Rippe & Kingston Co., PSC v. Kruse , 2014 Ohio 2428 ( 2014 )

[Cite as Rippe & Kingston Co., PSC v. Kruse, 2014-Ohio-2428.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
RIPPE & KINGSTON CO. PSC, : APPEAL NO. C-130587
TRIAL NO. A-1301305
Plaintiff-Appellee, :
vs.
:
O P I N I O N.
RICHARD J. KRUSE, CPA,
:
Defendant-Appellant.
:
Civil Appeal From: Hamilton County Court of Common Pleas
Judgment Appealed From Is: Affirmed
Date of Judgment Entry on Appeal: June 6, 2014
Kohnen & Patton LLP and Joseph L. Dilts, for Plaintiff-Appellee,
James M. Moore, for Defendant-Appellant.
Please note: this case has been removed from the accelerated calendar.
OHIO FIRST DISTRICT COURT OF APPEALS
FISCHER, Judge.
{¶1} Defendant-appellant Richard Kruse appeals the judgment of the
Hamilton County Court of Common Pleas staying this shareholder action below
pending arbitration. Because we find no merit in Kruse’s sole assignment of error,
we affirm the judgment of the trial court.
I. Facts and Procedural History
{¶2} Rippe & Kingston Co. PSC (“R&K”), an accounting corporation,
employed Kruse as a certified public accountant. While an employee of the company,
Kruse also became a shareholder of R&K, and entered into a written agreement (the
“Shareholder Agreement”) in October 2000. The Shareholder Agreement provided
that if a shareholder’s employment were terminated for reasons other than death or
total disability, and the shareholder failed to furnish R&K with a release of legal
claims against the company, R&K could purchase the shareholder’s shares 30 days
from sending a written notification to the shareholder (the “Call Option”).
{¶3} In August 2001, R&K terminated Kruse’s employment, allegedly for
cause. Nearly 12 years later, in December 2012, R&K sent Kruse written notification
exercising its rights under the Call Option, which set a closing date for the purchase
of Kruse’s shares 30 days from the date of the written notification. When Kruse did
not attend the closing and refused to deliver his shares, R&K filed the instant action
in the Hamilton County Court of Common Pleas.
{¶4} The Shareholder Agreement also contained an arbitration clause in
paragraph 28, which provided that
[a]ny dispute or controversy existing among [R&K] and one or more of
the Shareholders regarding any of the terms of this Agreement or the
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OHIO FIRST DISTRICT COURT OF APPEALS
breach thereof, the determination of which is not otherwise provided
for by this Agreement, on a written demand of any of the parties
hereto, shall be submitted to and determined by binding arbitration * *
*. Notwithstanding any provision herein relating to arbitration, [R&K]
or the Shareholders shall have the right to petition a court of
competent jurisdiction for specific performance or injunctive relief as
provided in Paragraphs (9) and (22) * * *.
{¶5} Paragraph 22 of the Shareholder Agreement provided parties the right
to seek specific performance to compel performance of the Shareholder Agreement.
{¶6} In its suit against Kruse, R&K alleged that Kruse had breached the
Shareholder Agreement by refusing to deliver his shares, and sought specific
performance to compel Kruse to deliver those shares. R&K also alleged that Kruse
had breached the Shareholder Agreement by soliciting to provide financial or
accounting services for R&K’s clients in violation of a nonsolicitation provision.
Finally, R&K alleged that Kruse owed it for unreimbursed COBRA payments, which
he had allegedly promised to pay following his termination.
{¶7} Kruse filed a counterclaim against R&K, seeking an order from the
trial court that the Shareholder Agreement was void, and that the company owed
him in excess of $35,000 for the value of his shares. Kruse also alleged that R&K
owed him $20,000 plus interest for payments he had made to the company in
conjunction with obtaining a one-third ownership. Moreover, Kruse alleged that
R&K owed him for unreimbursed medical expenses and an unpaid bonus for his
work the year prior to his termination.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶8} R&K filed a motion requesting summary judgment on its claim for
specific performance regarding its rights under the Call Option and requesting a stay
pending arbitration. As to its specific-performance claim, R&K argued that the
record showed that Kruse had signed the Shareholder Agreement, that Kruse’s
employment had been terminated, that Kruse had failed to provide R&K a release of
legal claims, and that he had not responded to R&K’s letter exercising its rights
under the Call Option. Therefore, R&K argued it was entitled to specific
performance ordering Kruse to sell his shares. R&K further argued that Kruse was
not entitled to any compensation for his shares, as determined by paragraph 16 of
the Shareholder Agreement.
{¶9} In arguing for a stay of the remaining claims pending arbitration, R&K
did not rely on the arbitration provision as set forth in paragraph 28 of the
Shareholder Agreement, but on an amended version of that provision. The amended
version, which had been adopted after Kruse’s termination, stated:
Any claims, disputes or controversies * * * existing among [R&K] and
one or more of the Shareholders regarding any of the terms of this
Agreement or the breach thereof, or arising out of the or relating to a
Shareholder’s employment with the [R&K], shall be settled and
determined exclusively by final and binding arbitration * * * including
without limitation, any Claims by a Shareholder * * * for violation of
any state or federal laws prohibiting discrimination on any basis, tort
claims, contract claims, whether express or implied, breach of
fiduciary duty, wrongful discharge, violation of public policy, or any
other statutory or common law claim. * * * Notwithstanding any
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OHIO FIRST DISTRICT COURT OF APPEALS
provision herein relating to arbitration, [R&K] or the Shareholders
shall have the right to petition a court of competent jurisdiction for
specific performance or injunctive relief as provided in Paragraphs (9)
and (22).
{¶10} Kruse filed a memorandum in opposition to R&K’s motion, in which
Kruse argued that judgment on R&K’s specific-performance claim and an order
staying the action pending arbitration would be premature because discovery had
not yet been completed. Kruse argued that he had requested information from R&K
after the complaint had been filed in January 2013, regarding its corporate workings
pursuant to R.C. 1701.37(C), which had not yet been answered. Kruse also argued
that his discovery requests had remained unanswered. Kruse also disputed R&K’s
calculation of the value of his shares. As to R&K’s request to stay the action pending
arbitration, Kruse argued that the amended arbitration provision did not apply to
him because he had not agreed to the amendment. He further argued that his
counterclaims were not encompassed by the arbitration provision in paragraph 28 of
the Shareholder Agreement because they did not arise out of the agreement.
{¶11} The trial court granted R&K’s request for summary judgment on its
specific-performance claim to the extent that the trial court ordered that Kruse must
deliver his shares under the Call Option. The trial court specifically stated that the
parties must arbitrate the issue of the value of Kruse’s shares. The trial court then
ordered the remaining issues stayed pending arbitration.
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OHIO FIRST DISTRICT COURT OF APPEALS
II. Trial Court Stays the Action Pending Arbitration
{¶12} In his sole assignment of error, Kruse argues that the trial court erred
by ordering a stay of proceedings and referring the remaining claims to arbitration.
Kruse did not appeal the trial court’s order of specific performance.
{¶13} R.C. 2711.02(B) requires a trial court to stay an action if the issues
involved are subject to arbitration. The statute provides:
If any action is brought upon any issue referable to arbitration under
an agreement in writing for arbitration, the court in which the action is
pending, upon being satisfied that the issue involved in the action is
referable to arbitration under an agreement in writing for arbitration,
shall on application of one of the parties stay the trial of the action
until the arbitration of the issue has been had in accordance with the
agreement, provided the applicant for the stay is not in default in
proceeding with arbitration.
{¶14} An order granting or denying a stay of trial pending arbitration issued
under R.C. 2711.02(B) is a final, appealable order under R.C. 2711.02(C), and need
not meet the requirements of Civ.R. 54(B). Mynes v. Brooks, 124 Ohio St.3d 13,
2009-Ohio-5946, 918 N.E.2d 511, ¶ 1. We review orders issued under R.C.
2711.02(B) for an abuse of discretion. See Stoll v. United Magazine Co., 10th Dist.
Franklin No. 03AP-752, 2004-Ohio-2523, ¶ 18; W.K. v. Farrell, 167 Ohio App.3d 14,
2006-Ohio-2676, 853 N.E.2d 728, ¶ 15 (2d Dist.). An abuse of discretion implies
that the court’s attitude is unreasonable, arbitrary or unconscionable. Blakemore v.
Blakemore, 5 Ohio St.3d 217, 450 N.E.2d 1140 (1983).
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OHIO FIRST DISTRICT COURT OF APPEALS
A. Enforceability of the Arbitration Provision
{¶15} Kruse argues that he should be relieved from complying with the
arbitration provision altogether because R&K materially breached its obligations to
Kruse, and thus the Shareholder Agreement is void.
{¶16} R.C. 2711.01(A) provides that an arbitration provision in a written
contract “shall be valid, irrevocable, and enforceable, except upon grounds that exist
at law or in equity for the revocation of any contract.” Grounds for revocation of an
arbitration provision include, for example, when the parties did not agree to the
arbitration provision, or when the arbitration clause is found to be unconscionable.
Small v. HCF of Perrysburg, Inc., 159 Ohio App.3d 66, 2004-Ohio-5757, 823 N.E.2d
19 (5th Dist.).
{¶17} Kruse contends that he was promised a one-third share in the
ownership of R&K in exchange for his $20,000 in payments, and that he did not
receive what he had been promised. Kruse also argues that R&K breached its
common-law fiduciary duty to Kruse as a minority shareholder, and breached its
statutory duty under R.C. 1701.37(C) to allow Kruse to inspect the corporation’s
records.
{¶18} As to the alleged breaches of common-law and statutory duties owed
to Kruse, Kruse did not bring a counterclaim asserting his statutory rights under R.C.
1701.37(C), and a breach of the fiduciary duty owed by the majority shareholders in a
close corporation to Kruse as a minority shareholder would be a claim brought
against those majority shareholders, not the corporation itself. See Crosby v. Beam,
47 Ohio St.3d 105, 108, 548 N.E.2d 217 (1989). Kruse’s argument regarding the
alleged breach by R&K to provide him a one-third ownership does not call into
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OHIO FIRST DISTRICT COURT OF APPEALS
question the validity of the arbitration provision in the Shareholder Agreement.
Therefore, Kruse has not shown that the trial court abused its discretion in staying
the action and enforcing the arbitration provision in the written contract.
B. Applicability of the Arbitration Provision to the Action
{¶19} Apart from the validity of the arbitration provision, Kruse argues that
the trial court erred in determining that the action “arose out of” the Shareholder
Agreement, and thus Kruse contends that the trial court erred in applying the
arbitration provision to the action.
{¶20} Whether a controversy is arbitrable under a contract requires the court
to invoke principles of contract interpretation, and thus presents a question of law,
which we review de novo. See Dunkelman v. Cincinnati Bengals, Inc., 158 Ohio
App.3d 604, 2004-Ohio-6425, 821 N.E.2d 198, ¶ 19-20 (1st Dist.); see also Carew v.
Seeley, 1st Dist. Hamilton No. C-050073, 2005-Ohio-5721, ¶ 12. Because arbitration
is a matter of contract, a party cannot be forced to arbitrate a dispute that it has not
agreed to submit to arbitration. Taylor v. Ernst & Young, LLP, 130 Ohio St.3d 411,
2011-Ohio-5262, 958 N.E.2d 1203, ¶ 20. Nevertheless, Ohio has a strong policy
favoring arbitration, so that any ambiguity in the language of an arbitration
provision should be resolved in favor of arbitration. Id. at ¶ 20-21, citing Williams v.
Aetna Fin. Co., 83 Ohio St.3d 464, 471, 700 N.E.2d 859 (1998).
{¶21} If a court determines that any of the claims in an action are subject to
arbitration under R.C. 2711.02(B), the court must stay the entire proceeding, despite
the presence of nonarbitrable claims. See Cheney v. Sears, Roebuck & Co., 10th Dist.
Franklin No. 04AP-1354, 2005-Ohio-3283, ¶ 12; Hussein v. Hafner & Shugarman
Ent. Inc., 176 Ohio App.3d 127, 2008-Ohio-1791, 890 N.E.2d 356, ¶ 47 (6th Dist.);
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OHIO FIRST DISTRICT COURT OF APPEALS
McGuffey v. Lenscrafters, Inc., 141 Ohio App.3d 44, 749 N.E.2d 825, 831 (12th
Dist.2001); Garber v. Buckeye Chrysler-Jeep-Dodge of Shelby, LLC, 5th Dist.
Richland No. 2007-CA-0121, 2008-Ohio-3533, ¶ 18; Murray v. David Moore
Builders, 177 Ohio App.3d 62, 2008-Ohio-2960, 893 N.E.2d 897, ¶ 11 (9th Dist.);
Harsco Corp. v. Crane Carrier Co., 122 Ohio App.3d 406, 417, 701 N.E.2d 1040 (3d
Dist.1997).
{¶22} Kruse contends that he did not expressly agree to the amended version
of the arbitration provision, which he alleges is more expansive in coverage than the
arbitration provision contained in the Shareholder Agreement. He further contends
that his defenses and counterclaims do not arise out of the Shareholder Agreement,
and therefore the arbitration provision does not apply.
{¶23} Kruse did not appeal the trial court’s order of specific performance to
sell his shares; therefore, a main point of contention remaining between the parties
concerns the value of Kruse’s shares. R&K contends that, under paragraph 16 of the
Shareholder Agreement, Kruse is not entitled to any compensation for his shares.
Kruse contends that his shares are worth in excess of $35,000. At a minimum, the
share-valuation controversy requires reference to the terms of the Shareholder
Agreement, which then must be arbitrated even under the original arbitration
provision that Kruse undisputedly signed. Therefore, the arbitration provision
applies to an issue in the action, and the trial court did not err under R.C. 2711.02(B)
in staying all remaining claims pending arbitration, although some of the issues
involved in the parties’ dispute may fall outside the scope of the Shareholder
Agreement. See, e.g., Cheney at ¶ 12.
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OHIO FIRST DISTRICT COURT OF APPEALS
C. Opportunity for Discovery Prior to Stay
{¶24} Finally, Kruse argues that the trial court’s decision staying the action
pending arbitration was premature. Kruse contends that he should have had the
opportunity to conduct discovery and to uncover information through his R.C.
1701.37 request because doing so would have given him information on the value of
his shares, whether R&K had breached the Shareholder Agreement, and
opportunities given to majority shareholders.
{¶25} A trial court can stay an action pending arbitration under R.C. 2711.02
prior to discovery. See Giltner v. Mitchell, 9th Dist. Summit No. 21039, 2002-Ohio-
5771, ¶ 15; see also Melia v. OfficeMax N. Am., Inc., 8th Dist. Cuyahoga No. 87249,
2006-Ohio-4765, ¶ 38. Moreover, Kruse’s arguments advocate more time for
discovery with regard to the merits of his defenses and counterclaims, and he does
not argue that any information in response to his discovery requests would have
affected the enforceability or the applicability of the arbitration provision. Therefore,
we do not find merit in Kruse’s arguments, and we determine that the trial court did
not abuse its discretion in ordering a stay of the action pending arbitration.
III. Conclusion
{¶26} In conclusion, we overrule Kruse’s sole assignment of error. The
judgment of the trial court staying the action pending arbitration is affirmed.
Judgment affirmed.
CUNNINGHAM, P.J., and HILDEBRANDT, J., concur.
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OHIO FIRST DISTRICT COURT OF APPEALS
Please note:
The court has recorded its own entry on the date of the release of this opinion.
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