Summary
holding that the general partnership dissolution statute with similar language did not foreclose arbitration of dissolution
Summary of this case from Willie Gary LLC v. James Jackson LLCOpinion
C.A. No. 18984
Submitted: November 20, 2001
Decided: November 21, 2001
Letter Opinion on Defendants' Motion to Dismiss MOTION GRANTED.
F. Peter Conaty, Jr., Esquire, Prickett Jones Elliott.
Victor F. Battaglia, Esquire, Philip B. Bartoshesky, Esquire Biggs Battaglia.
Dear Counsel:
On November 15, 2001, I heard argument on the defendants' motion to dismiss the complaint. I reserved judgment at the conclusion of the hearing and allowed counsel the opportunity to make further submissions. I have reviewed those submissions and now conclude that the motion to dismiss should be granted.
The claims asserted in the complaint relate entirely to the affairs of Foulk Road Medical Center Partnership, a general partnership organized in 1984 under Delaware law and governed by the terms of a written partnership agreement among its partners, who now are William D. Johnson, plaintiff, and Philip W. and Donna Rae Miller, defendants. That partnership agreement contains a broad arbitration clause that provides as follows:
If at any time a controversy or claim shall arise between the parties hereto with respect to any matter relating to this Agreement or the breach thereof or the partnership and which the parties hereto do not promptly resolve, then such controversy shall be decided by arbitration in Wilmington, Delaware, in accordance with the Civil Rules of the American Arbitration Association then prevailing, unless all parties mutually agree otherwise. The award rendered by the arbitrators shall be final and judgment may be entered thereon in any Court having jurisdiction thereof.
Johnson concedes that most of the claims asserted in his complaint are properly subject to the agreement to arbitrate. Nevertheless, he contends that his claim for a "judicial dissolution" pursuant to 6 Del. C. § 1532 is not arbitrable because, he says: "[t]he right of Plaintiff to turn to the courts to request judicial dissolution is absolute." For this proposition, Johnson cites the statute itself, which provides that "on application by or for a partner the court shall decree a dissolution whenever" certain predicate circumstances are proven to exist. At oral argument, Johnson's counsel also referred the court to the case of Wallace v. Sinclair. That case does not involve a partnership agreement with an arbitration clause. Thus, its discussion of the availability of judicial dissolution is unhelpful to my analysis.
For example, subsection (5) of 6 Del. C. § 1532 provides for a decree of dissolution whenever "[t]he business of the partnership can only be carried on at a loss." Similarly, subsection (6) provides for dissolution whenever "[o]ther circumstances render dissolution equitable."
Cal. D. Ct. App., 250 P.2d 154 (1953).
The motion to dismiss is framed in terms of a lack of subject matter jurisdiction. The general tenor of this argument is that equity jurisdiction is lacking due to the adequacy of the legal remedy, i.e. the availability of arbitration. "[I]n considering a challenge to the Court's subject matter jurisdiction in a dispute involving substantive arbitrability, the proper analysis would appear to involve two related inquiries: the threshold question of whether the dispute is one which, on the face of the arbitration clause of the contract, is subject to arbitration; and the ultimate question of whether, realistically evaluating the complaint, a legal remedy is available and fully adequate." To this I will add a third question of whether the jurisdiction of the Court of Chancery to entertain petitions to dissolve Delaware partnerships is exclusive.
Nash v. Dayton Superior Corp., Del. Ch., 728 A.2d 59 (1998).
First, the arbitration clause at issue here is certainly broad enough to encompass Johnson's claim for dissolution. There is no doubt that Johnson's request for a judicial dissolution is "a controversy or claim . . . between the parties . . . with respect to [a] matter . . . relating to . . . the partnership. . . ." Thus, the first prong of the analysis is met.
Second, "realistically evaluating the complaint," I am satisfied that there is nothing inherent in the claim for judicial dissolution that could not be fully and fairly litigated in the context of an arbitration. The complaint merely asserts the existence of a set of facts which, Johnson argues, entitle him to a judicially declared dissolution because the business of the partnership "can only be carried on at a loss" or the "[c]ircumstances render a dissolution equitable." These same mixed factual and legal arguments can be presented to the arbitrators and are not qualitatively different than other claims committed to them by the parties' agreement.
See, e.g., Salzman v. Canaan Capital Partners, L.P., Del. Ch., C. A. No. 14687, 1996 WL 422341, Chandler, V.C. (July 23, 1996) (Delaware action stayed in favor of foreign arbitration including a claim for dissolution.)
See note 1, supra.
Finally, I cannot accept Johnson's argument that the statute's assignment of jurisdiction to this court should be taken as an implicit determination by the General Assembly that claims for judicial dissolution cannot be made subject to an agreement to arbitrate. To begin with, the fact that § 1532 provides that "the court shall decree a dissolution" in certain circumstances thereafter defined (emphasis added) should not be taken to mean that the court must exercise jurisdiction over such claims where there is an otherwise valid and binding agreement to arbitrate. On the contrary, Delaware law favors the arbitration of disputes and "the arbitration process may oust a court of its jurisdiction although it is otherwise competent to hear the dispute."
Salzman, mem. op. at 8, 1996 WL at *4.
Similarly, I conclude that the recent revisions to the Delaware Uniform Partnership Act, which will soon govern the affairs of this partnership, do not require a different result. Johnson points to 6 Del. C. § 15-103(b)(6) and 15-801(5), in arguing that jurisdiction in this court is exclusive and cannot be varied by agreement among the partners. While it is true that pursuant to Section 15-103(b) a partnership agreement may not vary the requirements for dissolution set forth in Section 15-801(4),(5) or (6), it does not follow that partners may not, by contract, commit the resolution of claims for dissolution to arbitration.
Pursuant to 6 Del. C. § 15-1206(b), as of January 1, 2002, the revised statute will apply to all partnerships that do not elect to be governed by the old law. The partners of Foulk Road Medical Center Partnership have not made such an election.
Those sections read as follows:
Section 15-103(b): "The partnership agreement may not: . . . (6) vary the requirement to wind up the partnership business in cases specified in Section 15-801(4), (5) or (6)."
Section 15-801: "A partnership is dissolved and its business must be wound up, only upon the occurrence of any of the following events: . . . (5) on application by or for a partner to the Court of Chancery, a determination by the Court of Chancery that:
(i) the economic purpose of the partnership is likely to be unreasonably frustrated;
(ii) another partner has engaged in conduct relating to the partnership business or affairs which makes it not reasonably practicable to carry on the business or affairs in partnership with that partner; or
(iii) it is not otherwise reasonably practicable to carry on the partnership business or affairs in conformity with the partnership agreement."
For these reasons, the motion to dismiss is granted.