COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 71024 BEDFORD CITY SCHOOL DISTRICT : : : PLAINTIFF-APPELLEE : JOURNAL ENTRY : v. : AND : : OPINION THE TRANE COMPANY, : A DIVISION OF AMERICAN : STANDARD, INC., ET AL. : : DEFENDANTS-APPELLANTS : DATE OF ANNOUNCEMENT OF DECISION: MARCH 20, 1997 CHARACTER OF PROCEEDING: Civil appeal from Common Pleas Court, Case No. CV-252730. JUDGMENT: AFFIRMED. DATE OF JOURNALIZATION: APPEARANCES: For Plaintiff-Appellee Bedford City School District, James E. Burns, Esq., Vincent E. Cononico, Esq., Burns & Associates, 350 Park Plaza, 1111 Chester Avenue, Cleveland, Ohio 44114-3516. For Defendant-Appellant The Trane Company and Employers Insurance of Wausau, Barry J. Miller, Esq., Jean Kerr Korman, Esq., Arter & Hadden, 1100 Huntington Building, 925 Euclid Avenue, Cleveland, Ohio 44115-1475. - 2 - SWEENEY, JAMES D., C.J.: Defendants-appellants The Trane Company, A Division of American Standard, Inc. ("Trane") and Employers Insurance of Wausau ("Wausau") appeal from the July 18, 1996, order of the trial court which found that the parties to this case had waived the - 3 - 1 contractual right to arbitration. For the reasons adduced below, we affirm. A review of the record on appeal indicates that, in 1987, plaintiff-appellee Bedford City School District ("the school district") had contracted with Trane for the design and manufacture 1 The arbitration provision at issue in this case provides the following: 19. ARBITRATION All disputes, claims or questions subject to arbitration under this contract shall be submitted to arbitration in accordance with these provisions, then obtaining, of the standard form of arbitration procedure of the American Institute of Architects and this agreement shall be specifically enforceable under the prevailing arbitration law, and subject upon the award rendered may be entered in the court of the forum, state or federal, having jurisdiction. It is mutually agreed that the decision of the arbitrator shall be in (sic.) a condition precedent to any legal action that either party may have against the other. The contractor shall not cause a delay of the work during the arbitration proceedings, except by agreement with the owner. Notice of demand of arbitration of a dispute shall be filed in writing with the other party to the contract. The demand for arbitration shall be made within a reasonable time after the dispute has arisen; in no case, however, shall the demand be made later than the time of final payment... (Underline added.) - 4 - 2 of seventeen roof-top HVAC units with monitoring system, to be installed at Heskett Middle School. Thereafter, the units and their monitoring system were installed by local contractors and, in the 1987 school year, continuing problems with the HVAC units developed. The parties entertained settlement negotiations, without success, to resolve the dispute. On May 27, 1993, plaintiff-school district filed its original complaint. With leave of court, Trane filed its answer to the original complaint on August 17, 1993. This answer by Trane did not state arbitration as a defense to the school district's claims, nor request arbitration under the terms of the contract. Thereafter, extensive discovery ensued. On June 15, 1994, the school district filed its first amended 3 complaint. Trane filed its answer to the amended complaint on 2 The term HVAC connotes Heating, Ventilation and Air Conditioning. 3 At this point, the parties to the lawsuit include the following: 1. Bedford City School District (Plaintiff- appellee); 2. Trane Co. (Defendant-appellant); 3. Phoenix Air Conditioning & Refrigeration, Inc. (Defendant, which was the contractor who installed the units); 4. Glaus, Pyle, Schomer, Burns & Dehaven, Inc., dba GPD Associates (Defendant, which provided engineering and architectural services for the project); 5. Gardiner Service Co., Inc. (Defendant, which was a sub-contractor hired by Phoenix Air Conditioning who helped install and test certain aspects of the - 5 - July 25, 1994. On August 4, 1994, Wausau, Trane's bonding company, filed its answer to the amended complaint. Neither Trane's nor Wausau's answers to the amended complaint asserted arbitration under the contract as a defense. Thereafter, extensive discovery and settlement negotiations continued. On February 1, 1996, Trane and Wausau filed a motion to stay proceedings pending arbitration pursuant to R.C. 2711.02 and 9 U.S.C. Section 3. This motion to stay was amended on February 2, 1996. Plaintiff opposed this motion to stay through the filing of a brief in opposition. Some of the other defendants joined in the motion to stay proceedings by filing their own motions to stay pending arbitration, or argued to dismiss the case based on a lack of jurisdiction by the trial court in the failure of plaintiff to first pursue arbitration as a condition precedent to filing suit. On July 18, 1996, the court issued its order denying the motions to stay/dismiss and scheduled a pre-trial conference for October 9, 1996, and a trial date of November 12, 1996. See Journal Vol. 1979, pages 555-566. Trane and Wausau filed the instant appeal from this order and present two assignments of error for review. system); 6. ThyCurb Corp. (Defendant, which provided certain parts used in the system); 7. Transamerica Ins. Co. (Defendant, which bonded the contract between plaintiff and Phoenix Air Conditioning); 8. Employers Ins. of Wausau (Defendant- appellant, which bonded the contract between plaintiff and Trane). - 6 - I THE TRIAL COURT ERRED WHEN IT INFERRED WAIVER OF DEFENDANTS-APPELLANTS THE TRANE COMPANY'S AND EMPLOYERS INSURANCE OF WAUSAU'S CONTRACTUAL RIGHT TO ARBITRATE AND DENIED DEFENDANTS- APPELLANTS' MOTION TO STAY PROCEEDINGS PENDING ARBITRATION PURSUANT TO R.C. 2711.02, WHEN THE TOTALITY OF THE CIRCUMSTANCES DO NOT ESTABLISH KNOWLEDGE OF AN EXISTING RIGHT TO ARBITRATE AND ACTS INCONSISTENT WITH THAT RIGHT. In the order appealed from, the trial court determined that the arbitration clause in the contract had been waived by inference in two ways. First, in defendants' failure to affirmatively state the defense of arbitration in an answer to a complaint. See Jones v. Honchell (1984), 14 Ohio App.3d 120; Mills v. Jaguar-Cleveland Motors, Inc. (1980), 69 Ohio App.2d 111; Ponyicki v. Monterey Homes, Inc. (May 19, 1994), Cuyahoga App. No. 65549, unreported, 1994 Ohio App. LEXIS 2158, at 4; Civ.R. 8(C). Second, at page 6 of the order appealed from, the defendants' engaging "in years of negotiation and discovery prior to raising the arbitration clause." Id. The standard of appellate review is whether the trial court abused its discretion in determining that the defendants had waived the contractual arbitration provision. Phillips v. Lee Homes, Inc. (February 17, 1994), Cuyahoga App. No. 64353, unreported, 1994 Ohio App. LEXIS 596, at 4-5, citing Marous v. Ohio Bell Tel. Co. (1992), 80 Ohio App.3d 306, 80 N.E.2d 192, motion to certify overruled, 65 Ohio St.3d 1456. Thus, reversal is mandated only where it is shown that the trial court's attitude was unreasonable, arbitrary or - 7 - unconscionable. Blakemore v. Blakemore (1983), 5 Ohio St.3d 217, 219, 450 N.E.2d 1140. To demonstrate a waiver of the right to arbitrate, two elements must be shown. Phillips v. Lee Homes, Inc., supra. First, that defendants knew of an existing right to arbitrate. Id., citing List & Son Co. v. Chase (1909), 80 Ohio St. 42, 88 N.E. 120. Second, that the defendants, given the totality of the circumstances, acted inconsistently with the right to arbitrate. Id., citing Central Trust Co. v. Anemostat Products Div. (S.D. Ohio 1985), 621 F.Supp. 44, and Rock v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1992), 79 Ohio App.3d 126, 606 N.E.2d 1054. As to the first element, it is inconceivable that the defendants did not know that their contracts with the school district contained the arbitration provision. This arbitration provision is contained in the signed contract from 1987, a copy of which is attached at Exhibit 2 to the defendants-appellants' February 2, 1996, joint amended motion to stay proceedings pending arbitration. Having bargained for the contract and signed the contract, then bonded the performance of that contract, knowledge of the terms contained in the contract is imputed to the parties. As to the second element, circumstances which may be viewed in determining whether the party seeking arbitration acted inconsistently with that right include the following: 1) any delay in the requesting party's demand to arbitrate via a motion to stay the judicial proceeding and an order compelling arbitration; 2) the extent of the requesting party's - 8 - participation in the litigation prior to its filing a motion to stay the judicial proceeding, including a determination of the status of discovery, dispositive motions, and the trial date; 3) whether the requesting party invoked the jurisdiction of the court by filing a counterclaim or third-party complaint without asking for a stay of the proceedings; and 4) whether the non-requesting party has been prejudiced by the requesting party's inconsistent acts. Id., citing Rock v. Merrill, Lynch, Pierce, Fenner & Smith, supra. In the case sub judice, it is beyond doubt that the appellants herein delayed seeking a motion to stay the proceedings pending arbitration until approximately thirty-three (33) months after the filing of the original complaint, and never affirmatively stated the defense in a responsive pleading or otherwise within a reasonable time thereafter. Additionally, up until the filing of the motion for stay, extensive pretrial discovery and settlement negotiations, with a great deal of personal involvement by the trial court, were conducted by the parties without so much as a peep concerning arbitration by the defendants. These circumstances, given the abuse of discretion standard of review, evidence activity which the trial court could conclude was inconsistent with the right to arbitrate. Finally, appellants assert in the argument of this assignment that prejudice to the school district, in defendants' requesting arbitration, is essential to finding waiver and that no prejudice was demonstrated. As detailed by Phillips, waiver depends on all the circumstances of a case rather than the application of rigid - 9 - rules and that prejudice, if relevant, is a factor to be considered in conjunction with the remaining circumstances of a case. Phillips also stated that a court may find waiver absent prejudice where it is clear that the right to arbitrate has been foregone. In the present case, the trial court could conclude that prejudice to the school district was demonstrated by the defendants' availing themselves of liberal discovery (not available in arbitration) and settlement negotiation over a period of almost three years of litigation, thereby delaying the final disposition of the matter and exposing plaintiff to further expense and time should the matter be referred to arbitration at this late date. The first assignment of error is overruled. II THE TRIAL COURT ERRED IN DENYING DEFENDANT- APPELLANT THE TRANE COMPANY'S AND EMPLOYERS INSURANCE OF WAUSAU'S MOTION TO STAY PROCEEDINGS PENDING ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT, 9 U.S.C. SECTION 3, WHERE PLAINTIFF-APPELLEE BEDFORD CITY SCHOOL DISTRICT CANNOT ESTABLISH ANY PREJUDICE FROM APPELLANTS' DELAY IN ASSERTING THEIR CONTRACTUAL RIGHT TO ARBITRATE. The Federal Arbitration Act "governs the enforcement of agreements to arbitrate in contracts involving interstate commerce or in maritime transactions" and applies to all states. Bd. of Park Commissioners v. E.B. Katz Co. (March 2, 1995), Cuyahoga App. No. 66982, unreported, 1995 Ohio App. LEXIS 772, at 4, citing Southland Corp. v. Keating (1984), 465 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270. As is the case with its Ohio counterpart, R.C. - 10 - 2711.02, the application of the Federal Arbitration Act may be waived if it is determined that the party seeking a stay of proceedings pending arbitration has acted inconsistently with the right to arbitrate. See Germany v. River Terminal Railway Co. (6th Cir., 1973), 477 F.2d 546, 547; Central Trust Co. v. Anemostat Products Div., supra. Having determined in the previous assignment that the defendants-appellants-movants did act inconsistently with the right to arbitrate and that prejudice to the school district was demonstrated should the right to arbitrate be enforced, we conclude that this assignment is likewise without merit. The second assignment of error is overruled. Judgment affirmed. - 11 - It is ordered that appellee recover of appellants 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 Common Pleas 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. Exceptions. TIMOTHY E. McMONAGLE, J., and JOHN T. PATTON, J., CONCUR. JAMES D. SWEENEY CHIEF JUSTICE N.B. This entry is an announcement of the court's decision. See App.R. 22(B), 22(D) and 26(A); Loc.App.R. 27. This decision will be journalized and will become the judgment and order of the court pursuant to App.R. 22(E) unless a motion for reconsideration with supporting brief, per App. R. 26(A), is filed within ten (10) days of the announcement of the court's decision. The time period for review by the Supreme Court of Ohio shall begin to run upon the journalization of this court's announcement of decision by the .