse its discretion in denying fund manager further discovery where there
was no showing discovery would assist in determining the validity of the arbitration
agreement.