Arbitration – Attorneys – Firm’s Operating Agreement – Accounting Provision

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Martin & Jones, PLLC v. Olson (Lawyers Weekly No. 020-086-17, 13 pp.) (Gregory McGuire, J.) 2017 NCBC 85

Holding: In a law firm’s operating agreement, a provision calls for an accounting if members dispute cash flow, profit or loss, or capital account balances. This provision does not qualify as an arbitration clause because it does not set forth substantive standards such as procedural guidance for selecting the independent CPA or the method by which the CPA will make a determination.

The court denies plaintiffs’ motion to stay and compel arbitration.

The provision (§ 5.6) says, “In the event of a dispute among the Members with respect to the determination of the net cash flow, net profit, net losses or capital account balances of the Law Firm, an independent certified public accountant shall be engaged by the Law Firm at the Law Firm’s expense whose computation of such items shall be binding upon all the Members.”

Although the accounting process in § 5.6 is binding on the parties, it provides that the law firm will unilaterally select and engage the independent accountant, does not provide any substantive standards to be applied by the independent accountant, and does not provide any means by which the parties can present evidence in support of their respective positions. In fact, it is not at all clear how the process works.

Even if § 5.6 were an arbitration agreement, plaintiffs have not established that the disputes in this case are subject to § 5.6. Defendant primarily disputes “calculation of the law firm book value, prepaid client expenses, and the determination of the 2015 year end profits.” None of these disputed calculations are expressly included among the specific accounting disputes subject to § 5.6.

Section 5.6 is not designed, or well-suited, to resolve the factual and legal issues raised by the 16 separate claims in this lawsuit, including the accounting issues underlying some of the claims. Even if the court were to compel arbitration pursuant to § 5.6, the resulting determinations would be, at best, tangential to other important issues in this case.

Judicial economy would not be served by such action.

Finally, the operating agreement indicates that, upon retirement, “Members” become “Retired/Former Members.” Thus, § 5.6 does not apply to defendant as a Retired/Former Member of the firm.

Motion denied.