Sterling Contracting, L.L.C. v. Main Event Entertainment, L.P.

[Cite as Sterling Contracting, L.L.C. v. Main Event Entertainment, L.P., 2020-Ohio-184.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
STERLING CONTRACTING, L.L.C., :
ET AL.
Plaintiffs-Appellees, : Nos. 108186 and 108187
v. :
MAIN EVENT ENTERTAINMENT, :
L.P., ET AL.,
Defendants-Appellants. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: January 23, 2020
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case Nos. CV-18-906890 and CV-18-907122
Appearances:
Wilson & Wilson Co., L.P.A., Robert D. Wilson, and
Michael J. Wilson, for appellees.
Frantz Ward L.L.P., Ian H. Frank, Allison Taller Reich,
and Joseph P. Guenther, for appellants.
ANITA LASTER MAYS, J.:
Defendant-appellant Main Event Entertainment, L.P. (“Main Event”)
appeals the trial court’s decision to dismiss Main Event’s motion to stay proceedings.
Pursuant to App.R. 3(B), sua sponte, we have consolidated the two appeals that
Main Event has filed, for the purpose of disposition, because they contain the same
facts and issues. We affirm the trial court’s decision in both appeals.
I. Facts and Procedural History
In July 2017, Main Event contracted with Omni Construction
Company (“Omni”) to construct Main Event’s entertainment facility for a sum of
$8,681,026. Per the contract, Omni was required to perform all the work necessary
for the construction and completion of the project. As a result, Omni subcontracted
with other businesses and suppliers to complete the project. Western Reserve
Services One, L.L.C. (“Western Reserve”) and Sterling Contracting, L.L.C.
(“Sterling”) being two of those companies. Western Reserve, as a subcontractor to
Omni, agreed to perform all interior and exterior glass cleaning, clean all interior
surfaces after construction, and perform other miscellaneous work. Sterling, also as
a subcontractor to Omni, agreed to build the concrete foundation, the slab on grade,
and tilt up concrete walls.
In the contract between Omni, Western Reserve, and Sterling, all
parties agreed that any claims, disputes, or other matters of controversy must be
decided in accordance with Article 21 of the contract. Article 21 requires arbitration
of all claims and disputes relating to the contract. Western Reserve and Sterling
completed the work on the entertainment facility, but Omni failed to pay for work
completed. Omni abandoned the project and ceased all work. All efforts to locate
and contact Omni have failed, and Omni, as a company, no longer exists.
On October 2, 2018, Main Event filed a lawsuit against Omni for
breach of contract, unjust enrichment, and quantum meruit. Main Event, in this
lawsuit, alleged that Omni ceased doing business, ceased to exist, and failed to
respond to any inquiries or communication from Main Event. On July 18, 2019,
after a number of proceedings in which Omni did not respond or appear, the trial
court entered a default judgment against Omni, in favor of Main Event, in the
amount of $359,522.34, plus interest and court costs.
On November 13, 2018, Sterling filed a lawsuit against Main Event for
unjust enrichment and quantum meruit and against Omni for breach of contract.
On November 16, 2018, Western Reserve filed an identical lawsuit. Main Event filed
a motion to stay pending arbitration. The trial court denied Main Event’s motion to
stay, and Main Event filed this appeal assigning one error for our review:
I. The trial court erred as a matter of law in denying appellant’s
Motion to Stay Proceedings and failing to stay all claims and
proceedings pending mandatory and binding arbitration
between two of the parties, in accordance with R.C. 2711.02(B)
and Ohio law.
II. Motion to Stay Proceedings Pending Arbitration
A. Standard of Review
Consequently,
absent an abuse of discretion, a reviewing court should not disturb a
trial court’s decision regarding a motion to stay proceedings pending
arbitration. Maclin v. Greens Nursing, 8th Dist. Cuyahoga
No. 101085, 2014-Ohio-2538, citing K.M.P., Inc. v. Ohio Historical
Soc., 4th Dist. Jackson No. 03CA2, 2003-Ohio-4443, ¶ 14. The term
abuse of discretion connotes more than an error of law or judgment;
it 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).
Constantino v. Ciuni & Panichi, Inc., 8th Dist. Cuyahoga No. 105093, 2017-Ohio-
9154, ¶ 4, quoting Eaton Corp. v. Allstate Ins. Co., 8th Dist. Cuyahoga No. 101654,
2015-Ohio-2034, ¶ 11.
Therefore,
In reviewing a trial court’s decision granting a motion to stay pending
arbitration, our standard of review depends on “the type of questions
raised challenging the applicability of the arbitration provision.”
McCaskey v. Sanford-Brown College, 8th Dist. Cuyahoga No. 97261,
2012-Ohio-1543, ¶ 7. Generally, an abuse of discretion standard
applies in limited circumstances, such as a determination that a party
has waived its right to arbitrate a given dispute. Id., citing Milling
Away, LLC v. UGP Properties, LLC, 8th Dist. Cuyahoga No. 95751,
2011-Ohio-1103, ¶ 8.
Vasil v. Pulte Homes of Ohio, LLC, 8th Dist. Cuyahoga No. 102212, 2015-Ohio-
2407, ¶ 12.
We, therefore, review the trial court’s decision to deny Main Event’s
motion for abuse of discretion.
B. Whether the Trial Court Abused its Discretion by
Denying Appellant’s Motion to Stay, and Whether the
Proceedings must be Stayed Pending Arbitration
Main Event argues that the contract between Omni and Western
Reserve and Omni and Sterling requires the parties to arbitrate all disputes arising
out of the contract.
Ohio courts recognize a presumption favoring arbitration when the
issue of the parties’ dispute falls within the scope of the arbitration
provision. Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio St.3d 352,
2008-Ohio-938, 884 N.E.2d 12, ¶ 27. In light of this strong
presumption favoring arbitration, all doubts should be resolved in its
favor. Hayes v. Oakridge Home, 122 Ohio St.3d 63, 2009-Ohio-2054,
908 N.E.2d 408, ¶ 15.
Eaton Corp., 8th Dist. Cuyahoga No. 101654, 2015-Ohio-2034, at ¶ 14.
“‘Arbitration is favored because it provides the parties * * * with a
relatively expeditious and economical means of resolving a dispute.’” Id. at ¶ 15,
quoting Schaefer v. Allstate Ins. Co., 63 Ohio St.3d 708, 712, 590 N.E.2d 1242(1992); DeVito v. Autos Direct Online, Inc., 2015-Ohio-3336, 37 N.E.3d 194, ¶ 12
(8th Dist.). Consequently, if a dispute even arguably falls within the arbitration
provision, the trial court must stay the proceedings until arbitration has been
completed. Featherstone v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 159 Ohio
App.3d 27, 2004-Ohio-5953, 822 N.E.2d 841, ¶ 5 (9th Dist.); Tomovich v. USA
Waterproofing & Found. Servs., 9th Dist. Lorain No. 07CA009150, 2007-Ohio-
6214, ¶ 8.
The presumption to arbitrate has been codified in R.C. Chapter 2711.
The Ohio Supreme Court has recognized that R.C. Chapter 2711 authorizes direct
enforcement of arbitration agreements through an order to compel arbitration
pursuant to R.C. 2711.03, and indirect enforcement of such agreements pursuant to
an order staying trial court proceedings under R.C. 2711.02. Maestle v. Best Buy
Co., 100 Ohio St.3d 330, 2003-Ohio-6465, 800 N.E.2d 7, ¶ 14, 17. A party may
choose to move for a stay, petition for an order to proceed to arbitration, or seek
both. Id. at ¶ 18. In Maestle, the Ohio Supreme Court made it clear that a motion
to compel arbitration and a motion to stay proceedings are separate and distinct
procedures that serve different purposes. Id. at ¶ 17; Taylor v. Squires Constr. Co.,
196 Ohio App.3d 581, 2011-Ohio-5826, 964 N.E.2d 500, ¶ 17 (8th Dist.).
However, in the cases between Omni, Western Reserve, and Sterling;
Omni has defaulted in all proceedings, dissolved the company, and has essentially
disappeared.
“Default” is “‘the omission or failure to perform a legal or contractual
duty.’” PS Commercial Play, LLC v. Harp Contrs., Inc., 2d Dist.
Montgomery No. 27253, 2017-Ohio-4011, ¶ 17, quoting Black’s Law
Dictionary 376 (5th Ed.1979). A party who waives its right to arbitrate
is “in default in proceeding with arbitration.” 84 Lumber Co. v.
O.C.H. Constr., LLC, 2015-Ohio-4149, 44 N.E.3d 961, ¶ 16; see also
Ponyicki v. Monterey Homes, 8th Dist. Cuyahoga No. 65549, 1994
Ohio App. LEXIS 2158, *10 (May 19, 1994), citing Mills v. Jaguar-
Cleveland Motors, Inc., 69 Ohio App.2d 111, 113, 430 N.E.2d 965 (8th
Dist.1980). In order to waive the right to arbitrate, a party must know
they have the right to arbitrate and act inconsistently with that right.
See, e.g., 84 Lumber at ¶ 16; Am. Gen. Fin. v. Griffin, 8th Dist.
Cuyahoga No. 99088, 2013-Ohio-2909, ¶ 17. For example, where a
party does not promptly raise an arbitration provision before the trial
court, the party may waive its right to arbitrate a dispute. See, e.g.,
Cantie v. Hillside Plaza, 8th Dist. Cuyahoga No. 99850, 2014-Ohio-
822, ¶ 11-16.
Ohio Plumbing, Ltd. v. Fiorilli Constr., Inc., 2018-Ohio-1748, 111 N.E.3d 763, ¶ 18
(8th Dist.).
It has been determined that Omni no longer exists. Omni has failed
to defend its lawsuit against all parties. The trial court has entered a default
judgment against Omni. Journal entry No. 109587782 (July 18, 2019). As a result
of Omni’s default, it has failed to raise the issue of arbitration pursuant to Article 21
of the contract. Therefore, Omni has waived its right to arbitrate this dispute.
Additionally, Main Event is not a party to the contract between Omni,
Western Reserve, and Sterling. The contract, as written, is between Omni and
Western Reserve, and Omni and Sterling. Article 21 of the contract states, “Any
dispute between [Sterling] and [Omni], which is not governed by the provision of
Paragraph 28(b), shall be resolved by binding arbitration in accordance with the
Construction Industry Rules of the American Arbitration Association then in effect,
unless the parties mutually agree otherwise.” The language is identical in the
contract between Omni and Western Reserve.
Also, “[o]nly an aggrieved party may demand arbitration.”
Featherstone, 159 Ohio App.3d 27, 2004-Ohio-5953, 822 N.E.2d 841, at ¶ 8. Omni
is the party in default, and “a party cannot be in default in proceeding with
arbitration.” Id. Main Event is not the aggrieved party in the contract between
Sterling and Omni or Western Reserve and Omni. Sterling and Western Reserve are
aggrieved parties. Therefore, Main Event cannot demand arbitration.
Western Reserve and Sterling filed an action against Main Event, who
is not a party to the contract with the arbitration clause between Omni, Western
Reserve, and Sterling. “Under Ohio law, no one can be bound by an arbitration
agreement to which he is not a party.” Krafcik v. USA Energy Consultants, Inc., 107
Ohio App.3d 59, 64, 667 N.E.2d 1027 (8th Dist.1995). Thus, “[t]hird persons who
are not parties to a contract containing an arbitration clause, and who are not
claiming under or through such parties, ordinarily are not bound by the arbitration
agreement.” Hussein v. Hafner & Shugarman Ents., Inc., 176 Ohio App.3d 127,
2008-Ohio-1791, 890 N.E.2d 356, ¶ 27 (6th Dist.).
R.C. 2711.03(A) states, in part,
[t]he party aggrieved by the alleged failure of another to perform under
a written agreement for arbitration may petition any court of common
pleas having jurisdiction of the party so failing to perform for an order
directing that the arbitration proceed in the manner provided for in the
written agreement.
Main Event is not an aggrieved party under the written agreement between Omni,
Western Reserve, and Sterling that contained the arbitration clause. Thus, Main
Event does not have standing to enforce the agreement. See, e.g., Spalsbury v.
Hunter Realty, 8th Dist. Cuyahoga No. 76874, 2000 Ohio App. LEXIS 5552(Nov. 30, 2000) (“the appellant lacks standing to enforce the arbitration agreement
as it was not a party thereto * * *”).
Therefore, the trial court did not abuse its discretion when it denied
Main Event’s motion to stay proceedings. Main Event’s sole assignment of error is
overruled.
III. Frivolous Conduct
A. Standard of Review
“Under R.C. 2323.51(A)(2)(a)(ii), conduct is frivolous when no
reasonable attorney would have brought the action in light of the existing law.”
Groves v. Groves, 10th Dist. Franklin No. 09AP-1107, 2010-Ohio-4515, ¶ 17. “This
test presents a legal question, which appellate courts review de novo.” Id. at ¶ 18.
B. Whether Main Event’s Motion to Stay and Subsequent
Appeal on that Motion was Frivolous Conduct
Western Reserve and Sterling argue, in response, that Main Event’s
motion to stay and this appeal are frivolous and a waste of resources because Main
Event is aware that Omni is not responding to any legal proceedings, has dissolved
the company, and has defaulted in Main Event’s legal action against it, as well as
Western Reserve and Sterling’s legal action against Omni.
Pursuant to R.C. 2323.51(B)(1), a court may award court costs,
reasonable attorney fees, and other reasonable expenses to any party
to a civil action who is adversely affected by frivolous conduct. Prior
to making such an award, the court must hold a hearing to determine:
(1) whether the conduct at issue was frivolous, (2) if the conduct was
frivolous, whether any party was adversely affected by it, and (3) the
amount of the award, if any. Bennett v. Martin, 10th Dist. No. 13AP-
99, 2013-Ohio-5445, ¶ 17. “Conduct” includes “[t]he filing of a civil
action, the assertion of a claim, defense, or other position in
connection with a civil action, the filing of a pleading, motion, or other
paper in a civil action * * * or the taking of any other action in
connection with a civil action.” R.C. 2323.51(A)(1). “Frivolous
conduct” means the conduct of a party or the party’s attorney that
satisfies any of the following:
(i) It obviously serves merely to harass or maliciously injure
another party to the civil action or appeal or is for another
improper purpose, including, but not limited to, causing
unnecessary delay or a needless increase in the cost of litigation.
(ii) It is not warranted under existing law, cannot be supported
by a good faith argument for an extension, modification, or
reversal of existing law, or cannot be supported by a good faith
argument for the establishment of new law.
(iii) The conduct consists of allegations or other factual
contentions that have no evidentiary support or, if specifically
so identified, are not likely to have evidentiary support after a
reasonable opportunity for further investigation or discovery.
(iv) The conduct consists of denials or factual contentions that
are not warranted by the evidence or, if specifically so
identified, are not reasonably based on a lack of information or
belief.
R.C. 2323.51(A)(2)(a)(i) through (iv). Any party who has commenced
or persisted in maintaining a frivolous action may be assessed
sanctions. Guy v. Axe, 3d Dist. Union No. 14-09-31, 2010-Ohio-986,
¶ 10.
Carasalina LLC v. Bennett, 10th Dist. Franklin No. 14AP-74, 2014-Ohio-5665,
¶ 30.
We find that Western Reserve and Sterling must first file a motion
with the trial court to determine whether Main Event has engaged in frivolous
conduct by filing a motion to stay. See Dreger v. Bundas, 8th Dist. Cuyahoga
No. 57389, 1990 Ohio App. LEXIS 4985 (Nov. 15, 1990).
The trial court may award [sanctions] only after conducting a hearing
that allows the parties to present evidence in support or opposition to
such award. It is essential that the trial court conduct a hearing in
order to make a factual determination of whether there existed
frivolous conduct and whether the party bringing the motion was
adversely affected by such conduct.
Rogers v. Goodyear Tire & Rubber Co., 3d Dist. Union No. 14-05-34, 2006-Ohio-
6854 (holding that the court erred when it sua sponte imposed sanctions during a
hearing on a motion to enforce a settlement agreement because no “separate
hearing date or advance notice of the hearing as required under R.C. 2323.51(B)(2)
was provided”).
Therefore, we overrule Western Reserve and Sterling’s request for
sanctions.
Judgment is affirmed.
It is ordered that the appellee recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
common pleas 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.
_______________________________
ANITA LASTER MAYS, JUDGE
LARRY A. JONES, SR., J., CONCURS;
EILEEN T. GALLAGHER, A.J., CONCURS IN JUDGMENT ONLY WITH
SEPARATE OPINION
EILEEN T. GALLAGHER, A.J., CONCURRING IN JUDGMENT ONLY:
I concur in judgment only with the majority’s resolution of appellant’s
sole assignment of error. I believe the issue before this court is not whether
appellant is bound by the disputed arbitration agreements. Rather, the sole issue
before this court is whether appellant has the authority to enforce an arbitration
provision when the contracting parties have not sought to exercise their rights under
the agreement. I write separately to express my belief that this case should be
resolved exclusively on the basis that, regardless of Omni’s failure to participate in
the litigation, appellant lacked standing to enforce the arbitration agreement held
between Omni and the appellees.
The doctrine of standing requires a litigant to be in the proper
position to assert a claim, and the party’s inquiry must be within the zone of interest
intended to be protected or regulated by the statute. Taylor v. Academy Iron &
Metal Co., 36 Ohio St.3d 149, 152, 522 N.E.2d 464 (1988). “Generally, a contract is
only binding on those who are parties to it. A party cannot sue for performance or
breach of a contract to which he is not a party or privy.” Waterfield Mtge. v. Buckeye
State Mut. Ins. Co., 2d Dist. Miami No. 93-CA-53, 1994 Ohio App. LEXIS 4343, *6
(Sept. 30, 1994), citing Delly v. Lehtonen, 21 Ohio App.3d 90, 90, 486 N.E.2d 251(11th Dist.1984).
In this case, it is undisputed that appellant was not a party to the
contract held between Omni and the appellees. Nor was appellant an intended
third-party beneficiary of each arbitration agreement. In my view, the phrase “on
application of one of the parties” under R.C. 2711.02 refers to the parties that
negotiated the arbitration agreement. It does not give third parties the authority to
seek arbitration merely because they are currently participating in litigation with
those who negotiated the disputed contract.
Based on the foregoing, I believe it is necessary to conclude that this
court rejects appellant’s proposition that the plain language of R.C. 2711.02(B)
requires all proceedings be stayed pending arbitration where, as here, neither party
under the arbitration agreement has sought arbitration. To hold otherwise would
offend well established contract principles.