COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NOS. 68510 & 69868 COUNCIL OF SMALLER : ENTERPRISES, : : Plaintiff-Appellee : : JOURNAL ENTRY vs. : and : OPINION GATES, McDONALD & COMPANY, : : Defendant-Appellant : DATE OF ANNOUNCEMENT OF DECISION : APRIL 11, 1996 CHARACTER OF PROCEEDING : Civil appeals from : Common Pleas Court : Case No. 274697 JUDGMENT : REVERSED AND REMANDED. DATE OF JOURNALIZATION : _______________________ APPEARANCES: For plaintiff-appellee: Irwin M. Feldman John E. Lynch, Jr. Harold E. Farling SQUIRE, SANDERS & DEMPSEY 4900 Society Center 127 Public Square Cleveland, Ohio 44114 For defendant-appellant: Anne Marie Sferra Harry Wright, IV BRICKER & ECKLER 100 South Third Street Columbus, Ohio 43215 -3- NAHRA, J.: Appellant, Gates, McDonald & Company, is appealing the trial court's January 5, 1995 order dismissing appellant's counterclaims and granting judgment on the pleadings in favor of appellee, Council of Smaller Enterprises ("COSE"), in Cuyahoga App. No. 68510. Appellant appeals the trial court's denial of its motion for reconsideration of the January 5th order in Cuyahoga App. No. 69868. Sua sponte, this court consolidated these two appeals. For the following reasons, we reverse and remand. The parties entered into a Service Agreement, under which appellant was to administer appellee's Worker's Compensation Group Experience Rating Program. The agreement renewed automatically each "rating year" (the twelve month period beginning July 1st and ending on June 30th), unless either party gave timely notice. Appellee, COSE, gave notice that it would not renew the service agreement for the 1994 rating year (July 1, 1993 to June 30, 1994). Appellee invited appellant to bid for the 1994 rating year. Appellant formed the 1994 employer group because this work had to be completed by December 30, 1993. In January, 1994, appellee informed appellant it had selected another company as administrator of the worker's compensation program. In January and February, 1994, appellant performed claims management services. In February, 1994, appellant wrote appellee, demanding payment for setting up the 1994 group, management service fees for January and February, 1994 and for delinquent service fees (accounts receivable) for the 1992 and 1993 rating years. On February 14, -4- 1994, appellee wrote appellant, stating that it did not owe appellant anything for the 1994 group or for January and February, 1994 management service fees. Appellee disputed the amount of 1992 and 1993 accounts receivable. Appellant responded in a letter dated February 18, 1994, asserting that appellant was owed these fees. On February 24, 1994, appellee responded, stating: In order to resolve our differences, including . . . the claim of Gates McDonald for additional fees, I believe it is necessary for representatives of Gates McDonald and COSE to sit down together and discuss these issues. In this way, we should be able to avoid the impasse that we are quickly approaching. Therefore, please call me at your earliest convenience so that we can schedule such a meeting. A meeting was held on April 6, 1994, but no resolution of these issues was achieved. On July 5, 1994, appellant sent a letter to appellee demanding arbitration of appellant's claims for fees and accounts receivable. The arbitration provision of the Service Agreement states: (a) All disputes and controversies of every kind and nature between Gates and COSE that may arise as to the existence, construction, validity, interpretation or meaning, performance, non-performance, enforcement, operation, breach, continuance, or termination of this Agreement shall be submitted to arbitration pursuant to the following: (i) Either party may demand such arbitration in writing within ninety (90) days after the controversy arises. . . . (ii) The parties stipulate that the provisions hereof shall be a complete defense to any suit, action, or proceeding instituted in any federal, state, or local court or before -5- any administrative tribunal with respect to any controversy or dispute arising during the period of this agreement and which is arbitrable as herein set forth. The arbitration provisions hereof shall, with respect to such controversy or dispute, survive the termination or expiration of this Agreement. Appellee filed a complaint for a declaratory judgment, requesting the court declare (1) that appellant waived its rights to arbitration because appellant demanded arbitration over 90 days after the controversy arose, (2) that appellant is precluded from adjudicating its claims by the terms of the contract, and (3) that appellee is not the proper party liable for service fees, as the contract provides that COSE members are responsible for such fees. Appellant filed three counterclaims. The first two counterclaims were for breach of contract for failing to pay the service fees and accounts receivables. The third counterclaim alleged appellee was unjustly enriched because of appellant's services in January and February, 1994 and setting up the 1994 group. I. Appellant's first assignment of error states: THE TRIAL COURT ERRED IN DECIDING MATTERS WHICH THE PARTIES CONTRACTUALLY AGREED TO SUBMIT TO BINDING ARBITRATION AND IN FAILING TO REFER THIS ACTION TO ARBITRATION. It is the policy of the law to favor and encourage arbitration. Gibbons-Grable Co. v. Gilbane Bldg. Co. (1986), 34 Ohio App.3d 170, 173. The court must enforce the arbitration clause, -6- unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Independence Bank v. Erin Mechanical (1988), 49 Ohio App.3d 17. The court decides whether the parties agreed to submit the subject matter of the dispute to arbitration. Internatl. Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of America, Local Union 20 v. Toledo (1988), 48 Ohio App.3d 11. However, procedural questions, such as whether a party made a timely demand for arbitration, should be left to the arbitrator. Board of Library Trustees, Shaker Heights Public Library v. Ozanne Construction Co., Inc. (1994), 100 Ohio App.3d 30, Internatl. Bhd. of Teamsters, supra, at 14, John Wiley & Sons v. Livingston (1964), 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898. Local 1562, American Federation of State, County and Municipal Employees v. City of Chillicothe (March 11, 1992), Ross App. No. 1765, 1767, unreported, Warden Electric Inc. v. Trumbell Memorial Hospital (May 7, 1991), Mahoning App. No. 90 C.A. 101, unreported, Reynoldsburg City School Dist. Board of Education v. Reynoldsburg School Support Assoc., OEA/NEA (June 4, 1991), Franklin App. No. 90 AP 1233, unreported. Whether or not a party . . . has complied with the contractual time limits, whether such requirements "have been followed or excused" by some conduct or peculiar circumstances arising from the parties' relationships, or custom and practice, are all questions bearing on the substantive [*11] performance of the contract, better left to the expertise of the arbitrator for whom the parties opted. Board of Library Trustees, supra. -7- In this case, the subject matter of the dispute was arbitrable, as the dispute concerned rights under the service agreement. See Cleveland Police Patrolmen's Assoc. v. City of Cleveland (1995), 95 Ohio App.3d 645. The parties do not dispute that the subject matter of the controversy was arbitrable. Rather, appellee asserted that appellant waived its right to arbitration by failing to demand arbitration within 90 days after the controversy arose, as required by the service agreement. Appellant's compliance with the contractual time limits was a matter to be determined by the arbitrator. See Board of Library Trustees, John Wiley & Sons, supra. It was improper for the trial court to find that appellant waived arbitration. Appellee asserts that the court may determine that a procedural prerequisite to arbitration was not met and arbitration was waived, if it is clear the prerequisite was not met. Moog Louisville Warehouse (C.A. 6, 1988), 852 F.2d 871, River Brand Rice Mills v. Latrobe Brewing Co. (N.Y. 1953), 110 N.E.2d 545, Rhodes v. Merrill Lynch, Pierce, Fenner & Smith (1980), 427 N.Y.S.2d 826, Vulcan-Cincinnati, Inc. v. United Steelworkers of America (1960), 113 Ohio App. 360, Ball v. Bill Swad Chevrolet (Jan. 7, 1992), Franklin App. No. 91AP- 744, unreported, Dechrane v. City of Westlake (June 1, 1995), Cuyahoga App. No. 67293, unreported. We find these authorities unpersuasive. The first three cases cited by appellee do not interpret Ohio law and are not binding upon this court. To the extent Vulcan-Cincinnati holds that the court is to decide whether procedural prerequisites were met, it has been -8- overruled by John Wiley & Sons and Board of Library Trustees, supra.. In Ball, supra, the arbitrator, not the court decided that the plaintiff failed to make a timely demand for arbitration. Dechrane, supra, is also distinguishable because the court was not deciding whether a dispute was arbitrable, but rather, whether the court had jurisdiction pursuant to R.C. 4117. Furthermore, it is not clear in this case that appellant did not make a timely demand for arbitration. Appellee contends it is clear the dispute arose in February, 1994, so the demand to arbitrate in July, 1994 was beyond the ninety day deadline. In fact, it is not clear the dispute arose in February, 1994. Appellee's letter dated February 24 was an invitation to explore whether a real controversy existed, ie. one that the parties could not resolve without outside help. This invitation was to talk, not to litigate. At least there was an issue of fact over whether a "controversy" existed in February, or did not arise until impasse occurred in April. Moreover, appellee's request for a meeting may have resulted in appellant being excused from the ninety day requirement. Board of Library Trustees, supra, specifically held that the arbitrator is to determine whether contractual time limits were followed or excused. Appellee contends that appellant made judicial admissions that the controversy arose in February. Appellee specifically points to paragraph 18 of the answer, which states: In February, 1994, COSE and GatesMcDonald exchanged a series of letters, copies of some of which are attached to the Plaintiff's Complaint. Those letters indicate -9- that a dispute existed between COSE and GatesMcDonald regarding the relationship between them. However, the answer goes on to allege that despite the letters, the parties met to attempt to resolve their differences and that appellant sought arbitration within the time required. We do not read the answer as admitting the controversy arose in February. Additionally, a judicial admission can only be a statement of fact, not a statement of legal conclusion. Midwestern Indemnity Company v. Manthey (1990), 68 Ohio App.3d 539. A statement that a controversy arose in February is a legal conclusion and can not be judicial admission. We conclude that it is not clear whether appellant met the contractual time limits to demand arbitration, or whether appellant was excused from complying by appellee's invitation to meet. This procedural issue must be decided by the arbitrator. It can not be said with positive assurance that the arbitration clause is not susceptible of a meaning which covers this dispute, so the dispute must be referred to arbitration. Additionally, it would be contrary to this court's policy in favor of arbitration to hold that appellant was precluded from arbitration for failing to invoke arbitration at the same time they were sitting down at appellee's request to determine if impasse had been reached. Therefore, the trial court should have declared that the parties must submit to arbitration. The trial court erred in entering judgment in favor of appellee. Accordingly, this assignment of error is sustained. -10- II. Appellant's second assignment of error states: THE TRIAL COURT ERRED IN DISMISSING GATES MCDONALD'S COUNTERCLAIM PURSUANT TO OHIO CIVIL RULE 12(B)(6). Appellant's counterclaims involve the same issues for which appellant sought arbitration. The court cannot decide the merits of the issues referred to arbitration. See Cleveland Police Patrolmen's Assoc., supra, at 651. The parties agreed in the service agreement that arbitration would be the sole means of resolving disputes under the contract, so a separate lawsuit is not proper. The trial court did not err in dismissing appellant's counterclaims. Accordingly, this assignment of error is overruled. III. Appellant's third assignment of error states: THE TRIAL COURT ERRED IN GRANTING COSE'S MOTION FOR JUDGMENT ON THE PLEADINGS. As discussed in appellant's first assignment of error, above, the trial court erred in granting appellee's motion for judgment on the pleadings. Accordingly, this assignment of error is sustained. The decision of the trial court is reversed and remanded for further proceedings in accordance with this opinion. -11- This cause is reversed and remanded for further proceedings consistent with this opinion. It is, therefore, considered that said appellant recover of said appellee its costs herein. It is ordered that a special mandate be sent to said 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. MATIA, DAVID T., P.J., CONCURS. PATTON, J., DISSENTS. (See attached dissenting opinion.) JOSEPH J. NAHRA JUDGE N.B. This entry is made pursuant to the third sentence of Rule 22(D), Ohio Rules of Appellate Procedure. This is an announcement of decision (see Rule 26). Ten (10) days from the date hereof this document will be stamped to indicate journalization, at which time it will become the judgment and order of the court and time period for review will begin to run. COURT OF APPEALS OF OHIO EIGHTH DISTRICT COUNTY OF CUYAHOGA NOS. 68510 & 69868 COUNCIL OF SMALLER : ENTERPRISES, : DISSENTING Plaintiff-appellee : : JOURNAL ENTRY -vs- : AND : OPINION GATES, McDONALD & COMPANY : : Defendant-appellant : : DATE APRIL 11, 1996 PATTON, J., DISSENTING: The record convincingly demonstrates the absence of any issue relating to the timeliness of Gates McDonald's demand for arbitration. Because the trial court could conclude with positive assurance there was no material question that Gates failed to demand arbitration in a timely fashion, I believe it properly refused to submit the matter to arbitration and likewise did not err by dismissing this action. The public policy favoring the agreed resolution of conflicts by arbitration does not automatically foreclose judicial inter- pretation of the express terms of an agreement to arbitrate. - 2 - Arbitration is fundamentally a creature of contract. United Steelworkers v. Warrior and Gulf Navigation Co. (1960), 363 U.S. 574, 582. As with any contract, the parties are free to place limitations on the scope of their agreement. Hence, "[a]rbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to arbitration." AT&T Technologies, Inc. v. Communications Workers (1986), 475 U.S. 643, 649-649. There must be sufficient evidence to establish a party's intent to contract, and as a matter of contract, no party can be forced to arbitrate unless that party has entered a contract to do so. "Thus, just as an employer has no obligation to arbitrate issues which it has not agreed to arbitrate, so a fortiori, it cannot be compelled to arbitrate if an arbitration clause does not bind at all." John Wiley & Sons, Inc. v. Livingston (1964), 376 U.S. 544, 547. A party who has not agreed to arbitrate will normally have a right to a court's decision about the merits of its dispute. First Options of Chicago, Inc. v. Kaplan (1995), 115 S.Ct. 1920, 1923. Therefore, before compelling an unwilling party to arbitrate, the court must engage in a limited review to determine whether a specific dispute falls within the substantive scope of the agreement to arbitrate. AT&T Technologies, 475 U.S. at 649. As a matter of contract, the parties can limit the basis for arbitration in any manner they see fit. In this case, the parties - 3 - expressly agreed to limit arbitration to those claims brought within ninety days from the time the dispute or controversy arose. This is a matter of contract and the courts should not blindly require a party to do that which it has expressly agreed not to do. AT&T, supra. In PaineWebber Inc. v. Hartmann (C.A.3, 1990), 921 F.3d 507, 511, the court succinctly stated: If a court determines that a valid arbitration agreement does not exist or that the matter at issue clearly falls outside of the substantive scope of the agreement, it is obliged to enjoin arbitration. If, on the other hand, the court determines that an agreement exists and that the dispute falls within the scope of the agreement, it must refer the matter to arbitration without considering the merits of the dispute. In making this determination, the court must operate under a "presumption of arbitrability in the sense that `[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'" (citations omitted). The majority relies on our recent decision in Bd. of Library Trustees v. Ozanne Constr. Co. (1993), 100 Ohio App.3d 26, as authority for the blanket proposition that all issues relating to the timeliness of an arbitration demand should be submitted to an arbitrator. Ozanne deferred an issue of the timeliness of a demand for arbitration because it "cannot be said `with positive assurance' that the disputes at issue (the failure or timeliness of Ozanne's demands) did not `arise out of' or `are not related to the Contract, or the breach thereof.'" Id. at 29. This quoted portion - 4 - of the court's opinion contains qualifying language that demonstrates we had no intention to state that every issue relating to the timeliness of an arbitration demand must be submitted to arbitration itself. Indeed, because the court's opinion does not set forth any facts relating to the timeliness of the arbitration demand, we must assume the court could not, with positive assurance, find the demand for arbitration timely. Moreover, if the majority accepts the procedural/substantive distinction made in Ozanne as controlling over the issue of timeliness, that distinction is assuredly wrong and should be disapproved. To be sure, the court in Wiley & Sons did state that procedural questions which grow out of the dispute and bear on its final disposition should be left to the arbitrator. Id. at 557. However, in AT&T, supra, the court stated, "*** the question of arbitrability -- whether a collective-bargaining agreement creates a duty for the parties to arbitrate the particular grievance -- is undeniably an issue for judicial determination." 475 U.S. at 649. Citing to Wiley & Sons, the court noted it had "no doubt" that this question was for the courts: "The duty to arbitrate being of contractual origin, a compulsory submission to arbitration cannot precede judicial determination that the collective bargaining agreement does in fact create such a duty." Id., quoting Wiley & Sons, 376 U.S. at 546-547. The duty to demand arbitration in a timely manner is a contractual limitation that must be made in the first instance by the court. - 5 - Consequently, to the extent Ozanne failed to consider the contractual implications of an agreement to arbitrate, it cannot control the disposition of this appeal. The arbitration clause of the contract between COSE and Gates states: 7.7 Arbitration (a) All disputes and controversies of every kind and nature between Gates and COSE that may arise as to the existence, construction, validity, interpretation or meaning, per- formance, non-performance, enforcement, opera- tion, breach, continuance or termination of this [Service] Agreement shall be submitted to arbitration pursuant to the following: (i) Either party may demand such arbitration in writing within ninety days after the controversy arises ***." (emphasis added). There is general agreement that the literal terms of the arbitration agreement require the aggrieved party to demand arbitration within ninety days after the controversy arises. The question is when did the controversy arise. COSE argues the dispute between the parties arose in February 1994, and certainly no later than February 24, 1994 when it proposed the parties meet to settle their differences. Gates claims the actual dispute between the parties did not arise until April 6, 1994, when the meeting designed to resolve their differences failed to produce a satisfactory resolution. The evidence from both parties irrefutably shows the controversy or dispute between the parties arose no later than February 24, 1994, when COSE proposed the parties "resolve our - 6 - differences" by sitting down and discussing these issues. Referencing the precise language of the arbitration agreement, this letter would indicate a dispute or controversy "of every kind and nature" between the parties. Gates' argument that the "differences" between the parties did not amount to a "dispute" or "controversy" ignores the common usage of those words. "Common words appearing in a written instrument will be given their ordinary meaning unless manifest absurdity results, or unless some other meaning is clearly evidenced from the face or overall contents of the instrument." Alexander v. Buckeye Pipeline Co. (1978), 53 Ohio St.2d 241, paragraph two of the syllabus; cf. Burris v. Grange Mut. Cos. (1989), 46 Ohio St.3d 84, 89 (construing an insurance policy). The words "controversy" and "dispute" are synonyms and are generally understood to mean the state of having opposing views on a subject. These words are sufficiently clear from common usage to apprise a party to the arbitration agreement that opposing views over the amount of money owed under the contract would qualify as a dispute that could be a subject of the arbitration clause. Gates is simply attempting to create an issue where none exists. Moreover, by its own admission, a "dispute" over the fee existed in February 1994. In its answer to COSE's complaint, Gates stated: "In February, 1994, COSE and Gates McDonald exchanged a series of letters, copies of some of which are attached to Plaintiff's Complaint. Those letters indicated that a dispute existed - 7 - between COSE and Gates McDonald regarding their relationship between them." Id. at paragraph 18 of Answer (emphasis added). "To operate as a judicial admission, an allegation in a pleading must be an allegation of a material and competent fact and not a mere statement of a legal conclusion." Faxon Hills Constr. Co. v. United Brotherhood of Carpenters and Joiners of America (1958), 168 Ohio St. 8, paragraph one of the syllabus; Shifflet v. Thomson Newspapers, Inc. (1982), 69 Ohio St.2d 179, 187. "It is a well settled rule, that parties are bound by their written admissions made in the progress of a cause as a substitute for proof of any material fact, and cannot repudiate them at pleasure." Peckham Iron Co. v. Harper (1884), 41 Ohio St. 100, 105-106. Gate's admission that a dispute existed in February 1994 is a binding statement of fact, not a legal conclusion. Simply because Gates framed its answer in terms used by the arbitration clause of the contract does not make it a legal conclusion, but it does evidence the situation as it existed in February 1994. As a statement of fact, it can be used by the trial court to make the legal conclusion that Gates failed to make a timely demand for arbitration. Finally, I take issue with the majority's characterization of COSE's February 24, 1994 letter as "an invitation to explore whether a real controversy existed." This simply reads an ambiguity into the letter where none exists. The contract is broadly written to include disputes and controversies "of every - 8 - kind." Although COSE suggested a meeting to avoid an oncoming impasse, we should not construe the use of the word "impasse" in a manner that dilutes its meaning as a legal term of art in the field of labor law. See, e.g., E. Cleveland v. E. Cleveland Firefighters Lical 500, I.A.F.F. (1994), 70 Ohio St.3d 125, fn. 1 ("Impasse is defined as the deadlock reached by the bargaining parties `after good-faith negotiations have exhaused the prospects of concluding agreement.'" [internal citations omitted]). In any event, if the parties reached an impasse as that term is commonly understood in labor law, it would presuppose an underlying conflict or dispute becoming so pronounced there could be no room for settlement. The language of this arbitration clause could not be clearer. The aggrieved party has ninety days from the time a dispute or controversy arises to file a demand for arbitration. This court simply indulges in semantics by finding ambiguity where none exists. By any measure, the February 24, 1994 letter and Gate's answers to COSE's complaint show a dispute or controversy over monies owed under the contract existed more than ninety days before Gates demanded arbitration. While the courts prefer to submit a matter to arbitration if there is any question as to the arbitrability of an issue, there is no corresponding obligation to do so if it can be said with positive assurance there is a defect with the timeliness of the demand. Principles of judicial economy underlying our policy favoring arbitration of disputes become mere platitudes if we - 9 - knowingly further meaningless litigation, regardless whether it occurs in the courts or elsewhere. Because the uncontradicted evidence shows the actual dispute between the parties arose more than ninety days before Gates made its demand for arbitration, the trial court did not err by refusing .