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Norvell v. Parkhurst

Supreme Court of Alabama

November 9, 2017

Carter C. Norvell and Parkhurst & Norvell, an Alabama General Partnership
Candy Parkhurst, personal representative of the Estate of Andrew P. Parkhurst, deceased

         Appeal from Lauderdale Circuit Court (CV-14-900427)

          STUART, Chief Justice.

         Candy Parkhurst ("Parkhurst"), personal representative of the estate of her husband, Andrew P. Parkhurst ("Andrew"), deceased, initiated an action in the Lauderdale Circuit Court for the purpose of compelling Carter C. Norvell and Parkhurst & Norvell, an accounting firm Norvell had operated as a partnership with Andrew ("the partnership"), to arbitrate a dispute regarding the dissolution of the partnership. Pursuant to an arbitration provision in a dissolution agreement Norvell and Andrew had executed before Andrew's death, the trial court ultimately ordered arbitration and stayed further proceedings until arbitration was complete. Subsequently, however, Parkhurst moved the trial court to lift the stay and to enter a partial summary judgment resolving certain aspects of the dispute in her favor. After the trial court lifted the stay and scheduled a hearing on Parkhurst's motion, Norvell and the partnership filed the instant appeal, arguing that the trial court was effectively failing to enforce the terms of a valid arbitration agreement in violation of the Federal Arbitration Act ("the FAA"), 9 U.S.C. § 1 et seq. We reverse and remand.


         Andrew and Norvell, both certified public accountants, began practicing together in 1993. In October 1995, they executed a partnership agreement formally creating the entity known as Parkhurst & Norvell. For all that appears, they worked together in harmony until approximately March 2010, when Norvell alleges that he discovered Andrew had been using partnership funds for personal expenses. Norvell asserts that Andrew, upon being confronted, acknowledged that he had been misusing partnership funds for many years but stated that he would take corrective measures that included modifying the amounts in their respective capital accounts. Although Andrew apparently did make some subsequent adjustments to their capital accounts, Norvell claims that Andrew made no adjustments to account for his misuse of partnership funds in the years before 2010.

         On June 14, 2011, Andrew and Norvell executed a dissolution agreement setting forth the framework for dissolving the partnership effective June 30, 2011. Under the terms of that agreement, Andrew agreed to retire from public accounting and to encourage his clients to henceforth use Norvell's services; in return, Norvell agreed to pay Andrew a percentage of billings collected from those clients monthly over the next five years. The agreement also provided that Norvell would make a final reconciliation of their capital accounts in the partnership and remit to Andrew any sum Andrew was due, along with $150, 000 representing Andrew's equity in the partnership's office building, within 30 days of "the closing of the books." Finally, paragraph 1 of the dissolution agreement contained the following arbitration provision:

"The partners agree to dissolve the partnership effective June 30, 2011, in accordance with section 12 of the partnership agreement. [Norvell] will act in the capacity of liquidating partner. [Norvell] will make a determination of the reconciliation of the capital accounts. [Norvell] shall provide a final, detailed reconciliation and supporting documentation to [Andrew]. In the event there is a dispute with regard to reconciliation of the capital accounts, the parties agree to resolve the dispute by binding arbitration. For purposes hereof, the parties shall select a mutually agreeable CPA or attorney to serve as the arbitrator, who shall then review the records of the business, make inquiry of the parties as to any transactions that are disputed, and, if (s)he deems necessary, conduct a hearing of the matter with the parties in attendance. At any such hearing, the parties may bring legal or other representation. Upon conclusion of the review of records and/or hearing, the arbitrator shall make a written report effectively reconciling the capital accounts and the parties agree to be legally and forever bound thereby."

Paragraph 12 of the dissolution agreement further provided:

"The parties agree to reasonably cooperate with each other as to any matters arising out of the dissolution of the partnership, including, but not limited to, reconciliation of capital accounts, matters relating to tax returns and any tax audits and related appeals, claims or litigation, and in the winding up of the partnership business affairs. Further, [Andrew] or his representatives, upon reasonable request at such times and in such manner as is mutually agreeable to [Norvell], shall be permitted full access to examine the books of [Norvell] relative to [Andrew's] clients and the payments made to Andrew pursuant to section 4 hereof. In the event of any disputes that cannot be resolved by the parties, the arbitration process (including the named arbitrator or alternative arbitrator approved by both parties) shall govern."

         Parkhurst asserts that Andrew complied with his obligations under the terms of the dissolution agreement and that he encouraged his former clients to use Norvell as their accountant.[1] In return, Norvell initially made the required monthly payments to Andrew; however, at some point -- it is not clear from the record exactly when -- he stopped making those payments. On October 12, 2012, Norvell delivered to Andrew the final reconciliation of the partners' capital accounts he was obligated by the dissolution agreement to produce. After reviewing the partnership's business records going back to 1993 and making adjustments for transactions performed by Andrew that Norvell now deemed to be illegitimate, Norvell concluded that Andrew's capital account had a negative balance of $3, 406, 622. Andrew died on January 11, 2013, and, on August 14, 2013, Norvell filed a claim against Andrew's estate for $4, 149, 655, based on that negative balance and other expenses Andrew allegedly owed the partnership.

         It appears that, at some point in time, Norvell also initiated a lawsuit against Deborah Henderson Smith, who appears to have had some business involvement with Norvell, Andrew, and/or the partnership related to the estate of a deceased relative. The record in this case does not disclose the facts underlying that lawsuit; however, it appears that Andrew's estate eventually became involved and asserted cross-claims against Norvell, eventually moving the trial court to compel arbitration of those cross-claims pursuant to the arbitration provision in the dissolution agreement. Subsequently, however, Norvell argued that those cross-claims were not related to the Deborah Henderson Smith action and should be resolved in a separate proceeding; Parkhurst eventually agreed and withdrew her motion to compel arbitration, notifying the trial court that she would initiate a separate action instead.

         On September 22, 2014, Parkhurst initiated that new action, alleging (1) that Norvell had made invalid and illegitimate adjustments to Andrew's capital account and (2) that Norvell had failed to make the monthly payments required by the dissolution agreement. Parkhurst simultaneously requested that the trial court compel arbitration of the dispute pursuant to the terms of the dissolution agreement. Norvell initially opposed that request and Parkhurst's subsequent formal motion to compel arbitration, questioning whether the dispute involved interstate commerce and arguing that neither Parkhurst nor the partnership was a party to the dissolution agreement; on March 16, 2015, the trial court granted Parkhurst's motion to compel arbitration and stayed the action "until the arbitration is completed and an award is entered."[2]

         On August 17, 2015, Parkhurst initiated arbitration proceedings by filing a statement of claim with the arbitrator, requesting that he

"enter an order disallowing the capital account adjustments made by Norvell, properly reconcile the capital accounts, award to [Parkhurst] the balance due of [Andrew's] capital account, award to [Parkhurst] the amount past due on the monthly payments required [by the dissolution agreement], order that monthly payments in the future are due to be made by Norvell, and award ...

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