Stoner v. Salon Lofts L.L.C. , 2014 Ohio 796 ( 2014 )

[Cite as Stoner v. Salon Lofts L.L.C., 2014-Ohio-796.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Sean A. Stoner et al., :
Plaintiffs-Appellants, : No. 13AP-437
(C.P.C. No. 10CV-13904)
v. :
(REGULAR CALENDAR)
Salon Lofts, LLC et al., :
Defendants-Appellees. :
D E C I S I O N
Rendered on March 4, 2014
Cooper & Elliott, LLC, Charles H. Cooper, Jr., Rex H. Elliott
and Adam P. Richards, for appellants.
Littler Mendelson, Thomas M.L. Metzger and Brooke E.
Miedecken, for appellees.
APPEAL from the Franklin County Court of Common Pleas
O'GRADY, J.
{¶ 1} Plaintiffs-appellants Sean A. Stoner and Buckheel Investments, LLC
(collectively "appellants") appeal from a judgment of the Franklin County Court of
Common Pleas granting the motion of defendants-appellees Salon Lofts, LLC, and Salon
Lofts Franchising, LLC (collectively "appellees") to stay portions of this action pending
arbitration. For the following reasons, we affirm in part, reverse in part, and remand for
further proceedings.
I. FACTS AND PROCEDURAL HISTORY
{¶ 2} According to the complaint, Salon Lofts, LLC ("Salon Lofts") rented
property to individuals in the hair and beauty industry to enable them to operate their
own businesses. Sean A. Stoner ("Stoner") worked as general counsel and vice president
No. 13AP-437 2
of investor relations for Salon Lofts from April 2007 until his termination on August 24,
2010. Stoner also owned 5 percent of Salon Lofts, which in turn owned Salon Lofts
Franchising, LLC ("SL Franchising"), which was created for purposes of selling Salon
Lofts franchises in various cities. Buckheel Investments, LLC ("Buckheel") was the
Charlotte, North Carolina franchisee. At some point, Stoner paid $30,000 for the
Charlotte franchise rights, but the exact nature of his relationship with Buckheel is
unclear from the complaint's allegations.
{¶ 3} On September 22, 2010, appellants filed a complaint against appellees. In
Count 1, Stoner alleged Salon Lofts breached his employment agreement. In Count 2,
appellants alleged SL Franchising materially breached a franchise agreement and sought
rescission of the agreement and the return of Stoner's $30,000. In Count 3, Stoner
requested a declaratory judgment confirming his 5 percent interest in Salon Lofts and
Salon Lofts' membership interest in SL Franchising.
{¶ 4} Appellants consented to two extensions of appellees' time to move, answer
or otherwise plead in response to the complaint. On November 12, 2010, appellees filed
an answer, counterclaims, and a jury demand. In their twelfth defense to the complaint,
appellees stated: "Some or all of the claims in Plaintiffs' Complaint are subject to
mandatory arbitration and should be dismissed." (R. 37, Answer and Counterclaim, 8.)
Appellees also raised ten counterclaims: (1) breach of fiduciary duty and breach of duty of
loyalty against Stoner; (2) violation of the Ohio Trade Secrets Act against appellants;
(3) legal malpractice against Stoner; (4) tortious interference with contracts and business
relationships against appellants; (5) fraud against Stoner; (6) defamation against Stoner;
(7) conversion against Stoner; (8) breach of contract against Buckheel; (9) declaratory
judgment; and (10) breach of contract against Stoner.
{¶ 5} Appellants filed a motion to dismiss the fraud counterclaim, which
appellees opposed. Also, on January 26, 2011, the trial court issued a stipulated protective
order. On February 7, 2011, appellants filed a motion to compel discovery, which
appellees opposed. Appellants later agreed to withdraw their motion to dismiss and
motion to compel. On April 15, 2011, appellees filed a disclosure of witnesses.
{¶ 6} The same day, appellees filed a partial motion for judgment on the
pleadings or to compel arbitration and stay proceedings. Appellees filed this motion
No. 13AP-437 3
about three months before the discovery cut-off date and over five months before the trial
date. In the motion, appellees argued Count 2 of the complaint was subject to mandatory
arbitration under an area development agreement and franchise agreement. They also
argued Count 3 of the complaint was subject to mandatory arbitration under Salon Lofts'
Operating Agreement. Appellees asked the court to either dismiss Counts 2 and 3 or
compel arbitration and stay proceedings as to those counts.
{¶ 7} Appellants filed a memorandum in opposition. They did not refute the
contention that Counts 2 and 3 were arbitrable and argued appellees' counterclaims were
also subject to arbitration. Instead, appellants claimed appellees waived arbitration for
the following reasons. Appellees sought two extensions of time to respond to the
complaint. Then, instead of immediately filing a motion to stay, they filed an answer,
counterclaims, and a jury demand. They "waited seven months to seek to compel
arbitration." (R. 66, Memorandum in Opposition, 10.) Before requesting arbitration,
they served appellants with 27 interrogatories, 22 document requests, and 85 requests for
admissions. Appellees issued multiple subpoenas for records and/or a deposition. They
responded to discovery requests from appellants and took one deposition. In all, the
parties exchanged over 20,000 documents. They entered into a protective order and
engaged in "copious amounts" of discovery communication. (Memorandum in
Opposition, 5.) They also began the process of scheduling additional depositions.
Appellees filed a disclosure of witnesses, and, on April 18, 2011, they participated in a
status conference without mentioning their "intent to move to stay the proceedings and
compel arbitration." (Memorandum in Opposition, 4.) On April 21, 2011, appellants
began to take the deposition of Daniel Sadd, Salon Lofts' owner and managing member,
without objection. Additionally, the parties engaged in motion practice, and appellees
threatened to file other motions. Appellants also complained arbitration would not be
speedy or inexpensive.
{¶ 8} In response, appellees argued they did not waive arbitration. They pointed
to the fact they asserted an arbitration defense in their answer and filed the motion to stay
about five months after their answer. In addition, appellees argued the vast majority of
discovery related to Count 1 of the complaint, which the parties agreed was not arbitrable.
They also claimed the written discovery exchanges and depositions would have occurred
No. 13AP-437 4
even if the matter started in arbitration. Appellees also contended appellants did not
allege appellees' actions prejudiced them.
{¶ 9} Before the trial court ruled on the motion to stay, other proceedings
occurred in the case. For instance, appellees filed a motion for a temporary restraining
order and a preliminary injunction against Stoner. The trial court granted the injunction,
and Stoner appealed to this court. We affirmed. Stoner v. Salon Lofts, L.L.C., 10th Dist.
No. 11AP-838, 2012-Ohio-3269.
{¶ 10} On April 25, 2013, over two years after appellees filed the motion to stay,
the trial court ruled Counts 2 and 3 were subject to arbitration. The court found the
eighth counterclaim was subject to arbitration to the extent it sought monetary damages,
as opposed to injunctive relief. The court found the totality of the circumstances did not
establish waiver. Specifically, appellees "timely moved to stay pending arbitration within
five months of the filing of their Answer and Counterclaim[s]." (R. 183-84, Apr. 25, 2013
Decision and Entry, 6.) According to the trial court, "courts have routinely held that the
filing of a responsive pleading and participation in minimal discovery is insufficient to
constitute a waiver of a party's right to compel arbitration." (Decision and Entry, 6-7.)
The court also found appellees asserted, and appellants "have not denied, that the vast
majority of the discovery exchanged during the five months * * * related to Count I, which
is not subject to the arbitration provisions at issue." (Decision and Entry, 7.) Additionally,
the court stated appellants did not allege, nor did the court find, any prejudice to
appellants from the five-month period between appellees' responsive pleading and
motion to stay. The trial court stayed proceedings on Counts 2 and 3 and any claim for
monetary damages under the eighth counterclaim pending arbitration.
II. ASSIGNMENT OF ERROR
{¶ 11} Appellants appeal and present one assignment of error for our review:
The Trial Court erred in granting Defendants' Partial Motion
for Judgment on the Pleadings or to Compel Arbitration and
Stay Proceedings.
No. 13AP-437 5
III. DISCUSSION
{¶ 12} Under the sole assignment of error, appellants contend the trial court erred
when it rejected their waiver argument and partially stayed proceedings pending
arbitration.
{¶ 13} "Both the Ohio General Assembly and Ohio courts have expressed a strong
public policy favoring arbitration." Hayes v. Oakridge Home, 122 Ohio St.3d 63, 2009-
Ohio-2054, ¶ 15, citing R.C. Chapter 2711, Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio
St.3d 352, 2008-Ohio-938, ¶ 27, and Williams v. Aetna Fin. Co., 83 Ohio St.3d 464, 471
(1998). " 'Arbitration is favored because it provides the parties thereto with a relatively
expeditious and economical means of resolving a dispute.' " Kelm v. Kelm, 68 Ohio St.3d
26, 29 (1993), quoting Schaefer v. Allstate Ins. Co., 63 Ohio St.3d 708, 712 (1992).
"Arbitration also has the additional benefit of unburdening crowded court dockets."
Hayes at ¶ 15, citing Mahoning Cty. Bd. of Mental Retardation & Dev. Disabilities v.
Mahoning Cty. TMR Edn. Assn., 22 Ohio St.3d 80, 83 (1986). "In light of the strong
presumption favoring arbitration, all doubts should be resolved in its favor." Id., citing
Ignazio v. Clear Channel Broadcasting, Inc., 113 Ohio St.3d 276, 2007-Ohio-1947, ¶ 18.
{¶ 14} "The General Assembly has endorsed the strong policy in favor of
arbitration of disputes in R.C. 2711.01(A), which 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.' " Id. at ¶ 16. R.C. 2711.02 provides for
enforcement of an arbitration agreement. A party to such an agreement may obtain a stay
of litigation in favor of arbitration under R.C. 2711.02(B), which states:
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.
Moreover, an order under R.C. 2711.02(B) that grants or denies a stay of a trial pending
arbitration "is a final order and may be reviewed, affirmed, modified, or reversed on
No. 13AP-437 6
appeal pursuant to the Rules of Appellate Procedure and, to the extent not in conflict with
those rules, Chapter 2505. of the Revised Code." R.C. 2711.02(C).
{¶ 15} Our standard of review for a R.C. 2711.02(B) order depends on the nature of
the issues involved. See Dispatch Printing Co. v. Recovery Ltd. Partnership, 10th Dist.
No. 10AP-353, 2011-Ohio-80, ¶ 17. Here, the issue is whether appellants waived the right
to arbitrate. "The right to arbitration may be waived just like any other contractual right."
Id. at ¶ 19, citing Murtha v. Ravines of McNaughton Condominium Assn., 10th Dist. No.
09AP-709, 2010-Ohio-1325, ¶ 20. " ' "[T]he 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 an abuse of discretion." ' " Morris v. Morris, 189 Ohio App.3d 608, 2010-Ohio-4750,
¶ 17 (10th Dist.), quoting Murtha at ¶ 20, quoting ACRS, Inc. v. Blue Cross & Blue Shield
of Minnesota, 131 Ohio App.3d 450, 456 (8th Dist.1998). The phrase "abuse of
discretion" implies the trial court's attitude is arbitrary, unreasonable or unconscionable.
Blakemore v. Blakemore, 5 Ohio St.3d 217, 219 (1983).
{¶ 16} "A party asserting waiver must prove that the waiving party knew of the
existing right to arbitrate and, based on the totality of the circumstances, acted
inconsistently with that known right." Dispatch Printing Co. at ¶ 21, citing Murtha at
¶ 21. "In determining whether the totality of the circumstances supports a finding of
waiver, a court may consider such factors as: (1) whether the party seeking arbitration
invoked the court's jurisdiction by filing a complaint or claim without first requesting a
stay; (2) the delay, if any, by the party seeking arbitration to request a stay; (3) the extent
to which the party seeking arbitration has participated in the litigation; and (4) whether
prior inconsistent acts by the party seeking arbitration would prejudice the non-moving
party." Id., citing Tinker v. Oldaker, 10th Dist. No. 03AP-671, 2004-Ohio-3316, ¶ 20.
"Waiver attaches where there is active participation in a lawsuit evincing an acquiescence
to proceeding in a judicial forum." Tinker at ¶ 21.
{¶ 17} Appellants do not challenge the trial court's finding that Counts 2 and 3 of
the complaint and appellees' eighth counterclaim, to the extent it sought monetary
damages, were subject to arbitration. Instead, appellants complain the court erred when
it found appellees did not waive arbitration. Appellees implicitly concede they knew of
their right to arbitrate. Therefore, the central issue is whether the trial court abused its
No. 13AP-437 7
discretion when it found, under the totality of the circumstances, appellees did not act
inconsistently with their known right to arbitrate.
{¶ 18} Appellees raised the issue of arbitration in their answer, but they did not
immediately request a stay. Instead, they invoked the trial court's jurisdiction by filing
ten counterclaims and a jury demand. Appellants argue this action, by itself, is sufficient
to support a finding of waiver. That position runs contrary to the nature of a totality of
the circumstances analysis. Moreover, only one of appellees' counterclaims was arbitrable
and only to the extent it sought monetary damages. See generally Morris at ¶ 22 (finding
party's request to file a cross-claim was not inconsistent with contractual right to arbitrate
because the party never actually filed the cross-claim and the cross-claim would not have
been subject to arbitration).
{¶ 19} The trial court found appellees timely requested a stay within five months of
filing their responsive pleading. This finding is supported by the fact that appellees made
their request about three months before the discovery cut-off date, before any dispositive
motions were filed, and over five months before the trial date. Appellants argue courts
have found waiver where a party filed a motion to stay earlier than appellees did.
However, in the case appellants cite for this proposition, the movant was the same party
who filed the complaint. Farrow Builders, Inc. v. Slodov, 11th Dist. No. 2000-G-2288
(June 29, 2001).
{¶ 20} Next, appellants contend appellees extensively participated in the litigation
process. Appellants highlight the fact that appellees sought and received two extensions
to answer, move or otherwise plead. However, we fail to see how a request for more time
to respond to a complaint is inherently inconsistent with the pursuit of arbitration.
{¶ 21} Appellants complain the parties engaged in substantial discovery on Counts
2 and 3. In support of this claim, appellants quote various discovery requests appellees
either served or responded to without objection. Appellants claim the parties exchanged
around 20,000 documents, "many of which were directly related" to Counts 2 and 3.
(Appellants' brief, 29.) Appellants also claim the majority of the parties' communications
about discovery related to Counts 2 and 3, and the parties entered into a protective order
adopted by the trial court. In addition, appellants complain appellees issued several
broadly-worded subpoenas to third-parties that required production of documents related
No. 13AP-437 8
to Counts 2 and 3. Appellees also sought to depose the subpoenaed third-parties, but
appellants admit the depositions never took place. Appellants also complain the one
deposition completed before appellees filed the motion to stay, that of Jeffrey Wilkins,
concerned "almost exclusively" issues related to Count 2. (Appellants' brief, 19.) In a
footnote, appellants claim after appellees filed their motion, "a second deposition of Mr.
Wilkins was conducted on additional issues related to" Counts 2 and 3. (Appellants' brief,
19, fn. 3.)
{¶ 22} As the trial court found, appellees asserted, and appellants "have not
denied, that the vast majority of the discovery exchanged [is] * * * related to Count I,
which is not subject to the arbitration provisions at issue." (Decision and Entry, 7.)
Moreover, appellants have the burden to prove waiver, and it is not clear how much of the
discovery and protection order related solely to arbitrable claims, particularly when
according to appellants, Counts 1 and 3 "overlap significantly" and the record does not
contain Wilkins' deposition transcripts. (Appellants' brief, 9.)
{¶ 23} Appellants argue after appellees filed the motion to stay, on April 21, 2011,
appellants deposed Sadd without objection, and he testified regarding all of the claims in
the complaint. But the record does not contain Sadd's deposition transcript. According to
appellants, the parties also began to schedule depositions of seven individuals whose
testimony would have related to Counts 2 and 3. However, we do not know what those
individuals would have testified about. Appellants also complain on April 18, 2011,
appellees participated in a status conference "without mentioning their intent to move to
stay the proceedings and compel arbitration." (Appellants' brief, 30.) We fail to see how
appellees' failure to explicitly mention a motion they already filed and served on
appellants demonstrates waiver.
{¶ 24} Next, appellants generally cite over 115 items in the record as proof
appellees actively litigated Counts 2 and 3 after filing the motion to stay. Appellants did
not make this argument at the trial level and cannot make it for the first time on appeal.
Amare v. Chellena Food Express, Inc., 10th Dist. No. 08AP-678, 2009-Ohio-147, ¶ 14,
quoting Ohio Civ. Rights Comm. v. Triangle Real Estate Serv., Inc., 10th Dist. No. 06AP-
157, 2007-Ohio-1809, ¶ 11.
No. 13AP-437 9
{¶ 25} Moreover, it is apparent many of the documents cited relate to non-
arbitrable issues, such as the preliminary injunction.
{¶ 26} Appellants also complain appellees filed a disclosure of witnesses, and two
people named are "key witnesses" for Counts 2 and 3. (Appellants' brief, 19.) Because not
all of the claims in this lawsuit are arbitrable, filing a disclosure of witnesses is not
necessarily inconsistent with the pursuit of arbitration. Even if some of the named
witnesses possess information on the arbitrable claims, that does not necessarily mean
they lack knowledge of the non-arbitrable claims.
{¶ 27} In addition, appellants argue appellees participated in motion practice at
the trial level, particularly with regard to appellants' motions to compel and to dismiss the
fraud counterclaim. However, the fraud claim was not arbitrable. Moreover, the trial
court was free to not place great weight on the motion to compel litigation. Appellants
also argue appellees threatened to invoke the court's jurisdiction by filing other motions.
We are not persuaded an unfulfilled threat to file a motion constitutes an act inconsistent
with pursuit of arbitration.
{¶ 28} Next, appellants contend arbitration runs contrary to public policy in this
case because arbitration would not be economical or expeditious. They suggest the time
and expense to arbitrate now would prejudice them. Specifically, appellants claim Counts
1 and 3 are intertwined and arbitration will "cause nearly double the expense to the
parties." (Appellants' brief, 46.) Appellants also argue "having two different decision
makers deciding the same issues * * * will place the parties at risk of incurring double or
inconsistent obligations and could cast doubt on the integrity of arbitration as well as the
arbitrator's acts." (Appellants' brief, 10.) In addition, appellants complain it does not
make sense to "thrust" this matter into arbitration more than two and one-half years after
they filed the complaint when appellees' "delay" in filing the motion to stay "likely caused
the nearly two-year delay" in the trial court ruling on the motion. (Appellants' brief, 46.)
{¶ 29} The trial court found appellants did not allege any prejudice, and the trial
court did not find any. Although appellants generally claimed arbitration would not be an
inexpensive or quick resolution to the parties' conflict, appellants did not make any of the
more specific arguments they now make on appeal and thus waived them. Moreover, any
risk of inconsistent decisions due to the existence of arbitrable and non-arbitrable claims
No. 13AP-437 10
did not compel the trial court to ignore the arbitration provisions and deny the motion to
stay. See Harrison v. Winchester Place Nursing & Rehab. Ctr., 10th Dist. No. 12AP-327,
2013-Ohio-3163, ¶ 19-26. While the trial court's delay in deciding the motion to stay is
unfortunate, we cannot assume the delay is solely attributable to the timing of when
appellees filed the motion. At least some of the delay is attributable to the extensive
litigation, including an appeal, on the non-arbitrable preliminary injunction issue.
{¶ 30} We find nothing unreasonable, arbitrary or unconscionable in the trial
court's finding that appellees did not prejudice appellants. While arbitration might entail
additional expenses, such as a fee for the arbitrator, those expenses would have existed
even if appellees immediately filed a motion to stay. As appellees point out, the discovery
that has already occurred in this case might be useful in arbitration.1
{¶ 31} Based on the foregoing, we conclude the trial court did not abuse its
discretion in finding that, based on the totality of the circumstances, appellees did not act
inconsistently with their right to arbitrate. In their answer, appellees notified appellants
of an arbitration defense. Appellees did file a partially arbitrable counterclaim and did not
immediately request a stay. But they requested a stay several months before the discovery
cut-off and trial dates and before any dispositive motions were filed. Appellees actions
did not prejudice appellants. And though appellees participated in the litigation process,
it is unclear exactly how much of that process related solely to arbitrable, as opposed to
non-arbitrable, claims. Moreover, we cannot say appellees' participation, when weighed
against other factors, was so substantial as to render the trial court's decision
unreasonable, arbitrary or unconscionable.
{¶ 32} Accordingly, the trial court did not err when it rejected appellants' waiver
argument, and we overrule the sole assignment of error.
IV. CONCLUSION
{¶ 33} Although the parties do not raise the issue, the trial court erred by only
staying part of the proceedings instead of the entire proceeding pending arbitration. R.C.
2711.02; Gordon v. OM Financial Life Ins. Co., 10th Dist. No. 08AP-480, 2009-Ohio-814,
1 Appellees argue the lack of prejudice is evidenced by a demand for arbitration appellants filed in February
2013. Although appellees included a copy of this demand in an appendix to their appellate brief, the
document is not part of the record on appeal, so we disregard it.
No. 13AP-437 11
¶ 17, quoting Cheney v. Sears, Roebuck & Co., 10th Dist. No. 04AP-1354, 2005-Ohio-
3283, ¶ 12 (stating that " '[p]ursuant to R.C. 2711.02, when an action involves both
arbitrable and non-arbitrable claims, the entire proceeding must be stayed until the issues
that are subject to arbitration are resolved' "). Therefore, we reverse the trial court's
judgment to the extent the court stayed only a portion of the proceedings and remand for
the court to enter an order staying the entire action until arbitration has been had in
accordance with the agreements at issue.
{¶ 34} For the foregoing reasons, appellants' sole assignment of error is overruled
and we affirm the trial court's judgment in part, reverse it in part, and remand for further
proceedings consistent with this decision.
Judgment affirmed in part,
reversed in part, and cause remanded.
KLATT and CONNOR, JJ., concur.