Cedar Fair, L.P. v. Falfas (Slip Opinion) , 140 Ohio St. 3d 447 ( 2014 )

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Cedar Fair, L.P. v. Falfas, Slip Opinion No. 2014-Ohio-3943.]
NOTICE
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an advance sheet of the Ohio Official Reports. Readers are requested
to promptly notify the Reporter of Decisions, Supreme Court of Ohio,
65 South Front Street, Columbus, Ohio 43215, of any typographical or
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made before the opinion is published.
SLIP OPINION NO. 2014-OHIO-3943
CEDAR FAIR, L.P., APPELLANT, v. FALFAS, APPELLEE.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as Cedar Fair, L.P. v. Falfas, Slip Opinion No. 2014-Ohio-3943.]
Arbitration—R.C. 2711.10(D)—Vacation of arbitration award—Specific
performance not an available remedy for breach of employment contract
unless explicitly provided for in contract or by applicable statute.
(No. 2013-0890—Submitted April 9, 2014—Decided September 18, 2014.)
APPEAL from the Court of Appeals for Erie County,
No. E-12-015, 2013-Ohio-1590.
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SYLLABUS OF THE COURT
Specific performance is not an available remedy for breach of an employment
contract unless it is explicitly provided for in the contract or by an
applicable statute. (Masetta v. Natl. Bronze & Aluminum Foundry Co.,
159 Ohio St. 306, 112 N.E.2d 15 (1953), applied.)
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SUPREME COURT OF OHIO
O’NEILL, J.
{¶ 1} In this case, we review the propriety of an arbitration award of
reinstatement as a remedy for an employer’s breach of an employment agreement.
{¶ 2} In 2005 plaintiff-appellee, Jacob Falfas, was promoted to chief
operating officer of defendant-appellant, Cedar Fair, L.P., where he had been
continuously employed for nearly 35 years. The terms of Falfas’s relationship
with Cedar Fair were detailed in a written employment agreement signed by both
parties. In his role as chief operating officer, Falfas reported directly to Cedar
Fair’s chairman of the board, president, and chief executive officer, Richard
Kinzel, and was responsible for—among other duties—negotiating contracts for
and purchasing shows that were performed in Cedar Fair’s amusement parks. In
June 2010, Falfas became aware that Kinzel was unhappy with the contract and
budgeting for one of those shows, and Kinzel’s dissatisfaction led to a 94-second
phone call between the two men on the afternoon of June 10, 2010. After that
phone call, Falfas believed that Kinzel had fired him, but Kinzel believed that
Falfas had resigned.
{¶ 3} Falfas’s termination ultimately became the subject of binding
arbitration, and the arbitration panel found that Falfas had not resigned but had
been terminated for reasons other than cause. The panel went on to conclude that
“equitable relief is needed to restore the parties to the positions that they held
prior to the breach of the Employment Agreement,” and, despite the fact that
nearly eight months had passed since Falfas’s employment had ended, the
arbitration panel ordered Cedar Fair to reinstate Falfas “to the position he held
prior to his wrongful termination.”
{¶ 4} It is the propriety of this order of reinstatement that we address
today. Cedar Fair appealed the arbitration decision to the Erie County Court of
Common Pleas. The trial court concluded that the arbitration panel’s order of
reinstatement went beyond the authority the panel was granted under the
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employment contract. The Sixth District Court of Appeals reversed that decision,
concluding that the arbitration panel had the authority to order Falfas’s
reinstatement under the contract and that reinstatement was consistent with Ohio
law. Cedar Fair appealed to this court, and we accepted jurisdiction to determine
whether an arbitration panel’s order of reinstatement of a terminated employee is
an available remedy for an employer’s breach of contract. 136 Ohio St. 3d 1491,
2013-Ohio-4140, 994 N.E.2d 462. We conclude that specific performance is not
an available remedy for breach of an employment contract unless it is explicitly
provided for in the contract or by an applicable statute.
{¶ 5} The authority of an arbitrator to interpret and enforce a contract is
drawn from the contract itself, and for this reason we have held that “[a]n
arbitrator’s authority is limited to that granted him by the contracting parties, and
does not extend to the determination of the wisdom or legality of the bargain.”
Goodyear Tire & Rubber Co. v. Local Union No. 200, United Rubber, Cork,
Linoleum & Plastic Workers of Am., 42 Ohio St. 2d 516, 519, 330 N.E.2d 703
(1975). The Ohio statute governing when a court may vacate an arbitrator’s
award provides that “the court of common pleas shall make an order vacating the
award upon the application of any party to the arbitration” if the award was the
product of corruption, fraud, or undue means; if any arbitrator was partial or
corrupt; if the arbitrators were guilty of misconduct or misbehavior; or if “[t]he
arbitrators exceeded their powers.” R.C. 2711.10(A) through (D). This statute is
substantively equivalent to the analogous provisions of the Federal Arbitration
Act, and we have often used federal law in aid of our application of the statute.
Compare R.C. 2711.10 with 9 U.S.C. 10(a)(1) through (4); see Goodyear Tire &
Rubber Co. at 520, 522-523 (quoting federal case law while applying R.C.
2711.10). And we have held that the statutory authority of courts to vacate an
arbitrator’s award is extremely limited. See, e.g., Assn. of Cleveland Fire
Fighters, Local 93 of the Internatl. Assn. of Fire Fighters v. Cleveland, 99 Ohio
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St.3d 476, 2003-Ohio-4278, 793 N.E.2d 484, ¶ 13. “Were the arbitrator’s
decision to be subject to reversal because a reviewing court disagreed with
findings of fact or with an interpretation of the contract, arbitration would become
only an added proceeding and expense prior to final judicial determination. This
would defeat the bargain made by the parties * * *.” Goodyear Tire & Rubber
Co. at 520.
{¶ 6} So long as arbitrators act within the scope of the contract, they
have great latitude in issuing a decision. An arbitrator’s improper determination
of the facts or misinterpretation of the contract does not provide a basis for
reversal of an award by a reviewing court, because “[i]t is not enough * * * to
show that the [arbitrator] committed an error—or even a serious error.” Stolt–
Nielsen, S.A. v. AnimalFeeds Internatl. Corp., 559 U.S. 662, 671, 130 S. Ct. 1758,
176 L. Ed. 2d 605 (2010). Moreover, we have held that arbitrators have “broad
authority to fashion a remedy, even if the remedy contemplated is not explicitly
mentioned” in the applicable contract. Queen City Lodge No. 69, Fraternal
Order of Police, Hamilton Cty., Ohio, Inc. v. Cincinnati, 63 Ohio St. 3d 403, 407,
588 N.E.2d 802 (1992).
{¶ 7} Notwithstanding these principles, under R.C. 2711.10(D)
arbitrators can exceed their powers by going beyond the authority provided by the
bargained-for agreement or by going beyond their contractual authority to craft a
remedy under the law. See, e.g., Oxford Health Plans, L.L.C. v. Sutter, ___ U.S.
___, 133 S. Ct. 2064, 2068, 186 L. Ed. 2d 113 (2013) (analyzing 9 U.S.C. 10(a)(4)
of the Federal Arbitration Act). Arbitrators act within their authority to craft an
award so long as the award “draws its essence” from the contract—that is, “when
there is a rational nexus between the agreement and the award, and where the
award is not arbitrary, capricious or unlawful.” Mahoning Cty. Bd. of Mental
Retardation & Dev. Disabilities v. Mahoning Cty. TMR Edn. Assn., 22 Ohio St. 3d
80, 488 N.E.2d 872 (1986), paragraph one of the syllabus. Accord Oxford Health
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Plans at 2068. So long as there is a good-faith argument that an arbitrator’s
award is authorized by the contract that provides the arbitrator’s authority, the
award is within the arbitrator’s power, but an award “departs from the essence of
a [contract] when: (1) the award conflicts with the express terms of the agreement,
and/or (2) the award is without rational support or cannot be rationally derived
from the terms of the agreement.” Ohio Office of Collective Bargaining v. Ohio
Civ. Serv. Emps. Assn., Local 11, AFSCME, AFL-CIO, 59 Ohio St. 3d 177, 572
N.E.2d 71 (1991), syllabus. And finally, we note that it is well settled that “ ‘an
arbitrator is confined to interpretation and application of the [contract]; he does
not sit to dispense his own brand of industrial justice.’ ” Id. at 180, quoting
United Steelworkers of Am. v. Ent. Wheel & Car Corp., 363 U.S. 593, 597, 80
S. Ct. 1358, 4 L. Ed. 2d 1424 (1960).
{¶ 8} In short, if it can be fairly argued that the arbitrators’ award of
reinstatement to Falfas was contemplated by the contract at issue here and that the
law arguably authorizes the award, the reinstatement should be upheld. These are
quite deferential standards, but after analysis, we are compelled to conclude that
by ordering Cedar Fair to reinstate Falfas, the arbitration panel exceeded its
powers.
{¶ 9} Cedar Fair’s employment agreement with Falfas contains four
separate sections that are relevant to whether the agreement gave the arbitration
panel the power to order Falfas’s reinstatement:
7. Termination by Cedar Fair Other Than for Cause.
(a) If, other than pursuant to Section 10 or Section 12
hereof, Cedar Fair shall terminate Executive’s employment
(including by written notice of intent, pursuant to Section 2 hereof,
not to renew this Agreement), then [Executive shall receive his
base salary for either one year or the remaining employment term,
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whichever is longer, and shall receive certain continuing benefits
as specifically detailed in this Section].
All other benefits provided by Cedar Fair shall end as of the last
day of Executive’s active employment.
***
10. Termination for Cause.
(a) Cedar Fair may terminate Executive’s employment for
Cause. * * *
(b) If Executive’s employment shall be terminated for
Cause, Cedar Fair shall pay Executive, in a lump sum, on the
twentieth (20th) business day following the date of termination for
Cause, his Base Salary through the date of his termination.
(c) Cedar Fair shall have no further obligations to
Executive under this Agreement.
11. Termination By Resignation.
In the event Executive resigns his employment, all benefits
and compensation shall cease on the last day of Executive’s active
employment with Cedar Fair.
***
19. Arbitration.
***
(c) * * * The arbitration panel shall have authority to
award any remedy or relief that an Ohio or federal court in Ohio
could grant in conformity with applicable law on the basis of the
claims actually made in the arbitration. The arbitration panel shall
not have the authority either to abridge or change substantive rights
available under the existing law.
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(Boldface and underlining sic.)
{¶ 10} The evidence presented at the arbitration hearing focused almost
entirely on whether Falfas had resigned his position with Cedar Fair. Based on
that evidence, Cedar Fair argued that Section 11 controlled and that Falfas was
not entitled to any kind of postemployment compensation, because he had
resigned. Falfas, by contrast, argued that he had been terminated without cause
and that he was entitled to either reinstatement under Section 19(c) of the
contract, with full continuing compensation and benefits as if he had not been
terminated, or to compensation and benefits according to Section 7 of the
contract. The parties agreed that Falfas had not been terminated for cause and
therefore that Section 10 of the contract was not controlling.
{¶ 11} The arbitration panel concluded that “Falfas was terminated for
reasons other than cause”, and that “the facts fail to establish resignation.” Based
on this finding, Cedar Fair argues that the arbitration panel’s power was limited to
awarding Falfas the period of continuing compensation and benefits he was
entitled to receive under Section 7 of the contract, which by its plain terms is a
liquidated-damages provision in case of termination other than for cause. In
support of this view, Cedar Fair points out that Section 2 of the employment
agreement provided that “Cedar Fair shall have the right to terminate this
Agreement at any time, subject to the obligations to provide the benefits and make
the payments provided herein.” But Falfas argues that because the panel also
determined that “equitable relief is needed to restore the parties to the positions
that they held prior to the breach of the Employment Agreement,” and that
because the panel was authorized under Section 19(c) of the contract “to award
any remedy or relief that an Ohio or federal court in Ohio could grant in
conformity with applicable law,” the award of reinstatement was proper. Thus,
the issue is whether the arbitration panel could conclude in good faith that specific
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performance in the form of reinstatement was an available legal remedy under the
law and therefore under Section 19(c) of the contract.
{¶ 12} Framed this way, the question suggests its own answer. It is hardly
controversial to recognize that an order of specific performance is rarely an
appropriate remedy for breach of an employment agreement. It is, for example,
common for first-year law students to review the case of Lumley v. Wagner, 42
Eng.Rep. 687 (1852), in which the court observed that it lacked the power to
order a singer who had contracted to perform at the plaintiff’s theater to
specifically complete her contract. Id. at 693. Ohio has long followed the same
rule. See Port Clinton RR. Co. v. Cleveland & Toledo RR. Co., 13 Ohio St. 544,
550 (1862) (“In the case of a contract for personal service, it may be that, on a
refusal to perform the contract, an action for damages would not afford adequate
relief, and yet it is clear that a court of equity will not attempt to enforce
specifically such a contract”). Accord Hoffman Candy & Ice Cream Co. v. Dept.
of Liquor Control, 154 Ohio St. 357, 96 N.E.2d 203 (1950), paragraph three of the
syllabus.
{¶ 13} In Masetta v. Natl. Bronze & Aluminum Foundry Co., 159 Ohio St.
306, 112 N.E.2d 15 (1953), paragraph two of the syllabus, this court held that “[a]
court of equity will not, by means of mandatory injunction, decree specific
performance of a labor contract existing between an employer and its employees
so as to require the employer to continue any such employee in its service or to
rehire such employee if discharged.” Masetta is squarely within the mainstream
on this question; surveying the cases related to the issue, the authors of a
frequently cited treatise have observed that “[o]n occasion an employee has
sought specific performance of an employment contract against an employer.
Such relief has almost invariably been denied. Such enforcement * * * would
involve difficulty of supervision and, often, forc[e] the continuance of a
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distasteful personal relationship.” (Footnote omitted.) Calamari & Perillo, The
Law of Contracts, Section 16.5, at 618 (4th Ed.1998).
{¶ 14} To be fair, there are some exceptions to this general rule. Most
notably, collective-bargaining agreements, civil-service laws, and civil-rights laws
have all endorsed reinstatement as a remedy for wrongful termination of
employment. See, e.g., 29 U.S.C. 626(b) (“In any action brought to enforce [the
Age Discrimination in Employment Act] the court shall have jurisdiction to grant
such legal or equitable relief as may be appropriate to effectuate the purposes of
this chapter, including without limitation judgments compelling employment,
reinstatement or promotion”). See also, e.g., R.C. 4112.05(G)(1) (including
“reinstatement” as an available remedy if the Ohio Civil Rights Commission
determines that a respondent has engaged in an unlawful discriminatory practice).
Recognizing these developments, this court has held that “specific performance of
a reinstatement provision in a settlement agreement is appropriate when * * * the
settlement agreement provides for reinstatement in clear and unambiguous terms
and when the settlement promise of reinstatement is given in exchange for the
relinquishment of a statutorily-created right to reinstatement.” (Emphasis
added.) State ex rel Wright v. Weyandt, 50 Ohio St. 2d 194, 199, 363 N.E.2d 1387
(1977). In Wright, this court held that a clear bargained-for promise of
reinstatement in an agreement could be enforced by specific performance. But
even in light of Wright, the general rule forbidding compulsory performance
survives—those exceptions discussed above would make no sense if it were
otherwise. In short, unless a statute or the employment contract says otherwise,
the rule in Ohio remains that specific performance is not an available remedy for
breach of an employment contract.
{¶ 15} It is at best a strained conclusion that Section 19(c), which
authorizes the arbitration panel to award “any remedy or relief that an Ohio or
federal court in Ohio could grant” is sufficient to authorize reinstatement “in clear
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and unambiguous terms,” as did the settlement agreement in Wright. In order to
maintain his argument that reinstatement is an available remedy, Falfas relies—in
large part—on a single phrase from this court’s decision in Worrell v. Multipress,
Inc., 45 Ohio St. 3d 241, 543 N.E.2d 1277 (1989). In Worrell we noted in passing
that “front pay is an equitable remedy designed to financially compensate
employees where ‘reinstatement’ of the employee would be impractical or
inadequate. In such circumstances an award of front pay enables the court to
make the injured party whole, although reinstatement is the preferred remedy.”
Id. at 246. Falfas argues that because we recognized reinstatement as “the
preferred remedy” in Worrell, the arbitration panel’s award of reinstatement was a
“remedy or relief that an Ohio or federal court in Ohio could grant in conformity
with applicable law,” and therefore it should be affirmed.
{¶ 16} But this argument relies on reading the quoted words in isolation
from the remainder of the opinion and completely out of the context in which
those words appear: as dictum grounded in discussing the remedies available
under the Age Discrimination in Employment Act of 1967 (“ADEA”). The
Worrell opinion directly supported the sentence at issue by citing Cassino v.
Reichhold Chems., Inc., 817 F.2d 1338 (9th Cir.1987). In Cassino, the court, after
quoting 29 U.S.C. 626(b) and its specific authorization of “reinstatement” as one
avenue of relief, stated that while “reinstatement is the preferred remedy in these
cases, it may not be feasible where the relationship is hostile or no position is
available due to a reduction in force.” (Emphasis added.) Id. at 1346. Worrell
does not even begin to suggest that reinstatement to employment is the “preferred
remedy” in all personal-services-contract disputes, which would be a manifestly
incorrect understanding of the law. The opinion merely notes, far more
prosaically, that reinstatement is a statutorily preferred remedy for wrongful
dismissal under the ADEA.
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{¶ 17} Falfas’s reading of Worrell would have the statutory exception
favoring reinstatement in employment-discrimination cases swallow the general
common-law rule forbidding reinstatement in employment cases. But Worrell
itself actually rejects this argument, observing as it does that “the usual remedy in
breach of contract cases for wrongful discharge is to pay the injured party the
difference between any wages due under the contract from the date of discharge
until the contract term expires.” Id. at 246. Moreover, the actual holding of
Worrell, ironically, more closely supports the remedy advocated by Cedar Fair.
See id. at 247 (“We hold that, as a result of breach of an employment contract
where an employee has been wrongfully discharged, front pay, or lost future
wages, may be awarded as compensation between the date of discharge and
reemployment in a position of equal or similar status”). In short, it cannot be
fairly argued that Falfas’s interpretation of Worrell is even reasonable, let alone
that it is a correct statement of the law—the only way this argument could work at
all is to ignore everything other than the words “preferred remedy.” We simply
cannot hold that the arbitration panel acted within its authority in disregarding the
general rule against reinstatement when the employment agreement here lacks the
“clear and unambiguous terms” authorizing reinstatement that were present in
Wright.
{¶ 18} We finally observe that Falfas’s reading of Section 19(c) of the
agreement is completely undermined by the existence of Sections 7, 10, and 11,
which address the generally understood possibilities here: termination without
cause, termination for cause, and resignation. The arbitration panel specifically
found that Falfas was terminated without cause, and therefore, as the trial court
concluded, Falfas was entitled to “his back pay and other benefits he enjoyed
* * * as if the employment relationship had not been severed,” as outlined in
Section 7 of the agreement. Section 7, as Cedar Fair has argued to this court,
quite clearly includes a liquidated-damages provision designed to set forth the
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compensation and benefits to which Falfas is entitled on account of Cedar Fair’s
decision to terminate his employment contract without cause. The record before
us demonstrates that the parties to the contract envisioned precisely what
happened here. Nearly eight months passed between Falfas’s termination and the
arbitration panel’s award. How could a large business entity like Cedar Fair
properly function if an arbitration panel was authorized to force it to reemploy an
unwanted senior officer after it had obviously moved on? Why would any such
entity or employee agree to give an arbitration panel the power to cause such
disruption? And why should the broad language in Section 19(c) be interpreted to
allow such a result when Section 7, by implication, forbids it?
{¶ 19} For all these reasons, we hold that specific performance is not an
available remedy for breach of an employment contract unless it is explicitly
provided for in the contract or by an applicable statute and that the arbitration
panel in this case exceeded its authority by holding otherwise. Because the fact-
finder determined that Falfas was terminated for reasons other than for cause, he
is entitled to his base salary for either one year or his remaining employment
term, whichever is longer. That matter and other concerns are to be addressed by
the trial court upon remand. But the contract clearly does not entitle him to
reinstatement. We accordingly reverse the judgment of the court of appeals and
remand this case to the Erie County Court of Common Pleas for further
proceedings.
Judgment reversed
and cause remanded.
O’CONNOR, C.J., and PFEIFER, O’DONNELL, LANZINGER, KENNEDY, and
FRENCH, JJ., concur.
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Organ Cole & Stock, L.L.P., Douglas R. Cole, Erik J. Clark, and Joshua
M. Feasel; and Murray & Murray Co., L.P.A., Dennis E. Murray Jr., and Dennis
E. Murray Sr., for appellant.
Wickens, Herzer, Panza, Cook & Batista Co., Richard D. Panza, William
F. Kolis, Joseph E. Cirigliano, and Matthew W. Nakon, for appellee.
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