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Woodland Limited Partnership v. Wulff

February 17, 2005

WOODLAND LIMITED PARTNERSHIP, ET AL., APPELLANTS,
v.
ERIK B. WULFF, APPELLEE.



Appeal from the Superior Court of the District of Columbia. (CA-01-2004). (Hon. Zoe Bush, Trial Judge).

Before Farrell, Ruiz and Glickman, Associate Judges.

The opinion of the court was delivered by: Ruiz, Associate Judge

Argued June 3, 2004

This case arises out of a partnership derivative action filed by appellee, Erik B. Wulff, alleging that appellants, Colin Halpern, Gail Halpern, Woodland Limited Partnership, Woodland Group Corporation, and H.S. Real Company, LLC ("Woodland" or "appellants"), engaged in various improper actions as fiduciaries of Woodland Limited Partnership. Appellants counterclaimed arguing that the one percent interest in Woodland that Wulff claims gives him standing to bring the derivative action was actually owned by his former law firm, Reed Smith LLP, and that the law firm had assigned its ownership interest back to appellants. Appellants filed a claim for arbitration pursuant to the terms of the law firm's partnership agreement with Wulff to determine whether Wulff or the law firm owns the one percent interest in Woodland. The trial court granted Wulff's emergency motion to stay the arbitration proceedings after concluding that Reed Smith's assignment of the interest to appellants had not transferred the right to arbitrate the ownership dispute with appellee pursuant to the law firm's partnership agreement with him.

Appellants assert that, as assignees of Reed Smith, they succeeded to the law firm's right to arbitrate Wulff's claim of ownership. Because Wulff no longer contests that the right to arbitrate transferred along with the assignment of the ownership interest,*fn1 the trial court's grant of Wulff's motion to stay arbitration proceedings cannot be sustained as it is premised on the view that appellants did not succeed to the law firm's right to arbitrate under the law firm's partnership agreement. Wulff had argued an alternative ground for denying arbitration -- that appellants have waived their right to arbitration by actively participating in the litigation -- which the trial court did not consider. We now hold that the question of waiver should be decided by the arbitrator. We therefore reverse the trial court's order and remand the case so that Wulff's waiver argument can be addressed by the arbitrator.

I. BACKGROUND

In 1993, the law firm of Reed Smith LLP ("Reed Smith") was retained as legal counsel for the formation and development of Woodland Limited Partnership and in connection with the acquisition of the franchise rights for Domino's Pizza in the United Kingdom. Wulff, who was then a partner at Reed Smith, supervised the law firm's work for Woodland. In December of 1993, he received a one percent ownership interest in Woodland Limited Partnership. It is undisputed that Wulff did not pay for the Woodland interest. Wulff asserts that the ownership interest was a gift; appellants contend, however, that he received the one percent ownership interest as compensation for legal services provided to Woodland by the law firm. According to Reed Smith, Wulff did not disclose his receipt of the one percent interest, and the law firm did not learn about it until December of 2001. Wulff counters that an associate at Reid Smith at the time (now a partner), was present when his father (one of the appellants) conveyed the one percent ownership interest to Wulff. As a result, Wulff contends, the firm had knowledge of the conveyance and impliedly approved.

On March 13, 2001, Wulff filed a derivative action alleging that appellants wrongfully took assets from Woodland Limited Partnership, the entity in which Wulff claims to own a one percent interest. Through discovery, appellants became aware of the partnership agreement between Wulff and Reed Smith, which provides that all compensation and remuneration for legal services or any other business activity is not the property of the individual partner but of Reed Smith. The agreement also provides that:

Any disagreement or dispute between one or more Partners, former Partners, Estates or successors on the one hand and the Partnership on the other, arising under or related to any provision of this Agreement or any aspect of the business, properties and affairs of the Partnership or of the rights, duties, or obligations or liabilities of any of the foregoing persons shall be submitted to final and binding arbitration, pursuant to the rules then in effect of the American Arbitration Association . . . .

Based on this partnership agreement, appellants filed an answer in the derivative action and counterclaimed for a declaratory judgment that Wulff is not the owner of the one percent interest and therefore lacks standing to bring the derivative action. On December 31, 2001, Reed Smith sent a letter to appellants disclaiming any ownership interest it may have in the one percent interest in Woodland Limited Partnership and tendering it to that Partnership.*fn2 On August 23, 2002, appellants Colin Halpern, Gail Halpern and Woodland Limited Partnership filed a demand for arbitration with the American Arbitration Association seeking resolution of the dispute with Wulff and Reed Smith "regarding ownership of a 1% ownership interest in Woodland Limited Partnership." A corresponding motion to stay proceedings in the derivative action pending arbitration was filed in Superior Court on August 27, 2002. The trial court initially granted the stay on November 26, 2002. Wulff contested the arbitrability of the issue of ownership as between Woodland and himself, however, arguing that Woodland was not a party to the law firm's partnership agreement, and that, although Reed Smith assigned the one percent interest to Woodland, that assignment did not include the agreement to arbitrate contained in the partnership agreement. The trial court reversed itself when, on March 10, 2003, it granted Wulff's emergency motion to stay the arbitration after determining that Woodland's claim of ownership was not arbitrable because there was no evidence that Reed Smith had assigned its arbitration rights to appellants. Appellants filed a timely notice of appeal from the trial court's order staying the arbitration proceedings. See Umana v. Swidler & Berlin, 669 A.2d 717, 723 (D.C. 1995) (noting that interlocutory orders denying arbitration are immediately appealable under D.C. Code § 16-4317 (a) (1989)).

II. DISCUSSION

Under general principles of contract law the assignee of an interest has the same rights as the assignor and, as a result, the assignee can enforce those rights by the same remedies available to the assignor.

See ARTHUR L. CORBIN, 9 CORBIN ON CONTRACTS, § 905

(Remedies Available to Assignees) (2002). Appellants therefore contend that Reed Smith's letter assigned its rights in the one percent ownership interest to Woodland along with the right to enforce its ownership interest in Woodland through arbitration, as provided under the terms of the law firm's partnership agreement. As noted, see supra, note 1, Wulff no longer ...


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