Stoner v. Salon Lofts, L.L.C.

[Cite as Stoner v. Salon Lofts, L.L.C., 2019-Ohio-5354.]

IN THE COURT OF APPEALS OF OHIO

TENTH APPELLATE DISTRICT

Sean A. Stoner, :

No. 19AP-262

Plaintiff-Appellee, : (C.P.C. No. 10CV-13904)

and

v. : No. 19AP-263

(C.P.C. No. 15CV-2946)

Salon Lofts, LLC, et al., :

(ACCELERATED CALENDAR)

Defendants- Appellants. :

D E C I S I O N

Rendered on December 26, 2019

On brief: Cooper & Elliott, LLC, Adam P. Richards, and

Barton R. Keyes, for appellee. Argued: Adam P. Richards.

On brief: Littler Mendelson, P.C., Thomas M. L. Metzger,

and Brooke E. Niedecken, for appellants. Argued:

Thomas M. L. Metzger.

APPEALS from the Franklin County Court of Common Pleas

LUPER SCHUSTER, J.

{¶ 1} Defendants-appellants, Salon Lofts, LLC and Daniel Sadd, appeal from a

judgment of the Franklin County Court of Common Pleas denying their motion to vacate,

modify, or correct the arbitration award entered in favor of plaintiff-appellee, Sean A.

Stoner. For the following reasons, we affirm.

I. Facts and Procedural History

{¶ 2} On April 7, 2015, Stoner filed a petition to compel arbitration regarding a

dispute on Stoner's claimed ownership interest in Salon Lofts. Prior to Stoner's petition to

compel arbitration, the parties had been involved in litigation dating back to 2010 when

Stoner and Buckheel Investments, LLC filed a complaint against appellants and Salon Lofts

Franchising, LLC seeking a declaratory judgment that Stoner owned a profit interest in

Nos. 19AP-262 and 19AP-263 2

Salon Lofts based on Salon Lofts' Operating Agreement. Appellants and Salon Lofts

Franchising filed several counterclaims in response to the initial 2010 complaint. The 2015

petition to compel arbitration related solely to Stoner's claim that he held a five-percent

interest in Salon Lofts under the terms of the Operating Agreement; the remainder of

appellants' counterclaims remain pending in the trial court.

{¶ 3} The matter proceeded to arbitration on December 18, 2017. Following the

arbitration hearing, the arbitrators issued an April 24, 2018 decision and award

determining Stoner, a former employee of Salon Lofts, held a five-percent interest in Salon

Lofts and that Stoner was entitled to payment for his five-percent interest upon the sale of

Salon Lofts pursuant to an Asset Purchase Agreement dated February 15, 2012. Based on

that conclusion, the arbitrators awarded Stoner $709,557.00 in damages, plus statutory

interest dating from February 15, 2012 until payment of the award. Subsequently, on

August 8, 2018, the arbitrators issued a supplemental decision on Stoner's petition for

attorneys' fees and arbitration-related costs, awarding Stoner $159,554.58 in arbitration

related fees and costs.

{¶ 4} Appellants then moved to vacate, modify, or correct both the award and

supplemental award, arguing the arbitrators exceeded their authority in calculating the

dollar amount of Stoner's award. Stoner moved the trial court to confirm both the award

and supplemental award.

{¶ 5} In a March 7, 2019 decision and entry, the trial court granted Stoner's first

amended application to confirm the arbitration award and denied appellants' motion to

vacate, modify, or correct the arbitration award and motion to vacate or modify the

arbitrators' supplemental decision on attorneys' fees and arbitration costs. In its decision,

the trial court concluded the arbitrators did not exceed their authority in determining

whether Stoner had an interest in Salon Lofts and the dollar amount Stoner should be paid

for that interest. Subsequently, on March 25, 2019, the trial court issued a "Final

Judgment" in favor of Stoner, ordering appellants to pay Stoner a total award of

$869,111.58 plus interest and attorneys' fees. Appellants timely appeal.

II. Assignments of Error

{¶ 6} Appellants assign the following errors for our review:

1. The trial court erred in denying appellants' motion to vacate,

modify, or correct arbitration award.

Nos. 19AP-262 and 19AP-263 3

2. The trial court erred in denying appellants' motion to vacate

or modify the arbitrators' supplemental decision on claimant's

petition for attorneys' fees and arbitration related costs.

3. The trial court erred in granting plaintiff's first amended

application to confirm award.

4. To the extent the trial court's March 25, 2019 final order is

considered a final judgment on all claims in this case, the trial

court erred.

For ease of discussion, we address appellants' assignments of error out of order.

III. First and Third Assignments of Error – Arbitration Award

{¶ 7} In their first assignment of error, appellants argue the trial court erred in

denying their motion to vacate, modify, or correct the arbitration award. In their third

assignment of error, appellants argue the trial court erred in granting Stoner's first

amended application to confirm the award. Taken together, these two assignments of error

assert the trial court erred in confirming the arbitration award.

{¶ 8} Generally, an appellate court reviews a trial court's decision denying a motion

to vacate an arbitration award under an abuse of discretion standard. See Licking Hts.

Local School Dist. Bd. of Edn. v. Reynoldsburg City School Dist. Bd. of Edn., 10th Dist. No.

12AP-579, 2013-Ohio-3211, ¶ 8; Buchholz v. West Chester Dental Group, 12th Dist. No.

CA2007-11-292, 2008-Ohio-5299, ¶ 22 ("[a]n appellate court will review the common pleas

court's decision to confirm, modify, vacate or enforce the arbitration award based on abuse

of discretion"). An abuse of discretion connotes a decision that is unreasonable, arbitrary,

or unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219 (1983). However, when

the appeal presents a question of law, the de novo standard of review is proper. Licking

Hts. Local School Dist. at ¶ 9, citing Hudson v. John Hancock Fin. Servs., Inc., 10th Dist.

No. 06AP-1284, 2007-Ohio-6997, ¶ 8. See also Portage Cty. Bd. of Dev. Disabilities v.

Portage Cty. Educators' Assn. for Dev. Disabilities, 153 Ohio St.3d 219, 2018-Ohio-1590,

¶ 26 ("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").

{¶ 9} "Because Ohio law favors and encourages arbitration, courts only have

limited authority to vacate an arbitrator's award." Fraternal Order of Police Capital City

Nos. 19AP-262 and 19AP-263 4

Lodge No. 9 v. Reynoldsburg, 10th Dist. No. 12AP-451, 2013-Ohio-1057, ¶ 22, citing Assn.

of Cleveland Fire Fighters, Local 93 of the Internatl. Assn. of Fire Fighters v. Cleveland,

99 Ohio St.3d 476, 2003-Ohio-4278, ¶ 13. Pursuant to R.C. 2711, a court may vacate an

arbitration award only on the grounds of fraud, corruption, misconduct, an imperfect

award, or that the arbitrator exceeded his or her authority. Id. Here, appellants requested

the trial court vacate the award for Stoner on the grounds that the arbitrators exceeded their

authority. R.C. 2711.10(D).

{¶ 10} A reviewing court cannot easily overturn an arbitrator's award. Fraternal

Order of Police Capital City Lodge No. 9 at ¶ 23, citing Queen City Lodge No. 69, Fraternal

Order of Police, Hamilton Cty., Ohio, Inc. v. Cincinnati, 63 Ohio St.3d 403, 407 (1992).

" 'It is only when the arbitrator has overstepped the bounds of his or her authority that a

reviewing court will vacate or modify an award.' " Id., quoting Queen City Lodge No. 69 at

407. The language of the parties' contract determines the parameters of an arbitrator's

authority. Id., citing State Farm Mut. Ins. Co. v. Blevins, 49 Ohio St.3d 165 (1990),

paragraph one of the syllabus.

{¶ 11} Appellants assert the Operating Agreement specifically excepted from

arbitration the calculation of the award to Stoner. Section 35 of Salon Lofts' Operating

Agreement contains an arbitration clause. In pertinent part, it states:

Any and all disagreements or controversies arising with respect

to the Company and/or this Agreement, or with respect to its

application to circumstances not clearly set forth in this

Agreement, which are not to be determined under this

Agreement by some or all of the Members or by the Board of

Managers, shall be settled by binding arbitration * * *.

(No. 19AP-262, Operating Agreement, Section 35, attached to Sept. 22, 2010 Compl.) The

Operating Agreement further sets forth certain decisions that are explicitly reserved for the

Board of Managers or Members. Section 31 deals with the dissolution of Salon Lofts and

states the company "shall be dissolved and its affairs wound up upon the occurrence of * * *

[t]he sale of other disposition of substantially all the assets of the Company in accordance

with the provisions of this Agreement." (Operating Agreement, Section 31(a)(iv).) Further,

Section 31 specifically provides that the Board of Managers or one or more Members shall

handle the dissolution process, stating:

Nos. 19AP-262 and 19AP-263 5

Upon dissolution of the Company, the Board of Managers shall

act as liquidator or may appoint one or more of the Members

to act as liquidator. The liquidator shall proceed diligently to

wind up the affairs of the Company and make final

distributions as provided herein and in the Act. The costs of

liquidation shall be borne as a Company expense. Until final

distribution, the liquidator shall continue to operate the

Company properties with all of the power and authority of the

Board of Managers. A reasonable time shall be allowed for the

orderly liquidation of the assets of the Company and the

discharge of liabilities to creditors so as to enable the liquidator

to minimize any losses resulting from liquidation. The

liquidator, as promptly as possible after dissolution and again

after final liquidation, shall cause a proper accounting to be

made by a public accounting firm of the Company's assets,

liabilities and operations through the last day of the calendar

month in which the dissolution occurs or the final liquidation

is completed, as applicable, and shall apply the proceeds of

liquidation as provided in Section 19 and in accordance with

the time requirements of [section] 1.704-1(b)(2)(ii)(b)(2) of the

Regulations. If, in the reasonable judgment of the liquidator, it

will not be possible or prudent to complete the liquidation of

the Company's assets and the distributions to the Members

within that prescribed time period, the liquidator shall, on or

before the last day of such period, distribute all remaining

assets and liabilities of the Company to a trust, with the

liquidator or such other person as the liquidator may appoint

serving as the trustee thereof, for the purpose of complying

with such timing requirements.

(Operating Agreement, Section 31(b).)

{¶ 12} Thus, pursuant to the Operating Agreement, a matter is appropriate for

arbitration unless it is specifically reserved for the Board of Managers or Members.

Further, the Operating Agreement explicitly reserves the liquidation process upon

dissolution to the Board of Managers. Importantly, appellants do not challenge the

arbitrator's determination that Stoner had a five-percent interest in Salon Lofts. Rather,

appellants assert the Operating Agreement specifically excepted from arbitration the

calculation of the dollar amount award that corresponds to Stoner's five-percent interest.

{¶ 13} The issue becomes, then, whether calculating the dollar amount of Stoner's

ownership interest was part of the dissolution process in Section 31(b) of the Operating

Agreement. Appellants urge us to construe Section 31(b) as explicitly reserving to the Board

Nos. 19AP-262 and 19AP-263 6

of Managers or its Members the duty of determining the value of any shares at liquidation.

They argue that when the arbitrators determined the value of Stoner's five-percent interest

in Salon Lofts, they essentially determined the value of the proceeds of the liquidation, thus

exceeding their authority.

{¶ 14} Section 31(b) of the Operating Agreement references Section 19, which covers

distribution upon winding-up. Section 19 provides:

19. Distributions Upon Winding-Up. Upon dissolution of

the Company and the winding-up of the Company's affairs in

accordance with Section 31(b), the assets of the Company (after

giving effect to the provisions of Section 15) shall, subject to the

requirements of applicable Ohio law, be applied and

distributed in the following order of priority:

(a) Creditors. To the payment of debts and liabilities

of the Company to creditors of the Company (including those

to Members other than liabilities to Members for

distributions), including, without limitation, expenses of

winding-up and the establishment of any reserves against

liabilities and obligations of the Company which the Board of

Managers deems appropriate.

(b) Members. To the Members in accordance with,

and in proportion to, their respective positive Capital Account

balances.

(Emphasis sic.) (Operating Agreement, Section 19.) Appellants rely on the interplay of

Sections 19 and 31(b) for the proposition that any valuation of Stoner's five-percent interest

must first account for Salon Lofts' liabilities and debts. Because the arbitrators calculated

Stoner's five-percent interest based on the 2012 sale of Salon Lofts instead of allowing the

Board of Managers to engage in the valuation process set forth in Sections 19 and 31,

appellants argue the arbitration award exceeds the arbitrators' authority.

{¶ 15} However, appellants' argument that the interplay of Sections 19 and 31(b) of

the Operating Agreement controls the outcome of this case ignores other vital provisions of

the Operating Agreement and the Asset Purchase Agreement. In particular, Section 14 of

the Operating Agreement specifically details ownership interests and provides that Stoner's

ownership units "shall be issued on such terms and conditions and for such price (if any)

as shall be determined by the Board of Managers." (Operating Agreement, Section

14(b)(i).) The arbitrators found, and the parties do not dispute, that Salon Lofts agreed to

Nos. 19AP-262 and 19AP-263 7

give Stoner 50 ownership units, equivalent to a five-percent interest, as incentive for Stoner

to accept employment with Salon Lofts. The nature of those units reflected a profit interest

in Salon Lofts which, upon the sale of the company under the Asset Purchase Agreement,

converted from a profits interest into an equity interest.

{¶ 16} Stoner's employment with Salon Lofts terminated in 2010. Section 30(B)(iii)

of the Operating Agreement provides appellants with the option of purchasing the

ownership units of a "Terminated Member" within 60 days of the terminated member's

request on a decision related to the purchase option. Appellants did not exercise the option

to purchase Stoner's ownership units within that timeframe, and thus, appellants could no

longer compel Stoner to sell his units back to Salon Lofts. We agree with the arbitrators

that the Operating Agreement is ambiguous as to whether a Terminated Member under

Section 30(B)(iii) for whom Salon Lofts does not exercise the option to repurchase the

ownership units remains a Member within the meaning of Sections 19 and 31 for purposes

of winding-up and dissolution. This ambiguity permits the consideration of extrinsic

evidence to discern the parties' intent with respect to the ambiguity. Shifrin v. Forest City

Ents., Inc., 64 Ohio St.3d 635 (1992), syllabus ("[o]nly when the language of a contract is

unclear or ambiguous, or when the circumstances surrounding the agreement invest the

language of the contract with a special meaning will extrinsic evidence be considered in an

effort to give effect to the parties' intentions").

{¶ 17} Critically, the arbitrators made the factual finding that appellants and Stoner

agreed, upon his acceptance of the five-percent ownership interest, that appellants would

purchase Stoner's ownership interest "in connection with any type of sale by Salon Lofts."

(No. 19AP-263, Arbitrators' Award, ¶ 27(e), attached to Aug. 13, 2018 Pl.'s Mot. as Ex. C.)

The 2012 Asset Purchase Agreement, in turn, provides:

7.8 Redemption of Seller Interests. Sellers shall have

taken all action necessary to cause all equity interests in Sellers

owned by any Person other than Member or another

Seller to be redeemed prior to or immediately following the

Closing * * *.

(Emphasis sic.) (No. 19AP-262, Asset Purchase Agreement, Section 7.8.)

{¶ 18} Based on Section 7.8 of the Asset Purchase Agreement, the actual sale of

Salon Lofts in 2012 required the redemption of Stoner's ownership unit as part of the sale.

Nos. 19AP-262 and 19AP-263 8

Accordingly, we agree with the arbitrators' construction of both the Asset Purchase

Agreement and the Operating Agreement that redemption of Stoner's ownership interest is

a part of the sale of Salon Lofts and not a part of the subsequent winding-up provisions

outlined in Sections 19 and 31. Because the Asset Purchase Agreement required the

redemption of Stoner's ownership interest prior to the winding-up process, we further

agree with the trial court that the arbitrators did not exceed their authority in assigning a

dollar value to Stoner's five-percent interest at the time of the 2012 sale.

{¶ 19} "So long as there is a good-faith argument that an arbitrator's award is

authorized by the contract that provides the arbitrator's authority, the award is within the

arbitrator's power." Cedar Fair, L.P. v. Falfas, 140 Ohio St.3d 447, 2014-Ohio-3943, ¶ 7,

citing Ohio Office of Collective Bargaining v. Ohio Civ. Serv. Emps. Assn., Local 11,

AFSCME, AFL-CIO, 59 Ohio St.3d 177 (1991), syllabus. Here, the arbitrators used the

$14,191,147.19 sale price of Salon Lofts under the 2012 Asset Purchase Agreement to

calculate the value of Stoner's five-percent interest at the time of sale as $709,557.00.

Moreover, the arbitrators noted that appellants did not provide any evidence of any debts

or liabilities that should offset the value of Stoner's five-percent interest even if they were

to subject Stoner's ownership interest to the winding up provisions of Sections 19 and 31 of

the Operating Agreement.

{¶ 20} Thus, we find the arbitrators' award was authorized by the Operating

Agreement and within the arbitrators' power. Because the arbitrators did not exceed their

authority, the trial court did not err in granting Stoner's first amended application to

confirm the award and in denying appellants' motion to vacate, modify, or correct the

arbitration award. Therefore, we overrule appellants' first and third assignments of error.

IV. Second Assignment of Error – Attorneys' Fees and Arbitration Costs

{¶ 21} Appellants' second assignment of error asserts the trial court erred in

denying appellants' motion to vacate or modify the arbitrators' supplemental decision on

attorneys' fees and arbitration-related costs. Although appellants assign this as error,

appellants did not separately argue this assignment of error in the body of their appellate

brief. As a result, appellants' brief violates App.R. 16(A)(7). Taneff v. Lipka, 10th Dist. No.

18AP-291, 2019-Ohio-887, ¶ 29. Although an appellate court has discretion whether to

consider an assignment of error presented for review if the party fails to argue the

assignment of error separately in the brief, here appellants conceded during oral argument

Nos. 19AP-262 and 19AP-263 9

that they are not appealing the issue of attorneys' fees and arbitration-related costs. Taneff

at ¶ 30, citing App.R. 12(A)(2). Accordingly, we overrule appellants' second assignment of

error.

V. Fourth Assignment of Error – Finality of Judgment as to All Claims

{¶ 22} In their fourth and final assignment of error, appellants argue the trial court

erred to the extent its March 25, 2019 judgment entry could be considered a final judgment

on all claims. The parties agree that the March 25, 2019 judgment entry pertains only to

the finality of the arbitration award to Stoner in the aggregate amount of $869,111.58 plus

interest and attorneys' fees. Because the March 25, 2019 judgment entry does not purport

to dispose of the remaining claims docketed under Franklin C.P. No. 10CV-13904, we

overrule appellants' fourth and final assignment of error, and we clarify that additional

claims between the parties remain pending in Franklin C.P. No. 10CV-13904.1

VI. Disposition

{¶ 23} Based on the foregoing reasons, the trial court did not err in determining the

arbitrators did not exceed their authority in calculating the dollar amount of Stoner's award

and did not err in confirming the arbitration award to Stoner in the amount of $869,111.58

plus interest and attorneys' fees. Having overruled appellants' four assignments of error,

we affirm the judgment of the Franklin County Court of Common Pleas.

Judgment affirmed.

KLATT, P.J., and SADLER, J., concur.

1 The litigation between the two parties commenced in 2010 under Franklin C.P. No. 10CV-13904. When

the matter was ordered to arbitration, the trial court separately docketed the arbitration matter under

Franklin C.P. No. 15CV-2946.