August 2, 2012
ZAVODNICK, PERLMUTTER & BOCCIA L.L.C., PLAINTIFF-RESPONDENT,
ALLEN ZAVODNICK, DEFENDANT-APPELLANT.
On appeal from Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. C-110-11.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 1, 2012
Before Judges Payne and Reisner.
Defendant, Allen Zavodnick (sometimes referred to herein as AZ), appeals from an October 5, 2011 judgment confirming an arbitration award in favor of his former law firm, plaintiff Zavodnick, Perlmutter & Boccia, L.L.C., finding that he had ceased providing services to the firm and authorizing the remaining members of the firm to buy out his interest in it. On appeal, defendant argues that the court erred in confirming the arbitrator's award because the arbitrator exceeded the authority granted to her by the plaintiff's submission. Additionally, defendant argues that the court erred in confirming the arbitration award because it contravened express provisions of the operating agreement requiring a judicial determination of whether a withdrawal event had occurred. We decline to accept defendant's arguments and affirm.
In 2005, defendant entered into an operating agreement with two of his former employees, Joseph G. Boccia and Mitchell D. Perlmutter, thereby creating a three-member limited liability company. The agreement contained the following provisions of relevance to this litigation:
2.9.2. Each Member shall devote his best efforts to serving the Company and its clients in a professional manner and shall devote his full working time and attention to the affairs of the Company unless otherwise approved by the Managers. . . .
2.9.3. Notwithstanding Section 2.9.2, it is acknowledged and understood that the nature and amount of AZ's services to the Company shall be generally consistent with the nature and amount of services which he had rendered to or for the benefit of the AZ Proprietorship during 2003 and 2004. It is the intention of the Members that AZ's services to the Company shall be primarily supervisory in nature; that he shall focus his attention on generating new business, managing the intake of files, developing overall strategy for the handling of cases, being available to act as a "problem-solver" on cases being handled by other Company attorneys, being available to handle specific aspects of cases as he determines in the best interests of the Company and otherwise taking responsibility for management and administration of the firm (to the extent not delegated to others); and that he shall not be required to work a minimum number of hours on client cases.
14.1. Mandatory Purchase and Sale. Upon the occurrence of a Withdrawal Event with respect to any Member, the Company shall be obligated to purchase, and the Member or the Member's legal representatives, as the case may be ("Seller"), shall be obligated to sell, the Seller's entire Membership Interest.
20. DISPUTE RESOLUTION. Any dispute or controversy arising under this Agreement shall be determined and settled by arbitration before the American Arbitration Association in Jersey City, New Jersey. The parties to the arbitration shall use their best efforts to select one arbitrator by unanimous consent. If the parties are unable to agree on the selection of the arbitrator, then in such event one arbitrator shall be selected by the American Arbitration Association. The arbitration award shall be final and binding upon all of the parties thereto, and judgment on the award may be entered by any court having competent jurisdiction. The arbitrator shall not, however, have the power to modify or cancel any express provision of this Agreement.
22.21. "Disability" means, with respect to any Member, the Member's inability, by reason of injury or illness, to render usual and customary services on behalf of the Company in accordance with this Agreement for a continuous period in excess of six (6) months . . . . If a determination is made by the Company that a Member has been Disabled for a continuous period in excess of six (6) months, then in such event the Company shall notify the Member of its determination. Within 30 days after the Company's notice has been delivered to the Member, the Member shall have the right to have the Company's determination reviewed by a physician of his choice, and if his physician does not agree with the Company's determination within such 30-day period, then in such event the determination of the Member's Disability shall be subject to arbitration pursuant to Section 20. The determination of the Member's Disability shall be deemed final upon the expiration of the 30-day period following the delivery of the Company's notice (if the matter does not go to arbitration) or upon receipt of the arbitrator's decision, as the case may be.
22.42. "Preferred Withdrawal" means with respect to any Member, the first to occur of:
(i) the death of the Member;
(ii) the Disability of the Member; or
(iii) the Member's resignation, complete retirement or otherwise ceasing to render professional services for the Company in accordance with this Agreement for any reason other than death, Disability or Misconduct . . . .
22.51. "Withdrawal Event" means, with respect to any Member, the first to occur of a Preferred Withdrawal or a Nonpreferred Withdrawal. It is acknowledged and understood that this Agreement intentionally does not contain any provisions by which a Member may be involuntarily terminated by the Company absent death, Disability or Misconduct. Therefore, if a Member ceases to render professional services for the Company in accordance with this Agreement for any reason other than death, disability or Misconduct, such event shall be treated . . . (iii) as a Preferred Withdrawal if it occurs with respect to AZ . . . at any time.
Thereafter, the firm hired defendant's son, who had just graduated from law school. However, the son's performance was found not to be acceptable by Boccia and Perlmutter, and he was terminated by them, against the wishes of defendant.
Thereafter, in the summer of 2009, defendant suffered a significant health incident. Following those events, defendant failed to do work equivalent to that which he had done in 2003- 04 as he agreed to do in the operating agreement. Although he came to the office, he ceased legal work virtually entirely. On March 30, 2010, Boccia and Perlmutter sent a pre- arbitration letter to defendant announcing their intention to invoke the disability provision of the operating agreement as a means for obtaining defendant's withdrawal from the firm. Upon invocation of the disability provision, defendant had thirty days to contest his status by having his condition reviewed by a physician of his choice. Defendant did nothing.
On September 20, 2010, Boccia and Perlmutter requested arbitration in a letter to the American Arbitration Association. Their letter noted Section 2.9.2 of the operating agreement, which required that "each Member shall devote his best efforts to serving the Company and its clients in a professional manner and shall devote his full working time and attention to the affairs of the Company unless otherwise approved by the Members." The letter also noted the provisions of Section 2.9.3, specifying defendant's duties. The letter then continued by describing the manner in which defendant had violated those sections, as well as the hostility manifested by defendant toward other members of the firm. It further described defendant's health incident in 2009 and his refusal to be examined by a physician, despite a May 7, 2010 request. The letter then concluded with the following as issues for arbitration:
If AZ refuses to submit to appropriate medical examination, the arbitrator must determine if this refusal is a withdrawal event. Similarly, the arbitrator must determine if AZ's lack of work, competency, or hostility towards us are withdrawal events. §22.51.
In a counterclaim, defendant alleged misconduct by the firm, pursuant to Section 22.35, by stopping payment of his weekly draw at the end of December 2010, as well as a breach of fiduciary duty pursuant to Section 2.10.
Following an arbitration hearing, the arbitrator found that defendant*fn1 had failed to perform his duties after December 2009, and that his failure constituted a "withdrawal event" under Section 22.51 of the operating agreement that would be considered a Preferred Withdrawal under Section 22.42, obligating plaintiff to purchase and defendant to sell his interest in the firm pursuant to Sections 14.1 and 14.2 of the operating agreement. The arbitrator found that there was inadequate evidence to determine whether defendant was disabled, that he had not committed misconduct as defined in the operating agreement, and that whether he violated the Limited Liability Company Act was beyond the scope of the arbitration. Addressing defendant's counterclaim, the arbitrator denied interim relief in the form of an award requiring the firm to continue to pay him his draw, noting that Perlmutter and Boccia acknowledged their obligation to buy out defendant's interest and their further position that the draw paid to defendant through 2010 met or exceeded the anticipated buyout price. The arbitrator ruled on this basis that interim relief was not warranted because a money award would make defendant whole.
The arbitration award was confirmed by the trial court.*fn2 As we have stated, defendant has appealed, arguing that the arbitrator exceeded the scope of the authority granted to her and that the operating agreement required a judicial resolution of the issues raised in the arbitration. Because the request for arbitration, as we have summarized it, clearly encompassed the issue of whether defendant's disability or his cessation of professional service constituted a withdrawal event, and because the operating agreement's plain terms required arbitration of that issue, we find defendant's arguments to be of insufficient merit to warrant discussion in a written opinion. R. 2:11- 3(e)(1)(E).