Pecha v. Smith, Keller & Associates
| Citation | 942 P.2d 387 |
| Decision Date | 14 July 1997 |
| Docket Number | Nos. 96-86,96-87,s. 96-86 |
| Parties | Stephen H. PECHA; Steven K. Bentley, P.C.; Steven K. Bentley; Mark Dorr; and Barbara Elizabeth Dorr, Appellants (Defendants), v. SMITH, KELLER & ASSOCIATES, a Wyoming general partnership, Appellee (Plaintiff). SMITH, KELLER & ASSOCIATES, a Wyoming general partnership; and Thomas M. Hogan, as Bankruptcy Trustee for Dorr & Associates, a partnership, Appellants (Plaintiffs), v. DORR, BENTLEY & PECHA, a partnership; Dorr, Bentley & Pecha, Certified Public Accountants, a Limited Liability Company; Steven K. Bentley; Steven K. Bentley P.C.; Mark Dorr; Dorr, Bentley & Pecha, P.C.; Dorr, Bentley & Pecha, a CPA Network; Barbara Elizabeth Dorr; and Stephen H. Pecha, Appellees (Defendants). |
| Court | United States State Supreme Court of Wyoming |
Greg L. Goddard, of Goddard, Perry & Vogel, Buffalo, for Appellants in No. 96-86 and Appellees in No. 96-87.
Don W. Riske, of Riske & Arnold, P.C., Cheyenne; Patrick Vellone, of Vinton, Nissler, Allen & Vellone, P.C., Denver, CO; and G. Kevin Keller (argued), Cheyenne, for Smith, Keller & Associates.
Ernest W. Halle, Cheyenne, for Chapter 7 Trustee for Dorr & Associates.
Before THOMAS, GOLDEN, LEHMAN, JJ., VOIGT, District Judge, and KAUTZ, District Judge.
These appeals are taken from a Trial Decision/Order entered by the trial court after the case had been remanded for further proceedings by this Court. The case represents a third effort by the partners (actually two partnerships) in an accounting firm, Dorr, Keller, Bentley & Pecha (DKBP), to have this Court adjust the obligations flowing from the dissolution of the accounting partnership. The first efforts are represented by our opinions in Dorr, Keller, Bentley & Pecha v. Dorr, Bentley & Pecha, 841 P.2d 811 (Wyo.1992) (Dorr I ) and Smith, Keller & Associates v. Dorr & Associates, 875 P.2d 1258 (Wyo.1994) (Dorr II ). The focal issue of this case is the right of Smith, Keller & Associates (SKA), or the Trustee in Bankruptcy for Dorr & Associates (Trustee) to recover damages from Stephen H. Pecha; Steven K. Bentley, P.C.; Steven K. Bentley; Mark Dorr; and Barbara Elizabeth Dorr (collectively the Dorr Faction) for breach of their fiduciary duty, owed to DKBP, by violating a covenant not to compete. Additional issues raised by the parties include the enforceability of arbitration awards against the Dorr Faction, and a ruling that the Trustee failed to raise claims against the new firm within the statutory period of time. The District Court awarded judgment in favor of SKA against the Dorr Faction in the amount of $112,716.00 for breach of a fiduciary duty owed to DKBP and $1,451.96 for the value of work in process. It denied all other relief in accordance with its opinion letter, specifically incorporated by reference in the Judgment. We hold that any damages attributable to any violation of the covenant not to compete were included in the damage award made by the arbitrators on August 24, 1989, and the judgment for $112,716.00 for breach of a fiduciary duty must be reversed. We affirm the district court in all other respects.
In the Brief of Appellants in No. 96-86 and Appellees in No. 96-87, filed on behalf of the Dorr Faction, the issues are set forth as follows:
ISSUE ONE
What is the effect of the court's ruling in Dorr II?
Can a covenant-not-to-compete be imputed by the court where none otherwise exists?
Assuming, arguendo, that the Dorr Faction is subject to a covenant-not-to-compete, what are the damages, pursuant to Hopper, for a violation of the covenant?
In the Brief of Appellee in No. 96-86: Smith Keller & Associates, two issues are identified:
I. Whether the Wyoming Supreme Court has jurisdiction to determine matters regarding the Dorr, Keller, Bentley & Pecha partnership in contravention to the arbitration process and the three (3) resultant awards.
II. Whether the district court correctly found that removal of the covenant not to compete from the Dorr & Associates partnership agreement just prior to filing bankruptcy resulted in a fraudulent conveyance rendering the partnership insolvent and unable to pay its creditors, specifically The Reply of Brief of Appellants (96-86), filed on behalf of the Dorr Faction, sets forth two additional issues:
Smith, Keller & Associates and the Dorr, Keller, Bentley & Pecha partnership but failed to award the full amount of damages.
With regard to SKA, did the trial court actually find a fraudulent conveyance?
Is there a valid covenant-not-to-compete in this case binding all of the Dorr defendants?
In the Brief of Appellants: Smith Keller & Associates and Thomas M. Hogan, Trustee for Dorr & Associates, filed in Case No. 96-87, these issues are recited:
I. Whether the district court exceeded its jurisdiction by determining that there is no enforceable covenant not to compete in the Dorr, Keller, Bentley & Pecha partnership agreement in direct contravention to the specific language of the confirmed, unappealed arbitration awards.
II. Whether the district court erred by ruling that the second and third confirmed, unappealed arbitration awards rendered in the firm name of Dorr & Associates, a Wyoming general partnership, were unenforceable against the individual partners of Dorr & Associates.
III. Whether the district court erred in determining that the Bankruptcy Trustee failed to raise the claims of Dorr & Associates within the statutory period of time.
In the Brief of Appellees (No. 96-87), the Dorr Faction identifies the issues, in the appeal by SKA and the Trustee, as these:
ISSUE ONE
Did the district court exceed its jurisdiction by determining that there is no enforceable covenant-not-to-compete?
Did the district court correctly rule that the third arbitration award could not be applied against the Dorr Faction individually when there was no hearing and they were not allowed to participate?
Did the district court correctly rule that the Bankruptcy Trustee failed to raise claims of Dorr & Associates within the statutory period of time?
We summarize, briefly, the facts as they have been reflected in Dorr I and Dorr II. On January 1, 1988, DKBP was formed by two general partnerships, Dorr & Associates and SKA, and that partnership then was comprised of the parties now known as the Dorr Faction of Gillette, and SKA, a general partnership operating in Cheyenne. The partnership agreement contained a covenant not to compete. It also provided a specific procedure for dissolution within the first twenty-four months of the partnership. The partnership agreement provided that SKA or Dorr & Associates could dissolve the partnership without the consent of the other by providing thirty days notice. If dissolution was accomplished by this procedure, the DKBP partnership agreement provided: "In this case only, each party shall take back those assets and/or liabilities it brought to the partnership." SKA invoked this provision of the DKBP partnership and dissolved the partnership on May 4, 1989. Further in accordance with the terms of their agreement, SKA and Dorr & Associates entered into arbitration to settle their affairs.
The first arbitration culminated in an award made on August 24, 1989 pursuant to which Dorr & Associates (Dorr Faction) was to pay SKA $105,163.78 in unpaid compensation and damages. Following the award, the Dorr Faction, as Dorr & Associates, rescinded its own covenant not to compete, previously binding among the members of the partnership, so that the individuals could be free to form new entities. In February of 1990, Dorr & Associates declared a Chapter 11 bankruptcy, which later became a Chapter 7 bankruptcy. A trustee was appointed by the bankruptcy court to represent solely the now defunct Dorr & Associates entity, while the Dorr Faction formed new entities and essentially continued business as usual. At that juncture, SKA continued the arbitration proceedings with the Trustee representing Dorr & Associates, but without any representation of the individual members of the Dorr Faction, to settle additional questions about the dissolution of DKBP. The arbitrators announced a second award on July 30, 1990, which held the members of the Dorr Faction liable for additional damages to SKA. After that, the arbitrators announced a third award in favor of SKA on August 22, 1994, against the members of the Dorr Faction, but based, like the July 30, 1990 order, only on participation from SKA and the Trustee in bankruptcy. The arbitration proceedings then merged into actions to have the district court enforce the arbitration awards.
The parties are now visiting this Court for the third time regarding their dissolution. The first opinion was filed in this Court in 1992, in Dorr I. In that first case, we held, among other rulings, that full effect had not been given to the arbitration awards dated August 24, 1989 and October 1, 1989 (a nunc pro tunc order). In the second case before this court, Dorr II, we held that the arbitration did not terminate the DKBP partnership. We ruled that termination occurs only after the partnership affairs have been wound up following dissolution. With respect to this case, Dorr II specifically decided that SKA was entitled to an award for work in process during the winding up stage of DKBP.
Following the decision in Dorr II and the third arbitration, the parties revisited the district court. SKA and the Trustee in bankruptcy sought confirmation of the third arbitration award, and they endeavored to renew claims against the Dorr Faction for the breach of a fiduciary duty, that is violation of a covenant not to compete found in the original DKBP agreement and for fraudulent conveyance of assets. The fraudulent conveyance related to the Cheyenne client base, originally brought into the DKBP partnership by SKA. The Dorr Faction appeared to defend both old and new claims by SKA and the Trustee in bankruptcy.
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