Merit Decision. Former Cedar Fair COO Does Not Get His Job Back. Cedar Fair, L.P. v. Falfas

Update: This case has now been settled. No details are publicly available. On May 7, 2015, the trial court granted  a joint motion to dismiss all claims with prejudice. A satisfaction and release of certificate of judgment was filed on 5/15/2015.

On September 18, 2014, the Supreme Court of Ohio handed down a merit decision in Cedar Fair, L.P. v. Falfas, 2014-Ohio-3943. In a unanimous opinion written by Justice Bill O’Neill, the Court held that an arbitration panel exceeded its authority in awarding reinstatement as a remedy for a terminated Chief Operating Officer. The case was argued April 9, 2014.

Case Background

Jacob Falfas worked continuously for Cedar Fair for nearly thirty five years. In 2005 he was promoted to Chief Operating Officer, pursuant to a written employment agreement. Falfas reported directly to Richard Kinzel, Cedar Fair’s Board Chair, President, and CEO.

In June of 2010 Falfas became aware of Kinzel’s dissatisfaction with certain aspects of his work. The two men had a 94 second telephone call on June 10, 2010. It is undisputed that after this phone call, Falfas’ employment with the company ended, but Kinzel believed that Falfas had quit, and Falfas believed he had been fired.

Arbitration

The employment agreement between the parties contained a binding arbitration provision. The parties arbitrated their dispute, resulting in a finding that Falfas had not resigned, but was terminated for reasons other than cause. The arbitrators found that equitable relief was needed to restore the parties to the positions they held prior to the breach of the employment agreement, and ordered Cedar Fair to reinstate Falfas to his former position.

Judicial Review of Arbitration Award

On appeal to the Erie County Common Pleas Court, the trial judge found that the arbitration panel’s order of reinstatement exceeded its authority under the employment agreement.  The Sixth District Court of Appeals reversed, finding that the trial court erred in refusing to order reinstatement.

Read the oral argument preview of the case here and the analysis of the argument here.

Key Statute and Precedent

R.C. 2711.10 (Bases on which a court of common pleas shall vacate an arbitration award.)

Goodyear Tire & Rubber Co v. Local Union No. 200, 42 Ohio St.2d 516 (1975) (The arbitrator is the final judge of both law and facts, and an award will not be set aside except upon a clear showing of fraud, misconduct, or some other irregularity rendering the award unjust, inequitable, or unconscionable.)

Masetta v. Natl. Bronze & Aluminum Foundry Co., 159 Ohio St. 306 (1953) (a court of equity will not decree specific performance of a contract for personal services.)

State ex rel. Wright v. Weyandt, 50 Ohio St.2d 194 (1977) (a clear bargained-for promise of reinstatement in an agreement can be enforced by specific performance.)

Merit Decision

Executive Summary

Specific performance is not a remedy in this breach of an employment agreement case.

Arbitration Fundamentals

An arbitrator’s authority to interpret a contract is drawn from the contract itself. The statutory authority of courts to vacate an arbitrator’s award is very limited. Arbitrators act within their authority to craft a remedy as long as the award “draws its essence” from the contract, but an award departs from the essence of a contract when the award conflicts with the express terms of the agreement or cannot rationally be supported by the terms of the agreement.

In this case the court found that the arbitration panel exceeded its powers in ordering Cedar Fair to reinstate Falfas.

Key Sections of the Employment Agreement

Section 7

Termination without cause would entitle Falfas to salary and certain health benefits for the then-remaining term.

Section 11

Provides that if Falfas resigned, all benefits and compensation would cease on his last day of employment.

Section 19 (a) Arbitration Provision

Required arbitration of any dispute arising under the agreement

Paragraph (c)

“[t]the arbitration panel shall have authority to award any remedy or relief that an Ohio or federal court in Ohio could grant in conformity with applicable law on the basis of the claims actually made in the arbitration.”

Key Factual Dispute Resolved in Falfas’ Favor

The parties agreed that Falfas had not been terminated for cause. Falfas argued he was terminated without cause; Cedar Fair argued he resigned.  The arbitration panel resolved this dispute in favor of Falfas, finding he had been terminated for reasons other than cause.

Parties’ Positions on Remedy

Given the finding by the arbitrators that Falfas was terminated other than for cause, Cedar Fair argued that Section 7 of the Employment Agreement, which is a liquidated damages provision, controls, limiting the remedy here to compensation and benefits. Falfas argued that Section 19(c) of the Employment Agreement gave the panel authority to order specific performance, and thus, reinstatement to his former position.

The court agreed with Cedar Fair.

More Arbitration Basics, Leading to the Conclusion of No Reinstatement

First, a law professor’s favorite—

“It is, for example, common for first-year law students to review the case of Lumley v. Wagner, 42 Eng.Rep. 687 (1852), in which the court observed that it lacked the power to order a singer who had contracted to perform at the plaintiff’s theater to specifically complete her contract…” O’Neill wrote. “Ohio has long followed the same rule.”

The court then went on to apply the syllabus law of Masetta v. Natl. Bronze & Aluminum Foundry Co., in which the court held that a court of equity could not decree specific performance of a labor contract between employer and employees. Noting that such a remedy is almost always denied, O’Neill quoted the contract gurus Calamari & Perillo, who wrote, “Such enforcement * * * would involve difficulty of supervision and, often, forc[e] the continuance of a distasteful personal relationship.”

The court briefly examined some exceptions to this general rule, noting that collective bargaining agreements, and civil-service and civil rights laws have endorsed reinstatement as a remedy in wrongful termination cases, but found that line of cases inapposite here. While in 1977 the court held in State ex rel. Wright v. Weyandt that a clear bargained-for promise of reinstatement in an agreement could be enforced by specific performance, that is the exception, not the general rule, and was not the case here.

“In short, unless a statute or the employment contract says otherwise, the rule in Ohio remains that specific performance is not an available remedy for breach of an employment contract,” wrote O’Neill.

Court Rejects Falfas’ Interpretation of Section 19(c)

Falfas had argued that this provision, which authorized the arbitration panel to award “any remedy or relief that an Ohio or federal court in Ohio could grant,” was enough to authorize reinstatement. He also argued that the court had written in 1989, in Worrell v. Multipress, Inc., that reinstatement was the preferred remedy in that case. This argument got smacked down very hard by O’Neill who noted that reinstatement was a possible –but not the usual–remedy for a violation of the Age Discrimination in Employment Act, (which this case isn’t), but that “Worrell does not even begin to suggest that reinstatement to employment is the “preferred remedy” in all personal-services-contract disputes, which would be a manifestly incorrect understanding of the law.”

No Shotgun Marriage In This Case

At oral argument, Justice Lanzinger had noted, in a key comment that a personal services contract assumes that the parties wish to continue, and assumes mutual agreement, stating to Falfas’ lawyer that he seemed to be suggesting that the preferred remedy when there was a breakdown was to force a shotgun marriage. Justice O’Neill picked up on this, writing,

“How could a large business entity like Cedar Fair properly function if an arbitration panel was authorized to force it to reemploy an unwanted senior officer after it had obviously moved on? Why would any such entity or employee agree to give an arbitration panel the power to cause such disruption?”

Now What?

Exactly what compensation and benefits Falfas is entitled to, and for how long isn’t clear, and wasn’t the issue in this case. The case was sent back to the trial court to determine that and “other concerns,” but with the specific mandate that Falfas was not to be reinstated to his former position.

Case Syllabus

Specific performance is not an available remedy for breach of an employment contract unless it is explicitly provided for in the contract or by an applicable statute. (Masetta v. Natl. Bronze & Aluminum Foundry Co., 159 Ohio St. 306, 112 N.E.2d 15 (1953), applied.)

Comparison with Cedar Fair’s Proposed Proposition of Law

This was Cedar Fair’s proposed proposition of law:

“This Court’s holding in Masetta v. National Bronze & Aluminum Foundry Co., 159 Ohio St. 306 (1953), barring specific performance as a remedy for a personal services contract under Ohio law, is not limited to cases seeking class-wide injunctive relief based on collective bargaining agreements, but rather applies to employment agreements generally.”

Concluding Observations

Cedar Fair clearly won this case, although the amount it still owes Falfas is subject to dispute. But the company clearly didn’t want him back. The court pretty much adopted the entire argument made by Cedar Fair’s lawyer, the talented former state solicitor Doug Cole.

I called this one for Cedar Fair at the time, noting that “I don’t think there is any way the Court is going to order Falfas reinstated to his former position here. I think the remedy in this case will be limited to back pay and benefits. The way the Court reaches this conclusion may require some threading of a needle…” I wondered aloud at the time why Falfas would want to return to a job where he clearly was no longer wanted. I learned about Lumley v. Wagner when I was in law school. That rule still makes sense to me.

 

 

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