Title: Norvell v. Parkhurst

State: alabama

Issuer: Alabama Supreme Court

Document:

REL: November 9,2017
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2017-2018
____________________
1160696
____________________
Carter C. Norvell and Parkhurst & Norvell, an Alabama
General Partnership
v.
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
1160696
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.
I.
Andrew and Norvell, both certified public accountants,
began practicing together in 1993.  In October 1995, they
executed a partnership agreement formally creating the entity
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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
3
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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
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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
1Norvell at some point accused Andrew of violating a
covenant not to 
compete in the dissolution agreement; however,
the details of that accusation are not contained in the record
before us.
5
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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
6
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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
2On July 24, 2015, the trial court did act to appoint an
arbitrator after Parkhurst and Norvell were unable to agree on
an arbitrator.  See generally Robertson v. Mount Royal Towers,
134 So. 3d 862, 869 (Ala. 2013).
7
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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 [Parkhurst] all
recoverable interest, legal fees and costs of this
proceeding."
The parties thereafter engaged in limited discovery as
authorized by the arbitrator.  On November 21, 2016, Parkhurst
filed a "motion for partial summary judgment" with the
arbitrator, requesting him to hold that Norvell was bound by
the partnership's 2010 tax return, which indicated that
Andrew's capital account had a balance of $135,170 as of
October 2011.  Parkhurst argued that Norvell had completed and
submitted this tax return under penalty of perjury after the
dissolution agreement had been executed and with knowledge of
Andrew's alleged misuse of partnership funds and that it would
accordingly be inappropriate to allow him to subsequently
conduct another reconciliation going back all the way to 1993. 
In support of her arguments, Parkhurst cited the statutes of
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limitations 
applicable 
to 
breach-of-fiduciary-duty 
and
contract claims, and the doctrines of waiver, estoppel,
ratification, acquiescence, and delay in disaffirmance.  In
the alternative, Parkhurst argued that Norvell should be 
bound
by the partnership's 2011 tax return, which was completed and
submitted by Norvell in October 2012 and covered the period
through the June 2011 dissolution of the partnership.  This
2011 tax return indicated that the balance in Andrew's capital
account at that time was $0.  Essentially, Parkhurst desired
the arbitrator to enter the equivalent of an interlocutory
order holding that the final reconciliation of the partners'
capital accounts could not take into account any misuse of
partnership funds by Andrew that occurred before 2010.
On November 22, 2016, Norvell wrote the arbitrator
expressing his position that in her motion Parkhurst was
effectively asking the arbitrator to exceed his authority. 
The 
governing 
arbitration 
provision, 
Norvell 
argued, 
empowered
the arbitrator only to "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 ....  Upon conclusion of the review of records
9
1160696
and/or hearing, the arbitrator shall make a written report
effectively reconciling the capital accounts."  Norvell
further emphasized that the arbitration provision did 
not 
even
require an attorney to fulfill this role; it contemplated a
certified public accountant serving as the arbitrator if the
parties agreed.  On December 19, 2016, Norvell supplemented
his November 22 letter with a memorandum further arguing that
"neither the FAA nor the executed [dissolution agreement]
provide the arbitrator with authority to grant dispositive
motions."3
On or around December 20, 2016, the arbitrator conducted
a telephone conference call with the parties.  There is no
transcript of this call in the record, and the parties'
descriptions of this call differ substantially.  In a
subsequent filing made in the trial court, Parkhurst states:
"In that conference call, it was discussed and
agreed with [the arbitrator] that this motion for
partial summary judgment would be submitted to the
circuit court given [Norvell's] position that the
circuit court is where these issues must be decided. 
No mention was made then by [Norvell] that this
court could not or should not hear these issues.  It
was voiced by all participants that a hearing in
3Norvell also argued that there was nothing in the
dissolution agreement limiting the time or scope of the
arbitrator's review of the partners' capital accounts.
10
1160696
court would provide appellate rights and therefore
be positive in that respect."
However, in his own filing to the trial court, Norvell
disputes that he or the arbitrator agreed that Parkhurst
should file her motion seeking a partial summary judgment in
the trial court:
"[Parkhurst] only filed her motion for partial
summary judgment in this court after filing the
almost identical motion with [the arbitrator] and
after [the arbitrator] stated that he would not
grant the motion but rather wanted to have a full
hearing.  In that regard, [Norvell] has never agreed
for the circuit court to hear [Parkhurst's] motion
for 
partial 
summary 
judgment. 
 
After 
[the
arbitrator] stated that he would not rule on the
motion because he wanted a full hearing due to the
lack of appeal rights in arbitration, [Parkhurst's]
counsel stated that he would file his motion in
circuit court from which [Norvell] would have an
appeal.  However, counsel for [Norvell] made no
comment in response to that statement."
On December 21, 2016, Parkhurst filed a motion for a partial
summary judgment in the trial court, making the same arguments
she had made in her November 21 motion filed with the
arbitrator and further representing that "[Norvell] has taken
the position that the arbitrator does not have authority to
decide the issues presented in the plaintiff's motion for
partial summary judgment, but has instead asserted that those
issues should be presented to the circuit court."
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On February 6, 2017, Norvell and the partnership moved
the trial court to stay or dismiss Parkhurst's motion for a
partial summary judgment because of the pending arbitration
proceeding, asserting that Parkhurst had filed her motion in
the trial court only because the arbitrator had effectively
rejected it by indicating that he wanted to hear the entire
case.  On March 24, 2017, the trial court denied Norvell and
the partnership's motion and lifted the stay it had previously
entered in the case when arbitration was first ordered so that
it could consider Parkhurst's motion for a partial summary
judgment.  On May 5, 2017, Norvell and the partnership filed
a notice of appeal to this Court.4
II.
Norvell and the partnership argue that the trial court's
March 24 order lifting the stay in this case is the equivalent
of an order refusing to compel arbitration that is appealable
pursuant to Rule 4(d), Ala. R. App. P.  We agree.  This Court
has held that a direct appeal is the proper vehicle by which
4Norvell and the partnership had previously filed a
petition for the writ of mandamus with this Court on April 17,
2017 (case no. 1160605).  That petition was still pending when
they filed their notice of appeal but was ultimately denied
without an opinion on June 29, 2017.
12
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to challenge a trial court's refusal to stay matters pending
arbitration, and we have stated that we will review such
decisions under a de novo standard of review.  See Johnson v.
Jefferson Cty. Racing Ass'n, 1 So. 3d 960, 968 n. 10 (Ala.
2008), Liberty Nat'l Life Ins. Co. v. Douglas, 826 So. 2d 806,
809 (Ala. 2002) ("We review de novo a trial court's denial of
a motion to stay pending arbitration."), and Lee v. YES of
Russellville, Inc., 784 So. 2d 1022, 1025 (Ala. 2000) ("A
trial court's denial of a motion to stay proceedings pending
arbitration is reviewable by direct appeal. ...  Our review of
that decision is de novo.").  See also Bear Bros., Inc. v. ETC
Lake Dev., LLC, 121 So. 3d 334, 337 (Ala. 2013) (Moore, C.J.,
concurring specially) ("[T]his Court has considered a motion
to stay proceedings pending arbitration as implicitly
encompassed within the right of appeal provided in Rule
4(d).").  Accordingly, we review de novo the trial court's
March 24 order lifting the stay in this case.
III.
It 
is 
undisputed 
that 
an 
arbitration 
agreement
encompassing the underlying dispute between Norvell and the
partnership, on the one hand, and Parkhurst, on the other,
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exists; both Norvell and Parkhurst acknowledge that fact. 
Accordingly, the burden is upon Parkhurst –– the party seeking
to have some element of that dispute decided by the trial
court instead of the arbitrator –– to establish that the
arbitration agreement should not be enforced.  See, e.g.,
Alabama Title Loans, Inc. v. White, 80 So. 3d 887, 891 (Ala.
2011) (generally explaining the shifting burdens that apply
when a party seeks to enforce –– or avoid –– an arbitration
agreement).  Parkhurst has advanced several legal arguments
for removing her dispute with Norvell and the partnership from
arbitration 
–– 
including 
waiver, 
default, 
estoppel,
acquiescence, and the "mend-the-hold" doctrine;5 all these
arguments, however, are essentially based on the same
underlying argument that Norvell and the partnership, by
5The United States Court of Appeals for the Seventh
Circuit has explained the mend-the-hold doctrine as follows:
"Th[e] [mend-the-hold] doctrine, which takes its
name from a nineteenth-century wrestling phrase, is
less a set of rules than a flexible concept of
equity.  It prevents one party to litigation,
especially in contract disputes, from trying to
change its position or theories at such a late stage
in the dispute as to cause unfair prejudice to the
opposing party."
Estate of Burfurd v. Accounting Practice Sales, Inc., 851 F.3d
641, 644 (7th Cir. 2017).
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Norvell's actions, have lost the right to now enforce the
arbitration provision in the dissolution agreement.  This is
essentially an argument that Norvell has waived his right to
arbitration.  We have considered similar arguments on 
multiple
occasions and repeatedly emphasized that such a waiver is not
easily established.  In Zedot Construction, Inc. v. Red
Sullivan's Conditioned Air Services, Inc., 947 So. 2d 396, 399
(Ala. 2006), this Court explained:
"'In Moses H. Cone Memorial Hospital [v.
Mercury Construction Corp., 460 U.S. 1
(1983)], the United States Supreme Court
recognized 
a 
strong 
federal 
policy 
favoring
arbitration:
"'"The [Federal] Arbitration Act
establishes that, as a matter of
federal 
law, 
any 
doubts
concerning 
the 
scope 
of
arbitrable 
issues 
should 
be
resolved in favor of arbitration,
whether the problem at hand is
the construction of the contract
language itself or an allegation
of waiver, delay, or a like
defense to arbitrability."
"'460 U.S. at 24–25 (... footnote omitted). 
In order to establish waiver, the party
opposing arbitration bears a heavy burden,
and waiver is not lightly to be inferred. 
Thompson v. Skipper Real Estate Co., 729
So. 2d 287, 292 (Ala. 1999), and cases
cited therein.'
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"Ocwen Loan Servicing, LLC v. Washington, 939 So. 2d
6, 14 (Ala. 2006).  '[A] presumption exists against
a finding that a party has waived the right to
compel arbitration.'  Conseco Fin. Corp.-Alabama v.
Salter, 846 So. 2d 1077, 1080 (Ala. 2002)."
See also Ocwen Loan Servicing, LLC v. Washington, 939 So. 2d
6, 18 (Ala. 2006) (See, J., concurring in part and dissenting
in part) ("'"[T]o make out a case of implied waiver of a legal
right, there must be a clear, unequivocal, and decisive act of
the party showing such a purpose."'" (quoting Bell v.
Birmingham Broad. Co., 266 Ala. 266, 269, 96 So. 2d 263, 265
(1957), quoting in turn 56 Am.Jur. Waiver § 17, p. 18)).
Parkhurst argues that Norvell and the partnership have
waived their right to enforce the arbitration agreement in
this case by taking the position that the arbitrator lacked
the authority to rule on the partial summary-judgment motion
filed by Parkhurst in the arbitral forum.  By taking this
position, Parkhurst argues, Norvell clearly and unequivocally
demonstrated an intent for the trial court to decide the
issues raised in that motion.  We disagree.  The documentary
evidence in the record indicates that, after Parkhurst moved
the arbitrator to enter a partial summary judgment in her
favor, Norvell argued to the arbitrator that "neither the FAA
16
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nor the executed [dissolution agreement] provide[d] the
arbitrator with authority to grant dispositive motions" and
instead urged the arbitrator to follow the course of action
set out in the arbitration provision –– review the records of
the business, make inquiry of the parties as to any
transactions that are disputed, conduct a hearing of the
matter with the parties in attendance (if necessary), and,
finally, issue a written report reconciling the capital
accounts.  This is not evidence indicating that Norvell is
seeking to move the matter from the arbitral forum to a
judicial forum; rather, it indicates how Norvell desired the
arbitrator to conduct the arbitration proceedings.  Although
Norvell surely does take the position that the arbitrator
lacks authority to consider dispositive motions, it does not
necessarily follow that Norvell is therefore arguing that the
trial court does have that authority.  Instead, Norvell is
simply arguing that the arbitrator should proceed with its
review of the partnership's records and resolve the dispute
submitted to it without making intermediate judgments. 6 
6We express no opinion on how the arbitrator in this case
ultimately chooses to structure the arbitration proceedings
before him; we note only that this Court has recognized an
arbitrator's 
"discretion 
in 
structuring 
arbitration
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None of the documentary evidence in the record indicates
that Norvell clearly and unequivocally waived his right to
have this dispute with Parkhurst decided in arbitration.  We
note, however, that Parkhurst has also argued that Norvell
expressly waived that right in a December conference call with
the arbitrator.  Norvell, however, disputes this claim and
asserts that he never agreed that the trial court should
consider Parkhurst's partial summary-judgment motion.  There
is no transcript of the conference call or any other evidence
of what transpired during that call in the record; instead, we
have before us only the unsupported assertions of counsel on
either side.  Even if Norvell did not expressly refute
Parkhurst's recollection of the conference call, however,
unsupported assertions concerning the substance of that call
could not form the basis of a judgment on appeal affirming the
trial court's decision to lift the stay.  As explained in
Davant v. United Land Corp., 896 So. 2d 475, 483 (Ala. 2004),
this is not because we doubt counsel's integrity or
credibility, but because, as an appellate court, we are
procedures."  Birmingham News Co. v. Horn, 901 So 2d. 27, 54-
55 (Ala. 2004), overruled on other grounds by Hereford v. D.R.
Horton, Inc., 901 So. 2d 27 (Ala. 2004).
18
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limited to the facts as established by the record.   There is
no evidence in the record from which we can conclude that
Norvell clearly waived his right to proceed in arbitration;
accordingly, it was error for the trial court to lift the stay
for 
the 
purpose 
of 
considering 
matters 
the 
parties
undisputedly agreed to arbitrate.
IV.
Pursuant to an arbitration provision in a dissolution
agreement entered into by her deceased husband Andrew,
Parkhurst initiated arbitration proceedings with Norvell and
the partnership to resolve a dispute regarding the 
dissolution
of the partnership.  
After Norvell opposed Parkhurst's attempt
to have the arbitrator enter an intermediary order limiting
the scope of his review of the partnership's business records,
Parkhurst filed a motion seeking the same relief in the trial
court, purportedly because Norvell and the arbitrator agreed
that she should do so.  However, there is no evidence in the
record indicating that Norvell made such an agreement and he,
in fact, denies doing so.  In the absence of any evidence that
would establish such an agreement, as well as any other
evidence that would conclusively establish that Norvell
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clearly and unequivocally expressed an intent to waive his
right to have the arbitrator resolve this dispute, Parkhurst
has failed to meet her heavy burden of showing that the
arbitration provision in the dissolution agreement should not
be enforced.  Accordingly, the trial court erred by lifting
the arbitral stay in order to consider Parkhurst's motion for
a partial summary judgment, and its judgment doing so is
hereby reversed and the cause remanded.
REVERSED AND REMANDED.
Bolin, Murdock, Main, and Bryan, JJ., concur.
20