Koudela v. Johnson & Johnson Custom Builders, L.LC. , 2017 Ohio 9331 ( 2017 )

[Cite as Koudela v. Johnson & Johnson Custom Builders, L.LC., 2017-Ohio-9331.]
IN THE COURT OF APPEALS
ELEVENTH APPELLATE DISTRICT
LAKE COUNTY, OHIO
NICHOLAS KOUDELA, et al., : OPINION
Plaintiffs-Appellants, :
CASE NO. 2017-L-024
- vs - :
JOHNSON & JOHNSON :
CUSTOM BUILDERS, LLC, et al.,
Defendants-Appellees. :
Civil Appeal from the Lake County Court of Common Pleas, Case No. 2016 CV
000895.
Judgment: Affirmed.
Jay F. Crook, Shryock, Crook & Associates, LLP, 30601 Euclid Avenue, Wickliffe, OH
44092 (For Plaintiffs-Appellants).
Jeffrey A. Ford and Jason L. Fairchild, Andrews & Pontius, L.L.C., 4817 State Road,
#100, P.O. Box 10, Ashtabula, OH 44005 (For Defendants-Appellees).
COLLEEN MARY O’TOOLE, J.
{¶1} Appellants, Nicholas and Monica Koudela (“the Koudelas”), appeal from
the January 17, 2017 judgment of the Lake County Court of Common Pleas, granting
appellees’, Johnson & Johnson Custom Builders, LLC, William J. Johnson, and Robert
W. Johnson, motion to stay proceedings pending binding arbitration. Finding no error,
we affirm.
{¶2} On January 7, 2015, the Koudelas entered into a construction contract for
a single-family craftsman style home located in Willowick, Lake County, Ohio with a
purchase price of $227,200.00.1 The contract contained the following binding arbitration
provision:2
{¶3} “22. ARBITRATION. Aside from warranty claims that shall be processed
in accordance with the Limited Warranty procedure in Exhibit E, should any disputes
arise between the parties as to the meaning or interpretation of this Agreement or the
Contract Documents, or as the result of any controversy which may arise by virtue of
the construction of the Dwelling, and the parties are unable between themselves to
resolve such disputes, it is mutually agreed that the parties will submit all disputes to
binding arbitration in Cleveland, Ohio, through Construction Industry Arbitration Rules of
the Ohio Arbitration and Mediation Center (‘OAMC’), or a similar Alternative Dispute
Resolution forum mutually accepted by the parties. The cost of such arbitration shall be
borne by the party initiating the claim. The parties further agree and consent to the
application of the Ohio Rules of Civil procedure to govern the scope and extent of
discovery in preparation for such arbitration. Contractor and Owner hereby
acknowledge that by agreeing to binding arbitration, they are waiving their right to a trail
(sic) by jury.” (Emphasis sic.)
{¶4} Disputes later arose regarding work performed under the contract. On
May 27, 2016, the Koudelas filed a complaint against appellees alleging claims for fraud
1. The heading of the contract lists “Johnson & Johnson Builders.” Johnson & Johnson Custom Builders,
LLC is a limited liability company licensed to conduct business in Ohio and has two members, William and
Robert Johnson. Johnson & Johnson Custom Builders, LLC apparently does business as (d.b.a.)
Johnson & Johnson Builders.
2. The arbitration provision was initialed by the Koudelas indicating their agreement to binding arbitration
and their waiver of their right to a jury trial. The construction contract was signed by the Koudelas and
appellee William Johnson, as managing member of Johnson & Johnson Builders.
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in the inducement (that appellee William Johnson, under the name of a fictitious entity,
“Johnson & Johnson Builders” instead of “Johnson & Johnson Custom Builders, LLC,”
entered into the construction contract), breach of contract, negligence, conversion,
unjust enrichment/detrimental reliance, and declaratory judgment (that the arbitration
clause in the parties’ contract is unenforceable).
{¶5} Appellees were granted leave and filed a Civ.R. 12(B)(6) motion to
dismiss, or in the alternative, a motion to stay pending binding arbitration on August 5,
2016. Appellees stress that the contract has an arbitration provision in which the parties
agreed to arbitrate disputes and give up their right to a trial by jury.
{¶6} The Koudelas filed a brief in opposition on September 2, 2016 on the
grounds that appellees’ failure to disclose the unregistered and fictitious nature of the
contractor identified in the agreement amounts to fraud which prevented a meeting of
the minds. As such, the Koudelas posit that the arbitration clause is void.
{¶7} Appellees filed a reply brief ten days later maintaining they are entitled to
seek arbitration pursuant to the parties’ agreement. Appellees point out that the alleged
failure to disclose any unregistered and fictitious name prevents appellees as contractor
from bringing an action but it does not prevent appellees as contractor from defending
an action. Appellees also stress that the Koudelas have alleged that the contract was
fraudulently induced but not that the arbitration clause itself was fraudulently induced.
{¶8} On January 17, 2017, the trial court denied appellees’ Civ.R. 12(B)(6)
motion to dismiss, based upon the parties’ agreement to arbitrate in lieu of litigation, but
granted appellees’ alternative motion to stay proceedings pending binding arbitration
pursuant to the terms of the contract finding that the arbitration provision is valid and
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enforceable. The Koudelas filed a timely appeal asserting the following assignment of
error:
{¶9} “The trial court committed reversible error in granting the stay of
proceedings to Defendant-Appell[ees] when none of them were named parties to the
contract containing the arbitration clause and the fictitious entity with whom the contract
was made is not a party to the lawsuit.”
{¶10} “Ohio and federal courts encourage arbitration to settle disputes. Kelm v.
Kelm (1993), 68 Ohio St. 3d 26, 27 * * *; Southland Corp. v. Keating (1984), 465 U.S. 1,
10 * * *. Our General Assembly also favors arbitration. R.C. 2711.02 requires a court to
stay an action if the issue involved falls under an arbitration agreement[.]” (Parallel
citations omitted.) ABM Farms, Inc. v. Woods, 81 Ohio St. 3d 498, 500 (1998).
{¶11} “To defeat a motion for stay brought pursuant to R.C. 2711.02, a party
must demonstrate that the arbitration provision itself in the contract at issue, and not
merely the contract in general, was fraudulently induced.” Woods, supra, at syllabus.
{¶12} “A claim of fraud in the inducement arises when a party is induced to enter
into an agreement through fraud or misrepresentation. ‘The fraud relates not to the
nature or purport of the (contract), but to the facts inducing its execution (* * *).’ Haller
v. Borror Corp. (1990), 50 Ohio St. 3d 10, 14 * * *. In order to prove fraud in the
inducement, a plaintiff must prove that the defendant made a knowing, material
misrepresentation with the intent of inducing the plaintiff’s reliance, and that the plaintiff
relied upon that misrepresentation to her detriment. Beer v. Griffith (1980), 61 Ohio
St.2d 119, 123 * * *.” (Parallel citations omitted.) Woods, supra, at 502.
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{¶13} In this case, as stated, appellee Johnson & Johnson Custom Builders,
LLC is a limited liability company licensed to conduct business in Ohio and has two
members, appellees William and Robert Johnson. The Koudelas entered into a
construction contract for a single-family home which contained a binding arbitration
provision. The heading of the contract lists “Johnson & Johnson Builders.” Omitted
from the heading were “Custom” and “LLC.” See generally Perk v. Tomorrows Home
Solutions, L.L.C., 8th Dist. Cuyahoga No. 104270, 2016-Ohio-7784, ¶10 (There is no
legal authority that a limited liability company must always use the LLC designation on
its corporate documents in order for a contract with that company to be valid.) Page
one, paragraph one of the contract indicates that the contractor is an “Ohio LLC.” The
arbitration provision was initialed by the Koudelas. The contract was signed by the
Koudelas and appellee William Johnson, as managing member. Appellees also point
out that William Johnson is designated as statutory agent on the Ohio Secretary of
State website.
{¶14} The Koudelas have stressed that appellees did not properly register their
trade name (“Johnson & Johnson Builders”) with the state of Ohio at the time the
contract was executed and, thus, the Koudelas were fraudulently induced to enter into a
contract with an unregistered and fictitious entity.3 However, there is no fictitious or
nonexistent principal. Rather, appellee Johnson & Johnson Custom Builders, LLC is
the principal. Johnson & Johnson Custom Builders, LLC has operated its business
using the name “Johnson & Johnson Builders.” In doing so, Johnson & Johnson
Custom Builders, LLC does not create an entity distinct from Johnson & Johnson
Custom Builders, LLC and remains liable for any obligations incurred while doing
3. Fraud in the inducement was alleged in count one of the Koudelas’ complaint.
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business under “Johnson & Johnson Builders.” See Oldendick v. Crocker, 8th Dist.
Cuyahoga No. 103384, 2016-Ohio-5621, ¶68, citing Patterson v. V & M Auto Body, 63
Ohio St. 3d 573, 574-575 (1992) (“Doing business under another name does not create
an entity distinct from the person operating the business.”); see also R.C. 1329.01(A)(3)
(“‘Person’ includes any individual, general partnership, limited partnership, limited
liability partnership, corporation, association, professional association, limited liability
company, society, foundation, federation, or organization formed under the laws of this
state or any other state.”)
{¶15} In further support of their position, the Koudelas have also pointed to R.C.
1329.10(B), which states:
{¶16} “(B) No person doing business under a trade name or fictitious name shall
commence or maintain an action in the trade name or fictitious name in any court in this
state or on account of any contracts made or transactions had in the trade name or
fictitious name until it has first complied with section 1329.01 of the Revised Code and,
if the person is a partnership, it has complied with section 1777.02 of the Revised Code,
but upon compliance, such an action may be commenced or maintained on any
contracts and transactions entered into prior to compliance.”
{¶17} The Koudelas’ reliance on R.C. 1329.10(B) is misplaced as appellees are
not commencing or maintaining an action, but rather simply defending against the
Koudelas’ lawsuit. This court further points to subsection (C) of the foregoing statute,
which states:
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{¶18} “(C) An action may be commenced or maintained against the user of a
trade name or fictitious name whether or not the name has been registered or reported
in compliance with section 1329.01 of the Revised Code.”
{¶19} Thus, the Koudelas’ reliance on R.C. 1329.10 as a basis for finding the
contract invalid and unenforceable has no merit.
{¶20} The Koudelas posit that the effect of fraud and the fictitious nature of the
contracting party negate the arbitration clause. However, this court stresses that neither
in the Koudelas’ complaint nor in their brief in opposition to appellees’ motion to
dismiss/motion for stay did they allege that the arbitration provision itself was
fraudulently induced. Thus, the arbitration provision is valid and enforceable. Smith v.
Whitlatch & Co., 137 Ohio App. 3d 682, 684 (11th Dist.2000); Woods, supra, at syllabus.
{¶21} It is clear that the Koudelas knew who to sue, i.e., Johnson & Johnson
Custom Builders, LLC. Thus, it is the Koudelas’ position that it is okay to sue Johnson
& Johnson Custom Builders, LLC but it is not okay to enforce the contract and
arbitration provision against Johnson & Johnson Custom Builders, LLC because the
heading of the contract only lists “Johnson & Johnson Builders.” Stated differently, the
Koudelas seek judgment against Johnson & Johnson Custom Builders, LLC but the
Koudelas do not want Johnson & Johnson Custom Builders, LLC to enforce the
arbitration clause. The Koudelas cannot have it both ways.
{¶22} Lastly, at oral arguments, the Koudelas’ attorney during rebuttal reiterated
that the word “Custom” was missing from the contract heading. However, based on the
facts in this case, such omission was not material. The Koudelas’ attorney indicated the
Koudelas did not perform any searches beforehand to see if any lawsuits had been filed
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and did not do a routine search of the Ohio Secretary of State website. These facts
further support that there was no fraud in the inducement. Woods, supra, at 502.
{¶23} Upon review, the trial court did not err in granting appellees’ motion to stay
proceedings pending binding arbitration in accordance with the parties’ agreement and
R.C. 2711.02.
{¶24} For the foregoing reasons, appellants’ sole assignment of error is not well-
taken. The judgment of the Lake County Court of Common Pleas is affirmed.
CYNTHIA WESTCOTT RICE, P.J., concurs,
THOMAS R. WRIGHT, J., concurs in judgment only.
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