CLERK UF ta(3urf SIIPREME COURT OF OHIO

Transcription

1 IN THE SUPREME COURT OF OHIO THE DISPATCH PRINTING CO., et al. Plaintiffs-Appellees, Case No vs-. On Appeal From The Court Of Appeals Of Franklin County, Ohio, RECOVERY LIMITED PARTNERSHIP, et al. : Tenth Appellate District, Case Nos. 10-AP-353, 10-AP-354, Defendants- Appellants. And 10-AP-355 MEMORANDUM IN OPPOSITION TO JURISDICTION OF PLAINTIFFS-APPELLEES THE DISPATCH PRINTING COMPANY AND DONALD C. FANTA John W. Zeiger ( ) Steven W. Tigges ( ) (Counsel of Record) Bradley T. Ferrell ( ) ZEIGER, TIGGES & LITTLE LLP 41 South High Street, Suite 3500 Columbus, Ohio Telephone: (614) Facsimile: (614) D CLERK UF ta(3urf SIIPREME COURT OF OHIO COUNSEL FOR PLAINTIFFS-APPELLEES THE DISPATCH PRINTING COMPANY AND DONALD C. FANTA Richard T. Robol ( ) Rachel Chodera Monaghan ( ) ROBOL LAW OFFICE, LLC 433 West Sixth Avenue Columbus, Ohio Telephone: (614) Facsimile: (888) COUNSEL FOR DEFENDANTS-APPELLANTS RECOVERY LIMITED PARTNERSHIP AND COLUMBUS EXPLORATION LLC

2 TABLE OF CONTENTS THIS CASE DOES NOT INVOLVE A SUBSTANTIAL CONSTITUTIONAL QUESTION OR A QUESTION OF PUBLIC OR GREAT GENERAL INTEREST...I RESPONSE TO APPELLANTS' PROPOSITIONS OF LAW Page I. The Tenth District Did Not Err In Holding That The Specific Statutory Requirements For Judicial Dissolution Was Irrelevant To The Trial Court's Determination Of Waiver...3 II. Defendants' Contention That The Trial Court Improperly Based Its Decision On An Inaccurate Conclusion That Defendants Had Not Raised Arbitration In Their Original Answer Is A Red Herring...5 III. This Tenth District Expressly Considered The Issue Of Prejudice To The Dispatch Plaintiffs And Also Considered Defendants' Litigation Conduct After The Dispatch Plaintiffs Filed Their Amended Complaint...7 CONCLUSION...8 CERTIFICATE OF SERV ICE

3 THIS CASE DOES NOT INVOLVE A SUBSTANTIAL CONSTITUTIONAL OUESTION OR A QUESTION OF PUBLIC OR GREAT GENERAL INTEREST Nothing about this appeal is of public or great general interest. It is simply an appeal from an interlocutory trial court decision holding that Appellants Recovery Limited Partnership ("RLP") and Columbus Exploration LLC ("CX") (collectively, "Defendants") waived their right to arbitrate. There is nothing novel in either the trial court's or the Tenth District's decision. Rather, they both applied the same waiver standard that Ohio courts have been applying for at least seventeen years: "[W]hether, based on the totality of the circumstances, the party seeking arbitration has acted inconsistently with the right to arbitrate." [Tenth District Merits Decision at pg. 8] And, based on this standard, the trial court and Tenth District both concluded, correctly, that the specific factual record in this case demonstrated an intention on the part of Defendants to litigate rather than arbitrate. Here's what the Tenth District held: [T]he record supports the trial court's finding that appellants actively litigated this action for over four years. While the original complaint was filed April 13, 2005, appellants did not request their stay until January Further, even after requesting the stay, appellants filed a counterclaim to the amended complaint, demanded a trial by jury, served written document requests, and noticed depositions, i.e., actions consistent with a trial strategy... Given appellants' active participation in litigation for more than four years, and in light of the time and money invested as a result of their litigation strategy, we find no error with the trial court's determination that appellants' delay in asserting the right to arbitrate justified a finding of waiver. [W]e find that the trial court applied the appropriate test for waiver in concluding that appellants were aware of the existing right to arbitrate and, based upon the totality of the circumstances, acted inconsistently with that right in actively pursuing litigation as a strategy over arbitration.

4 [Tenth District Merits Decision at pgs. 9-10, 13] Defendants, however, contend that this case is different, because here the question is whether Defendants' right to arbitrate was "revived" when Appellees The Dispatch Printing Company and Donald Fanta (the "Dispatch Plaintiffs") filed an amended complaint in December But the Dispatch Plaintiffs' filing of an amended complaint does not create any novel legal questions. Rather, it is simply another "circumstance" that the lower courts considered under Ohio's "totality of the circumstances" standard. Indeed, if one were to accept Defendants' argument, this Court would have to hear every case in which a lower court makes a finding of wavier based on a particular factual circumstance that has not been specifically addressed in prior decisions. Defendants also contend that this appeal involves the following constitutional question: whether the lower courts were required to specifically examine every statutory requirement for dissolution under Ohio's Limited Partnership Act in determining whether Defendants had waived their right to arbitrate. But of course, this isn't a constitutional question at all. It's simply a restatement of Defendants' challenge to the lower courts' application of Ohio's common law standard for determining whether a right to arbitration has been waived. While Defendants try hard to cloak their argument in constitutional rhetoric about separation of powers, this appeal involves nothing more than the application of well-settled common law standards to a specific and straightforward factual situation. 2

5 RESPONSE TO APPELLANTS' PROPOSITIONS OF LAW 1. The Tenth District Did Not Err In Holdine That The Specific Statutory Reguirements For Judicial Dissolution Was Irrelevant To The Trial Court's Determination Of Waiver Throughout these proceedings, Defendants have conceded that, prior to the Dispatch Plaintiffs' filing of their amended complaint in December 2008, Defendants had waived their right to arbitrate by actively participating in litigation in state and federal court for almost four years. However, Defendants claim their right to arbitrate was revived when the Dispatch Plaintiffs filed their amended complaint. Both the trial court and the Tenth District rejected this argument. The lower courts compared the allegations in the Dispatch Plaintiffs' original complaints to those in its amended complaint and concluded, based on the "totality of circumstances" standard, that the amended complaint did not substantially change the nature of the action. Here's what the Tenth District said: Upon review, we agree with the trial court that the factual allegations do not substantially change the nature of the action. Appellees sought appointment of a receiver based upon allegations that the individual defendants, in holding themselves out as directors, fiduciaries, managers, and majority owners of RLP and CX, had failed to hold annual meetings, report on the financial condition of the company, and failed to properly manage assets and operations. Those same facts and allegations were reflected in the original complaints. We conclude that the trial court did not err in determining that the additional new remedy in the amended complaint did not revive the right or present a new right to compel arbitration where the claims were not based on new or different facts. Further, as noted by the trial court, the parties to this case invested a great deal of time and effort at all stages of this litigation, and the factual dispute remains the same, regardless of the remedy sought. [Tenth District Merits Decision at pgs ] 3

6 Defendants contend, though, that it wasn't enough simply to compare the factual allegations of the original and amended complaints; rather, according to Defendants, the trial court and Tenth District also were required to specifically examine each and every statutory requirement applicable to the Dispatch Plaintiffs' request for dissolution of RLP under Ohio's Limited Partnership Act. But, as the Tenth District correctly explained, it doesn't matter that the Dispatch Plaintiffs' amended complaint seeks an additional legal remedy such as dissolution. Rather, the test is whether the factual allegations in the amended complaint substantially change the nature of the action. The reason for this approach is obvious - as long as the amended complaint does not change the nature of the action, the waiver that Defendants have already committed through extensive litigation is not affected. In other words, Defendants have no basis to say there's been a change in circumstances that would affect the validity of its prior waiver if the amended complaint doesn't change the nature of the action. As such, the Tenth District did not err in holding that examination of the specific statutory elements for dissolution under Ohio's Limited Partnership Act was irrelevant to the waiver analysis. Defendants also complain that the trial court and Tenth District erred in relying on the Sixth Circuit's decision in Manasher v. NECC Telecom (6th Cir. 2009), 310 Fed. Appx. 804, because that case was decided under federal law rather than Ohio law. As the Tenth District noted, however, the waiver standard applied by the court in Manasher was the same as the standard that is applied under Ohio law. [Tenth District Reconsideration Decision at pgs. 3-4] As such, it was perfectly acceptable for the trial court and Tenth District to rely on Manasher in support of their decisions. 4

7 II. Defendants' Contention That The Trial Court Improperly Based Its Decision On An Inaccurate Conclusion That Defendants Had Not Raised Arbitration In Their Original Answer Is A Red Herring Defendants claim in their second proposed assignment of error that the trial court improperly based its decision on the finding that Defendants' original answer in this action "contained no reference to arbitration," [Defendants' Mem. at pg. 9], when in fact Defendants' original answer did assert a right to arbitration as an affirmative defense. Defendants argue that the Tenth District erred in failing to remand so that the trial court could "clarify" what it meant. This argument is a red herring. First, Defendants have grossly mischaracterized the holding of the trial court. At the trial court level, all of the defendants in this action joined in the motion to stay pending arbitration, not just CX and RLP. However, with the exception of CX and RLP, none of the other defendants included arbitration as an affirmative defense in their answers to the Dispatch Plaintiffs' original complaints. Thus, in discussing the issue of waiver, the trial court noted that "[t]he failure to raise an affirmative defense constitutes a waiver of that defense, both under federal law... and state law." [Trial Court Decision, entered 3/23/10, at pg. 9] Given that some of the defendants below had, in fact, failed to plead a right to arbitrate in their original answers, the trial court was simply giving an accurate statement of the law. There was no error. Second, Defendants are wrong in their contention that the trial court based its finding of waiver on the inaccurate conclusion that Defendants had failed to include arbitration as an affirmative defense in their original answer. Indeed, the Tenth District expressly rejected this contention in its merits decision below: We also find no merit to appellants' contention that the trial court based its finding of waiver on the failure to include arbitration as an affirmative defense. While the trial court's decision cites case law for the general proposition that the 5

8 failure to raise an affirmative defense may constitute waiver, the basis for the trial court's finding of waiver... was the litigation strategy that appellants utilized over four years after the case was originally filed... Accordingly, appellants have not shown error based upon language in the trial court's decision discussing the effect of a party's failure to raise arbitration as an affirmative defense. [Tenth District Decision at pg. 6] The Tenth District was correct in its holding. The trial court's decision, on its face, demonstrates that the court based its finding of waiver on the totality of facts and circumstances demonstrating that Defendants had actively litigated for almost four years without ever filing a motion to arbitrate. Finally, and most importantly, the fact that Defendants raised arbitration as an affinnative defense in their original answer actually supports the trial court's finding of waiver. Defendants obviously were aware from the outset of the case that the RLP partnership agreement contained an arbitration clause. That's why they included arbitration as an affirmative defense in their original answer. But despite their awareness of the arbitration clause, and their inclusion of arbitration as an affirmative defense, Defendants proceeded to engage in four years of litigation without ever once filing a motion to stay pending arbitration. These circumstances demonstrate a conscious decision on the part of Defendants to litigate rather than arbitrate. See, e.g., Middletown Innkeepers, Inc. v. Spectrum Interiors, 12th Dist. No. CA , 2004-Ohio- 5649, at 19 ("Citing an arbitration agreement as an affirmative defense will not preserve the ability to seek a stay when a defendant subsequently participates in litigation to an extent inconsistent with arbitration... Permitting such conduct would allow a defendant to have its proverbial cake and eat it too."); Stoll v. United Magazine Co., 10th Dist. No. 03AP-752, Ohio-2523, at (holding that the defendant was aware of the right to arbitrate because it 6

9 asserted it as an affirmative defense in its answer and then acted inconsistently with that right by participating in litigation). For these reasons, Defendants' proposed second assignment of error is meritless. III. This Tenth District Expressly Considered The Issue Of Prejudice To The Dispatch Plaintiffs And Also Considered Defendants' Litigation Conduct After The Dispatch Plaintiffs Filed Their Amended Complaint Defendants contend the Tenth District failed to properly address the issue of prejudice suffered by the Dispatch Plaintiffs both before and after the filing of the amended complaint. They also contend that the Tenth District "did not consider the full chronology of proactive steps by Defendant-Appellants immediately following receipt of the December 2008 Amended Complaint." [Defendants' Mem. at pg. 12] Defendants are wrong. The Tenth District directly addressed these issues both in its merits decision and its decision denying Defendants' application for reconsideration. Here's what the Tenth District said regarding the issue of prejudice: Given appellants' active participation in litigation for more than four years, and, in light of the time and money invested as a result of their litigation strategy, we find no error with the trial court's determination that appellants' delay in asserting the right to arbitrate justified a finding of waiver. See Tinker at 22 (where appellant participated in discovery, trial depositions, pre-trials, and settlement discussions, and because appellees had likewise been preparing for trial and would be prejudiced if it stayed the proceedings, the trial court did not abuse its discretion in denying appellant's motion to compel arbitration). [Tenth District Merits Decision at pgs. 9-10] This court specifically addressed the issue of prejudice to appellees after the delay and expense of litigation. Additionally, we addressed appellants' argument regarding lack of prejudice to appellees after filing the amended complaint, finding that appellees were prejudiced. Thus, the issue of prejudice was addressed by this court. 7

10 [Tenth District Reconsideration Decision at pg. 5] Likewise, in both its decisions below, the Tenth District expressly addressed Defendants' conduct following the Dispatch Plaintiffs' filing of their amended complaint and found that such conduct further demonstrated Defendants' intent to proceed with litigation instead of arbitration. While the original complaint was filed April 13, 2005, appellants did not request their stay until January Further, even after requesting a stay, appellants filed a counterclaim to the amended complaint, demanded a trial by jury, served written document requests, and noticed depositions, i.e., actions consistent with a trial strategy. [Tenth District Merits Decision at pg. 9] Appellants argue that we did not consider the chronology of proactive steps taken by appellants immediately following receipt of the amended complaint. However in our decision we expressly addressed appellants' actions following the filing of the amended complaint and found that the conduct demonstrated appellants' intent to proceed with litigation, rather than arbitration. [Tenth District Reconsideration Decision at pg. 4] So, it's clear that the Tenth District expressly addressed both the issue of prejudice and Defendants' conduct after the Dispatch Plaintiffs' filed their amended complaint. It is disingenuous for Defendants to now claim otherwise. CONCLUSION Nothing about this appeal involves a substantial constitutional question or is of public or great general interest. Instead, the decisions of the courts below involve application of wellsettled common law principles to a specific and straightforward set of factual circumstances. The Court should therefore decline discretionary review of this appeal. 8

11 m W. Zeiger ( ) ---- Steven W. Tigges ( ) (Counsel of Record) Bradley T. Ferrell ( ) ZEIGER, TIGGES & LITTLE LLP 41 South High Street, Suite 3500 Columbus, Ohio Telephone: (614) Facsimile: (614) Counsel for Plaintiffs-Appellees The Dispatch Printing Company and Donald C. Fanta CERTIFICATE OF SERVICE The undersigned hereby certifies that on the 15th day of July, 2011, a true and correct copy of the Memorandum In Opposition To Jurisdiction Of Plaintiffs-Appellees The Dispatch Printing Company And Donald C. Fanta was served by first-class, U.S. mail, postage-prepaid, upon Richard T. Robol and Rachel Chodera Monaghan, Robol Law Office LLC, 433 West Sixth Avenue, Columbus, Ohio B-racfey T. Ferrell ( ) 9