Altobelli v. Hartmann

• Decision Date: 13 June 2016
• Docket Number: Docket No. 150656.
• Citation: 884 N.W.2d 537,499 Mich. 284
• Parties: ALTOBELLI v. HARTMANN.
• Court: Michigan Supreme Court

499 Mich. 284

884 N.W.2d 537

ALTOBELLI

v.HARTMANN.

Docket No. 150656.

Supreme Court of Michigan.

Argued March 9, 2016.

Decided June 13, 2016.

Mark Granzotto, PC, Royal Oak (by Mark Granzotto ), and Dean Altobelli for plaintiff.

Kienbaum Opperwall Hardy & Pelton, PLC (by Thomas G. Krenbaum and Noel D. Massie, Birmingham), and Smith Haughey Rice & Roegge, Grand Rapids (by John R. Oostema and E. Thomas McCarthy, Jr. ) for defendants.

BERNSTEIN

, J.

This case requires the Court to address whether plaintiff's tort claims against individual principals of a law firm fall within the scope of an arbitration clause that mandates arbitration for any dispute between the firm and a former principal. Generally speaking, a company may only act through its agents. In this case, plaintiff, a former principal, challenges actions the individual defendants performed in their capacities as agents carrying out the business of the firm. Therefore, this is a dispute between the firm and a former principal that falls within the scope of the arbitration clause and is subject to binding arbitration.

Accordingly, we reverse that part of the Court of Appeals' opinion holding that this matter was not subject to arbitration. We vacate the remaining portion of the Court of Appeals' opinion, which relates to plaintiff's motion for partial summary disposition, and we remand this case to the trial court for further proceedings consistent with this opinion.

I. FACTS AND PROCEDURAL HISTORY

In 1993, plaintiff Dean Altobelli began working as an attorney for Miller, Canfield, Paddock and Stone, P.L.C. (“the Firm”), a professional limited liability company formed under the Michigan Limited Liability Company Act (MLLCA), MCL 450.4101 et seq.

Upon joining the Firm, plaintiff signed the “Miller Canfield Operating Agreement” (“Operating Agreement”), a document governing the Firm's internal affairs. The Operating Agreement provides that members of the Firm are referred to as “principals.” All principals sign the Operating Agreement. The introductory section of the Operating Agreement states that the document “by and between the [Principals] ... evidences the following agreement between them[.]” In a subsequent section, the principals further acknowledge that the “covenants and agreements herein contained shall inure to the benefit of and be binding upon the parties hereto[.]”

The Operating Agreement delegates particular responsibilities and powers to certain individuals within the Firm. A principal must devote “his or her full time and best efforts to the success of the Firm except as otherwise approved in writing by the CEO with the approval of the Managing Directors.” Principals may “voluntarily withdraw from the Firm at any time” and shall involuntarily withdraw in the event of a two-thirds vote of the senior principals. Senior principals are principals who have been granted equity ownership in the Firm. Five senior principals, called the “managing directors,” are invested with “[s]ole, full and complete power and authority to manage ... the Firm....” Managing directors have the authority to designate a Chief Executive Officer (“CEO”), who has, “with binding effect on the Managing Directors, the power and authority of the Managing Directors with respect to the day-to-day administration of the business and affairs of the Firm.”

The Operating Agreement also contains a mandatory arbitration agreement:

3.6 Alternative Dispute Resolution: Mandatory Arbitration. Any dispute, controversy or claim (hereinafter “Dispute”) between the Firm or the Partnership and any current or former Principal or Principals of the Firm or current or former partner or partners of the Partnership (collectively referred to as the “Parties”) of any kind or nature whatsoever (including, without limitation, any dispute[,] controversy or claim regarding step placement, or compensation, or the payment or non-payment of any bonus, the amount or change in amount of any bonus) shall be solely and conclusively resolved according to the following procedure:

(a) In the event of a Dispute, the Parties agree to first try in good faith to settle the dispute directly. If the parties are unable to resolve the dispute, they shall submit the dispute to third party neutral facilitation in accordance with the mediation rules of the American Arbitration Association (“Mediation”). If the Dispute is not resolved by a signed Settlement Agreement within ninety (90) days of a written request for Mediation given to one Party by the other and identifying the Dispute, the Dispute shall be settled by binding arbitration (“Arbitration”) in accordance with the internal laws of the State of Michigan. The Arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association except as specifically provided herein. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. There shall be three (3) arbitrators; one of whom shall be appointed by the Firm, one by the Principal(s) and/or partner(s) (as applicable) and the third of whom shall be appointed by the first two arbitrators. The hearing shall be held in the Detroit metropolitan area. [Emphasis added.]

By January 2006, plaintiff had become a senior principal at the Firm.¹ However, in late May or early June 2010, plaintiff decided he wanted to pursue a new opportunity as an assistant coach for the University of Alabama football team. Plaintiff proposed a 7– to 12–month leave of absence from the Firm to defendant Michael Hartmann, the Firm's CEO, and defendant Michael Coakley, who was the head of the Firm's litigation group but was not a managing director. Plaintiff suggested that the Firm permit him to maintain his ownership interest and return to the Firm as a senior principal any time before June 1, 2011.

Plaintiff avers that Hartmann initially promised plaintiff that he could spend as much time at the University of Alabama as he wanted and still receive certain allocated income from his clients. Hartmann disputes this, claiming that although he told plaintiff that he could “probably” return to the Firm, plaintiff knew Hartmann had no authority to make a formal commitment. Plaintiff contends that, in reliance on Hartmann's assurance, he moved to finalize his agreement with the University of Alabama in June 2010. Plaintiff claims he also spent many hours preserving his clients and business for the Firm.

Plaintiff alleges that Hartmann then withdrew his support, suddenly rejecting the proposed leave of absence and instead suggesting that plaintiff voluntarily withdraw from the Firm without any assurance that he would be reinstated. In response, on July 10, 2010, plaintiff sent an e-mail to the managing directors seeking approval of the job opportunity with the University of Alabama, and an exception to the section of the Operating Agreement obligating a principal to devote his or her full time to the Firm. Plaintiff claims he informed the managing directors that he had no plans to relinquish his principal status or compensation. On July 20, 2010, plaintiff submitted a statement to defendant Coakley detailing his past and projected contributions to the Firm. Plaintiff asserts that Hartmann informed plaintiff the next day that the managing directors had decided to terminate his equity ownership, effective July 31, 2010. In an e-mail response, plaintiff demanded a vote of the principals, asserting that the managing directors lacked the authority to terminate him under the Operating Agreement. On July 22, Hartmann replied: “I did not say the Firm had terminated your position. I told you that since you had voluntarily accepted a full time position at Alabama and had already started there, the Firm will consider you to have withdrawn from the partnership as of July 31, 2010.” Plaintiff disputes this, contending that he did not voluntarily withdraw from the Firm, that he was improperly terminated, and that the Firm shorted plaintiff's 2010 income as a result.²

Plaintiff initially sought resolution through the direct settlement and mediation process provided for in the Operating Agreement. In November 2011, when these efforts failed, plaintiff filed a demand for arbitration with the American Arbitration Association, as outlined in the Operating Agreement. Plaintiff's arbitration demand contested his last five years of compensation and the managing directors' decision to treat his departure as a relinquishment of his equity ownership status. Plaintiff alleged bad-faith discrimination in the allocation of income, bad-faith violations of the Operating Agreement, bad-faith misrepresentation, bad-faith conspiracy to improperly exclude him from the Firm, and shareholder oppression in violation of MCL 450.4515

.

Despite having set the arbitration proceeding in motion, and while the parties were in the process of selecting arbitrators, plaintiff turned the tide by filing the instant case in the Ingham Circuit Court. Plaintiff did not name the Firm itself as a defendant in the suit. Instead, plaintiff named seven individual principals of the Firm: Hartmann, Coakley, and the five managing directors (collectively, “defendants”).³ In his circuit court complaint, plaintiff presented claims substantially similar to those he had alleged in arbitration, essentially repackaging them as tortious conduct: breach of fiduciary duty, illegal shareholder oppression contrary to MCL 450.4515

, conversion, bad-faith misrepresentation, tortious interference with a business relationship or expectancy, and civil conspiracy.

In the circuit court, defendants filed a motion for summary disposition under MCR 2.116(C)(10)

, and a motion to compel arbitration under MCR 2.116(C)(7). In the motion to compel arbitration, defendants argued that plaintiff's claims fell within the scope of the Operating Agreement's mandatory arbitration clause, and that the circuit court was therefore compelled to dismiss the complaint....