Blanchard Valley Health Sys. v. Canterbury Holdings, Inc.

[Cite as Blanchard Valley Health Sys. v. Canterbury Holdings, Inc., 2012-Ohio-5134.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
HANCOCK COUNTY
BLANCHARD VALLEY HEALTH
SYSTEM, ET AL.,
CASE NO. 5-12-08
PLAINTIFFS-APPELLEES,
v.
CANTERBURY HOLDINGS, INC., OPINION
DEFENDANT-APPELLANT.
Appeal from Hancock County Common Pleas Court
Trial Court No. 2010 CV 00405
Judgment Affirmed
Date of Decision: November 5, 2012
APPEARANCES:
Barry W. Fissel and Scott A. Johnson for Appellant
Stephen A. Rothschild and Nathan A. Hall for Appellees
Case No. 5-12-08
WILLAMOWSKI, J.
{¶1} Defendant-Appellant, Canterbury Holdings, Inc. (“Canterbury”),
appeals the judgment of the Hancock County Court of Common Pleas granting
Plaintiffs-Appellees’ petition to submit the parties’ dispute to arbitration and
staying proceedings pending the outcome of arbitration. On appeal, Canterbury
contends that the trial court erred in finding that the issues between the parties
were subject to arbitration. For the reasons set forth below, the judgment is
affirmed.
{¶2} Appellees, Blanchard Valley Health System (“BVHS”) and Physicians
Plus Urgent Care Center Condominium Unit Owners’ Association
(“Condominium Association”), filed an Amended Complaint and Petition for
Arbitration on July 30, 2010, alleging that Canterbury violated the restrictive
covenants applicable to the medical condominium property that Canterbury
purchased from BVHS. BVHS, which provides a full continuum of health care
services, developed an office building known as the Physicians Plus Urgent Care
Center, which it converted into a condominium (the “Condominium”) consisting
of two units. BVHS retained ownership of the majority interest in the
Condominium, identified as Unit 2, which it operates as an urgent care center.
BVHS sold the portion of the Condominium identified as Unit 1 to Canterbury,
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which is operated as a doctor’s office, the oncological healthcare practice of Dr.
Sharon Cole.
{¶3} Canterbury acquired Unit 1 from BVHS in February 2006, by
Warranty Deed, which contained the following special use restrictions (“Use
Restrictions”):
a. The Grantee, and its successor, heirs, lessees and assigns shall
only provide the following medical services to current patients or
new patients of the Grantee * * *, and shall not offer these services
to other medical professionals or to members of the general public
who are not already patients or have newly become patients of the
Grantee * * *: Physical Therapy; Occupational Therapy; MRI
services; CAT scan services; radiological services, pharmacy
services and laboratory services.
b. The Grantee, and its successor, heirs, lessees and assigns, are
prohibited from selling, assigning, conveying or leasing the
Premises, by real property conveyance or by sale or assignment of
the business assets of the Grantee * * * or an entity controlled by the
Grantee * * * to any health care provider, health care organization or
health care system that is in direct competition with the Grantor or is
obtaining the Premises from Grantee * * * with their actual
knowledge of said party’s intent of entering into competition with
the Grantor.
{¶4} Subsequently, in August 2006, the parties enlarged Unit 1 by signing a
Real Estate Purchase Agreement (“Purchase Agreement”), transferring a portion
of Unit 2 (the “Additional Premises”) to Dr. Cole through Canterbury to become a
part of Unit 1.1 The Purchase Agreement contained essentially the same Use
1
Rather than executing a separate deed transferring this Additional Premises to Dr. Cole or Canterbury,
BVHS filed an Amendment to the Declaration of Physicians Plus Urgent Care Center Condominium, which
removed the Additional Premises from the description of Unit 2 and added it to the description of Unit 1.
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Restrictions as contained in the Warranty Deed. The Condominium Declaration
also prohibited any unit owner, except BVHS, from selling, assigning, or
conveying their Unit to anyone that is in direct competition with BVHS, or intends
to compete with BVHS. The Condominium Declaration also incorporated the
Purchase Agreement as part of the “condominium instruments.”
{¶5} The dispute arose between the parties when Canterbury entered into
an agreement with Lima Pathology Laboratories, Inc. (“Lima Pathology”), a
known competitor of BVHS, to have Lima Pathology provide laboratory services.
Appellees contend that the services being performed by Lima Pathology are in
violation of the Use Restrictions applicable to the Unit 1 property. Appellees’
Complaint and Petition for Arbitration maintains that Article XXII, Section 2
(“Arbitration Clause”), of the Condominium Declaration authorizes Appellees to
demand that the dispute be submitted to arbitration.
[I]n the event that any dispute between the Association and any Unit
Owner or occupant, other than with regard to Assessments, is not
settled by an agreement between them or Board hearing, the matter
shall then be submitted to arbitration in accordance with and
pursuant to the arbitration laws of Ohio then in effect[.]
(1/26/2012 J.E., quoting Declaration at Article XXII(2).
{¶6} Further, as a result of Canterbury’s alleged breach, Appellees contend
that they are entitled to specific enforcement of the Use Restrictions by injunctive
relief or monetary damages if specific performance is not appropriate. Appellees
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also assert that the trial court must stay any proceedings that are not subject to
arbitration until the arbitration proceedings are complete.
{¶7} Canterbury claimed that the services being provided by Lima
Pathology were not in violation of the Use Restrictions. Canterbury asserted that
Appellees’ claim was not subject to arbitration because it involved a dispute of
title to or possession of real estate pursuant to R.C. 2711.01(B)(1), making it
exempt from arbitration. Canterbury also sought dismissal of the claim for failure
to state a claim upon which relief can be granted, pursuant to Civ.R.12(B)(6).
{¶8} The trial court found that the Arbitration Clause in the Condominium
Declaration was applicable to this dispute and that the matter was subject to
arbitration. “[A] dispute arising out of an alleged violation of the breach of
covenants contained in the condominium instruments is not a dispute involving the
title to or possession of real estate within the meaning of R.C. 2711.01(b)(1).”
(1/26/2012 Judgment Entry and Order) However, the trial court did state that,
under the wording of this Arbitration Clause, only the Condominium Association,
and not BVHS, had standing to enforce the Arbitration Clause.
{¶9} The trial court did not rule on Canterbury’s motion to dismiss because
it found that when an action has claims that are both arbitrable and non-arbitrable,
it is appropriate to stay the entire proceeding until the issues subject to arbitration
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are resolved. Furthermore, it found that dismissal of a claim subject to arbitration
was not a remedy authorized by R.C. 2711.01 et seq.
{¶10} The trial court granted the petition to compel arbitration and stayed
all further proceedings, pending the disposition of the arbitrable claims. It is from
this judgment that Canterbury now appeals, raising the following two assignments
of error for our review.
First Assignment of Error
The court erred in concluding as a matter of law that the
underlying controversy between the parties does not involve the
title to or possession of real estate and that R.C. 2711.01(B)(1)
does not apply.
Second Assignment of Error
The court erred in failing to consider whether Physicians Plus
Urgent Care Center Condominium Unit Owners’ Association
satisfied conditions precedent to the written agreement for
arbitration.
{¶11} Arbitration is encouraged as a method of settling disputes. See
Williams v. Aetna Fin. Co., 83 Ohio St.3d 464, 1998-Ohio-294. “A presumption
favoring arbitration arises when the claim in dispute falls within the scope of the
arbitration provision. An arbitration clause in a contract is generally viewed as an
expression that the parties agree to arbitrate disagreements within the scope of the
arbitration clause, and, with limited exceptions, an arbitration clause is to be
upheld just as any other provision in a contract should be respected.” Id. at 471.
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A court should not deny an arbitration clause in a contract unless it may be said
with positive assurance that the clause is not susceptible of an interpretation that
covers the asserted dispute, with any doubts resolved in favor of arbitration.
Union Twp., Clermont Cty. v. Union Twp. Professional Firefighters' Local 3412,
142 Ohio App.3d 542, 548 (12th Dist.2001) citing Gibbons-Grable Co. v. Gilbane
Bldg. Co., 34 Ohio App.3d 170, 173 (8th Dist.1986).
{¶12} When an appellate court reviews a trial court's decision to stay
judicial proceedings pursuant to the parties' agreement to enter into arbitration, the
appellate court accepts the trial court's findings of fact that are not clearly
erroneous, but reviews questions of law de novo. Barhorst, Inc. v. Hanson Pipe &
Prods. Ohio, Inc., 2006-Ohio-6858, ¶ 10 (3d Dist.). Cases, such as this, that
involve contractual interpretation or statutory application are reviewed de novo,
giving appropriate deference to the trial court’s findings of fact. See id.;
Columbus Steel Castings, Inc. v. Real Time Staffing Servs., Inc., 10th Dist. No. L
3210659, 2011-Ohio-3708, ¶ 11.
{¶13} In the first assignment of error, Canterbury contends that arbitration
is not the appropriate means to settle the present controversy because Canterbury
claims that the issue involves “title to or possession of real estate,” which is
exempt from arbitration by statute. Canterbury does not dispute the fact that it
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agreed to the Arbitration Clause in the applicable documents. It claims that the
exception set forth in R.C. 2711.01(B)(1) exempts this matter from arbitration.
{¶14} Ohio's policy of encouraging arbitration has been codified by the
legislature through the Ohio Arbitration Act in R.C. 2711.01 et seq. Henderson v.
Lawyers Title Ins. Corp., 108 Ohio St.3d 265, 2006-Ohio-906, ¶ 48. R.C.
2711.01(A) provides that an agreement to settle controversies by arbitration “shall
be valid, irrevocable, and enforceable, except upon grounds that exist at law or in
equity for the revocation of any contract.” R.C. 2711.01(A). If an “action is
brought upon any issue referable to arbitration under an agreement in writing for
arbitration,” the trial court, “upon being satisfied that the issue involved in the
action is referable to arbitration * * * shall on application of one of the parties stay
the trial of the action until the arbitration of the issue has been had.” R.C.
2711.02(B).
{¶15} R.C. 2711.01(B)(1) creates an exception to the general rule
concerning enforceability of arbitration clauses in Ohio. It provides that
arbitration clauses in contracts “do not apply to controversies involving the title to
or the possession of real estate.” R.C. 2711.01(B)(1).
{¶16} Canterbury contends that “title and possession are at the heart of the
breach of the Restriction on Sale,” and therefore, this controversy falls under the
exemption regarding the “title to or the possession of real estate” in R.C.
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2711.01(B)(1). We do not find that Canterbury’s conclusions are supported by the
plain language of the Use Restrictions or the facts applicable to this case. First,
there are two paragraphs containing restrictions, and only the second paragraph
restricts Canterbury’s right to sell or transfer its interest to a competitor.
{¶17} The first paragraph provides limitations on the type of services that
Canterbury can provide and it limits the recipients of those services to current or
new patients; specifically, Canterbury may not offer laboratory and other such
services to the general public. The trial court found that “the controversy between
[Appellees] and [Canterbury] does not involve ownership of either parcel but
rather the proper use of the Units and whether restrictive covenants were
violated.” (Emphasis added. J.E. 8) The record supports the trial court’s findings
of fact concerning the nature of the controversy. Therefore, the exception to
arbitration set forth in R.C. R.C. 2711.01(B)(1) is not applicable, and the matter is
subject to arbitration concerning whether the services being provided by Lima
Pathology are a violation of the Use Restrictions set forth in the first paragraph of
those restrictions.
{¶18} Canterbury contends that “title and possession are at the heart of the
breach” of the Use Restrictions referenced in the second paragraph of the
restrictions, and therefore, this matter is exempt from arbitration because of that
reason. (Appellant’s Brief p. 9) Canterbury claims that the issue as to “whether
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Canterbury transferred title to or possession of Unit 1 to Lima Pathology is
fundamental to this case.” (Id.) Again, we are in concurrence with the trial
court’s finding of facts on this matter.
The facts before the Court, as they were alleged in the Amended
Complaint, declare that [Canterbury] has contracted with Lima
pathology and is permitting Lima pathology to provide laboratory
services at Unit 1. These facts do not affirm [Canterbury] has given
up title to or possession of Unit 1. Even though [Appellees] have
requested injunctive relief, an injunction would not necessarily
involve title to or possession of real estate.
(J.E. p. 7) Although Canterbury attempts to characterize the issue as involving
title to and possession of real property, neither party disputes that Canterbury
holds title to its condominium unit, and neither party has initiated an action to
quiet title. The controversy here revolves around the use of the property, rather
than title or possession. Nothing in the record indicates that Canterbury has
transferred title or possession to Lima pathology. In fact, Canterbury affirmatively
states in its brief that it “has not sold or leased Unit 1 to a competitor of BVHS.”
(Appellant’s Brief, p. 4)
{¶19} The facts in this case closely parallel those in Murtha v. Ravines of
McNaughton Condominium Assn., 10th Dist. No. 09AP–709, 2010–Ohio–1325.
In Murtha, the Tenth District Court of Appeals found that the dispute over the
restrictions in the condominium’s declaration documents prohibiting an owner
from renting his unit was essentially a dispute involving contract interpretation; it
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was not a dispute over who was entitled to possess the property or who holds title.
Id. at ¶ 13. Such disputes do not fall within the exception to the validity of
arbitration agreements outlined in R.C. 2711.01(B)(1), but rather, they fall within
the general rule that disputes between condominium associations and unit owners
are subject to arbitration under a valid arbitration clause. Id.
{¶20} Canterbury’s arguments rely upon Kedzior v. CDC Dev. Corp., 123
Ohio App.3d 301, 303 (8th Dist.1997), which holds that a case which will
ultimately be decided on grounds that involve title to or possession of real estate
should not be subject to arbitration. However, that case is distinguishable in that
the plaintiff raised a claim for specific performance, asking the trial court to
award him title to and possession of property. Id. at 303. In response to the
plaintiff's action, the defendant moved the trial court to refer the matter to
arbitration as provided in the purchase agreement. Id. at 302–303. The Eighth
District held that because a final disposition of the plaintiff's claims would
ultimately involve a determination on the claim for specific performance to
compel possession and title, the matter should not have been referred to
arbitration. Id. See, also, Kent Partners v. Crossings at Golden Pond-Portage
Cty., L.L.C., 11th Dist. No. 2010-P-0028, 2011-Ohio-2842 (matter in controversy
between buyers of condominium units and sellers, whether buyers were entitled to
specific performance of sales contracts and whether sellers were required to
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provide buyers with title and possession of units, involved title and possession of
real estate, and thus could not be referred to arbitration, under statute limiting
ability of parties to arbitrate issues involving title and possession of real estate).
The dispute in this case has nothing in common with the facts in cases such as
Kedzior and Kent, other than they involve arbitration agreements applicable to real
property. However, that alone does not mean that every controversy concerning
real property involves “title to or possession of real estate.”
{¶21} The arbitrator in this case will be charged with reviewing the Use
Restrictions, reviewing Canterbury’s relationship with Lima Pathology, and
determining whether that relationship violates the Use Restrictions. No issue has
been raised and no decision will be rendered concerning Canterbury’s title to or
possession of Unit 1. The determination of what conduct is permitted under the
Use Restrictions, and specifically whether Canterbury can allow Lima Pathology
to provide laboratory services in Unit 1, requires a review and interpretation of the
contractual language chosen by the parties. The real estate exemption contained in
R.C. 2711.01(B)(1) is not applicable to the issues raised in this case. Therefore,
Canterbury’s first assignment of error is overruled.
{¶22} In the second assignment of error, Canterbury asserts that the
Arbitration Clause contains “conditions precedent” to arbitration, and that the
matter should not have been referred to arbitration because Appellees failed to
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comply with them. Canterbury states that the language stating that “in the event
that any dispute between the Association and any unit owner * * *is not settled by
an agreement between them, or Board hearing, the matter shall then be submitted
to arbitration” should be interpreted to mean that these conditions precedent must
be met before an issue is submitted to arbitration. (Emphasis added.) Canterbury
claims that Appellees’ alleged failure to provide it with notice and an opportunity
to be heard was a violation of its procedural due process rights.
{¶23} Appellees maintain that procedural arbitrability issues, including
contractual prerequisites to arbitration, must be resolved by the arbitrator, not the
court, citing to Baker-Henning productions, Inc. v. Jaffe, 10th Dist. No. No. 00AP-
36, 2000 WL 1664869 (Nov. 7, 2000). Further, Appellees assert that Canterbury’s
argument is baseless in that Canterbury was aware of Appellees’ position that it
was violating the Use Restrictions long before suit was filed; Appellees tried to
resolve the conflict informally; and that Canterbury had notice of the lawsuit and
request for arbitration. They argue that the plain language of the agreement does
not contemplate a multi-step dispute resolution process – it simply states that if the
parties do not resolve their differences, then the matter must be arbitrated.
{¶24} Given the parties’ lengthy involvement in this matter and their
current position, it seems apparent that Canterbury has been made aware of the
issue and that agreement could not be reached between the parties. However, it is
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appropriate that the arbitrator determine whether these claimed procedural
prerequisites are material and whether they have been met. “Once it is determined
* * * that the parties are obligated to submit the subject matter of a dispute to
arbitration, ‘procedural’ questions which grow out of the dispute and bear on its
final disposition would be left to the arbitrator.” Council of Smaller Enterprises v.
Gates, McDonald & Co., 80 Ohio St.3d 661, 665, 1998-Ohio-172, quoting John
Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 556-557 (1964). Accord, N. Elec.
v. Amsdell Constr., Inc., 8th Dist. No. 85293, 2005 -Ohio- 4134, ¶ 21; Council of
Smaller Enterprises v. Gates, McDonald & Co., 8th Dist. Nos. 68510, 69868,
1996 WL 170020 (Apr. 22, 1996) (procedural questions, such as whether a party
made a timely demand for arbitration, should be left to the arbitrator); Bd. of
Library Trustees, Shaker Hgts. Pub. Library v. Ozanne Constr. Co., Inc., 100 Ohio
App.3d 26 (8th Dist.1995), (“Once arbitration is selected as the proper forum, the
arbitrator determines all issues of procedural arbitrability, i.e., whether the party
demanding arbitration has complied with all precedent conditions set forth in the
agreement itself.”)
{¶25} Procedural arbitrability falls within the purview of the arbitrator.
Canterbury’s second assignment of error is overruled.
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{¶26} Having found no error prejudicial to the appellant herein in the
particulars assigned and argued, we affirm the judgment of the trial court.
Judgment Affirmed
SHAW, P.J. and ROGERS, J., concur.
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