Opinion ID: 2357348
Heading Depth: 1
Heading Rank: 2

Heading: The Partners' Capital Accounts

Text: We face two significant problems in conducting our review. Although the arbitrator ordered adjustments to the parties' capital accounts, his award does not reveal the resulting balances. Moreover, the sale of the property and other significant accounting events have occurred since the arbitration ended in December 1999. Therefore, judicial fact-finding will be necessary to determine the amounts to be distributed to each partner. As noted above, the Superior Court inquired of the arbitrator: In ordering those adjustments, did you adjudicate the capital accounts, and did you accept the accounting presented by Mr. Murphy as a proper accounting of the capital accounts? The arbitrator replied, in a letter dated February 5, 2003, that [i]n ordering adjustments to the partners' capital accounts, I accepted the accounting presented by Mr. Murphy as a proper accounting of the capital accounts. The parties have informed us that the referenced report by Mr. Murphy calculated the amounts in the capital accounts as of May 16, 1999. [3] However, that accounting is not included in the record, nor was a copy presented to the Superior Court. The petition for distribution of proceeds filed by Mrs. Richey and Mr. Forsberg sought an Order directing disbursement according to the attached proposed disbursement schedule. The attached exhibit reflects calculations (also made by Mr. Murphy) as of March 2002, long after the arbitration had ended. It shows balances in the partners' capital accounts beginning January 1, 2001, but it does not show how those amounts were derived from any balances as of May 16, 1999, that the arbitrator accepted. The arbitrator obviously did not approve this particular accounting by Mr. Murphy, because it was created, and it reflected events that occurred, years after the arbitration had ended. Resolving this litigation is not simply a matter of distributing the amount in escrow on a pro rata basis in proportion to the partners' percentage interests in the partnership. The Partnership Agreement provides that the net proceeds shall be distributed to the partners in accordance with their capital accounts. Capital account is defined in the Partnership Agreement. As the trial court recognized, a capital account is not the same thing as a partnership interest. Mr. Williams argued below and reiterates here that the Murphy accounting submitted in 1999 is simply wrong. We agree with the trial court, however, that Mr. Williams may not relitigate matters already resolved in the arbitration. The arbitration was confirmed without objection, and the court entered a Binding Arbitration Award. Nevertheless, we disagree with the court's statement that, [g]iven that the accounting of the parties' interests in the Partnership was addressed and decided in the arbitration and that the Arbitrator accepted the accounting presented by Mr. Murphy as a proper accounting of the capital accounts, there is no basis for this Court to consider that issue further. [4] As previously noted, we do not have a copy of the Murphy accounting prepared in 1999, and we understand that the trial court did not either. The arbitrator has clarified that he accepted the Murphy accounting, but it remains to be demonstrated that Mr. Murphy calculated those balances. If a properly authenticated copy of the accounting that was accepted by the arbitrator is presented on remand, and if that document in fact reveals the balances in the capital accounts in 1999, [5] then there is no basis for the trial court to consider that issue further. If, however, the Murphy accounting does not reveal those balances, the trial court will have to determine what they were. Determining how the capital accounts stood in 1999 does not end the inquiry, however. Before a distribution may be accomplished, the capital accounts must be brought up to date. To be sure, appellees have submitted a second accounting by Mr. Murphy, calculated as of March 2002, but Mr. Williams disputes the appellees' accounting of the capital accounts since the arbitration. And, as the trial court recognized, clearly the Arbitrator didn't decide the issues that happened after the arbitration. More importantly for present purposes, the trial court did not do so either. We therefore reverse and remand for the trial court to determine the capital accounts of the partners at the present time.