Court Opinion

ID: 4242930
Source: CourtListenerOpinion
Date Created: 2018-02-07 10:11:58.260387+00
Date Added: 2024-06-11T09:36:47.158616
License: Public Domain

STATE OF MICHIGAN

                            COURT OF APPEALS

RAGHURAM ELLURU, M.D.,                                             UNPUBLISHED
                                                                   February 6, 2018
               Plaintiff-Appellee,

v                                                                  Nos. 333661; 334050
                                                                   Kalamazoo Circuit Court
GREAT LAKES PLASTIC, RECONSTRUCTIVE                                LC No. 2015-000575-CB
& HAND SURGERY, PC,

               Defendant,
and

SCOTT DONALD HOLLEY, M.D.,

               Defendant-Appellant.

Before: MURRAY, P.J., and SAWYER and MARKEY, JJ.

PER CURIAM.

        Defendant Holley appeals from an order of the circuit court granting summary disposition
in favor of plaintiff and ordering the dissolution of the parties’ professional corporation. We
affirm in part, reverse in part, and remand.

        Plaintiff Elluru and defendant Holley practiced medicine together in their professional
corporation, defendant Great Lakes Plastic, Reconstructive & Hand Surgery (“Great Lakes”).
Holley served as Great Lakes’ president and Elluru as its secretary. Both parties entered into
identical employment agreements with Great Lakes in 2001. The agreements were for an initial
three-year period, with a provision for automatic one-year renewals. But the agreements also
provided for termination by Great Lakes for cause upon written notice or without cause upon 90
days’ written notice. The parties also executed a Stock Redemption Agreement that provided
that a shareholder must sell his shares to the corporation if he voluntarily terminated his
employment with Great Lakes or if Great Lakes discharged his employment with or without
cause.

        In 2015, Elluru began to express his desire to dissolve Great Lakes and called for special
meetings of the shareholders to discuss his proposals for dissolution. Holley disagreed with the
plan to dissolve the corporation. On December 7, 2015, Holley sent a letter to Elluru that he had
terminated Elluru’s employment with Great Lakes. Elluru also was notified that, pursuant to the
Stock Redemption Agreement, his shares were being acquired by Great Lakes. Elluru was
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further notified that, because he was no longer employed by Great Lakes, he was also terminated
as an officer and director of Great Lakes. The letter also reminded Elluru that he was subject to a
non-compete agreement.

        Elluru filed suit against Holley and Great Lakes seeking dissolution of the corporation
and a second count seeking to set aside his termination of employment. Holley and Great Lakes
moved to dismiss the claims, to stay the proceedings, and to compel arbitration. Holley argued
that the employment agreement required that the claims be submitted to arbitration. Holley
argued that arbitration was required because all of the claims arose out of the employment
agreement. In the alternative, Holley argued that if any of the claims did not arise out of the
employment agreement, the proceedings on those claims should be stayed until the arbitration on
the employment claims was concluded. We agree that this matter should have been submitted to
arbitration and that the trial court should have held the claims in abeyance pending the outcome
of arbitration.

        The key issue in this case was whether the issue of arbitrability should have been decided
by the trial court or by the arbitrator. We review the trial court’s decision on a motion for
summary disposition de novo. Barnard Mfg Co v Gates Performance Engineering, Inc, 285
Mich. App. 362, 369; 775 NW2d 618 (2009). We also review de novo whether the trial court
properly interpreted and applied the relevant contractual agreements, Pransky v Falcon Group,
Inc, 311 Mich. App. 164, 173; 874 NW2d 367 (2015), as well as the relevant statutes and court
rules, Brecht v Hendry, 297 Mich. App. 732, 736; 825 NW2d 110 (2012).

        The Legislature has enacted the Uniform Arbitration Act, MCL 691.1681 et seq. MCL
691.1687(1)(b) provides that, where there is an agreement to arbitrate, a trial court must order the
parties to arbitrate unless the court determines that there is no enforceable arbitration agreement.
The Act further provides that it is for the court in the first instance to determine arbitrability.
MCL 691.1686(2). But there is an important exception to this rule: MCL 691.1684(1) provides
that “the parties may vary the effect of the requirements of this act to the extent permitted by
law.” Thus, the parties may agree to delegate to the arbitrator the question of arbitrability,
provided that the agreement clearly so provides. See Rent-A-Center, West, Inc v Jackson, 561
U.S. 63, 69 n 1; 130 S. Ct. 2772; 177 L. Ed. 2d 403 (2010).

        In the case at bar, in paragraph 10 of the employment agreement, the parties agreed that
“[a]ny controversy or claim arising out of or related to . . . this Employment Agreement . . . shall
be settled by arbitration . . . in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association . . . .” Those rules provide that the “arbitrator shall have the
power to rule on his or her own jurisdiction, including any objections with respect to the
existence, scope or validity of the arbitration agreement.” Employment Arbitration Rules and
Mediation Procedures, Rule 6(a). And the court in Belnap v Iasis Healthcare, 844 F3d 1272,
1283 (CA 10, 2017), stated “all of our sister circuits to address the issue have unanimously
concluded that incorporation of the substantively identical (as relevant here) AAA Rules
constitutes clear and unmistakable evidence of an agreement to arbitrate arbitrability.”

        Elluru argues that Rule 6(a) should not apply here because it was not in effect when the
agreement was executed. We disagree. First, Elluru does not provide a meaningful analysis of
the issue, thus abandoning the argument on appeal. See Mitcham v Detroit, 355 Mich. 182, 203;
94 NW2d 388 (1959). Second, even if not abandoned, the argument is without merit. Rule 1 of
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the Arbitration Association’s National Rules for the Resolution of Employment Disputes, as in
effect at the time of the execution of the agreement, provided that the “rules, and any
amendments of them, shall apply in the form obtaining at the time the demand for arbitration or
submission is received by the [Arbitration Association].” Thus, the parties agreed to be bound
by any subsequent amendments, including Rule 6(a).

         For these reasons, we conclude that the trial court erred in denying the demand for
arbitration. Rather, the trial court should have granted Holley’s request to stay the proceedings
and submit the matter to arbitration. It is conceivable that the arbitrator could have decided that
some, none, or all of the issues raised are subject to arbitration. In any event, if the arbitrator
determines that any or all of the issues are subject to arbitration, those issues are to be resolved
by arbitration. If, after arbitration, there remain any issues to be decided by the trial court, then
the trial court shall decide those issues. But, if all issues are resolved in arbitration, then the trial
court may bring this case to a conclusion.

        Our resolution of this issue renders it unnecessary to consideration Holley’s remaining
issues, with one exception. Holley argues that the trial court erred in disqualifying the Varnum
law firm from representing both Holley and Great Lakes. We disagree. We review this issue for
clear error. Avink v SMG, 282 Mich. App. 110, 116; 761 NW2d 826 (2009). We review de novo
whether the trial court properly interpreted and applied the rules of professional conduct.
Grievance Admin v Fieger, 476 Mich. 231, 240; 719 NW2d 123 (2006).

        Until this matter is ultimately resolved, Elluru potentially remains a shareholder in Great
Lakes, as does Holley. As this Court observed in Fassihi v Sommers, Schwartz, Silver, Schwartz
& Tyler, PC, 107 Mich. App. 509, 516; 309 NW2d 645 (1981), with a closely held corporation,
the corporation’s lawyer will often “stand in confidential relationships in respect to both the
corporation and [the] individual shareholders . . . .” The trial court in this case recognized that
the parties’ disagreement over the direction of the corporation created substantial conflicts of
interest. In short, for Holley’s and Great Lakes’ interests to be aligned, it necessarily follows
that Holley is correct and Elluru is mistaken in their respective beliefs about the resolution of this
dispute and the future of Great Lakes. But which party is correct and which is mistaken remains
to be determined. And until it is determined, it cannot be established which parties’ interest is
aligned with Great Lakes’ interest. Thus, the same attorney cannot represent both the
corporation and an individual shareholder without danger of violating the fiduciary relationship.
See Fassihi, 107 Mich. App. at 516. Accordingly, we are not persuaded that the trial court clearly
erred in determining that the Varnum law firm was disqualified from representing both Holley
and Great Lakes.

        Affirmed in part, reversed in part, and remanded for further proceedings consistent with
this opinion. We do not retain jurisdiction. No costs, neither party having prevailed in full.

                                                                /s/ Christopher M. Murray
                                                                /s/ David H. Sawyer
                                                                /s/ Jane E. Markey

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