Brumm v. McDonald & Co. Securities, Inc.

• Decision Date: 28 January 1992
• Docket Number: No. 1748,1748
• Citation: 603 N.E.2d 1141,78 Ohio App.3d 96
• Court: Ohio Court of Appeals
• Parties: BRUMM, Appellant, v. McDONALD & COMPANY SECURITIES, INC., Appellee.

Page 96

78 Ohio App.3d 96

603 N.E.2d 1141

BRUMM, Appellant, v. McDONALD & COMPANY SECURITIES, INC., Appellee.

No. 1748.

Court of Appeals of Ohio, Fourth District, Ross County.

Decided Jan. 28, 1992.

William H. Allyn, Jr., Chillicothe, for appellant.

Calfee, Halter & Griswold, Ronald D. Holman II, Mitchell G. Blair and Brian M. Eisenberg, Cleveland, for appellee.

STEPHENSON, Presiding Judge.

This is an appeal from a judgment entered by the Ross County Court of Common Pleas denying a motion to vacate an arbitration award granted to Pricie Brumm, plaintiff below and appellant herein, in her action against McDonald and Company Securities, Inc. ("McDonald"), defendant below and appellee herein. Appellant assigns the following errors for our review:

I. "The trial court erred in failing to have a trial and hearing on the issue of the arbitrability of the claims made by the plaintiff in her complaint pursuant to R.C. 2711.03 and in the life of the allegation by the plaintiff of the nonapplicability of the arbitration clause contained in the defendant's 'Options Trading Agreement.' "

II. "The trial court erred in finding the arbitration clause contained in the defendant's 'Options Trading Agreement' applicable to the claims asserted in the plaintiff's complaint in that the operative facts giving rise to the plaintiff's complaint occurred prior to the formation of the contract containing the arbitration clause."

III. "The trial court erred in failing to vacate the arbitration award pursuant to R.C. 2711.10."

The record reveals the following facts pertinent to this appeal. On or about January 26, 1988, appellant placed an order with McDonald to purchase, on her behalf, five thousand call options for stock of Federated Department Stores. ¹ Later that day, McDonald gave telephone confirmation that the purchase had been consummated. On January 27, 1988, appellant received written confirmation of the purchase and, on the same day, entered into a certain "Options Trading Agreement" (the "option agreement") with McDonald.

On January 29, 1988, appellant remitted to McDonald the sum of $18,665 to cover the purchase of the call options. ² Later that same day, appellant received notice from McDonald that it had, of its own initiative, "cancelled" the transaction. Testimony presented by McDonald's representatives below reveals that when this transaction was reviewed for suitability by principals at McDonald, the investment was considered far too risky and aggressive for one in appellant's financial position. ³

Accordingly, McDonald proceeded to "cancel" the transaction by effecting a buy out of appellant's position. McDonald then sold the call options for less than their purchase price and sustained a loss. On, or about, February 10, 1988, appellant received a check from McDonald reimbursing her for the entire amount which she had previously remitted for the purchase of the call options. Appellant never cashed that check and evidence presented below reveals that the options substantially appreciated in price following the cancellation by McDonald. ⁴

Appellant commenced the action below on May 2, 1988, alleging that McDonald had breached a contractual relationship with her. Appellant demanded judgment, inter alia, for compensatory damages in the amount of $92,500. On May 20, 1988, McDonald filed a motion to dismiss, or stay, proceedings on the basis that the previously mentioned option agreement provided that any dispute arising between the parties should be arbitrated.

On July 6, 1988, the court below sustained McDonald's motion and ordered all proceedings before the court to be stayed pending arbitration of the dispute. Appellant appealed from that decision and in Brumm v. McDonald & Co. Securities, Inc. (Aug. 1, 1989), Ross App. No. 1532, unreported, at 4, 1989 WL 86283, we dismissed said appeal for lack of a final appealable order pursuant to R.C. 2505.02.

The matter proceeded to arbitration on April 10, 1990. Subsequently, and without any explanation or reasoning, the arbitration panel awarded damages to appellant in the amount of $3,125. On July 17, 1990, appellant filed her motion and application to vacate the arbitration award, and McDonald filed its memorandum in opposition to such request. On November 21, 1990, the court below overruled appellant's motion to vacate and this appeal followed.

Appellant's first assignment of error addressed the provisions of R.C. 2711.03 which state as follows:

"The party aggrieved by the alleged failure of another to perform under a written agreement for arbitration may petition any court of common pleas * * * for an order directing that such arbitration proceed in the manner provided for in such agreement. * * * The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the agreement. If the making of the arbitration agreement or the failure to perform it is in issue, the court shall proceed summarily to the trial thereof. * * * " (Emphasis added.)

In her memorandum contra to McDonald's motion to stay proceedings, appellant argued that there was no binding arbitration agreement in effect at the time of the events which gave rise to the dispute below. Thus, appellant concludes that the making of the arbitration agreement was brought into issue and the trial court was obligated to conduct a trial on that issue prior to ordering a stay of proceedings. We disagree.

Appellant's argument fails to distinguish between the different arbitration enforcement mechanisms provided for in R.C. Chapter 2711. The Ohio Arbitration Act allows for either direct enforcement of such agreements through an order to compel arbitration under R.C. 2711.03, or indirect enforcement through an order staying proceedings under R.C. 2711.02. 6 Ohio Jurisprudence 3d (1978) 40, Arbitration & Award, Section 39. These are separate and distinct procedures.

By its terms, R.C. 2711.03 applies where there has been a petition for an order to compel the parties to proceed to arbitration. McDonald did not seek, and the trial court did not grant, any such relief below. Rather, McDonald sought merely a stay of proceedings, which is guided by the following portions of R.C. 2711.02, which provided:

"If any suit or proceeding is brought upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceedings is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the agreement * * *."

There is no obligation under this statute to conduct a trial on the issue of the making of the arbitration agreement. Rather, the court need only be "satisfied" that the dispute is referable to arbitration under such agreement. Although appellant argues, in substance, that the court below erred in determining that the dispute below was so referable, we consider that argument in reviewing appellant's next assignment of error and therefore do not address it here. Suffice it to say, there is no requirement under R.C. 2711.02 that the lower court conduct a trial on the issue of the making of the arbitration agreement and we discern no error in the absence of such a proceeding below. The first assignment of error is, accordingly, overruled.

In her second assignment of error, appellant contends that the trial court erred in determining that her dispute with McDonald was referable to arbitration. The basis for this contention lies with the timing of the execution of the aforementioned option agreement. At the conclusion of that document, the following is shown:

"The undersigned has received, read and understands the most recent Options Clearing Corporation Prospectus and any supplement thereto and has also read and understands the foregoing agreement in its entirety.

"DATE Jan 27 1988 SIGN HERE s/ Pricie Brumm

"APPROVED s/ Debra D. Rufe

Registered Options

Principal

"DATE 2/1/88"

Appellant argues that a contract to arbitrate disputes between the parties did not arise until February 1, 1988, when an employee of McDonald "approved" the option agreement. Appellant continues that when McDonald bought out appellant's position with respect to the call options on January 29, 1988, there was, as yet, no binding arbitration agreement between them. Thus, appellant concludes, there could have been no agreement to submit this particular dispute to arbitration. We disagree.

Generally speaking, arbitration is a matter of contract law and, therefore, the relationship between the parties is controlled both by the arbitration agreement and by the law of contracts. See Teramar Corp. v. Rodier Corp. (1987), 40 Ohio App.3d 39, 40, 531 N.E.2d 721, 722; see, also, 5 American Jurisprudence 2d (1962) 527, Arbitration & Award, Section 11. ⁵ In reviewing the option agreement, we note the preamble to the document states that "[t]his agreement confirms the understanding between us with respect to puts and calls which you may purchase * * * for the account of the undersigned." (Emphasis added.) This clearly indicates that the document was intended as little more than a written memorandum or acknowledgment of an agreement which had already been reached.

Moreover, to the extent that an agreement had not already been reached between the parties, we note that the agreement primarily sets forth only covenants to be undertaken by appellant and that it appears to have been prepared by McDonald. Thus, appellant's signing of the agreement on January 27, 1988 would have been an acceptance of the terms offered therein by McDonald. In either event, the arbitration clause in the option agreement would have been...