Weiss v. Carpenter, Bennett & Morrissey

• Decision Date: 18 July 1994
• Citation: 275 N.J.Super. 393,646 A.2d 473
• Parties: Stanley WEISS, Plaintiff-Appellant-Cross-Respondent, and Jerome E. Sharfman and Thomas J. Lennon, Plaintiffs-Cross-Respondents, v. CARPENTER, BENNETT & MORRISSEY, Edward F. Ryan and Michael S. Waters, Defendants-Respondents-Cross-Appellants. CARPENTER, BENNETT & MORRISSEY, Edward F. Ryan and Michael S. Waters, Plaintiffs-Respondents-Cross-Appellants, v. Stanley WEISS, Defendant-Appellant-Cross-Respondent, and Jerome E. Sharfman and Thomas J. Lennon, Defendants-Cross-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 393

275 N.J.Super. 393

646 A.2d 473

Stanley WEISS, Plaintiff-Appellant-Cross-Respondent, and Jerome E. Sharfman and Thomas J. Lennon, Plaintiffs-Cross-Respondents, v. CARPENTER, BENNETT & MORRISSEY, Edward F. Ryan and Michael

S. Waters, Defendants-Respondents-Cross-Appellants.

CARPENTER, BENNETT & MORRISSEY, Edward F. Ryan and Michael

S. Waters, Plaintiffs-Respondents-Cross-Appellants, v. Stanley WEISS, Defendant-Appellant-Cross-Respondent, and Jerome E. Sharfman and Thomas J. Lennon, Defendants-Cross-Respondents.

Superior Court of New Jersey,

Appellate Division.

Argued May 24, 1994.

Decided July 18, 1994.

Appellant Stanley Weiss, argued the cause pro se.

Cross-respondent Jerome E. Sharfman, West Orange, argued the cause for cross-respondents Mr. Sharfman and Thomas J. Lennon (Jerome E. Sharfman, attorney; Mr. Sharfman, on the brief).

Jerome Graham, Morristown, argued the cause for respondents-cross-appellants Carpenter, Bennett & Morrissey, Edward F. Ryan and Michael S. Waters (Ribis, Graham & Curtin, attorneys; Mr. Graham, on the brief).

Before Judges PRESSLER, DREIER and BROCHIN.

The opinion of the court was delivered by

BROCHIN, J.A.D.

Stanley Weiss, Jerome E. Sharfman, and Thomas J. Lennon are former partners of Carpenter, Bennett & Morrissey, a New Jersey law firm, who left that firm to form a competing law firm. All of them are younger than sixty-five years of age. Carpenter, Bennett & Morrissey offered them payouts calculated in accordance with paragraphs 9(b) and 10(a) of the firm's partnership agreement which provide, in substance, that part of the payout to which a partner would become entitled if he or she withdraws from the firm because of death, disability, or judicial appointment is forfeited by any partner who withdraws for any other reason before he or she becomes sixty-five years of age. The former partners contended that the forfeiture provisions of their agreement were either inapplicable to their situation or, if applicable, unenforceable because they were contrary to the New Jersey Rules of Professional Conduct ("RPC "), specifically, RPC 5.6 as interpreted by Jacob v. Norris, McLaughlin & Marcus, 128 N.J. 10, 607 A.2d 142 (1992), and that they were therefore entitled to larger amounts than they had been offered by their former law firm.

Upon Carpenter, Bennett & Morrissey's rejection of their demands, Weiss, Sharfman, and Lennon sued to recover what they claimed were their proper shares of the firm's capital and earnings, and damages for their former partners' alleged breach of fiduciary relations. ¹ On the motion of the law firm, the suit was stayed and, over the departing partners' objections, all of their claims except their claims based on defamation were referred to arbitration. The parties then agreed upon the selection of a sole arbitrator. At a preliminary conference with the arbitrator, they agreed that:

1. All testimony shall be under oath.

2. The Arbitrator shall issue a written opinion setting forth his factual findings and legal conclusions.

3. The Arbitrator will apply the law of New Jersey to all issues in the case.

....

Liability issues were bifurcated from damages, and evidence on liability was presented to the arbitrator during seven days of hearings.

Following the hearings, the arbitrator rendered a comprehensive written opinion detailing his findings and conclusions. He determined that paragraph 10(a) of the Carpenter, Bennett & Morrissey partnership agreement controlled the payouts to Weiss, Sharfman, and Lennon because their departures were the "withdrawal[s]" of partners within the meaning of that paragraph, but that paragraph 10(a) violated RPC 5.6 insofar as it caused the withdrawing partners to forfeit their equity interest in the firm; that Weiss was estopped from contesting the validity of the forfeiture, but that Sharfman and Lennon were entitled to receive their equity interests in the law firm, calculated according to the method of paragraph 9(b) of the agreement; and that each of the three former partners was entitled to receive his share of the 1991 net income of the firm, but not the additional amount of up to twenty-five percent of his 1991 income to which he would have been entitled if he had withdrawn because of death, disability, judicial appointment, or retirement at age sixty-five. In response to an application for reconsideration, the arbitrator issued a further explanatory opinion which did not alter his previously stated conclusions. The parties then stipulated to the amounts to be awarded in accordance with the arbitrator's determinations of the liability issues, and the arbitrator issued his award.

Carpenter, Bennett & Morrissey instituted a summary action pursuant to N.J.S.A. 2A:24-7 to confirm the award or, alternatively, to vacate the award to Sharfman and Lennon if they or Weiss should seek to vacate the award to Weiss. Weiss, Sharfman, and Lennon counterclaimed to vacate portions of the award and to confirm the rest. After arguments and submission of the arbitration record, the trial court confirmed the arbitrator's award in its entirety and, in order to facilitate any appeal, consolidated the initial action, which had been stayed pending arbitration, with the summary action in which the judgment had been entered confirming the award.

Sharfman and Lennon have not appealed or cross-appealed. They are prepared to accept the awards as confirmed. Weiss has appealed and Carpenter, Bennett & Morrissey has cross-appealed. Weiss argues that his claims for breach of fiduciary obligations are not encompassed within the arbitration clause of the partnership agreement, that the issue of the validity of the forfeiture provision of the agreement is not arbitrable as a matter of public policy, and, alternatively, that the trial court's confirmation of the arbitrator's rulings holding him to be a "withdrawing partner" subject to the forfeiture clause, but estopped from contesting it, are legally erroneous and without factual support. Carpenter, Bennett & Morrissey argues that the trial court erred in confirming the arbitrator's determination that the forfeiture clause of its partnership agreement is unenforceable, but it presses that argument only if this court or the Supreme Court should sustain Weiss's claim to recover as if he had withdrawn because of death, disability, retirement at age sixty-five, or judicial appointment.

The arbitration provisions of the partnership agreement state:

(a) The undersigned partners, recognizing the mutuality of confidence among themselves as members of the firm and the detriment to the firm and its clients should any differences among the partners result in litigation, hereby agree that any difference or dispute of any kind arising hereunder shall be determined and decided by the senior partners, whose determination and decision, by majority vote, shall be final and binding upon the partners and their respective heirs, executors, administrators, successors and assigns.

(b) In the event the provisions of subparagraph (a) hereof shall be determined for any reason to be void or unenforceable as applied to any such difference or dispute, such difference or dispute shall be submitted for determination to such arbitrator, who shall be a practicing lawyer, as is designated, by and pursuant to the designation rules of the American Arbitration Association....

As the trial court properly held, the senior partners of Carpenter, Bennett & Morrissey would not have been appropriate decision makers for the resolution of this dispute. As applicable to the present case, the arbitration clause mandates the arbitration of "any differences among the partners ... of any kind arising" under the partnership agreement. This verbal formulation is certainly sufficiently comprehensive to encompass the claims of Weiss, Sharfman, and Lennon that, for any or all of the various reasons they have argued, they were entitled to receive larger amounts of money when they left Carpenter, Bennett & Morrissey than the firm was willing to pay them. Cf. Cohen v. Quiat, 749 P.2d 453, 454 (Colo.Ct.App.1987); Vann v. Kreindler, Relkin & Goldberg, 78 A.D. 255, 434 N.Y.S.2d 365, 367 (1980), aff'd, 54 N.Y.2d 936, 445 N.Y.S.2d 139, 429 N.E.2d 817 (1981).

Since the parties agreed before submission of their dispute to the arbitrator that he should "apply the law of New Jersey to all issues in the case," resolution of the controversy between Carpenter, Bennett & Morrissey and its former partners necessarily required him to decide whether paragraph 10(a) of the partnership agreement violated RPC 5.6(a). The arbitration clause also required the arbitrator to be a practicing lawyer. The Rules of Professional Conduct are written to be understood and applied by practicing lawyers. A practicing lawyer sitting as an arbitrator pursuant to the Carpenter, Bennett & Morrissey partnership agreement is obligated and competent to determine the meaning and validity of its forfeiture provisions in light of the Rules of Professional Conduct as interpreted by our courts. Cf. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444, 456 (1985) (By agreeing to arbitrate a statutory claim, a party does not forego the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.)

Faherty v. Faherty, 97 N.J. 99, 477 A.2d 1257 (1984), is analogous to the present case because it considered the arbitrability of issues affected by public policy. The Court reiterated that, "In this state, as in most American jurisdictions, arbitration is a favored remedy," id. at 105, 477 A.2d 1257, and it approved the arbitrability of alimony and child support. Faherty lends support to the trial court's submission of the entire present controversy to arbitration, including the validity and effect of paragraph 10(a) of the partnership agreement, and we...