Hart v. McChristian

• Decision Date: 10 May 2001
• Docket Number: 00-1269
• Parties: JOSEPH M. HART, CHERYL LYNN HART, and VINEWOOD COMMUNICATIONS, APPELLANTS, VS. NORMAN D. McCHRISTIAN, APPELLEE. 00-1269 10 May 2001 APPEAL FROM THE WASHINGTON COUNTY CHANCERY COURT: NO. E98-1510, HONORABLE JOHNNY R. LINEBERGER, CHANCELLOR, AFFIRMED. ARKANSAS COURT OF APPEALS REVERSED IN PART; AFFIRMED IN PART. W.H. "Dub" Arnold, Chief Justice. Appellants, Joseph M. Hart and Cheryl Lynn Hart, bring the instant appeal challenging the Washington County Chancery Court's decisions ordering them to submit to arbitration, confirming the arbitrators' award, holding them in contempt, and directing them to pay the full costs of arbitration and appellee Norman D. McChristian's attorney's fees. Appellants initially appealed the decisions to the Arkansas Court of Appeals. In an opinion dated
• Court: Arkansas Supreme Court

JOSEPH M. HART, CHERYL LYNN HART, and VINEWOOD COMMUNICATIONS, APPELLANTS VS NORMAN D. McCHRISTIAN, APPELLEE

00-1269

10 May 2001

APPEAL FROM THE WASHINGTON COUNTY CHANCERY COURT: NO. E98-1510, HONORABLE JOHNNY R. LINEBERGER, CHANCELLOR, AFFIRMED.

ARKANSAS COURT OF APPEALS REVERSED IN PART; AFFIRMED IN PART.

W.H. "Dub" Arnold, Chief Justice.

Appellants, Joseph M. Hart and Cheryl Lynn Hart, bring the instant appeal challenging the Washington County Chancery Court's decisions ordering them to submit to arbitration, confirming the arbitrators' award, holding them in contempt, and directing them to pay the full costs of arbitration and appellee Norman D. McChristian's attorney's fees. Appellants initially appealed the decisions to the Arkansas Court of Appeals. In an opinion dated April 26, 2000, the appellate court declined to vacate the arbitrators' award but reversed and remanded the case for further development and clarification on the issue of whether appellee had standing to seek arbitration. The Court of Appeals also modified the trial court's contempt order. See Hart v. McChristian, 71 Ark. App. 178, 36 S.W.3d 357 (2000).

Pursuant to Ark. R. Sup. Ct. 1-2(e) and 2-4 (2000), we granted appellants' petition for review. When we grant a petition to review a case decided by the appellate court, we review it as if it was filed originally in this court. See Williams v. State, 328 Ark. 487, 944 S.W.2d 822 (1997) (citing Allen v. State, 326 Ark. 541, 932 S.W.2d 764 (1996)). After considering the parties' arguments, we affirm the trial court in all respects.

Background

On January 27, 1990, the Harts, McChristian, and D.D.&B., Inc., formed a limited liability partnership called Vinewood Communications for the purpose of licensing, constructing, owning, operating, maintaining, and managing a Class A F.M. radio station. The Harts were designated as the general partners and owned ten percent of the partnership units. McChristian and DD&B became limited partners, owning eighteen percent and seventy-two percent of the partnership units, respectively. The partnership agreement gave the Harts, as the general partners, exclusive discretion in the business's management and control.

However, the agreement also provided a mechanism for removal of the general partners. Following a removal proposal raised by limited partners holding fifty percent of the units, removal could be accomplished by agreement of limited partners holding seventy-five percent of the partnership units. Then, if the general partners objected to removal, the agreement provided that "the matter shall be submitted within thirty (30) days of such notice of objection by all parties to binding arbitration which shall conform to the rules of the American Arbitration Association, as far as appropriate." Moreover, the agreement indicated that the decision of the arbitrator shall be "final and binding upon the parties in a court of competent jurisdiction."

On July 16, 1998, McChristian notified the Harts of a sale and assignment of DD&B's limited-partnership interest to McChristian, resulting in his being the sole limited partner. The notice also informed the Harts that McChristian consented and agreed to the Harts removal as general partners. A separate notice dated July 13, 1998, explained to the Harts that an August 17, 1998 meeting was scheduled to vote upon the Harts removal as general partners based upon allegations of improper conduct, including breach of fiduciary duty, negligence, fraud, willful misconduct, mismanagement and misappropriation of assets, and violation of FCC rules and regulations. Appellee maintains that the Harts were removed as general partners, per the limited-partnership agreement, at the August 17, 1998 meeting.

Appellee then filed a complaint in the Washington County Chancery Court on August 28, 1998, alleging that the Harts had breached the limited-partnership agreement by mismanaging Vinewood Communications, misappropriating assets, and operating the company for their personal benefit. McChristian also sought an accounting, the appointment of a receiver, and an order requiring the parties to submit to arbitration should the Harts object to removal. In response, appellants argued that arbitration was unwarranted because McChristian held only eighteen percent of the partnership units at the time of the vote and, thus, lacked the authority to remove them as general partners. Following a February 2, 1999 hearing, the chancellor rejected appellants' arguments and ordered the parties to submit to arbitration. Additionally, the court determined that appellants should raise to the arbitration panel the issue of McChristian's standing to remove general partners.

The arbitration hearing commenced on May 10, 1999. At its conclusion, the arbitrators found that the removal of the general partners was appropriate. On June 28, 1999, the chancellor confirmed the arbitration award, appointed a receiver per appellee's request, and restrained the Harts from interfering with Vinewood Communications or its assets. Pursuant to this order, the receiver was directed to take possession of all partnership assets and to file an application with the Federal Communications Commission to transfer control of Vinewood Communications to a successor general partner.

The Harts subsequently filed motions to amend or vacate the arbitrators' award and the trial court's June 28, 1999 order confirming the award. Appellants also reiterated their argument that McChristian lacked standing to effect their removal. Further, they claimed that the arbitrators violated several procedural rules by (1) denying their request for a continuance, (2) failing to ensure the timely exchange of exhibits, and (3) excluding their representative, Cheryl Hart, from a post-arbitration conference. After considering appellants' motion, the chancellor declined to modify or vacate the arbitrators' award but entered a judgment confirming the award pursuant to Ark. Code Ann. section 16-108-214 (1987).

Appellants then filed an objection with the FCC to the transfer of Vinewood Communications to the receiver. As a result, McChristian filed a motion asking the Harts to be held in contempt for violating the court's June 28, 1999 order prohibiting their interference with the partnership or its assets. The trial court agreed and held the Harts in contempt for interfering with the receiver by filing opposition with the FCC. On September 20, 1999, the chancellor ordered appellants to withdraw their objection with the FCC and to pay, as punishment for contempt, $7,118.90, representing the full cost of the arbitration, plus other costs incurred as a result of their contempt, and appellee's attorney's fees "as subsequently determined." From these orders, the instant appeal ensued.

I. Arbitration

Appellants' first point on appeal challenges the chancellor's initial February 2, 1999 order granting McChristian's motion to compel arbitration pursuant to the terms of the limited-partnership agreement. Essentially, appellants maintain that the chancery court should have determined whether appellee had standing to remove the general partners, as a threshold issue, prior to referring to arbitration the secondary issue of whether removal was appropriate. McChristian responds by pointing out that Arkansas' public policy strongly favors arbitration and considers it a less expensive and more expeditious means of settling litigation. Moreover, the scope of arbitration is defined by the parties' contractual agreements. Here, appellee asserts that the trial court correctly interpreted the parties' limited-partnership agreement to compel arbitration. We agree.

This court has oft recognized that as a matter of public policy, arbitration is "strongly favored." Anthony v. Kaplan, 324 Ark. 52, 918 S.W.2d 174 (1996) (citing Lancaster v. West, 319 Ark. 293, 891 S.W.2d 357 (1995); Estate of Sandefur v. Greenway, 898 S.W.2d 667 (Mo. App. W.D. 1995)). Arbitration is looked upon with approval by courts as a less expensive and more expeditious means of settling litigation and relieving docket congestion. Id. Significantly, we have also held that arbitration is a matter of contract between parties. See May Constr. Co. v. Benton Sch. Dist. No. 8, 320 Ark. 147, 895 S.W.2d 521 (1995). In fact, the same rules of construction and interpretation apply to arbitration clauses as apply to agreements generally. The construction and legal effect of a written contract to arbitrate are to be determined by the court as a matter of law. Id., 320 Ark. at 149-50, 895 S.W.2d at 523.

Accordingly, this court will give effect to the parties' intent as evidenced by the arbitration agreement itself. In light of the policy favoring arbitration, such agreements will not be construed strictly but will be read to include subjects within the spirit of the parties' agreement. In other words, any doubts and ambiguities of coverage will be resolved in favor of arbitration. See May Constr. Co., 320 Ark. at 149, 895 S.W.2d at 523 (quoting Wessell Bros. Foundation Drilling Co. v. Crossett Publ. School Dist., No. 52, 287 Ark. 415, 701 S.W.2d 99 (1985) (internal citations omitted)).

Here, the parties agreed that should the general partner object to removal, the matter "shall be submitted . . . to binding arbitration." Then, the arbitrators shall render "a decision as to whether or not the removal of the General Partner was appropriate under the circumstances." Appellants counter that they never articulated an objection to removal but only an objection to appellee's standing to remove them. As a corollary to this argument, appellants insist that the standing issue was never resolved because the trial court instructed them to raise the matter in arbitration, but the arbitrators declined to reach the issue and failed to make a written finding on this point.

However, the transcript of the arbitration hearing demonstrates that the issue raised by appel...