Opinion
No. 108489
03-12-2020
CHRISTOPHER DELLY, Plaintiff-Appellant, v. HARBOR FREIGHT TOOLS USA INC., ET AL., Defendants-Appellees.
Appearances: Michael T. Conway, for appellant. Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Bruce G. Hearey, and Corey Noel Thrush, for appellees.
JOURNAL ENTRY AND OPINION JUDGMENT: AFFIRMED Civil Appeal from the Cuyahoga County Common Pleas Court
Case No. CV-18-908512
Appearances:
Michael T. Conway, for appellant. Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Bruce G. Hearey, and Corey Noel Thrush, for appellees. SEAN C. GALLAGHER, J.:
{¶ 1} Christopher Delly appeals the dismissal of his complaint, which followed the denial of his motion to vacate a binding arbitration award in favor of Harbor Freight Tools USA Inc. We affirm.
{¶ 2} Delly commenced an action against his former employer, Harbor Freight, claiming wrongful termination in violation of state law. That action was voluntarily dismissed without prejudice after Harbor Freight sought to enforce its contractual right to binding arbitration. The parties agreed that the arbitration was exclusively under the procedures set forth in the Federal Arbitration Act, 9 U.S.C. 10 et seq. The arbitrator concluded that Harbor Freight was entitled to an award in its favor upon all of Delly's wrongful termination claims.
{¶ 3} Unsatisfied with the arbitrator's decision, Delly filed a new action within three months of the arbitrator's award in Harbor Freight's favor. The refiled complaint included the same wrongful termination allegations as the original complaint, a new breach of contract claim in which Delly preemptively complained that Harbor Freight breached the terms of the arbitration agreement by not permitting a de novo appeal of the arbitrator's award to the common pleas court, and a claim to vacate the arbitration award. Neither of the parties have discussed the scope of the trial court's jurisdiction to review the claims advanced in the refiled complaint.
{¶ 4} Instead, Harbor Freight contended that the doctrine of res judicata precluded Delly from asserting the wrongful termination claims because those were conclusively resolved in the binding arbitration, and that the breach of contract claim should be dismissed for failure to state a claim because the unambiguous terms of the contract do not provide for a de novo appeal of the arbitration award to the common pleas court. In addition, Harbor Freight asked the trial court to treat Delly's claim seeking to vacate the arbitration award as the motion contemplated under 9 U.S.C. 11 and to deny the same as unsubstantiated. The trial court agreed with Harbor Freight, and Delly timely appealed that decision.
{¶ 5} In this appeal, Delly claims the trial court erred in granting the motion to dismiss because the arbitration agreement provided Delly the right to appeal the arbitration award to the trial court under the de novo appellate standard, and such an error impacted the trial court's dismissal of the remaining allegations. We find no merit to Delly's argument, but we do so based on the procedural posture of the case that has been largely overlooked by the parties.
{¶ 6} According to Delly, the "trial court found that the only arbitration award review standard it could apply to resolve [his] Complaint in accord with [Harbor Freight's Dispute Resolution Policy] was the Federal Arbitration Act or a state law arbitration act narrow standard of review," instead of the "de novo" review that the parties contractually agreed to in their arbitration agreement. The standard of review that Delly is evidently referring to is the trial court's standard in reviewing whether to vacate the arbitration decision. Under both the Federal Arbitration Act and R.C. Chapter 2711, unless an arbitration award is vacated or modified, the trial court or district court must confirm the arbitration award. As Delly has framed the issue, the question in this appeal is whether the Federal Arbitration Act or Ohio's version enacted under R.C. Chapter 2711 permits the parties to expand the standard of review applied in deciding whether to vacate an arbitration award.
The actual terms of the arbitration agreement provided in pertinent part that the losing party could seek judicial review of whether the award was supported by substantial evidence. Delly has not presented any authority for the proposition that the substantial evidence standard is the equivalent to a de novo review of the arbitration proceedings. App.R. 16(A)(7).
{¶ 7} Although the parties both refer to the Federal Arbitration Act as the source of our review, we need not consider or rely on the federal construct. Although the arbitration agreement in this case expressly relies on the procedures set forth under 9 U.S.C. 9, 10, and 11, those provisions vest the federal courts with broad authority to enforce arbitration agreements. Ortiz-Espinosa v. BBVA Secs. of Puerto Rico, Inc., 852 F.3d 36, 43 (1st Cir.2017). This enforcement includes confirming, modifying, or vacating an arbitration award. Id. Enforcement of arbitration agreements under the Federal Arbitration Act exclusively occurs in federal courts, and "[i]n fact, there is no explicit provision for post-award enforcement in state courts" under the federal law.
{¶ 8} The authority to vacate an arbitration award under the Federal Arbitration Act is in "the United States court in and for the district wherein the award was made." 9 U.S.C. 10(a). The Federal Arbitration Act is not pertinent to the current case in which Delly sought to vacate the arbitration award in state court.
{¶ 9} Assuming, for the sake of discussion, that the arbitration agreement in this particular case contemplated a de novo standard of judicial review, the threshold question is whether Ohio law permits parties to contractually expand the scope of judicial review of an arbitration decision beyond the limitations expressed in R.C. 2711.10. The answer to this question impacts the trial court's authority to review the claims underlying the arbitration award.
{¶ 10} Under Ohio law, "once an arbitration is completed, a court has no jurisdiction except to confirm and enter judgment (R.C. 2711.09 and 2711.12), vacate (R.C. 2711.10 and 2711.13), modify (R.C. 2711.11 and 2711.13), correct (R.C. 2711.11 and 2711.13), or enforce the judgment (R.C. 2711.14)." State ex rel. Westlake v. Corrigan, 112 Ohio St.3d 463, 2007-Ohio-375, 860 N.E.2d 1017, ¶ 21, quoting State ex rel. R.W. Sidley, Inc. v. Crawford, 100 Ohio St.3d 113, 2003-Ohio-5101, 796 N.E.2d 929, ¶ 22; Champion Chrysler v. Dimension Serv. Corp., 2018-Ohio-5248, 118 N.E.3d 490, ¶ 10 (10th Dist.). Further, "the vacation, modification or correction of an award may only be made on the grounds listed in" R.C. Chapter 2711 and only when such an application is timely filed under R.C. 2711.13. Warren Edn. Assn. v. Warren City Bd. of Edn., 18 Ohio St.3d 170, 173, 480 N.E.2d 456 (1985). Accordingly, the jurisdiction of the trial court to review arbitration awards is statutorily limited. Id.; Miller v. Gunckle, 96 Ohio St.3d 359, 2002-Ohio-4932, 775 N.E.2d 475, ¶ 10; Telle v. Estate of William Soroka, 10th Dist. Franklin No. 08AP-272, 2008-Ohio-4902, ¶ 9. The trial court possesses jurisdiction only to review the arbitration award; the court cannot review the merits of the claims underlying the award unless the award is vacated.
{¶ 11} In this case, Delly is claiming that the arbitration agreement contractually expanded the scope of judicial review of the arbitration award, which would have permitted the trial court to review the merits of the underlying claims without deference to the arbitration award. Under Ohio law, however, parties cannot contractually expand judicial review of arbitration awards beyond that which is provided by statute. Cleveland v. IBEW Local 38, 8th Dist. Cuyahoga No. 92982, 2009-Ohio-6223, ¶ 21, citing Univ. Mednet v. Blue Cross & Blue Shield of Ohio, 126 Ohio App.3d 219, 231-232, 710 N.E.2d 279 (8th Dist.1997).
{¶ 12} In Ignazio v. Clear Channel Broadcasting, Inc., 165 Ohio App.3d 32, 2005-Ohio-6783, 844 N.E.2d 881, ¶ 47 (7th Dist.), for example, the parties agreed to what the appellate court considered to be a de novo review of the arbitration award by the trial court determining whether to vacate the arbitration award. Id. at ¶ 47. The Seventh District rendered two conclusions. It was first held that a trial court has no jurisdiction to conduct an expanded review of the arbitration award beyond that which is provided under R.C. Chapter 2711. Id. at ¶ 48; see also IBEW Local 38, Univ. Mednet. It was then concluded that because the parties agreed to an expanded judicial review of the arbitration award beyond the limitations under R.C. 2711.10, the arbitration was not binding, and as a result, the trial court should have vacated the award and proceeded to resolve the merits of the case. Ignazio at ¶ 49, citing Schaefer v. Allstate Ins. Co., 63 Ohio St.3d 708, 715-716, 590 N.E.2d 1242 (1992).
{¶ 13} The Ohio Supreme Court accepted Ignazio for review. The proposition of law accepted for review in Ignazio v. Clear Channel Broadcasting, Inc., 113 Ohio St.3d 276, 2007-Ohio-1947, 865 N.E.2d 18, was "whether a clause in an arbitration agreement that provides for greater judicial review of an award than is permitted under R.C. Chapter 2711 renders the entire agreement unenforceable, or whether the offensive clause may be severed and the remainder of the agreement enforced." As the issue was framed, the question was whether the invalid provision expanding the scope of review authorized under R.C. 2711.10 rendered the entire arbitration agreement to be unenforceable. Id. at ¶ 1. Thus, the proposition of law presumed that any agreement expanding judicial review beyond the enumerated standard under R.C. 2711.10 was invalid on its face.
{¶ 14} It was ultimately concluded that a provision in the arbitration agreement that expands the scope of review under R.C. Chapter 2711 is unenforceable but the invalid provision can be severed from the agreement. Id. at ¶ 17. Importantly for our purposes, a clause providing for an expanded judicial review of an arbitration award is "not an essential term of the agreement to arbitrate." Id. "[S]evering the offending provision and enforcing the remainder of the agreement is consistent with this state's strong public policy in favor of arbitration." Id. at ¶ 18.
{¶ 15} Although given the opportunity, the Ohio Supreme Court did not address the Seventh District's conclusion that parties cannot contractually expand the scope of judicial review provided in R.C. 2711.10. Ignazio, 165 Ohio App.3d 32, 2005-Ohio-6783, 844 N.E.2d 881, at ¶ 47; IBEW Local 38, 8th Dist. Cuyahoga No. 92982, 2009-Ohio-6223, at ¶ 21. "Judicial intervention statutorily is restricted by R.C. 2711.09, R.C. 2711.10 and R.C. 2711.11, which permit the court to interfere [with an arbitration award] only on certain enumerated grounds." Schiffman v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 8th Dist. Cuyahoga No. 86723, 2006-Ohio-2473, ¶ 22. Further, any attempts to expand the judicial review of an arbitration award beyond the constraints of R.C. 2711.10 is statutorily invalid and such a clause must be severed from the arbitration agreement, the remainder of which can be enforced through R.C. Chapter 2711. Ignazio, 113 Ohio St.3d 276, 2007-Ohio-1947, 865 N.E.2d 18.
{¶ 16} Delly argues that neither the Federal Arbitration Act nor R.C. Chapter 2711 are the exclusive mechanisms to challenge an arbitration award. In other words, Delly claims to have a contractual right to judicial review of the arbitration award notwithstanding state or federal law. In support, Delly cites Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 590, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). In Hall St. Assocs., it was concluded that the Federal Arbitration Act provides the exclusive mechanism in which to enforce an arbitration award in federal court. Id. at 588. After so concluding, the Supreme Court opined:
In holding that §§ 10 and 11 provide exclusive regimes for the review provided by the statute, we do not purport to say that they exclude more searching review based on authority outside the statute as well. The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable.(Emphasis added.) Id. at 590. Thus, although the scope of judicial review under the Federal Arbitration Act cannot be expanded in federal court, state law may afford greater latitudes under that particular state's statutory or common law scheme. See, e.g., Raymond James Fin. Servs., Inc. v. Honea, 55 So.3d 1161, 1163-1164 (Ala. 2010) (concluding that Alabama state law permitted a more expansive review of an arbitration award notwithstanding Hall St. Assocs.).
{¶ 17} Delly's reliance on Hall St. Assocs. is misplaced. Hall St. Assocs. does not create a right to contractually expand the scope of judicial review of an arbitration award. It merely permits an alternative to the federal scheme "where judicial review of different scope is arguable." Id. at 590. As noted above, Ohio law does not permit the parties to expand the scope of judicial review of an arbitration decision. The exclusive mechanism to seek the vacation of an arbitration award under Ohio law is R.C. 2711.10. Ohio does not recognize a contractual right to judicially review arbitration awards. Because R.C. Chapter 2711 limits the trial court's jurisdiction in reviewing an arbitration award, Hall St. Assocs. does not afford Delly any greater relief than is provided under Ohio law. Delly's arguments to the contrary are overruled.
{¶ 18} Under Ohio law, parties may not contractually expand the scope of judicial review of arbitration awards. Corrigan, 112 Ohio St.3d 463, 2007-Ohio-375; Ignazio, 113 Ohio St.3d 276. On this point, in order to vacate an arbitration award, the complaining party must set forth allegations demonstrating that (1) the award was procured by corruption, fraud, or undue means; (2) there was evidence of partiality or corruption on the part of the arbitrators; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing or in refusing to hear evidence material to the controversy, or any other misconduct prejudicing the party's rights; or (4) the arbitrators exceeded their powers or imperfectly executed those powers in such a way that a mutual, final, and definite award was not rendered. R.C. 2711.10. In the absence of any allegations demonstrating any of the enumerated grounds to vacate the award, the trial court must dismiss the action. Progressive Max Ins. Co. v. State Farm Mut. Auto. Ins. Co., 8th Dist. Cuyahoga Nos. 82227, 82257, and 82417, 2003-Ohio-4348, ¶ 16.
{¶ 19} In this case, Delly's motion to vacate is entirely based on his claim that the arbitration agreement expanded the scope of judicial review of the arbitration decision. Delly's proposed argument cannot be accepted because doing so would necessarily conflict with binding authority. Further, there were no allegations in Delly's refiled complaint demonstrating any of the enumerated grounds to vacate an arbitration award under R.C. 2711.10 — the sole basis to vacate the arbitration award was limited to the de novo review argument. The trial court's jurisdiction was therefore limited to determining whether to vacate the award under R.C. 2711.10. The trial court did not err in dismissing the action.
{¶ 20} We affirm the decision of the trial court.
It is ordered that appellees recover from appellant 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. /s/_________
SEAN C. GALLAGHER, JUDGE EILEEN T. GALLAGHER, A.J., and
MARY EILEEN KILBANE, J., CONCUR