W. Dow Hamm III v. Millennium Income Fund, 01-06-00499-CV.

• Decision Date: 12 July 2007
• Docket Number: No. 01-06-00499-CV.,No. 01-06-00470-CV.,01-06-00499-CV.,01-06-00470-CV.
• Citation: 237 S.W.3d 745
• Parties: W. DOW HAMM III CORPORATION & W. Dow Hamm III, Appellants, v. MILLENNIUM INCOME FUND, L.L.C. & Jonathan Brinsden, Appellees. In re W. Dow Hamm III Corporation & W. Dow Hamm III, Relators.
• Court: Texas Court of Appeals

237 S.W.3d 745

W. DOW HAMM III CORPORATION & W. Dow Hamm III, Appellants, v. MILLENNIUM INCOME FUND, L.L.C. & Jonathan Brinsden, Appellees.

In re W. Dow Hamm III Corporation & W. Dow Hamm III, Relators.

No. 01-06-00499-CV.

No. 01-06-00470-CV.

Court of Appeals of Texas, Houston (1st Dist.).

July 12, 2007.

Jeffery T. Nobles, N. Terry Adams Jr., Beirne, Maynard & Parsons, L.L.P., Houston, TX, for Relators.

Scott R. Link, Christian Smith & Jewell, Murry Fogler, Beck, Redden & Secrest, LLP, Paul J Franzetti, McDade, Fogler LLP, Patrick D. Mahoney, Beryl F. Mazella, Mahoney & Associates, Houston, TX, for Real Parties in Interest.

Panel consists of Justices TAFT, JENNINGS, and ALCALA.

OPINION

TIM TAFT, Justice.

Appellants and relators, W. Dow Hamm III Corporation and W. Dow Hamm III ("the Hamm parties"), seek relief, both by interlocutory appeal and petition for writ of mandamus, from the trial court's order that, in pertinent part, stayed arbitration proceedings that the Hamm parties had initiated with the American Arbitration Association ("AAA"). We determine (1) whether interlocutory appeal or writ of mandamus is the proper method of appellate review and (2) whether the trial court erred in implicitly determining that the defenses to arbitration that appellees and real parties in interest, Millennium Income Fund, L.L.C. ("Millennium") and Jonathan Brinsden, raised should be decided by the court, rather than by the arbitrator. We dismiss the appeal and conditionally grant the petition for writ of mandamus.

Background

In the late 1990s, the Hamm parties and Millennium formed seven limited partnerships to build and to operate Marriott hotels. Hamm later assigned a percentage of his interest to Brinsden, and Brinsden became a limited partner in four of the hotels; Brinsden's name did not appear in the partnership agreements' dissolution provisions, however. The partnership agreements contained identical arbitration provisions. The arbitration provisions were broadly worded to encompass "any claim, action, dispute or controversy of any kind [that] arises out of or relates to this Agreement or concerns any aspect of performance by any Partner under the terms of this Agreement . . . ."

In March 2003, Millennium sued the Hamm parties ("the instant lawsuit"), seeking a temporary restraining order and temporary injunctive relief to prevent the Hamm parties from "making further unauthorized payments to themselves and others" while the parties pursued the arbitration required by their partnership agreements.¹ The arbitration took place from July 14, 2003 until July 17, 2003. The arbitrator's award, among doing other things, ordered an accounting of the partnerships, expelled W. Dow Hamm III Corporation as the general partner, and ordered the limited partners to agree on a new general partner within 90 days or face dissolution of the partnerships ("the 2003 arbitration award"). The arbitrator appointed Scott Mitchell as the accountant.

On September 5, 2003, the trial court entered an order confirming the arbitration award. The Hamm parties then moved to vacate or to modify the 2003 arbitration award. The trial court denied the motion to vacate or to modify the judgment and arbitration award. The Hamm parties then appealed to this Court, challenging the trial court's final order of confirmation and the denial of their post-judgment motion to vacate or to modify the arbitration award. See Hamm v. Millennium Income Fund, L.L.C., 178 S.W.3d 256, 259 (Tex.App.-Houston [1st Dist.] 2005, pet. denied), cert. denied, ___ U.S. ___, 127 S.Ct. 297, 166 L.Ed.2d 154 (2006). We affirmed the judgment of the trial court. See id. at 272.

Under the confirmed 2003 arbitration award, W. Hamm III Corporation was expelled as general partner of the partnership, and a replacement general partner was to be selected within 90 days; if one could not be selected, Mitchell would wind up the partnerships and distribute the assets to the partners in accordance with the terms of the partnership agreements. The parties did not agree on a new general partner, and Mitchell, whom the trial court appointed as receiver, began the process of winding up the partnerships and distributing the assets by arranging for the sale of the hotels. After Mitchell had paid the mortgage loans for the hotels, approximately $30 million remained for distribution to the partners.

On March 29, 2006, Brinsden intervened in the lawsuit. Brinsden claimed that because of a mutual mistake, his name had been inadvertently omitted from the dissolution section of the partnership agreements. In his motion for leave to intervene, he stated that his "claims have neither been addressed by the Arbitrator or the Receiver or were never in issue until one month ago, [and] he is compelled to intervene in the case at bar so that an arbitrator may reform the Partnership Agreements to confirm the intent of the parties; and conduct an evidentiary hearing to calculate the worth of Brinsden's five percent ownership interest. . . ."

Mitchell then filed a first and amended "Receiver's Motion for Distribution and Receiver's Report on Distribution of Partnership Assets" ("the receiver's report"). In the receiver's report and his accompanying motion to distribute, Mitchell stated that there were many disputes among the parties regarding the terms of section 8.2 of the partnership agreements² and the distributions to be made upon the partnerships' dissolution and that "there is no agreement among the parties about how the assets of the partnerships should be distributed." Mitchell also stated that "Brinsden's ownership interest has not been determined in this litigation." Likewise, Mitchell noted that "Hamm Corp. is left out of the distribution of capital proceeds under § 8.2(b)(10) [of the partnership agreements' dissolution provisions]." Instead of trying to resolve the disputes and ambiguities, Mitchell provided four alternative distribution schedules to the trial court. Millennium and Brinsden objected to the receiver's report on various grounds.³

On May 4, 2006, the Hamm parties served an arbitration demand on appellees and filed the demand with the AAA, seeking to resolve the disputes about the distribution of assets under section 8.2 of the partnership agreements.⁴ On May 5, the Hamm parties filed a motion to compel arbitration and to stay litigation in the instant lawsuit, seeking to stay the litigation pending arbitration, to stay ruling on the receiver's motion to distribute, and to compel arbitration on the disputed issues relating to section 8.2 of the partnership agreements. They sought to compel arbitration under the Federal Arbitration Act ("FAA")⁵ and, only in the event that the trial court found the FAA not to apply, under the Texas General Arbitration Act ("TAA").⁶

Millennium responded to the Hamm parties' motion to compel and filed a motion "to Stay Hamm's Collateral Attacks on This Court's Judgment." In its motion to stay, Millennium sought to stay both the arbitration instigated before the AAA and the second lawsuit. With regard to the Hamm parties' request for arbitration, Millennium argued that the arbitrator had already considered and determined everything on which the Hamm parties sought a second arbitration, so that res judicata barred a second arbitration. The Hamm parties responded, raising, among other arguments, that whether res judicata barred a second arbitration was a preliminary matter for the arbitrator to decide within the context of the second arbitration and was not a matter for the trial court's consideration. The Hamm parties also asserted, in the alternative, arguments on the merits of Millennium's res judicata defense.

On May 12, 2006, the trial court considered the Hamm parties' motion to compel arbitration, Millennium's motion to stay proceedings, and the receiver's motion to order distribution. The Hamm parties objected to the trial court's consideration of Millennium's motion to stay because all matters raised were for the arbitrator to decide, not the court, and they objected to the trial court's consideration of the receiver's motion to distribute until after arbitration had been conducted. The trial court overruled these objections.

After the hearing, the trial court granted Millennium's motion to stay by the order of which the Hamm parties' complain, staying both the second lawsuit and the AAA arbitration proceedings.⁷ The trial court did not expressly rule on the Hamm parties' motion to compel arbitration. By separate order, the trial court approved the receiver's report, selected the first method of Mitchell's four alternative distribution schedules, and ordered distribution of all liquidation proceeds except for $800,000, which was reserved for any future expenses that the receiver might incur.

The Hamm parties perfected this interlocutory appeal and filed a petition for writ of mandamus, complaining of the trial court's May 12 order staying arbitration proceedings. Millennium has moved to dismiss the interlocutory appeal on the basis that only mandamus review is available, and this motion remains pending before the Court.

Pending resolution of the appellate proceedings, the Hamm parties moved for an emergency stay of the separate May 12 order of distribution. This Court denied the Hamm parties' motion. On May 19, 2006, Mitchell distributed all of the liquidation proceeds except the $800,000 that he had been ordered to reserve. Mitchell paid the Internal Revenue Service for taxes that the Hamm parties owed, satisfied the arbitrator's monetary judgments against the Hamm parties, and gave the Hamm parties a cashier's check for their portion of the distribution, which they accepted. Based on these distributions, Millennium argues, in its briefing in the mandamus proceeding, that the mandamus proceeding is moot because the proceeds have already been distributed. The Hamm parties respond, in part, that mootness is a matter for the...