Academic Support Servs., L.L.C. v. Cleveland Metro. School Dist. , 2013 Ohio 1458 ( 2013 )

[Cite as Academic Support Servs., L.L.C. v. Cleveland Metro. School Dist., 2013-Ohio-1458.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 99054
ACADEMIC SUPPORT SERVICES, L.L.C.
PLAINTIFF-APPELLEE
vs.
CLEVELAND METROPOLITAN SCHOOL
DISTRICT, ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-758502
BEFORE: E.A. Gallagher, J., Jones, P.J., and S. Gallagher, J.
RELEASED AND JOURNALIZED: April 11, 2013
ATTORNEYS FOR APPELLANTS
Wayne J. Belock
Chief Legal Counsel
By: David J. Sipusic
Cleveland Metropolitan School District
1380 East 6th Street, Room 203
Cleveland, OH 44114
ATTORNEY FOR APPELLEE
Joseph C. Lucas
Law Office of
Joseph C. Lucas, L.L.C.
7015 Corporate Way
Centerville, OH 45459
EILEEN A. GALLAGHER, J.:
{¶1} Appellants Cleveland Metropolitan School District, Cleveland
Metropolitan School District Board of Education, No Child Left Behind Office and
Cleveland Metropolitan School District Finance Office (hereinafter collectively referred
to as (“CMSD”) appeal from the decision of the trial court that denied its motion to refer
the case to arbitration. CMSD argues the court erred in denying its motion when R.C.
2711.02 specifically requires a trial court to stay the trial of an action upon application of
one of the parties that is based on a written agreement to arbitrate. Finding no merit to
the instant appeal, we affirm the decision of the trial court.
{¶2} On June 27, 2011, Academic Support Services (“Academic”) filed its
complaint, arguing that the CMSD breached its agreements for the academic years
2008-2009 and 2009-2010 governing the provision of supplemental tutoring services to
CMSD students. Count 1 of Academic’s complaint alleged breach of contract, Count 2
alleged unjust enrichment, Count 3 claimed promissory estoppel and Count 4 alleged
fraudulent misrepresentation. On September 1, 2011, CMSD answered the complaint,
raising several affirmative defenses. The trial court conducted a case management
conference and set pretrial, final pretrial and trial dates for this case.
{¶3} On December 13, 2011, CMSD filed a motion for summary judgment. In
the motion, CMSD argued that Academic’s complaint must fail because there existed no
genuine issue of material fact as it related to all four claims. At the end of its motion
and, in the alternative, CMSD requested that the matter be referred to arbitration
pursuant to Section 18(m) of the contract. In particular, section 18(m) of the agreement
between CMSD and Academic regarding Academic’s services provides:
Any and all contractor claims shall first be submitted to the District
[CMSD] for a determination as to the merits. The Claim must be
submitted in writing within 20 calendar days of when the provider
[Academic] knew or reasonably should have known of the operative facts
from which the claim arises. If the District denies the claim in whole or
part, then the claim shall be submitted to non-binding arbitration by the
American Arbitration Association (AAA), pursuant to the rules of AAA,
except that the entire cost of arbitration shall be at provider’s expense and
provider is obligated to follow this procedure prior to pursuing any judicial
remedies in any court of law or equity whatsoever.
{¶4} After Academic failed to respond to CMSD’s motion, the trial court ruled
that the motion was “unopposed and granted.” However, Academic filed a motion for
relief from judgment, Civ.R. 60(B), the court conducted a hearing and then granted the
motion and allowed Academic an opportunity to respond to CMSD’s motion.
Academic responded to the motion, addressing CMSD’s claims that there lacked any
genuine issue of material fact and their request for arbitration. Specifically, Academic
argued that CMSD failed to properly raise the issue of arbitration and regardless, CMSD
waived their right to arbitration by participating in the litigation. On July 20, 2012, the
trial court denied CMSD’s motion for summary judgment.
{¶5} On July 23, 2012 the trial court set a final pretrial for October 1, and a trial
date for October 16, 2012. One month prior to trial, CMSD filed a motion to stay
proceedings and refer the matter to arbitration. Academic opposed the motion and
during its pendency, CMSD filed its trial brief, witness list and trial exhibit list. On
October 12, 2012, the trial court denied CMSD’s motion to stay and to refer the case to
arbitration.
{¶6} CMSD appeals, raising the following assignment of error:
The trial court erred in denying Defendants’/Appellants’ Motion to Stay
Proceedings and Refer Matter to Arbitration.
{¶7} The right to arbitration, like any other contractual right, may be waived.
Rock v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 79 Ohio App.3d 126, 606 N.E.2d
1054 (8th Dist.1992). However, in light of Ohio’s strong policy in favor of arbitration,
the waiver of the right to arbitrate is not to be lightly inferred. U.S. Bank, N.A. v.
Wilkens, 8th Dist. No. 93088, 2010-Ohio-262. A party asserting waiver must prove the
waiving party (1) knew of the existing right to arbitrate; and (2) acted inconsistently with
that right. Milling Away LLC v. UGP Properties LLC, 8th Dist. No. 95751,
2011-Ohio-1103. “The essential question is whether, based upon the totality of the
circumstances, the party seeking arbitration has acted inconsistently with the right to
arbitrate.” Checksmart v. Morgan, 8th Dist. No. 80856, 2003-Ohio-163, quoting
Wishnosky v. Star-Lite Bldg. & Dev. Co., 8th Dist. No. 77245, 2000 Ohio App. LEXIS
4081 (Sept. 7, 2000). See also Pinnacle Condominiums Unit Owners’ Assn. v. Lakeside
LLC, 8th Dist. No. 96554, 2011-Ohio-5505.
{¶8} Among the factors a court may consider in determining whether the totality
of circumstances supports a finding of waiver are: (1) whether the party seeking
arbitration invoked the jurisdiction of the trial court by filing a complaint, counterclaim
or third-party complaint without asking for a stay of proceedings; (2) the delay, if any, by
the party seeking arbitration in requesting a stay of proceedings or an order compelling
arbitration; (3) the extent to which the party seeking arbitration participated in the
litigation, including the status of discovery, dispositive motions and the trial date; and (4)
any prejudice to the nonmoving party due to the moving party’s prior inconsistent
actions. Wilkens; Wishnosky; Pinnacle.
{¶9} The question of waiver is usually a fact-driven issue and an appellate court
will not reverse the trial court’s decision absent a showing of abuse of discretion.
Featherstone v. Merril Lynch, Pierce, Fenner & Smith, Inc., 159 Ohio App.3d 27,
2004-Ohio-5953, 822 N.E.2d 841 (9th Dist.2004). A court abuses its discretion when
its decision is unreasonable, unconscionable or arbitrary. Blakemore v. Blakemore, 5
Ohio St.3d 217, 450 N.E.2d 1140 (1983).
{¶10} In this appeal, the CMSD argues that it acted consistently with its right to
arbitrate. In particular, in answering the complaint, the CMSD raised the affirmative
defense of “failure to exhaust administrative remedies.” The CMSD also raised the
issue of arbitration in its motion for summary judgment and then again, when it moved
the court to stay the case and refer the matter to arbitration. We disagree with the
CMSD and find that based on the four factors outlined above, it did waive its right to
arbitrate this dispute.
{¶11} In Rock, it was recognized that a party does not automatically waive its
right to pursue arbitration by failing to specifically plead the right to arbitrate in its
answer, provided the party pleads that the trial court lacked jurisdiction and also moved
to stay the action and to arbitrate the claim. In the present case, the CMSD failed to
raise the affirmative defense of arbitration in its answer nor did it argue that the trial
court lacked jurisdiction to hear the case. The CMSD attempts to argue that its
affirmative defense of “failure to exhaust administrative remedies” included its right to
arbitrate but we disagree. The CMSD was aware of the arbitration clause of the
contract with Academic and it failed to raise this right in answering Academic’s
complaint.
{¶12} Additionally, the CMSD did not move to stay the action and to refer the
matter to arbitration until September 19, 2012, nearly one year and three months after the
initial complaint was filed. The CMSD argues that it raised its right to arbitration in its
motion for summary judgment, which was filed December 13, 2011; however, we
disagree. The crux of CMSD’s motion dealt with the merits of Academic’s case and
why no genuine issue of material fact existed. CMSD raised the issue of arbitration
only as an alternative should the court not agree with the merits of its motion. In either
instance, the CMSD did not properly move the court to compel arbitration or move the
court to stay proceedings as outlined in R.C. 2711.02-.03.
{¶13} On July 23, 2012, the trial court advised the parties of the final pretrial
and trial dates of October 1, 2012 and October 16, 2012, respectively. Even with notice
of the upcoming trial, CMSD did not formally petition the court to stay the case and refer
the matter to arbitration until September 19, 2012, one month before trial was to
commence. Additionally, on October 1, 2012, CMSD submitted its trial brief, witness
list and trial exhibit list. As such, CMSD participated in the litigation by answering the
complaint, filing a dispositive motion, exchanging discovery and preparing for trial for
over a year before moving the court to stay the case and refer the matter to arbitration.
{¶14} Lastly, as evidenced by the record, the parties have exchanged discovery
and all trial briefs, witness lists and exhibit lists have been filed. CMSD participated in
the litigation and exchanged discovery with Academic and Academic will suffer
prejudice should this matter now be referred to arbitration. CMSD acted at all times as
if it was participating in the litigation; it cannot then, at the eleventh hour, attempt to
invoke the arbitration clause contained in the contract.
{¶15} In Pinnacle,this court determined that a demand for arbitration sixteen
months after the initiation of litigation did not constitute a waiver of arbitration. We
find the present case distinguishable from Pinnacle. Unlike the present case, the parties
had not engaged in extensive litigation regarding the merits of the underlying claim. In
Pinnacle, the record demonstrated that the majority of activity between the filing of the
lawsuit and the court’s referral to arbitration consisted of litigating the
plaintiff-appellant’s request for a temporary restraining order and preliminary injunction
and participating in business mediation. Additionally, discovery was not completed and
the trial court rescheduled the trial for a later date.
{¶16} In the present case, CMSD filed an answer that did not affirmatively raise
the right to arbitrate. Additionally, CMSD waited almost fifteen months before
formally petitioning the court to refer the matter to arbitration. More importantly,
CMSD, unlike the defendants-appellees in Pinnacle, fully participated in the litigation.
CMSD filed a dispositive motion, exchanged discovery, prepared a trial brief, witness
list and exhibit list; and further, the trial court set a trial date, which was one month prior
to CMSD’s request for arbitration. Lastly, Academic would be prejudiced by a referral
to arbitration, because they have prepared for trial in the manner consistent with their
lawsuit. Thus, it is clear that the present case is distinguishable from Pinnacle.
{¶17} Based on the foregoing, we find that CMSD knew of its right to arbitrate
and that it acted inconsistently with that right in its participation of the underlying
litigation. Milling Away; Checksmart; Wishnosky.
{¶18} CMSD’s sole assignment of error is overruled.
{¶19} The judgment of the trial court is affirmed.
It is ordered that appellee recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said lower 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.
EILEEN A. GALLAGHER, JUDGE
LARRY A. JONES, SR., P.J., and
SEAN C. GALLAGHER, J., CONCUR