THOMPSON v. LEE

• Decision Date: 16 April 1991
• Docket Number: No. 89-882,89-882
• Citation: 589 A.2d 406
• Parties: W. Edward THOMPSON, Appellant, v. Sandy V. LEE, et al., Appellees.
• Court: D.C. Court of Appeals

589 A.2d 406

W. Edward THOMPSON, Appellant, v. Sandy V. LEE, et al., Appellees.

No. 89-882.

District of Columbia Court of Appeals.

Argued February 12, 1991.

Decided April 16, 1991.

Appeal from the Superior Court, Joseph M. Hannon, J.

THIS PAGE CONTAINED HEADNOTES AND HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.

Julie A. Thompson, with whom Edward Greensfelder, Jr. was on the brief, for appellant.

Blaine A'mmon White, for appellees.

Before ROGERS, Chief Judge, and TERRY and FARRELL, Associate Judges.

FARRELL, Associate Judge:

In this appeal we reverse the denial of a motion to confirm an arbitration award. We remand for a determination by the trial court, upon an adequate evidentiary foundation, of whether there was fraud in the inducement of the Settlement Agreement which gave rise to the arbitration and the ensuing arbitration award, and hence whether confirmation of the award could properly be denied.

I.

On January 18, 1988, former law partners W.E. Thompson, on the one hand, and Sandy V. Lee and Edwin H. Harvey (Lee & Harvey), on the other, executed a "Settlement Agreement" which resolved their disputes over the distribution of certain contingent fees received by their dissolved law partnership.¹ Paragraph 3 of the Settlement Agreement provided for the division of fees collected in the cases of certain clients listed by Lee & Harvey (Exhibit A to the Settlement Agreement) and by Thompson (Exhibit B to the Settlement Agreement). Paragraph 3(d) provided an exception to the Agreement's general scheme of distribution:

The $150,000.00 attorney's fee received by Thompson from the case of Julio Gonzales shall not be taken into account in the income or expense of the Partnership and shall not be divided according to the terms of this Agreement, except as set forth in this subparagraph (d) of paragraph 3, as follows: at the time of the execution of this Agreement, Thompson shall pay Harvey $30,000; and Thompson shall be entitled to retain all of the remaining amount.

Paragraph 9 of the Settlement Agreement provided in relevant part:

Any dispute arising under this Agreement shall be submitted to binding Arbitration before a single arbitrator according to the rules of the American Arbitration Association and shall be decided by the single arbitrator upon written submissions and a single summary oral argument to be presented by the parties or their representatives without an evidentiary [sic] hearing, it being the parties' purpose to achieve an amicable final resolutation [sic] of their disputes without further delay or undue expense. . . .

On August 8, 1988, after disputes had arisen, Thompson demanded arbitration concerning payment of his share of the contingent fees. On September 27, 1988, during discovery in the arbitration proceeding, Lee & Harvey claim to have found evidence of a $220,000 payment to Thompson for fees in the Gonzales case. This amount conflicted with Thompson's statement in paragraph 3(d) of the Settlement Agreement that there was a "$150,000.00 attorney's fee received by Thompson from the case of Julio Gonzales."

This and other purported discoveries led Lee & Harvey to file "counterclaims" before the arbitrator in which they asserted that they had been fraudulently induced into entering the Settlement Agreement by (1) Thompson's alleged misrepresentations about the Gonzales fee, and (2) Thompson's failure to list fully in Exhibit B of the Settlement Agreement the clients as to whom Lee & Harvey were entitled to payment. Although raising the issue of fraudulent inducement, Lee & Harvey informed the arbitrator that in their view he lacked authority under the arbitration clause to resolve this issue, which could only be decided by a court. The arbitrator ultimately agreed that the claims of fraud were not "within the scope of the Arbitration Clause" and dismissed those claims.

The arbitrator issued an award in Thompson's favor on April 24, 1989. The portions of the award at issue in this appeal are chiefly (1) two awards to Thompson — $75,765.60 (for fees collected during the existence of the partnership) and $81,674.55 (for fees collected after dissolution) — and (2) the denial of an award to Lee & Harvey for an additional portion of the Gonzales fee, the amount of which the arbitrator ruled "could not have been determined without an evidentiary hearing, which is prohibited by the Arbitration Clause." Lee & Harvey filed a "Motion to Vacate, Modify and Correct Arbitrator's Award" which the arbitrator denied on June 21, 1989.

On June 30, 1989, Thompson filed a "Motion for Order to Confirm Arbitration Award" in Superior Court. On July 12, 1989, Lee & Harvey filed an opposition which combined a jurisdictional argument for dismissal of the motion to confirm, a request to stay the Superior Court proceedings, and an argument against confirmation on the merits on grounds which included the claim of fraud in the inducement of the Settlement Agreement.² On July 31, 1989, Judge Hannon denied the motion to confirm and vacated the arbitrator's award, and subsequently denied Thompson's motion to reconsider. Thompson appeals from these rulings.

II.

D.C.Code § 16-4310 (1989) provides that, "Upon application of a party, the Court shall confirm an [arbitration] award, unless within the time limits hereinafter imposed grounds are urged for vacating or modifying or correcting the award. . . ." Thompson first contends that Lee & Harvey made no such application to vacate the arbitrator's award. We disagree.

In Walter A. Brown, Inc. v. Moylan, 509 A.2d 98 (D.C. 1986), this court held that

[t]here are two ways in which a party may present reasons for vacating an award: (1) by filing a petition with the trial court to vacate the award; or (2) by raising reasons supporting vacation in an answer to the other party's petition to confirm.

Id. at 99. Although Lee & Harvey did not file a motion to vacate the award, they filed within the required time period an opposition to Thompson's motion to confirm the award. The opposition stated two grounds: (1) "[t]hat the motion of [Thompson] is not provided for by any rule or statute which would vest this Court with jurisdiction over these matters"; and (2) that because Lee & Harvey "have filed an application/motion to vacate, modify and/or correct Arbitrator's award in this matter in the United States District Court for the District of Columbia," see note 2, supra, "the proceeding herein must be stayed and/or dismissed until the resolution" of that application. Neither contention was accompanied by supporting argument, and we conclude neither had merit.

Both arguments appear to have rested on, first, the bare fact that Thompson had initially sued Lee & Harvey in federal district court, see note 1, supra, and second, the assertion that federal arbitrationlaw would apply to resolve this controversy. Thompson's federal suit, however, had been dismissed with prejudice by consent of the parties upon execution of the Settlement Agreement, and the fact that Lee & Harvey had since moved to vacate the arbitration award in the same now-dismissed federal action could not oust the Superior Court of jurisdiction which it otherwise possessed. Nor did federal law necessarily govern this arbitration dispute. The federal arbitration law applies to contracts "evidencing a transaction involving commerce." 9 U.S.C. § 2 (1988); see Coles v. Redskin Realty Co., 184 A.2d 923 (D.C. 1962). Lee & Harvey did not argue to the Superior Court that this case evidenced a transaction involving interstate commerce, and the trial court judge made no such finding.³ Lee & Harvey thus failed to demonstrate that the Superior Court lacked jurisdiction to confirm the arbitration award under the applicable District of Columbia statute.

In addition to the reasons for opposing confirmation stated on its face, however, Lee & Harvey's opposition attached and incorporated by reference the motion to vacate the arbitration award filed the previous day in federal district court, see note 2, supra, and stated that this motion would "act as [Lee & Harvey's] memorandum of points and authorities here." The attached motion and supporting memorandum set forth, inter alia, the argument that the arbitration award should be vacated because of Thompson's alleged fraud in procuring the Settlement Agreement. Although this manner of pleading did not highlight for Judge Hannon's attention fraud as a ground for denying confirmation, we conclude that Lee & Harvey, in addition to their jurisdictional argument, were "asking for the affirmative relief of having the arbitration award vacated" on grounds of fraud. Walter A. Brown, Inc. v. Moylan, 509 A.2d at 99.

III.

We thus turn to Thompson's primary argument on appeal, which contests Lee & Harvey's right to oppose confirmation of an arbitration award on the ground, not that the award itself "was procured by corruption, fraud or other undue means," D.C.Code § 16-4311(a)(1), but that the underlying agreement containing an arbitration clause was the product of fraudulent inducement.⁴

The authority of courts to interfere in contractually mandated arbitration proceedings is governed by arbitration statutes. See District of Columbia Uniform Arbitration Act, D.C.Code §§ 16-4301 et seq. (1989); 9 U.S.C. § 1 et seq. (1988) (federal arbitration statute); Uniform Arbitration Act, 7 U.L.A. 1 (1956) (the Act).⁵Section 3 of the Act, D.C.Code § 16-4302, governs pre-arbitration court proceedings. A party to a contract may obtain a court order requiring the opposing party to arbitrate according to the contract. § 3(a), D.C.Code § 16-4302(a). "[B]ut if opposing party denies the existence of the agreement to arbitrate, the Court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party, otherwise, the application shall be denied." Id. A party may also force arbitration by obtaining...