Edward Family Ltd. Partnership v. Brown

• Decision Date: 27 February 2006
• Docket Number: No. 25,303.,25,303.
• Citation: 140 P.3d 525,2006 NMCA 083
• Parties: EDWARD FAMILY LIMITED PARTNERSHIP, a New Mexico limited partnership, Plaintiff/Appellant, v. Ronald D. BROWN and Jane W. Brown, jointly constituting a single Partner in Sycamore Plaza, Limited, a New Mexico general partnership, and Sycamore Plaza, Limited, a New Mexico general partnership, Defendants/Appellees, Ronald D. Brown and Jane W. Brown, Counterclaimants and Third-Party Plaintiffs/Appellees, v. Dr. William O. Edward, Third-Party Defendant/Appellant, Brown & Associates, Inc., a New Mexico general partnership, Plaintiff-in-Intervention/Appellee, v. Dr. William O. Edward, individually and as the general partner of Plaintiff, and as the Trustee of the William O. Edward and Mary Lou Edward Revocable Trust dated 3/23/76, Defendant-in-Intervention/Appellant.
• Court: Court of Appeals of New Mexico

140 P.3d 525

2006 NMCA 083

EDWARD FAMILY LIMITED PARTNERSHIP, a New Mexico limited partnership, Plaintiff/Appellant, v. Ronald D. BROWN and Jane W. Brown, jointly constituting a single Partner in Sycamore Plaza, Limited, a New Mexico general partnership, and Sycamore Plaza, Limited, a New Mexico general partnership, Defendants/Appellees, Ronald D. Brown and Jane W. Brown, Counterclaimants and Third-Party Plaintiffs/Appellees, v. Dr. William O. Edward, Third-Party Defendant/Appellant, Brown & Associates, Inc., a New Mexico general partnership, Plaintiff-in-Intervention/Appellee, v. Dr. William O. Edward, individually and as the general partner of Plaintiff, and as the Trustee of the William O. Edward and Mary Lou Edward Revocable Trust dated 3/23/76, Defendant-in-Intervention/Appellant.

No. 25,303.

Court of Appeals of New Mexico.

February 27, 2006.

Certiorari Denied, No. 29,776, May 25, 2006.

Martin E. Threet & Associates, Martin E. Threet, Joey B. Wright, Albuquerque, NM, for Appellants.

Rebecca Sitterly, LLC, Rebecca Sitterly, Kim E. Kaufman, Albuquerque, NM, for Appellees Ronald D. Brown and Jane W. Brown and Brown & Associates, Inc.

OPINION

WECHSLER, Judge.

{1} In this appeal, involving a multi-claim dispute between partners and related parties, we consider the validity of a referral to arbitration that allows the arbitration panel to determine whether partners are subject to the arbitration. Appellants argued to the district court and to the arbitration panel that arbitration was improper as to them because they were not parties to the partnership agreement. The arbitration panel concluded that all claims in the lawsuit were subject to the arbitration and controlled by the partnership agreement and issued a decision that both sides were not entitled to any recovery. The district court denied Appellants' motion to vacate and confirmed the panel's decision. Because the district court did not originally determine that arbitration was proper as to Appellants, but instead referred that issue to the arbitration panel, and did not subsequently address the issue after the arbitration panel ruled, we reverse the judgment confirming the arbitration award and remand for a proper determination by the district court. We deny Appellees' motion to dismiss the appeal.

THE PARTIES AND THE LAWSUIT

{2} Sycamore Plaza, Ltd. was formed in 1986. Despite its name, it is a general partnership. Its partners are the William O. Edward and Mary Lou Edward Revocable Trust dated March 23, 1976 (the Revocable Trust) and Appellees Ronald D. Brown and Jane W. Brown (the Browns). The Revocable Trust holds a 75% share of the partnership, and the Browns, both constituting a single partner, hold a 25% share. The Sycamore Plaza partnership, Ltd. agreement states the partnership purpose of leasing and developing a 63.6504 acre tract of land owned by William O. Edward and Mary L. Edward and held by Appellant the Edward Family Partnership, a limited partnership (the Family Partnership). Appellant William O. Edward (Edward) is the trustee of the Revocable Trust. As trustee of the Revocable Trust, he is the only general partner of the Family Partnership.

{3} By a management and leasing agreement dated March 11, 1991, but effective November 16, 1987, Sycamore Plaza, Ltd. appointed Appellee Brown & Associates, Inc. as its exclusive managing and leasing agent and agreed to pay specified fees for the services of Brown & Associates. The Browns owned and operated Brown & Associates.

{4} The Family Partnership began this lawsuit against the Browns for an accounting and then amended its complaint to add Sycamore Plaza, Ltd. as a defendant to request the repayment of indebtedness owed it by Sycamore Plaza, Ltd. The Browns answered and asserted a counterclaim and third-party complaint against Edward, individually and in his capacity as general partner of Sycamore Plaza, Ltd. and as trustee of the Revocable Trust. Brown & Associates, upon intervention, also asserted a counterclaim against the Family Trust and a third-party complaint against Edward. As ultimately amended after court order, the Browns' and Brown & Associates' pleadings allege, inter alia, that Edward used Sycamore Plaza, Ltd., the financial assistance of the Browns, and the services of Brown & Associates for his personal financial benefit, rather than in the interest of Sycamore Plaza, Ltd. According to their pleadings, Edward used the Browns and Sycamore Plaza, Ltd. to obtain funds to build an office building on the Family Partnership property and subsequently sold the building. The Browns asked the court for a declaratory judgment as to whether a partnership existed between Edward and the Browns that formed the basis for the Family Partnership's complaint in the lawsuit. They also alleged claims against Edward and the Family Partnership for breach of fiduciary duty, prima facie tort, fees due on open account, and unjust enrichment, as well as other claims. Brown & Associates alleged claims for fees due on open account, unjust enrichment, fraud and negligent or intentional misrepresentation, and other claims.

MOTION FOR STAY PENDING ARBITRATION

{5} After the lawsuit had been pending for more than three years and after the Family Partnership and Edward filed a motion to disqualify the Browns' attorney based on a conflict of interest, the Browns, through substituted counsel, moved to stay all proceedings pending arbitration between them and the Revocable Trust under the Sycamore Plaza, Ltd. partnership agreement. They served a demand for arbitration, demanding arbitration between the partners of all issues in controversy between them, including a determination of their capital accounts, of the responsibility for any judgment that may be awarded in the lawsuit, and of the existence of collusion between the Revocable Trust and the Family Partnership. The partnership agreement provides that "[i]f any controversy or claim arising out of this Agreement cannot be settled by the Partners, the controversy or claim shall be settled by arbitration" and sets out the procedures to be followed. In their motion for stay, the Browns contended that there was a "significant identity of interest" between the Family Partnership and Sycamore Plaza, Ltd. because of Edward's position in both entities. They claimed that they were disadvantaged in the lawsuit as minority partner in Sycamore Plaza, Ltd. by virtue of this identity of interest. The Browns pointed out that Sycamore Plaza, Ltd. had requested an order compelling arbitration in its answer previously filed in the lawsuit.

{6} The district court conducted a hearing on the motion for stay. It had before it the affidavit of the Browns' expert witness, Stephen M. Walker, CPA, addressing alternative ways in which a loan incurred by a partner from a third party for the benefit of a partnership can properly be reported for accounting purposes: as a partnership debt to the third party or as an increase in the capital account of the partner obtaining the loan. According to the affidavit, if the debt is reflected within the capital accounts of the partnership, that adjustment "remains purely within the partnership records of account." If it is not so reflected, there is debt outside the partnership to a third party. After hearing argument, the district court noted that the Family Partnership had argued in a pleading that all the Browns' claims were between partners and subject to arbitration under the partnership agreement. The district court stated that it was "going to grant the motion to stay pending arbitration." It stated that the arbitration would be between the general partners of Sycamore Plaza, Ltd. In the following exchange, the district court then further addressed the scope of the arbitration as to parties other than the Sycamore Plaza, Ltd. partners.

MS. SITTERLY: . . . .

In the demand for arbitration, one of the things that we have raised in the arbitration is, are these people all the same entities. So that's clear that that's one of the things that we're saying that the arbitrators will be considering. And the rules —

THE COURT: Now why is that necessary?

MS. SITTERLY: Well —

THE COURT:—for the arbitration?

MS. SITTERLY: Because the issue of the capital accounts is right smack in the middle of this. And you've got people on the outside of the partnership—it's in Mr. Walker's affidavit why that's central. If you've got-there's two ways that you could account for this. They're the same party. If they are the same party, this could have been handled in the capital accounts and there is no third-party debt to any third party out there. If they really are the same entity, this is something that's just handled within the partnership; there's no lawsuit back and forth for a debt.

THE COURT: Does the—well, let's look at what's arbitrable. "If any controversy or claim arising out of this agreement can't be settled by the partners, the controversy shall be settled by arbitration."

MS. SITTERLY: Exactly.

THE COURT: And so what you're saying is any controversy or claim arising out of this agreement includes who's party to the agreement?

MS. SITTERLY: It includes the issue of the capital accounts. That's central to this. And who has —

THE COURT: Well, if the capital accounts —okay. I understand Mr. Walker to say if you treat it one way, it gets—one person's capital account increases; if you treat it another way, it's a debt. With—if the capital account increases, then you just resolve it within the partnership.

MS. SITTERLY: Right. And it's in the demand for arbitration—which has not been objected to-the statement of the issues. It's in the demand for the arbitration: Who are these people? [W]ho is the capital account really going to?

It's in paragraph—I would say let the arbitrators take a whack at what the issues are, but they should decide pursuant to the plain language. But here is the affidavit, Your Honor. It's paragraph 6. If w...