Gerston v. Parma VTA, L.L.C.

[Cite as Gerston v. Parma VTA, L.L.C., 2023-Ohio-1563.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
KIMBERLEE A. GERSTON, TRUSTEE, :
Defendant-Appellee, :
Nos. 111629 and 111630
v. :
PARMA VTA, LLC, ET AL., :
Plaintiffs-Appellants. :
JOURNAL ENTRY AND OPINION
JUDGMENT: REVERSED AND REMANDED
RELEASED AND JOURNALIZED: May 11, 2023
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case Nos. CV-14-829947, CV-20-927487, and CV-20-929948
Appearances:
Zagrans Law Firm LLC, and Eric H. Zagrans; Goldberg
Legal Co., LPA, and Steven M. Goldberg; Rogers, Patrick,
Westbrook & Brickman, LLC, and Karl E. Novak, for
appellee.
Roetzel & Andress, LPA, Mark I. Wallach, and Lauren M.
Smith; Law Offices of Craig Weintraub and Craig
Weintraub, for appellant.
FRANK DANIEL CELEBREZZE, III, P.J.:
Appellant Parma VTA, LLC (“Parma VTA”) appeals the decision of the
Cuyahoga County Court of Common Pleas denying its motion to confirm arbitration
awards and granting appellee Parma GE 7400’s motion to vacate the arbitration
awards. After a thorough review of the applicable law and facts, we reverse the
judgment of the trial court and remand for further proceedings consistent with this
opinion.
I. Factual and Procedural History
This matter has been pending since 2014 and has been before this court
on two separate occasions, to wit: Gerston v. Parma VTA, L.L.C., 8th Dist. Cuyahoga
No. 105572, 2018-Ohio-2185 (“Gerston I”), and Gerston v. Parma VTA, L.L.C., 8th
Dist. Cuyahoga No. 108823, 2020-Ohio-3455 (“Gerston II”). In Gerston II, we set
forth the following substantive and procedural history:
This [is] a complex civil case that was initiated in 2014 by plaintiff-
appellee Kimberlee Gerston (“Kimberlee”), Trustee of the Gerston
Family Trust (“the Trust”), against the above-named defendants, as
well as appellee Parma GE 7400. As will be discussed below, Parma GE
7400 eventually became a plaintiff in this litigation.
The Trust was formed in 2002 under California laws by husband
Kenneth Gerston (“Gerston”) and wife Kimberlee. Each was designated
as the primary trustee, and in the event of the death of one of them, the
survivor was to continue to act as the primary trustee. Gerston died in
2010, and, thereafter, Kimberlee assumed the role of primary trustee.
Prior to Gerston’s death, he and [Allan] Robbins had been negotiating
the purchase of the centerpiece of this litigation — commercial property
located at 7400 Broadview Road, Parma, Ohio. Gerston and Robbins
formed companies for the sole purpose of effectuating the sale;
Gerston’s company was Parma GE 7400 and Robbins’s company was
Parma VTA. Robbins and Gerston entered into a Tenants-in-Common
Agreement (“TIC Agreement”), which set forth the terms of the
administration of the property and the nature of the parties’
relationship. Under the TIC Agreement, Parma GE 7400 was the
majority interest owner of the property. Further, under the TIC
Agreement “[a]ny controversy arising out of or related to this
Agreement or the breach thereof or an investment in the interests shall
be settled by arbitration in Cuyahoga County * * *.”
After Gerston’s death, ownership of Parma GE 7400 became an issue
and Kimberlee filed this action. In Count 1 of her complaint, Kimberlee
sought a declaratory judgment declaring the Trust to be the owner of
Parma GE 7400. At the defendants’ behest, the declaratory judgment
portion of the case was bifurcated from the rest of the case and was
tried in a bench trial; the defendants did not mention the possibility of
arbitration. Their motion requested that the “issue of who the owner
of [Parma GE 7400] be decided first, and all claims flowing from that
determination — whether Plaintiff’s or Defendants’ — be bifurcated
and tried separately.”
At the conclusion of the bench trial on the declaratory judgment
portion of the case, the trial court found that the Trust was the majority
legal owner of Parma GE 7400. In June 2018, this court affirmed that
ruling. Gerston v. Parma VTA, L.L.C., 8th Dist. Cuyahoga No. 105572,
2018-Ohio-2185. More details about the facts of this case are set forth
in that opinion.
On remand to the trial court, because of this court’s ruling, Parma GE
7400 transitioned from status as a defendant to joining Kimberlee as a
plaintiff, and on March 8, 2019, the plaintiffs (Kimberlee and Parma
GE 7400) filed a supplemental complaint. On April 11, 2019, the
defendants-appellants filed an answer, along with counterclaims, to the
supplemental complaint. The answer asserted numerous affirmative
defenses, one of them being that some of the counts of the
supplemental complaint were subject to arbitration under the TIC
Agreement; it was the first time in the five years of litigation that the
defendants mentioned the arbitration provision.
On that same date, April 11, the defendants also filed the motion for
partial stay of proceedings, which is the subject of this appeal. In the
motion, the defendants contended that “Plaintiffs’ Supplemental
Complaint, with the participation of newly-realigned Plaintiff Parma
GE 7400, has asserted claims which are clearly subject to the
mandatory arbitration provision contained in the [TIC Agreement]
between Plaintiff Parma GE 7400 L.L.C. and Defendant Parma VTA
L.L.C.” Although not directly at issue in this appeal, for full context it
is important to note that on April 5, 2019, the defendants filed a motion
to compel arbitration on another matter — a “cash call” that allegedly
occurred between two of the parties — but the defendants withdrew the
motion to compel on April 17, 2019.
The plaintiffs filed one brief in opposition to both of the above-
mentioned motions — the subject motion for partial stay of proceedings
and the April 5 motion to compel arbitration on the alleged “cash call”
issue. The substance of the plaintiffs’ opposition only went to the “cash
call” matter, however. The trial court summarily denied the
defendants’ motion for partial stay of proceedings without explanation.
The defendants have raised the following sole assignment of error for
our review: “The Trial Court erred in denying Defendants’ Motion for
Partial Stay of Proceedings pending arbitration of five claims set forth
in Plaintiffs’ Supplemental Complaint.”
Id. at ¶ 3-10.
The Gerston II Court affirmed the judgment of the trial court, stating
as follows:
In the instant case, five years elapsed before the defendants even
mentioned arbitration. It is true that Parma GE 7400 realigned, but it
was always a party in the case and the TIC Agreement was always at
issue. At the very least, the defendants could have reserved their right
to arbitrate. On this record, under the totality of the circumstances, the
trial court did not abuse its discretion by denying the defendants’
motion for partial stay of proceedings. Even if we reviewed under the
less deferential de novo standard, we would find no error.
Id. at ¶ 30.
In May 2019, while Gerston II was pending, Parma VTA served a
demand for arbitration against Parma GE 7400 regarding Parma VTA’s attempt to
force Parma GE 7400 to contribute funds to partially repay a loan from Ladder
Capital on the property at issue pursuant to a cash call (“Cash Call Issue”). Parma
VTA also filed a motion in the trial court asking the court to compel arbitration on
the Cash Call Issue but later withdrew its motion.
Parma GE 7400 disputed the arbitrator’s jurisdiction to hear the
matter, asserting that Parma VTA had waived its right to arbitrate the dispute after
participating in litigation for over five years. Parma GE 7400 participated in the
arbitration “under protest” and continued to dispute the arbitrator’s jurisdiction.
The arbitrator determined that it did, in fact, have jurisdiction over the
matter, found in favor of Parma VTA, and ordered Parma GE 7400 to repay 77
percent of Parma VTA’s loan with Ladder Capital. Parma VTA then filed an
application to confirm the award, and Parma GE 7400 moved to vacate the award,
arguing (1) Parma VTA waived arbitration by litigating the parties’ ownership and
related financial disputes in state court for five years; (2) the arbitrator’s award
ignores the express and unambiguous terms of the TIC Agreement; and (3) Parma
GE 7400 did not agree to help Parma VTA pay its loan with Ladder Capital.
Parma VTA further sought a supplemental award of attorney fees and
costs from the arbitrator, which was granted. Parma VTA filed an application to
confirm this award, and Parma GE 7400 again moved to vacate the award, arguing
(1) the supplemental award exceeded the arbitrator’s powers because the merits
award terminated his jurisdiction; and (2) the merits award was defective for the
reasons set forth in the original motion to vacate.
The trial court denied the applications to confirm the awards and
granted the motions to vacate, holding:
The court finds that Parma VTA waived the right to arbitrate.
Specifically, Parma VTA acted inconsistent with the right to arbitrate
by actively participating in five years of litigation within this court
related to the ownership, operation, and financial obligations of the
property at issue.
While it is true that an arbitration provision is contained in the TIC
agreement at issue, Ohio law recognizes that “arbitration is a matter of
contract and, like any other contractual provision, can be enforced
unless the parties waive that right. A party may explicitly waive its right
to arbitration, or may implicitly waive its right by failing to assert it or
by participating in litigation to such an extent that its actions are
‘completely inconsistent with any reliance’ on this right, resulting in
prejudice to the opposing party.” Bass Energy Inc. v. City of Highland
Hts., 193 Ohio App.3d 725, 2010-Ohio-2102, 954 N.E.2d 130, 33 (8th
Dist.).
A totality of the circumstances test is used to determine whether a party
has waived its right to arbitrate disputes. The relevant factors for
consideration include: (1) whether the party seeking arbitration
invoked the jurisdiction of the trial court by filing a complaint,
counterclaim, or third-party complaint without asking for a stay of
proceedings; (2) the delay, if any, by the party seeking arbitration in
requesting a stay of proceedings or an order compelling arbitration; (3)
the extent to which the party seeking arbitration participated in the
litigation, including the status of discovery, dispositive motions, and
the trial date; and (4) any prejudice to the nonmoving party due to the
moving party’s prior inconsistent actions. Neel v. A. Perrino Constr.,
Inc., 2018-Ohio-1826, 113 N.E.3d 70, 34 (8th Dist.).
In April 2019, Parma VTA raised arbitration as an affirmative defense
to Parma GE 7400’s supplemental complaint. It was the first time in
five years of litigation that an arbitration provision was mentioned.
Parma VTA argues that the arbitration provision was not triggered until
Parma GE 7400 was realigned to be in an adversarial position with
Parma VTA. Notwithstanding realignment, the issue of arbitration
could certainly have been raised and addressed prior to 2019. The TIC
agreement and its arbitration provision was always at issue in this
matter.
Lastly, the court acknowledges that there is a strong public policy that
favors the use of arbitration to resolve disputes, and that “waiver is not
to be lightly inferred.” Harsco Corp. v. Crane-Carrier Co., 122 Ohio
App.2d 406, 414, 701 N.E.2d 1040 (3d Dist.1997). However, consistent
with the Court of Appeals decision, this court agrees that Parma VTA’s
actions throughout this litigation have been completely inconsistent
with any reliance on the right to arbitrate.
In conclusion, the court finds that by engaging in extensive litigation of
this matter, Parma VTA has acted in a manner inconsistent with the
right to seek arbitration and, therefore waived that right. Accordingly,
the arbitrator lacked jurisdiction to adjudicate the parties’ disputes and
the arbitration awards are therefore vacated.
Parma VTA then filed the instant appeal, raising two assignments of
error for our review:
1. The trial court erred as a matter of law in vacating the arbitration
awards under R.C. 2711.10(D) on the basis that Parma VTA, LLC
supposedly waived its right to initiate the contractual arbitration
process.
2. The determination of whether Parma VTA, LLC waived its ability to
arbitrate the cash call dispute is a procedural question that was
properly before the arbitrator and the trial court was without
jurisdiction or authority to overrule the arbitrator’s decision that
Parma VTA, LLC had not waived its right to arbitrate the dispute.
II. Law and Analysis
The trial court vacated the arbitration awards on the basis that Parma
VTA waived its right to arbitration by participating in litigation for over five years.
Parma VTA argues that this was error because the Cash Call Issue was not before the
trial court, and Parma GE 7400 participated in the arbitration. It asserts that the
litigation that was the subject of Gerston II and the Cash Call Issue are separate and
have no bearing on each other.
Parma GE 7400 argues that our review of whether a party waived its
right to arbitration is subject to an abuse-of-discretion standard, which was the
standard used in Gerston II. As this court has noted, “[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 abuse of discretion.” Vining v. Logan Clutch Corp.,
8th Dist. Cuyahoga No. 108563, 2020-Ohio-675, ¶ 10, citing Featherstone v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 159 Ohio App.3d 27, 2004-Ohio-5953, 822
N.E.2d 841, ¶ 10 (9th Dist.); Phillips v. Lee Homes, 8th Dist. Cuyahoga No. 64353,
1994 Ohio App. LEXIS 596 (Feb. 17, 1994).
However, while the question of waiver is at the core of our analysis,
the issue being reviewed in this case is whether the trial court erred in granting the
motion to vacate arbitration awards. The Supreme Court of Ohio has held that
“when reviewing a decision of a common pleas court confirming, modifying,
vacating, or correcting an arbitration award, an appellate court should accept
findings of fact that are not clearly erroneous but decide questions of law de novo.”
Portage Cty. Bd. of Dev. Disabilities v. Portage Cty. Educators’ Assn. for Dev.
Disabilities, 153 Ohio St.3d 219, 2018-Ohio-1590, 103 N.E.3d 804, ¶ 26.
The trial court determined that the awards should be vacated because
the arbitrator lacked jurisdiction to arbitrate the parties’ dispute. R.C. 2711.10 states
in part that the court shall vacate an arbitration award “upon the application of any
party * * * if: * * * (D) [t]he arbitrators exceeded their powers, or so imperfectly
executed them that a mutual, final, and definite award upon the subject matter
submitted was not made.” Whether an arbitrator has exceeded his or her powers is
a question of law, which is reviewed de novo. Cleveland v. Cleveland Police
Patrolmen’s Assn., 2022-Ohio-4284, 202 N.E.3d 787, ¶ 18 (8th Dist.), citing
Portage at ¶ 25. Accordingly, we will apply a de novo review in this matter.
Parma VTA asserts that the Cash Call Issue did not even arise until
2019, five years after the original suit was initiated and that there is no relationship
between the original suit and the Cash Call Issue. Parma VTA maintains that its
participation in litigation that occurred prior to, and did not involve, the Cash Call
Issue could not have waived its right to arbitrate the subsequent separate issue.
Parma GE 7400 argues that Parma VTA engaged in five years of
litigation regarding the parties’ respective financial obligations stemming from
ownership of the property at issue and that the Cash Call Issue falls under that
umbrella. However, in Parma GE 7400’s brief in opposition to Parma VTA’s motion
to compel arbitration,1 it argued that the issues that Parma VTA sought “to have
referred to arbitration are not even issues before the [c]ourt in this lawsuit.” The
brief sets forth the two issues that were before the court at that time — the ownership
of Parma GE 7400 and the damages sustained by Parma GE 7400 — and
acknowledged that “the issue defendants have just raised in their motions to compel
and to stay — for the first time ever in this lawsuit — has no connection with these
two issues before the [c]ourt.” (Emphasis added.) Parma GE 7400 additionally
cited R.C. 2711.02(B), asserting that the matter could not be stayed because the Cash
Call Issue was not “an issue referable to arbitration” and argued that “the [c]ourt
1 The motion to compel arbitration was later withdrawn.
lacks jurisdiction to stay an action and compel arbitration on a newly-raised issue
pursuant to an arbitration clause in a contract that, by [Parma VTA]’s own
admission, is not before the [c]ourt.”
Parma GE 7400 appears to have taken a different tack now and argues
that any financial disputes related to the ownership of the property at issue must be
arbitrated. It contends that Parma VTA’s “extensive” participation in the litigation
below precludes it from arbitrating any other issue stemming from the parties’
respective financial obligations.
We are not persuaded by Parma GE 7400’s argument. While Parma
VTA was previously determined to have waived its right to arbitration by litigating
the issues between the parties, the difference here, as recognized by this Court in
Gerston II, is that with the prior issues, “five years elapsed before [Parma VTA] even
mentioned arbitration.” In the instant matter, the Cash Call Issue arose in March
2019, and Parma VTA sought arbitration soon thereafter. It did not adjudicate the
Cash Call Issue through litigation.
Parma GE 7400 seems to contend that Parma VTA has essentially
waived arbitration of any future financial issue between the parties. This argument
lacks merit. Parma VTA could not waive arbitration of an issue that had not even
occurred yet. While the Cash Call Issue may also pertain to the parties’ respective
financial obligations, we are not inclined to hold that Parma VTA waived arbitration
of this new issue simply because it litigated prior issues that may be tangentially
related. Parma VTA’s actions in litigating the prior disputes do not act as a blanket
waiver for all other disputes between the parties, including ones that had not
occurred at the time the other issues were being litigated.
This court, too, noted that the Cash Call Issue was separate from the
motion for partial stay of proceedings that was the subject of Gerston II. “Although
not directly at issue in this appeal, for full context it is important to note that on
April 5, 2019, the defendants filed a motion to compel arbitration on another matter
— a ‘cash call’ that allegedly occurred between two of the parties — but the
defendants withdrew the motion to compel on April 17, 2019.” Id. at ¶ 9.
We find that Parma VTA did not waive its right to arbitration of the
Cash Call Issue. As acknowledged by Parma GE 7400 in its brief opposing Parma
VTA’s (later withdrawn) motion to compel arbitration, the Cash Call Issue only arose
in 2019 and was separate from any of the disputes that were pending before the trial
court. Thus, the court’s findings that Parma VTA waived its right to arbitrate by
litigating matters that were not related to the Cash Call Issue, and therefore that the
arbitrator lacked jurisdiction to arbitrate the Cash Call Issue, were erroneous.
We note that Parma GE 7400 presented alternative arguments for
affirmance of vacating the arbitration awards; however, we make no determination
as to these. It is clear that the trial court did not analyze these issues, and we cannot
consider them in the first instance.
Accordingly, we find that the trial court erred in vacating the
arbitration awards based on its erroneous determination that Parma VTA waived its
right to arbitrate the Cash Call Issue. Parma VTA’s sole assignment of error is
sustained. However, this determination does not mandate reinstatement and
confirmation of the arbitration awards. Rather, upon remand, the court is
instructed to consider the additional arguments in Parma GE 7400’s motions to
vacate the arbitration awards as well as Parma VTA’s applications for confirmation
of the arbitration awards.
Our resolution of the first assignment of error renders the second
assignment of error moot.
III. Conclusion
The trial court erred in vacating the arbitration awards based upon its
erroneous determination that Parma VTA had waived its right to arbitrate the Cash
Call Issue. That issue arose later and had not been litigated at any time. Thus,
Parma VTA’s litigation of other issues between the parties had no bearing on
whether it was entitled to arbitrate the Cash Call Issue. Parma VTA’s first
assignment of error is sustained; the judgment of the trial court is reversed, and this
matter is remanded for further proceedings consistent with this opinion.
It is ordered that appellant recover from appellee costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said 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.
_________________________________________
FRANK DANIEL CELEBREZZE, III, PRESIDING JUDGE
MARY EILEEN KILBANE, J., and
EILEEN T. GALLAGHER, J., CONCUR