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Gembarski v. PartsSource, Inc.

Supreme Court of Ohio

August 14, 2019

Gembarski, Appellee,
v.
PartsSource, Inc., Appellant.

          Submitted February 20, 2019

          Appeal from the Court of Appeals for Portage County, No. 2016-P-0077, 2017-Ohio-8940.

          Connick Law, L.L.C., and Thomas J. Connick, for appellee.

          Zashin & Rich Co., L.P.A., Stephen S. Zashin, Jeffrey J. Wedel, and Helena Oroz, for appellant.

          Baker & Hostetler, L.L.P., John B. Lewis, Dustin M. Dow, and Daniel R. Lemon, urging reversal for amicus curiae Ohio Management Lawyers Association.

          FISCHER, J.

         {¶ 1} Appellant, PartsSource, Inc., appeals the judgment of the Eleventh District Court of Appeals affirming the trial court's judgment granting appellee Edward F. Gembarski's motion to certify a class action. We accepted jurisdiction over PartsSource's three propositions of law related to the trial court's decision to grant class certification. We will address only the second and third propositions of law, however, as they are dispositive in this case.

         {¶ 2} We hold that in a class-certification case, when the case originates with a single named plaintiff and that plaintiff is not subject to an arbitration agreement that was entered into by unnamed putative class members, the defendant need not raise a specific argument referring or relating to arbitration in the defendant's answer. In such circumstances, the defendant may raise an argument that relates to arbitration against putative class members at the class-certification stage of the proceedings.

         {¶ 3} As relevant to this case, PartsSource had no duty to assert arbitration as a defense in its answer because Gembarski, the only named class representative, was not subject to an arbitration agreement that had been entered into by unnamed putative class members. A defendant need not raise defenses that are related only to unnamed putative class members because those unnamed putative class members are not parties to the action prior to class certification. Thus, because arbitration was not available as a defense at the time PartsSource submitted its answer, PartsSource could not waive a right to assert arbitration at that time, as PartsSource had no such right to waive.

         {¶ 4} Prior to Gembarski's motion to certify a class, PartsSource had no duty to raise an argument that, because unnamed putative class members were parties to arbitration agreements, Gembarski-as the representative of that class-failed to satisfy Civ.R. 23(A)'s typicality and adequacy requirements. Nor does any of Ohio's Rules of Civil Procedure require PartsSource to file a motion to strike the class action. The burden to certify the class action or to maintain the class action is never on the defendant.

         {¶ 5} Thus, because PartsSource denied Gembarski's averment that he met the requirements of Civ.R. 23(A) when it filed its answer, PartsSource properly preserved its arguments alleging that because unnamed putative class members were parties to arbitration agreements and Gembarski was not, Gembarski failed to satisfy Civ.R. 23(A)'s typicality and adequacy requirements. Accordingly, we reverse the judgment of the court of appeals and remand the cause to that court for consideration of PartsSource's assignments of error in light of this opinion.

         I. BACKGROUND

         {¶ 6} In October 2012, Gembarski filed a class-action complaint against his former employer, PartsSource, in the Summit County Court of Common Pleas. Gembarski asserted claims of breach of contract, unjust enrichment, conversion, equitable restitution, constructive trust, and "money had and received." Each claim was asserted on behalf of the putative class. Gembarski claimed that while he worked for PartsSource, PartsSource improperly withheld and deducted commissions earned by Gembarski and other account managers. Gembarski argued that his claims were typical of the putative class, which included current and former PartsSource account managers and employees, and that he would fairly and adequately protect the class as the named representative.

         {¶ 7} PartsSource filed an answer to the complaint, denying the allegations as to each class-action requirement (including typicality and adequacy) and denying that the lawsuit could be maintained as a class action. Shortly thereafter, the parties agreed to transfer the case to the Portage County Court of Common Pleas.

         {¶ 8} The parties agreed to participate in private mediation but came to no resolution. The case was removed to federal court but was then remanded to the Portage County Court of Common Pleas. In September 2015, Gembarski, for the first time, filed a motion asking that the trial court certify the case as a class action.

         {¶ 9} PartsSource opposed Gembarski's motion to certify the class action. PartsSource argued that it had instituted an alternative-dispute-resolution program in January 2011 and that, under that program, employees who entered into an arbitration agreement waived their right to file a lawsuit in favor of a "three-step process culminating in mandatory and binding arbitration." Claims covered under the arbitration agreement included claims arising from or relating to the employees' employment. Gembarski, however, had refused to sign the arbitration agreement. So PartsSource alleged that Gembarski could not meet the typicality requirement necessary for his motion to certify the class to be granted because his claims or defenses were not typical of the claims or defenses of the putative class "where employees who signed arbitration agreements * * * would be precluded from participating in [the] case as absent class members." PartsSource also claimed that Gembarski failed to establish adequacy, as his interests diverged from those putative class members who were subject to the arbitration agreement with PartsSource.

         {¶ 10} Gembarski argued that PartsSource had waived "the defense of arbitration." Gembarski claimed that PartsSource knew of "its alleged right to arbitrate" at the onset of the litigation. Gembarski maintained that because PartsSource participated in the litigation and had not asserted an "arbitration defense," PartsSource acted inconsistently with "its alleged right of arbitration." Gembarski concluded that because PartsSource waived an "arbitration defense," there was "nothing stopping, barring or otherwise prohibiting the absent class members from participation in the class action as a participating class member." (Emphasis sic.)

         {¶ 11} PartsSource countered that it did not waive "the issue of arbitration." PartsSource argued that it never had a right to demand arbitration from Gembarski. PartsSource contended that it would have been premature to raise any argument related to arbitration prior to the class-certification phase of the litigation. PartsSource added that it could not determine the defenses that may apply to unnamed putative class members given that Gembarski's proposed class definition was "a moving target" that remained a "little more than the shadow of an idea based in speculation about who might be in this class," particularly since Gembarski had proposed at least three class definitions over the course of the proceedings.

         {¶ 12} After holding a hearing, the magistrate assigned by the common pleas court recommended that the court grant Gembarski's motion for class certification. The magistrate determined, in its findings of fact and conclusions of law, that PartsSource had waived "the defense of arbitration it ha[d] asserted in this matter." The magistrate found that PartsSource knew "of its alleged right to arbitrate since the onset of the filing of Plaintiff s Class Action Complaint" and yet, over the course of several years of litigation, PartsSource did not "raise the defense of arbitration" until it opposed Gembarski's motion for class certification. The magistrate further found that PartsSource "actively and vigorously" participated "in litigation in three (3) different Courts without once mentioning, let alone affirmatively seeking, arbitration." The magistrate determined that PartsSource's actions were "manifestly inconsistent with its alleged right of arbitration." Thus, the magistrate concluded that PartsSource "fully and expressly waived any right of arbitration in this matter."

         {¶ 13} PartsSource filed numerous objections to the magistrate's decision. PartsSource objected to the magistrate's conclusions that PartsSource had waived any argument regarding arbitration and that even though Gembarski had refused to sign the arbitration agreement with PartsSource, and thus was not subject to that agreement, PartsSource should have raised the arbitration argument against Gembarski prior to his seeking to certify a class. The Portage County Court of Common Pleas reviewed the magistrate's ...


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