IN THE SUPREME COURT OF. OHIO

;

21 st CENTURY CONCRETE CONSTRUCTION, INC.

Plaintiff-Appellee

V.

REGINELLA CONSTRUCTION CO., LTD., et al.,

Defendant-Appellants

APPEAL FROM THE CUYAHOGA COUNTYCOURT OF APPEALS

EIGHTH APPELLATE DISTIZICTCASE NO. CA 13 99366

MEMORANDUM IN S[IPPORT OF JURISDICTION OFAPPELLANT REGINELLA CONSTRUCTION CO., LTD.

STEVEN R. HOBSON II (0069010)shobson^a,neoEaw.bizLEIBY HANNA RASNICKTowne Evanchan Palmisano & Hobson, LLC388 S. Main St., Suite 402Akron, Ohio 44311.(330) 253-2227(330) 253-1261 (fax)

AUDREY E. VARWIG (0073265)avarwvig(i^;dgnclaw.coinDICKIE, McCAMEY & CHILCOTE,P.C.2109 Stella CourtColumbus, Ohio 43215(614) 258-6000(614) 258-6006 (fax)

Attorneys for I)efendant Apy3elluntReginella Construction Company, Ltd.

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Attnrneys for IlefenrlantAppelleeTravelers Casualty & Surety Companyof America

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TABLE OF CONTENTS

Page

EXPLANATIN OF WHY THIS CASE IS A CASE OF PUBLIC' ORGREAT GENERAL INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

STATEMENT OF TIIE CASE AND THE FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARGUMENT IN SUPPORT OF PROPOSITION OF LAW . . . . . . . . . . . . . . . . . . . . . . 6

Proposition of Law: A general contractor's surety, who is not a party to awritten arbitration agreement between the general contractor and a sub-contractor, does not have a right to intervene in a pending arbitrationproceeding between the general contractor and the sub-contractor. . . . . . . . . . . . 6

A. The surety was not a signatory to the arbitration agreement. .. ......... 6

B. The surety does not have an automatic right to participate inarbitration involving a general contractor . . . . . . . . . . . . . . . . . . . . . . . . . . 8

A. W11ere the surety and the general contractor are in separateadversary proceedings against one another there is no privitybetween them for the purpose of the arbitration clause . . . . . . . . . . . . : . . .10

CONCLUSION ........ ............. ...........................14

CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

APPENDIX

Opinion and Judgment Entry of the Cuyahoga County Court ofAppeals (July 11, 2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A

1. EXPLANATION OF WHY THIS CASE IS A CASE OF I'UBLIC ORGR.EA'I` GENEIiAL INTEREST.

This case involves a matter of public or great general interest because it deals with

a simple proposition of law that is capable of being repeated many times over in Ohio unless

proper guidance is given to the lower courts on this subject. Stated simply, the case deals with the

question of whether a party, who is not a signatory to an arbitration clause, can force itself into a

pending arbitration proceeding between other parties who are signatories to the arbitration

agreement.

This case involves the application of this question in the context of a general

contractor and its surety. Because all public works projects, and many private projects, are bonded

in this State, this case involves a significant question that has the potential to affect the public or

general interest throughout the State of Ohio.

Here,the case arises out of claims by a sub-contractor, Plaintiff 21" Century

Concrete Construction, Inc. ("21Sr Century") against the project's general contractor, Defendant

Reginella Construction Co., Ltd. ("Reginella"). Both were involved in a public works project on

the Ohio Turnpike in Mahoning County, Ohio. Because the project involved public works,

Reginella had obtained the necessary bonds for the project from Defendant Travelers Casualty &

Surety Company of America ("Travelers"). As such, 21St Century's complaint also included a

claim against Travelers for the bond.

The written agreement at issue between 21st Century and Reginella contained an

arbitration clause. Therefore, before the underlying suit was ever served on it, K.eginella had

already initiated arbitration against 21 st Century by filing a claim with the American Arbitration

1

Association ("AAA") as required by the agreement. In the lawsuit, Reginella exercised its right to

arbitrate the claims against it by moving to stay the claims pending before the trial court and

requiring 21't Century to instead arbitrate its claims against it in the already pending AAA

proceeding. The trial court however not only stayed the case and ordered that the claims between

21 St Century and Reginella be subject to arbitration, but it went one step further in also ordering

that Travelers also be allowed to participate in the already pending arbitration, between the parties.

In essence, the trial court interposed a non-party to the arbitration clause into the

midst of an arbitration proceeding between the only two parties who were signatories to the

agreeznent containing the arbitration clause. In doing so, the trial court did almost exactly what

this Court warned against in Taylor v. Ernst & Young, L.L.P, 130 Ohio St.3d 411, 416-417

(2011), when it said that although arbitration clauses are intended to be as enforceable as other

contracts, they are not intend to be more enforceable than other contracts.

By ordering Travelers into the arbitration proceeding, the court gave Travelers

greater rights that it otherwise had as a non-party to the agreement, presumably because this

situation involved an arbitration clause. By upholding this decision, the Eighth District Court of

Appeals has done the same thing.

As a result, this case now stands for the bold proposition that solely because

Travelers was a surety for Reginella, it had the right to enforce an arbitration clause that was

found only in the contract between Reginella and its subcontractor, 21S` Century. Clearly this goes

beyond the bounds of the established law in Ohio which provides that parties must have agreed to

arbitrate their claims against one another before they can be required to do so. 'I'herefore, it is a

matter of public and great general interest to make sure that parties Nvho never agreed to arbitrate a

2

dispute carulot force their way into an arbitration proceeding to other parties who have.

II. STATEMENT OF THE CASE AND FACTS

This dispute arises out of a commercial construction subcontract agreem:ent between

Defendant Reginella and Plaintiff 21s` Century. 'rhe construction project at issue involves two

service plazas located along the Ohio turnpike in Mahoning County, Ohio. Reginella was a

general contractor on the project, and 21St Century was one of its subcontractors. A written

subcontract agreement between Regine(la and JJ Connor cot-itained the following arbitration

clause:

Any controversy or claim arising out of ot° relating to this contract, or the breach thereof,'including claims agcrinst thirdparties whom jReginella ConstritctionJ is obligated todefend, shall be settled by arbitration in accordance with the Construction IncluslryArbitration Rules of the American Arbitration Association, and judgment uponthe alrvardrendered by the arbitrcztor(s) may be entered in any court having jurisdiction.

Defendant Travelers is the surety who issued the contract bond for the service plaza

project.

Following a dispute involving the project, 21s` Centui-y filed suit against botla. Reginella

and Travelers on Apri14, 2012. Prior to being served with the suit, Reginella filed a demand for

arbitration with the American Arbitration Association against 21St Century on A,pri121, 2012. The

matter was assigned AAA Case No. 55-110-000096-12.

On April 24, 2012, Reginella was served witb a eopy of the suinmons and complaint in the

present suit. On. June 5, 2012 Reginella responded by requesting that a stay be issued and 21 S`

Century's claims against it be compelled to arbitration.

3

During the months after Reginella's recluest, but prior to the trial court ever issuing a

ruling, the situation between Reginella and its surety, Travelers, deteriorated beyond repair.

Separate lawsuits were filed between Reginella and Travelers in both state and federal court in

Pennsylvania. Both suits involved certain constn.iction projects that Reginella had bonded through

Travelers, including the Ohio Turnpike project in Mahoning County, Ohio. As a result, Travelers

and Reginella became adversaries, and their interests were no longer aligned.

The trial court issued its Entry on December 6, 2012, granting Reginella's motion to stay

and compelling arbitration. Flowever, instead of Iirniting the claims subject to arbitration to those

between Reginella and 21st Century, the court went on to state that 21st Century's claims against

Travelers were also subject to arbitration in AAA Case No. 55-110-000096-12.

On December 28, 2012, both PlaintifC21 St Century and Defendant Traveler's submitted a

Joint iVlotion for Partial Reconsideration asking the trial court to reverse its December 6, 2012

Entry to the extent that it required the claim involving Defendant Travelers to be made part of

AAA Case No. 55-110-000096-12. Clearly, neither of the parties who had entered into the

agreement containing the arbitration clause and who had already been engaged in an arbitration

proceeding since Apri12012, wanted Travlers - a non-party to the agreement - to be involved in

the arbitration proceedings at that point.

The trail court did not rule on the motion for reconsideration before the appeal period was

set to expire, therefore, Reginella appealed to the Eighth District Court of Appeals on January 7,

2013. Plaintiff 21 sr Centiiry did not appeal the decision, citing lack of resources, but attempted to

file briefs with the court to clarify the record about its position in response to 't'raveler's appeal

brief, which seemed to suggest that only Reginella opposed Traveler's entry into the arbitration

4

proceeding. l

On July 11, 2013, the Eighth District Court of Appeal issued a Jou.rnai Entry and Opinion

atfirniing the decision of the trial court.

1. On March 1 4, 2013 Plaintiff 2151 Century filed a request for leave to file a brief in reply to Traveler's appealbrief. 21s` Century also filed its Reply brief at that time. The purpose of the Reply was to dispute Travelet-'s clain-i tothe Eighth District Court of Appeals that21s` Century did not oppose Traveler's presence in AAA Case No. 55-110-000096-12. 21 S` Century argued that it adakrtantly opposed Traveler's presence in the arbitration proceeding, but itdid Y2ot appeal the trail court's decision simply because it did not want to spend the resources to do so.

On March 20, 2013, the Eighth District Court of Appeals issued a Judgment Entry denying 21"Century'srequest for leave to file the brief, However, two days later, on March 22, 2013, the Coui-C then issued a sua sponteJudgment Entry saying 21" Century's brief was being accepted. Traveler's subsequently moved to have this decisionreconsidered, and then on April 19, 2013, the Court granted the motion for reconsideration, again finding that 21Centulv's brief would not be considered.

Even so, the Joint Motion for Consideration filed with the trial court clearly denionstrated that 2Is` Centurywas opposed to having to arbitrate its clain:t against'Travelers in AAA Case No. 55-110-000096-12.

5

ARGUMENTS IN SUPPORT OF PROPOSI TION OF LAW

Proposition of Law: A general contractor's surety, who is not a party to a written arbitrationagreement between the general contractor and a sub-contractor, does not have a right to intervenein a pending arbitration proceeding bet^,veen the general contractor and the sub-contractor

A. Travelers is not a Party to the Agreement containing the Arbitration Clause

The arbitration clause at issue in this case appears solely in the written subcontract

agreement between Reginella and 21 st Century. It is undisputed that Travelers is not a signatory to

that agreement.

"'Arbitration is a matter of contract and a party cannot be required to submit to arbitration

any dispute which [it] has not agreed so to subniit." * * * This axiom recognizes the fact that

arbitrators derive their authority to resolve disputes only because the parties have agreed to submit

such grievances to arbitration." Taylor v. Erzrst & Young, L.L.P., 130 Ohio St.3d 411,416 (2011),

quoting Council of Sinaller Ents. v. Gates, McDonald & Co, 80 Ohio St.3d 661, 665 (1998),

quotingAT&T Technologies, lnc. v. Communications Workers ofAm., (1986) 475 U.S. 643,648-

649, 106 S.Ct. 1415, 89 L.Ed2d 648 quoting United Steelworkers of Arn, v. Warrior & Gulf

Navigation Co. (1960), 363 U.S. 574, 5$2, 80 S.Ct. 1347, 4 L.Ed.2d 1409.

For this reason, it has been said that "[a] s a general proposition, a party to an action cannot

be required to arbitrate a dispute between itself and a second party unless those parties have

previously agreed in writing to arbitration." Panzica Const. Co. v. GRE Ins. Grozcp, Cuyahoga

App. No. 79931, 2002-Ohio-2023, ^114 (2002), citing Kline v. OakRia'ge Builders, Inc., 102 Ohio

App.3d 63 (1995). Therefore "Nvhen a complaint has been brought against both parties and

nonparties to an arbitration agreement, arbitration can only be ordered as to the parties who

6

agreed to the arbitration provision" although the trial court has discretion to determine whether

the remaining trial proceedings should be stayed. Id.

This Court recently reminded everyone of the purpose behind the Federal Arbitration Act,

which the Ohio Arbitration Act follows, with these words:

The purpose was "` to make arbitration agreements as enforceable as other contracts, butnot more so.' "[Eqiial Enzp. O1)portunity Coinna v. Waffle Ilouse (2002), 534 U.S. 279;]at 294, 1222 S.Ct. 754, 151 L.Ed.2d 755, quoting Prima Paint Corl); v. F'looel & ConklinIft, Co, (1967), 388 U.S. 395, 404, 87 S.Ct.1801;18 L.Ed.2d 1.270, fn. 12. There:fore; theFAA "` does not require parties to arbitrate when they have not agreed to do so. "' Id. at293, 122 S.Ct. 754, 151 L.Ed.2d 755 ***.

Taylor v, Ernst & Young, L.L.P, 130 Ohio St.3d 411, 416-417 (2011) (emphasis added).

As a result, in finding that an arbitration agreement could not be imposed on a non

signatory in the Taylor case, this Court when on to say "Ohio courts recognize a presumption in

favor of arbitration. when a claim falls within the scope of an arbitration provision. Williams v.

Aetna Fin. Co. (1998), 83 Ohio St.3d 646, 471, 700 N.E.2d 859 . But significantly, there is a

counterweighing presumption against arbitration when aparty seeks to invoke an arbitration

provision against a nonsi ng atory." 7aylor v. Ernst & Yozing, L.L.P., 130 Ohio St.3d 411, 417.

(Emphasis Added.)

Here, it is undisputed that Travelers was not a signatozy on the subcontract agreement

between 21 S` Century and Reginella. Moreover, both Reginella and 21 St Century, the only two

parties who are signatories to the agreement, do not want Travelers' participating in the

arbitration proceedings. Accordingly, this is not a situation vwThere one party to an arbitration

clause is tzying to force another non-signing party into an arbitration proceeding. Here, it is a non-

sigiingypai. that wants to force its way into arbitration between those parties who did sign an

7

arbitration agreement.

It would appear that the lower courts have done exactly what was forbidden by this Court

in 7'aylor v. Ernst & Young, LLP, and that is to niake the arbitration clause more enforceable that

other contracts. If there is a presumption against arbitration when a signing party seeks to invoke

arbitration provision against a nonsignatory, the presumption should be even stronger against a

nonsignatory who is tiying to force its way into a private arbitration proceeding involving parties

to the actual agreement.

As such, the Eighth District Court of Appeals clearly went against the zule of law in Ohio

by affirming the decision to allow Travelers to intervene in the pending arbitration in AAA Case

No. 55-110-389-12.

B. A surety does not have the automatic right to participate in arbitrationinvolving the general contractor.

Travelers does not automatically have a right to participate in an arbitration proceeding

just because it is the surety for Reginella on the Project.

In WindowMaster Corp. v. B.G. Danis Co., 511 F.Supp. 157,160 (S.D. Ohio 1981), the

court found that a surety is not a party to a contract to arbitrate just because the underlying

contract was signed by its principal. In reaching this decision, the court stated that even though it

might have appeared that the better course of action would have been for the surety to participate

in the arbitration, "[n]onetheless, the Court cannot say, as a matter of Ohio, that [the surety] is

bound to participate". Id at 160-161.

Similarly, in Teramar Corp. v. Rodier Corp., 40 Ohio App.39, paragraph 2 ofthe syllabus,

(8t' Dist. 1987), the Eighth District Court of Appeals specifically held that, `An arbitration clause

8

in a related document is, unless otherwise agreed to, not applicable to a guarantee agreement."

The Tercahzar court referenced the holding of WindowMaster in stating, "`I'herein the court held

that a surety is not bound by the provisions of a contract it has not signed; thus, an arbitration

clause in a construction contract did not bind the surety of one of the parties. We find this

reasoning sound." Id at 41.

If a surety cannot be forced to arbitrate based on a clause in a contract signed by its

principal, which contract the surety did not sign, then surely, the reverse is true. A surety who did

not sign the contract containing the arbitration agreement cannot require a subcontractor, who has

no contract with the surety, to arbitrate its claims against the surety.

The Eighth District Coui-t of Appeals basically found that Travelers had a right to

participate in the arbitration because of its status as the surety for Reginella on the project. The

court reasoned that because Travelers would be liable on a bond claim if Reginelia was found

liable through the arbitration proceeding, then Travelers had a right to participate in those

proceedings.

However, that reasoning ignores the fact that the right to arbitration is still a separate a.nd

distinct contract right. Travelers could have required that it be allowed to participate in any

arbitration proceeding as part of the tez-ms of its bond with Reginella. However, it did not do that.

Travelers never claimed that its right to participate in this proceeding rested on any such

language, because no such language or agreement exists. Instead, Traveler's argument was

consistently based on the claim that because it would be bound by the arbitration against

Reginella it had a right to participate in the proceeding on that basis alone.

As such, Travelers reasoning, and more importantly, the courts' acceptance of that

9

reasoning, creates an unsupportable proposition of law suggestin:g that a surety has a right to

participate in an arbitration proceeding involving a general contractor solely because it its positiari

as surety. Such a proposition clearly contradicts the law in Ohio which says an. arbitration

agreement is not more enforceable that any other contract, and you cannot force a party to

participate in arbitration when he has not agreed to do so.

C. Where the surety and the general contractor are in separate adversaryproceedings against one another there is no privity betweenE them.

During the midst of these proceedings, Reginella and Travelers found themselves at odds

with one another and each filed a lawsuit against the other. Even so, the court of appeals

maintained that Ti'aveleis is in privity with Reginella and had the right to participate in the

arbitration as a result. While it is admittedly true that when these proceedings began Reginella and

Travelers were not necessarily adversaries, this fact changed when the lawsuits in Pennsylvania

commenced.

In.Iohnson's Is1and, Itac. 7^ Bd of 1'wp. Trustees ofI)anbury Twp., 69 Ohio St.2d 241, 244

(1982), this Court held that "privity" requires a mutuality of interest between parties.

Despite both Reginella and Travelers agreeing that they no longer had a mutuality of

interest here, the court of appeals proceeded to find that they did. The court ignored the parties

own protests and said that Travelers and Reginella were in privity because they desired the sazne

result, i.e., to oppose the claims of Plaintiff 21st Century. However, the adversary nature of the

proceedings between Travelers and Reginell.a in the Pennsylvania courts shows that there is

clearly a lack of trust and cooperation between the parties. Reginella has legitimate concerns that

Travelers may have no real interest in defending against JJ Connor claim because it ^M(l seek to

10

pursue Reginella for indemnification of any monies it pays out on the clai.m. Conversely,

'Cravelers has refused to accept the defense of claims being tendered by Reginella.

Based on the foregoing, Reginella and Travelers do not have aligned interests. Both

Reginella and Travelers believes that the other has no real incentive to put up a valid defense to

2l" Century's claims because each seemingly believes that the other party will ultimately be

responsible for the judgment, Where a contractor and surety do not have interests that are aligned,

and instead, are openly adverse to one another as evidenced by the litigation between the parties

in the Pennsylvania courts, there is no mutuality of interest between those parties. Accordingly,

Travelers should not be allowed to intervene in, and participate in, the arbitration between

Reginella and 21 " Century based on a finding that Travelers is in privity with Reginella.

CONCLUSION

This case invalves a matter of public and great general interest. The question of

whether a non-signa.tozy surety has a right to intervene in an existing arbitration proceeding

between a contractor and one of its subcontractors could have great impact across the State of

Ohio. Accordingly, Defendant-Appellant Reginella Construction Co., Ltd. requests that this Court

exercise its discretionary jurisdiction to decide this matter.

Respectfully Submitted,

^Stev n R Hobson II (0069010)shobson &eolaw.bizLEIBY HANNA RASNICKTowne Evanchan Palmisano & I-Iobson LLC388 S. Main St., Suite 402Akron, Ohio 44311(330) 253-2227

11

(330) 253-1261 (f)Attorney foY Reginella Construction Co. Ltd.

CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing Memorandum in Support of Jurisdiction uTasforwarded to Scott Sylkatis, Esq., O'Rourke & Associates Co., L.P.A., Attorneys for Plaintiff, 2Summit I'arkDrive, Suite 650, Independence, OH 44131 ; Ronald M. McMillan, Esq. The CalfeeBuilding, 1405 East Sixth Street, Cleveland, OH 44114, and Peter J. Comodeca, Esq., 800Superior Ave., Suite 1800, Clevelatid, OH 44114, Attorneys for IDefendant, Ohio 'Curnpikecommission; and; Audrey E. VarxA^ig, Esq., 2109 Stella Court, Columbus, DI-I 43215, Attorney forDefendant, Travelers Casualty & Surety Co. of America by regular U.S. mail this 21" day ofAugust 2013.

^ 'r~ STEVEN R. HOBSON, II

12

Qnurt of ppeatq of ebtk ffi 2013rJ,aw -^ •. '.

COUNTYEIGHTH APPELLATE DISTRICT

°w"°`"^p^*°°._°^^^^^f^`UNTY OF CUYAHOGA

rJOtTRNAL ENTRY AND OPINIONNo. 9936^

21ST CENTURY CONCRETECONSTRUCTION, INC.

PLAINTIFF-APPELLEE

vs.

REGINELI.,.A. CONSTRUCTIONCOMPANY, LTD., ET A.L.

D EFENDANTS -APP ELEANTS

J1C7I^ ^^ENT,AFFIRMED

Civil Appeal from theCuyalaoga County Court of Common Pleas

Case No. CV-779703

BEFORE: Stewart, A.J., S. Gallagher, J., and. E.A. Gallagher, J.

RELEASED AND JOURNALIZED: J'uly 11, 2013

APPENDIX A

-i_

AT`I'OR.l°+7FY"S FOR DEFENDANT-APPELLANT REGINELLACONSTRUCTION COMPANY, LTD.

Steven R. Hobson,lZLeiby Hanna Rasnick Towne Evanchan Palmisano & Hobson, L.L.C.388 S. Main Street, Suite 402Akron, OH 44311

ATTORNEYS FOR DEFENDANT-APPELLEE TRAVELERS CASUALTY& SURETY COMPANY OF AMERICA

Audrey E. VarwigDickie, McCamey & Chilcote, P.C.2109 Stella CourtColumbus, OH 43215

W. Alan TorranceDickie, McCamey & Chilcote, P.C.2 PPG Place, Suite 400Pittsburgh, PA 15222

FILED AND JOURNALIZEDPER APP,R< 22(C)

,.JUL1- jl 2093

e YA G t1 CI.BRIC0F H R A ALSBy eputy

ATTORNEYS FOR PLAINTIFF-APPELLEE

R, Russell O'RourkeScott R. SylkatisO'Rourke & Associates Co., L.P.A.2 Summit Park Drive, Suite 650Independence, OH 44131

ATTOR.NEYS FOR OHIO TUR.IVPIRE COMMISSION

Peter J. ComodecaRonald M.1VIeMillanCalfee, Halter & Griswold, L.L.P.The Calfee Building1405 East 6th StreetCleveland, OH 44114

MELODY J. STEWART, A.J.:

{$1}Plaintiff-subcontractor 21st Century Concrete Construction, Inc.,

brought this breach of contract action against defendant-general contractor

Reginella Construction Co., Ltd., alleging that Reginella breached a subcontract

by making oral changes to a work order but refusing to pay for those changes.

21st Century also named surety'I'ravelers Casualty & Surety Co. ofAmerica as

a defendant, alleging that Travelers refused to pay 21st Century on a

performance and payment bond that it issued to Reginella. The court,

recognizing that arbitration proceedings had been initiated between 21st

Century and Regirxella, stayed the action. It also ordered that Travelers

participate in the arbitration because Travelers, as surety, was in privity with

Reginella and might be bound by arny decision issued by the arbitrator.

Reginella appeals, arguing that the court erred by ordering Travelers to

participate in the arbitration because Travelers is not a party to the arbitration

agreement, it is not in privity with Reginella, and that the addition of Travelers

to the pending arbitration would delay the proceedings between 21st Century

and Regi;nella.

I

1 ^2} We first consider Travelers' argument that Reginella lacks standing

to argue that the court improperly ordered Travelers to arbitrate 21 st Century's

claim on the bond. That claim, argues Travelers, is separate from 21st

Century's breach of contract claim against Reginella, so Reginella has no

standing to complain about an order that does not affect it. Reginella maintains

that including Travelers in the arbitration will affect it by forcing it to incur

additional time and expense during that proceeding.

A

JT3} Regardless of whether Reginella'has standing to argue that the court

erred by ordering Tra velers to participate in the arbitration, Reginella cannot

be heard to complain about that order because it invited the error by specifically

requesting that Travelers be included in any order compelling arbitration.

{TQ "`Invited error' arises when a party tries to take advantage of an

error that the party induced the trial court to make." State ex rel. The V Cos.

u.Marshall, 81 Ohio St.3d 467, 471, 692 N.E.2d 138 (1998). The invited error

doctrine is applied when counsel is "actively responsible" for the trial court's

error. State v. Campbell, 90 Ohio St.3d 320, 324, 738 N.E.2d 1178 (2040).

11(5} In its motion to stay the proceedings and compel arbitration,

Reginella noted that the terms of the contract between it and 21st Century

required arbitration of "jajny controversy or claim arising out of or relating to

this contract, or breach thereof, including claims against third parties whom

[Reginella Construction] is obligated to defend ***," Reginella told the court

that the "third party" claims provision "clearly applies" to Travelers and that

any order to compel arbitration should also apply to 21st Century's claims

against Travelers. See motion to stay and compel arbitration, at 2, fn. 1.

JTF) Travelers agreed that it should participate in the arbitration. It

cited a decision from this court, Midwest Curtainwalls, Inc. z.t. Pinnacle 701,

LLC, 8th Dist. No. 92269, 2009-f)hio-3740, for the proposition that a surety in

privity with a general contractor may be bound by a decision reached in an

arbitration between the general contractor and a subcontractor, even if the

surety did not participate in the arbitration.

{57) After the courtstayed the proceedings and ordered all three parties

to arbitration, 21st Century and Reginella filed a joint motion for partial

reco.nsideration ofthat part of the court order requiring Travelers to participate

in the arbitration. They argued that (1) Travelers is not a party to the

arbitration agreement so the American Arbitration Association would have no

jurisdiction to decide any claims involving Travelers; (2) Travelers waived its

claim that it should be a part of the arbitration by filing "an adversary lawsu?t

against Reginel.la in another court of law"; and (3) arbitration between

Reginella and 21st Century had been ongoing for "several months" and that

Travelers "can bring nothing^^ to the arbitration by way of witnesses or any

factual evidence" so its presence would create an unnecessary delay. Reginella

filed its notice of appeal before the court could rule on the motion for partia.l

reconsideration.

{¶8) Given. Reginella's initial position that Travelers should be made a

part of the arbitration, its claimed errors are barred by the invited error

doctrine. Reginella filed its demand for arbitration on.May 11, 2012, nearly one

month before it filed its motion to stay proceedings and compel arbitration. And

as noted, it specifically requested that any order staying the proceedings and

ordering arbitration "should apply to Plaintiffs claims against Defendant

Travelers Casualty & Surety Co. of America in the present case as well." With

the court having ordered arbitration in terms consistent with those requested

by Reginella, any error stemming from that order was invited by Reginella.

B

I ¶ 9} Reginella now maintains that its interests are no longer aligned with

Travelers because Travelers filed suit against it in Pennsylvania, making them

adversaries. For its part, Travelers argues that its participation in the

arbitration is required because it fears that Reginella would not adequately

represent Travelers' interests at the arbitration.

{¶ 10} According to ^`i,eginella, Travelers filed the Pennsylvania action on

July 16, 2012. The court did not rule on the motion to stay proceedings and

compel arbitration until Docomber 6, 2012. At no point between asking the

court to order Travelers to submit to arbitration and receiving the court order

to that effect did Reginella raise an objection based on the Pennsylvania action.

In fact, it was not until after the court ordered Travelers to participate in the

arbitration that Reginella mentioned the Pennsylvania action and the potential

that the parties would be adversaries in the arbitration. This was not a timely

objection.

11) It is also unclear why Reginella and Travelers believe they would

have different interests in the outcome of the arbitration. The interests and

liability of a surety and principal are derivative and usually coextensive, such

that a surety cannot be liable on a bond if the principal is also not liable.

Thomas Steel, Inc: v. Wilson Bennett, Inc., 127 Ch.io App.3d 96, 107, 711 N.E.2d

1029 (8th Dist.i.998). Despite the differences that form the substance of the

Pennsylvania action, Reginella presumably seeks an arbitration decision

finding that it is not in breach of its contract with 21st Century. That outcome

would also be favorable to Travelers because it would mean that Travelers has

no liability under the bond. If Reginella wins at arbitration, Travelers wins too,

12) The basis for the Pennsylva:n.i,a litigation is not a part of the record,

but Reginella argues that Travelers would have no real interest in defending

against 21st Century's claims because it will seek to pursue Reginella for

indemnification of any amount it pays on the claim. This is a fs:nciful argument

- it assumes that TiYavelers would be willing to endure the time and expense

of arbitration for the sole purpose of losing the arbitration so that it can recover

from Reginella. In fact, Travelers could be justified in wishing to ps.,rticipate in

iI the arbitration to ensure that Reginella properly defends 2 1st Century's claims.

{113} In any event, it is unclear how Travelers' presence at the

arbitration would cause undue delay. Even Reginella concedes that Travelers'

status as a surety means that it would have no independent evidence of the

substance of the claims set forth by 21st Century, so it is unlikely that Travelers

could influence the outcome of the arbitration. Its presence at the arbitration

was ordered for the sole purpose of allowing it to participate and protect any

rights it has in relation to the preclusive effects of an arbitration decision. We

consider that purpose next.

Iz

IT14} The court ordered Travelers to participate in the arbitration

because it believed that Travelers, being in privity with Reginella, could be

bound by an arbitration decision. Reginella argues that the court misread

applicable precedent and thus lacked authority to order Travelers, a nonparty

to the arbitration agreement, to participate in the arbitration.

M15) Arbitration is a matter of contract and a party cannot be required

to arbitrate a dispute that it has not agreed to arbitrate. As such, a guarantor

who is not a signatory to a contract containing an arbitration clause is generally

not bound by the arbitration clause. See Teramar Corp. v. Rodier Corp., 40

QhioApp-3d 39, 41, 531 N.E.2d 721 {8thDist,]:987). However, the strongpolicy

favoring arbitration has caused courts to enforce arbitration agreements against

guarantors or sureties where the arbitration agreement is incorporated by

reference into the guaranty or performance bond. See, e.g., .piqua v. Ohio

Farmers Ins, Co., 84 Ohio App.3d 619, 621-622, 617 N.E.2d 780 (2d Dist.19g2),

United States Fid. & Guar. Co. v. W. Point Constr. Co., 837 F.2d 1507 (]:l.th

Cir.3988) (per curiam); Exchange Mut. Ins. Co. v. Haskell Co., 742 F.2d 274 (6th

Cir.1984) (per curiam); Commercial Union Ins. Co. v. Gilbane Bldg. Co., 992

F.2d 386 (lst Cir.1993).

$^ 16} The record does not contain a copy of the bond issu:ed by Travelers,

so we are unable to determine if Travelers incorporated the terms of the

construction contract into the bond. Nevertheless, the court cited Midwest

Curtczinwalls for the proposition that Travelers was in privity with Reginella

and that any decision rendered in arbitration could be held binding against

Travelers.

I¶171 In Midwest Curtainwalls, we held that an arbitration award had

preclusive effect against an i.ndividual who did not participate in arbitration,

but who was in privity with a company that dx.d. In this case, the court found

that Travelers' status as a surety placed it in privity with Reginella such that

any arbitration award against Reginella would also be binding against

Travelers.

{¶ 1:8} The court may have overbroadly applied.lVlidwcst Curtainwalls, but

nevertheless reached the correct result. A surety not only can assert the

defenses of its principal, Holben v. Interstate Motor Freight Sys., 31 Ohio St.3d

152, 156, 509 N.E.2d 938 (1987), it also possesses certain personal defenses

under the bond that are not available to the principal. For example, regardless

of the outcome of the arbitration, Travelers could offer defenses unique to the

bond; for instance, statute of limitations. The surety's separate defenses might

cause a divergence of interests such that they would constitute an exception to

the rule set forth in Midwest Curtainwalls that binds a nonparticipating surety

in privity with a principal to an arbitration award against that principal.

ۦ19} But none of the separate defenses that Travelers might assert

against Reginella are present here. As we noted, for purposes of arbitration,

Travelers' and Reginella's interests are aligned. Travelers is in privity with

Reginella and the result of the arbitration may well have been binding against

i.t. Travelers understood this potentiality and for that reason desired to be

allowed to participate in the arbitration. The court, thus, did not force

Travelers to participate in the arbitration. Indeed, its order that Travelers

participate in the arbitration was in conformity with the expressed desire of

both Travelers and Reginella. For that reason, Reginella cannot complain that

Travelers was forced to arbitrate that which it had not agreed to arbitrate.

{$20} Judgment affirmed.

It is ordered that appellee recover of appellant its 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

Cuyahoga County Court of Common Pleas to carry this judgment into execution.

A

Rule 27 0fa: ?

J•^^^^^lli^tr'rz^^ 7 I'^

^iftecd copy of this entry shall constitute the mandate pursuant to

1^7R,ule,;, a.^ppellfite Procedure.

MELQD'^ J^STEV4rA , ADMZN7STRA

6hAN-C. GALLAGHER, J., andEILEEN A. GA;LLA GHER, J., CONCUR

JUDGE