RECO Equip., Inc. v. Wilson

RECO EQUIPMENT, INC., Plaintiff, v. JEFFREY S. WILSON, et al., Defendants.

Case No. 2:20-cv-3556

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO EASTERN DIVISION

April 30, 2021

Magistrate Judge Elizabeth P. Deavers

OPINION AND ORDER

This matter is before the Court on an Application to Stay Proceedings Pending Arbitration Pursuant to Ohio Revised Code 2711.02(B) filed by Defendant Jeffrey Wilson ("Wilson"). (ECF No. 46.) Plaintiff RECO Equipment, Inc. ("RECO") has filed a Response (ECF No. 51) and Wilson has filed a Reply. (ECF No. 52.) By Order dated March 2, 2021, the Court directed additional briefing on certain issues raised by the motion. (ECF No. 57.) Defendants filed supplemental briefs on March 4, and March 26, 2021. (ECF Nos. 58, 62.) RECO filed its supplemental brief on March 16, 2021. (ECF No. 59.) For the following reasons, the motion to stay (ECF No. 46) is GRANTED.

I.

For ease of reference and context, the Court reiterates certain portions of its previous Order:

The background of this case was set forth at great length in the Court's Opinion and Order granting RECO's motion for a preliminary injunction, (ECF No. 41), and will not be set forth in any detail here. In his current and succinct motion, Wilson, relying on Ohio Revised Code 2711.02(B), asserts that, under the terms of the Employment Agreement dated January 23, 2019 (ECF No. 10),¹ arbitration must be compelled as to the remaining claims against him. Wilson expressly states that he is filing "this Application in his individual capacity," and the "Application is not intended to stay the proceedings of this trial as to the remaining Defendants."²

RECO opposes the motion, arguing that Wilson has engaged in conduct that amounts to a waiver of his arbitration rights. Further, RECO asserts that it would be prejudiced by a blanket stay of these proceedings because it would be required to adjudicate the two claims asserted against all three Defendants twice. (ECF No. 51 at 2.) Alternatively, RECO contends that any order issued by this Court compelling arbitration and staying the proceedings should be limited to only RECO's breach of contract claim against Wilson.

In reply, Wilson contends that the Employment Agreement contains a mandatory arbitration clause requiring both parties to submit all disputes arising under it to arbitration, with the exception of the right to seek injunctive relief. Wilson asserts that, now that injunctive relief has been granted, "ostensibly" preserving the status quo, it is time to arbitrate under the terms of the Agreement. Wilson disputes that his actions in defending himself against RECO's claims for injunctive relief have amounted to a waiver. In sum, Wilson argues that his motion to stay should be granted as a matter of law.

The starting point for the Court's analysis is the Employment Agreement itself. That Agreement contains the following language, relating to arbitration:

3.09 Disputes. Except for the right to seek injunctive relief as set forth in Section 3 .08, all disputes arising hereunder shall be referred to binding arbitration to be conducted under the Uniform Arbitration Act as adopted in Ohio, to be conducted before a single arbitrator in St. Clairsville, Ohio. The award of the arbitrator shall be final and binding on the parties and judgment on such award may be entered in any court having jurisdiction thereof. In any such arbitration proceeding, the prevailing party, as determined by the arbitrator, shall be entitled to an award of its reasonable costs and attorneys' fees.

(ECF No, 10 at 28) (emphasis added).

The Ohio Arbitration Act ("OAA") is set forth in Ohio Revised Code Chapter 2711. The parties' briefing appears to assume, without much discussion, that the Ohio Arbitration Act represents Ohio's adoption of the Uniform Arbitration Act ("UAA") and that the OAA guides the Court's analysis here. Accordingly, Wilson cites R.C. 2711.02(B) as the basis for his motion to stay. That provision provides as follows:

(B) If any action is brought upon any issue referable to arbitration under an agreement in writing for arbitration, the court in which the action is pending, upon being satisfied that the issue involved in the action is referable to arbitration under an agreement in writing for arbitration, shall on application of one of the parties stay the trial of the action until the arbitration of the issue has been had in accordance with the agreement, provided the applicant for the stay is not in default in proceeding with arbitration.

Under the OAA, R.C. 2711.02 requires a court to stay the trial of an action on application of one of the parties if: (1) the action involves an issue referable to arbitration under a written arbitration agreement, (2) the court is satisfied the issue is referable to arbitration under the agreement, and (3) the party seeking the stay is not in default in proceeding with arbitration. Dozier v. Credit Acceptance Corp., 2019-Ohio-4354, ¶ 10, 135 N.E.3d 804, 807 (8th Dist. Cuyahoga Cty.) (citing Eaton Corp. v. Allstate Ins. Co., 8th Dist. Cuyahoga No. 101654, 2015-Ohio-2034, 2015 WL 3421990, ¶ 17).

Although the Ohio Supreme Court does not appear to have addressed the issue, multiple Ohio Courts of Appeals have expressly held that where a claim is subject to arbitration under R.C. 2711.02, a stay of the entire action is required until the arbitrable claims are resolved. See, e.g., Wolcott v. Summerville at Outlook Manor, L.L.C., 2016-Ohio-1237, 61 N.E.3d 853, 859 (10th Dist. Franklin Cty.) (finding no discretion to deny stay based on line of authority holding that R.C. 2711.02 requires a stay of the trial proceedings, regardless of whether the dispute also involves parties who are not a party to the agreement and who cannot be compelled to arbitrate) (citations omitted); Rippe & Kingston Co., PSC v. Kruse, 2014-Ohio-2428, ¶ 21, 2014 WL 2566287 (1st Dist. Hamilton Cty.) (upholding the stay of entire proceeding pending arbitration, despite the presence of nonarbitrable claims); Maclin v. Greens Nursing and Assisted Living, L.L.C., No. 101085, 2014-Ohio-2538, 2014 WL 2612666, *2 (8th Dist. Cuyahoga County) (when a trial court determines that certain claims are subject to arbitration, it must stay the entire proceeding until those claims have been arbitrated, even though the action may involve both arbitrable and non-arbitrable claims); Jarvis v. Lehr, 2014-Ohio-3567, ¶ 11, 2014 WL 4088093, *3 (1st Dist. Hamilton Cty.) (in reversing and remanding with instructions to enter a stay recognizing that, once a court determines an issue in a proceeding is covered by a written arbitration agreement, even claims involving nonsignatories to the arbitration agreement are required to be stayed under R.C. 2711.02(B)).

As noted above, however, Wilson is not seeking a stay of the entire action here. Further, as an alternative to its waiver argument, RECO insists that a stay of the entire action is not required and suggests that a stay is discretionary.

(ECF No. 57 at 1-5.)

In their supplemental briefing, RECO contends that the Federal Arbitration Act ("FAA") should guide the Court's analysis here and that, applying the FAA, only the breach of contract claim should be arbitrated between RECO and Wilson under the terms of the Agreement and only this claim should be stayed. Accordingly, RECO requests that this Court (1) stay and compel to arbitration RECO's breach of contract claim against Wilson and (2) decline to stay and compel to arbitration RECO's misappropriation of corporate opportunity claims and RECO's misappropriation of trade secrets claims against Wilson, Russo, and Republic. Defendants, on the other hand, relying on the OAA, now request that that this entire action be stayed until the arbitrable claims between Wilson and RECO are resolved.

II.

As the parties' supplemental briefing confirms, they dispute whether the FAA or the OAA governs the Employment Agreement's Dispute provision and, by extension, guides the Court's analysis here. Because this is a threshold question, the Court begins its analysis with this issue. For the following reasons, the Court concludes that the FAA applies.

As one court has explained:

"The FAA applies to '[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction[.]" Stutler v. T.K. Constructors Inc., 448 F.3d 343, 345 (6th Cir. 2006) (quoting 9 U.S.C. § 2). "[T]he term 'involving commerce' in the FAA [i]s the functional equivalent of the more familiar term 'affecting commerce'—words of art that ordinarily signal the broadest permissible exercise of Congress' Commerce Clause power." Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 123 S. Ct. 2037, 2040, 156 L.Ed.2d 46 (2003). The Supreme Court thus found it "perfectly clear that the FAA encompasses a wider range of transactions than those actually . . . 'within the flow of interstate commerce'" Id.(quoting Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 115 S. Ct. 834, 839, 130 L.Ed.2d 753 (1995)).

CK Franchising, Inc. v. SAS Servs. Inc., 398 F. Supp. 3d 163, 170 (E.D. Ky. 2019). The FAA generally applies to employment contracts with arbitration provisions. McGee v. Armstrong, 941 F.3d 859, 865 (6th Cir. 2019) (citing Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 109 (2001)).

Absent a dispute provision's clear intent otherwise, "the FAA generally preempts inconsistent state laws and governs all aspects of arbitrations concerning 'transaction[s] involving commerce[.]'" CK Franchising, Inc. v. SAS Servs. Inc., 398 F. Supp. 3d 163, 170-71 (E.D. Ky. 2019) (quoting Savers Prop. & Cas. Ins. Co. v. Nat'l Union Fire Ins. Co. of Pittsburg, PA, 748 F.3d 708, 715 (6th Cir. 2014)). However, "parties may agree to abide by state rules of arbitration, and 'enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA.'" Id. at 715-16 (quoti...