Ungarino & Maldonado LLC f/k/a Ungarino & Eckert LLC v. Eckert & Tarleton LLC

• Court: Court of Appeals of Mississippi
• Decided: December 10, 2019
• Docket: NO. 2018-CA-01723-COA
• Status: Published

Opinion

IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI

NO. 2018-CA-01723-COA

UNGARINO & MALDONADO LLC F/K/A APPELLANT UNGARINO & ECKERT LLC

v.

ECKERT & TARLETON LLC APPELLEE

DATE OF JUDGMENT: 11/08/2018 TRIAL JUDGE: HON. JENNIFER T. SCHLOEGEL COURT FROM WHICH APPEALED: HARRISON COUNTY CHANCERY COURT, FIRST JUDICIAL DISTRICT ATTORNEY FOR APPELLANT: JAMES ARISTIDE HOLMES ATTORNEY FOR APPELLEE: WILLIAM HARRY ECKERT NATURE OF THE CASE: CIVIL - CONTRACT DISPOSITION: AFFIRMED - 12/10/2019 MOTION FOR REHEARING FILED: MANDATE ISSUED:

BEFORE BARNES, C.J., GREENLEE AND LAWRENCE, JJ.

BARNES, C.J., FOR THE COURT:

¶1. Ungarino & Maldonado LLC appeals the chancellor’s denial of its motion to compel

arbitration and to stay proceedings pending arbitration. The chancellor found Ungarino &

Maldonado waived its right to arbitrate because the law firm actively participated in a buy-

out arbitration regarding attorney William Eckert’s departure from the firm, and it never

raised the subject of the current dispute—its entitlement to legal fees for a case Eckert

handled while at the firm and settled after his departure. The chancellor found this failure

was “conduct inconsistent with timely enforcement of the arbitration agreement” and

constituted waiver. ¶2. This Court finds the chancellor’s decision to deny arbitration was proper, but the

propriety is not due to waiver. Although Ungarino & Eckert’s operating agreement

contained a binding arbitration clause, the client-fee dispute at issue in this case does not fall

within the scope of the agreement. Therefore, it was not proper to mandate arbitration to

resolve this dispute. Accordingly, we affirm the chancellor’s decision, albeit on different

grounds.

STATEMENT OF FACTS

¶3. This case arises from a client-fee dispute on a personal-injury case and the attorney

who worked on the case’s departure from the firm. In November 2015, Nelda Polk retained

the law firm of Ungarino & Eckert LLC to represent her in a claim related to an automobile

accident in Bay St. Louis, Mississippi. She signed a lawyer-client agreement with a

contingency-fee arrangement. William Eckert, an attorney, who at the time was a member

of Ungarino & Eckert, handled her case. In January 2017, however, Eckert and another

attorney, Michael Tarleton, suddenly left the firm and formed their own law firm—Eckert

& Tarleton LLC. As a result, Ungarino & Eckert changed its name to Ungarino &

Maldonado LLC. Polk chose to move her case to Eckert & Tarleton, and she signed a

separate contingency-fee agreement with that firm.

¶4. In March 2017, a few months after leaving their former firm, William Eckert and

Michael Tarleton individually demanded Ungarino & Maldonado participate in arbitration

to determine their buy-out amount as former members of the firm under Section 9.8 of the

2 former firm’s operating agreement.1 At some point in 2017, the buy-out matter was

arbitrated—no further information about the proceeding is in the record. Ungarino &

Maldonado claims the division of the Polk legal fees was not discussed during the arbitration

because it was still ongoing. Eckert & Tarleton, however, disagrees, claiming prior to the

arbitration Ungarino & Maldonado asserted as a defense that the buy-out should be

diminished by the Polk contingency fee.

¶5. In April 2017, Ungarino & Maldonado inquired of Eckert about reimbursement of

his hourly attorney fees owed on the Polk matter. The firm claimed its billing system

showed it was owed $15,689.99 for time and expenses related to the Polk file, and there was

no retainer. Eckert, however, disputed the hourly rate Ungarino & Maldonado charged,

finding it higher than the firm’s past custom and practice for plaintiff files.

¶6. In January 2018, Eckert negotiated a settlement in the Polk matter for an undisclosed

amount. The next month, Eckert forwarded Ungarino & Maldonado a check for $9,397.66

for “full and final payment” of the fees and costs due to Ungarino & Maldonado associated

with the Polk file. The amount reflected a billing rate of $185 for attorneys and $85 for

paralegals for 113.15 hours on the Polk matter, plus costs, less ownership percentages of

Eckert and Tarleton. Ungarino & Maldonado, however, returned the check, disagreeing

with Eckert’s calculations and stating the hourly rate for Ungarino & Maldonado’s attorneys

was $250, not $185. Further, Ungarino & Maldonado requested information about the terms

1 Eckert signed an operating agreement with Ungarino & Eckert in December 1999. When Tarleton was made an equity partner at Ungarino & Eckert, he signed an amendment to the operating agreement in January 2008.

3 of the Polk settlement and related documentation. Ungarino & Maldonado stated that once

this information was received, it would then calculate the fees the firm should receive, plus

expenses, before calculating the equity percentage owed to Eckert & Tarleton.

¶7. On March 15, 2018, Eckert & Tarleton filed a complaint in the Harrison County

Chancery Court and requested a declaratory judgment determining the legal fees from Polk’s

personal-injury lawsuit. The basis of the declaratory action was how to split the contingency

fee between Eckert & Tarleton and Ungarino & Maldonado. Eckert claimed that while at

Ungarino & Eckert, he tracked his time on the Polk file through the firm’s internal billing

system to evaluate the file’s economic value and to verify time spent on it. Eckert had

received periodic “pre-bills” showing an hourly rate of $250 for attorneys and $125 for

paralegals. He found the rate inconsistent with the average billing rate of Ungarino &

Eckert and previous billing rates for “plaintiff files.” Eckert claimed that while at Ungarino

& Eckert, he advised the firm of this discrepancy, but it was never corrected. Ungarino &

Maldonado denied Eckert’s allegation.

¶8. On March 24, 2018, Ungarino & Maldonado requested the fee dispute be arbitrated.

When Eckert & Tarleton did not respond, Ungarino & Maldonado filed a motion to compel

arbitration and stay proceedings. In the motion, Ungarino & Maldonado stated the dispute

involved only the time and expenses incurred by the firm’s attorneys and staff when

Ungarino & Eckert handled Polk’s claim from November 15, 2015, through late January

2017. Ungarino & Maldonado contended the fee fell within Section 9.8 of the former firm’s

amended operating agreement, which both attorneys had signed. Section 9.8 provides:

4 Jurisdiction and Venue. Any suit involving any dispute or matter arising under this Agreement may only be resolved by binding arbitration, without the ability to appeal, with Mediation & Arbitration Professionals, and if said company is not in existence, then any other arbitration company authorized from time to time by the Management Committee. All Members hereby consent to binding Arbitration as their sole remedy to conflicts with respect to any such proceeding.

(Emphasis added). Further, Ungarino & Maldonado noted the preference for arbitration

under Mississippi law when one party demands it. Eckert & Tarleton responded to Ungarino

& Maldonado’s motion by arguing the fee dispute did not fall within the scope of the

operating agreement. After a hearing, the chancellor entered a judgment in favor of Eckert

& Tarleton, which Ungarino & Maldonado appealed.

DISCUSSION

¶9. Ungarino & Maldonado raises two issues: (1) the chancellor erred in finding it

waived the right to arbitrate; and (2) the chancellor should have granted its motion to compel

arbitration because there was a valid arbitration agreement, the dispute fell within the scope

of the agreement, and there were no grounds for revocation of the arbitration clause. The

appellate court “reviews the grant or denial of a motion to compel arbitration de novo.” Nutt

v. Wyatt, 107 So. 3d 989, 993 (¶10) (Miss. 2013).

1. Waiver

¶10. Waiver of the right to arbitrate is not favored in Mississippi; “there is a presumption

against it.” Id at (¶11) (quoting MS Credit Center Inc. v. Horton, 926 So. 2d 167, 179 (¶39)

(Miss. 2006)). However, a party may waive arbitration by “either [(1)] active participation

or substantial invocation of the litigation process which results in detriment or prejudice to

5 the other party, or [(2)] engaging in conduct inconsistent with timely enforcing the

arbitration agreement . . . .” Id. at 994 (¶11) (quoting Century 21 Maselle & Assocs. Inc. v.

Smith, 965 So. 2d 1031, 1036 (¶8) (Miss. 2007)) (emphasis omitted).

¶11. The chancellor found that Ungarino & Maldonado was aware of the fee dispute at the

time that the firm was participating in the arbitration to settle William Eckert and Michael

Tarleton’s departure from the firm, but Ungarino & Maldonado did not raise the issue. By

participating in the buy-out arbitration without raising the fee dispute, which was the subject

of the declaratory action and the present motion to compel arbitration, Ungarino &

Maldonado waived its right to invoke arbitration. The chancellor determined this failure

was “conduct inconsistent with the timely enforcement of the arbitration agreement [and]

constitutes waiver” under Century 21 and Horton.

¶12. Both parties agree the chancellor cited the proper controlling law of Century 21 and

Horton but disagree with the result. The buy-out arbitration, of course, was not litigation.

Ungarino & Maldonado claims it purposefully did not discuss the fee dispute during that

arbitration because the Polk suit was not concluded. William Eckert and Michael Tarleton

disagree, stating the fee dispute was discussed at the prior arbitration in order to diminish

their buy-out. Because the initial arbitration is not a part of this record, we cannot confirm

this contention; but regardless, waiver is improper.

¶13. On March 15, 2018, Eckert & Tarleton filed its complaint for a declaratory judgment

to determine the legal fees owed Ungarino & Maldonado. Ungarino & Maldonado

requested arbitration approximately one week later, on March 24, 2018, and filed its motion

6 to compel arbitration approximately one week after that. These dates show Ungarino &

Maldonado did not delay in demanding arbitration and had no other participation in the

litigation. Further, Eckert initiated the buy-out arbitration, outlining its scope, which did not

specifically include the fee dispute. Even so, the division of the Polk fee could have become

a point of contention during the buy-out arbitration, but it was not raised or resolved, in part,

because the Polk case had not concluded. The record shows the Polk case was not settled

until early 2018 after the buy-out arbitration was concluded. Therefore, the amount of the

Polk contingency fee, if any, was unknown when the buy-out arbitration occurred.

¶14. We do not agree that Ungarino & Maldonado’s participation in the buy-out

arbitration without raising the fee dispute is “conduct inconsistent” with timely enforcement

of the arbitration agreement. As will be discussed below, the former firm’s operating

agreement did not apply to the fee dispute. But even if it did, Ungarino & Maldonado’s

participation in the buy-out arbitration in no way prejudiced Eckert & Tarleton in the fee-

dispute matter. Accordingly, Ungarino & Maldonado did not waive its right to arbitrate by

merely participating in an arbitration over a matter different from the fee dispute.

2. Operating Agreement

¶15. Next, Ungarino & Maldonado argues that the fee dispute falls within the scope of the

operating agreement, and thus Eckert & Tarleton was compelled to arbitrate under Section

9.8. We disagree.

¶16. Ungarino & Maldonado argues Section 9.8’s language, “for any dispute or matter

arising under this [a]greement,” mandates that arbitration is the sole dispute-resolution

7 process for the fee dispute. Ungarino & Maldonado specifies the fee dispute does not

involve the amount Polk received during the settlement but rather the amount due to

Ungarino & Maldonado when Eckert worked for Ungarino & Eckert from November 15,

2015, through late January 2017.2 Without offering more specifics, Ungarino & Maldonado

contends that by signing the agreement, the parties agreed to arbitrate any dispute or matter

arising under the operating agreement “governing their practice of law.” However,

Ungarino & Maldonado does not point to a specific provision of the agreement that applies

to “fee disputes.”

¶17. Eckert & Tarleton responds that the agreement does not apply to the fee dispute

because, as a whole, the agreement concerns the internal management of the former

Ungarino & Eckert law firm, and is silent regarding fee disputes with former members of

the firm. Our examination of the operating agreement reveals that it addresses formation,

operation, and management of the firm; financial matters such as capital contributions and

distributions, profit, and loss; accounting matters such as record keeping and taxes; transfer

of interest and withdrawal of members; and dissolution, liquidation, and termination of the

firm.

¶18. There is no mention of fee disputes in general or fee disputes specifically regarding

other firms or former members of the firm. Additionally, the agreement does not pertain to

the current entities Eckert & Tarleton and Ungarino & Maldonado, but rather Ungarino &

Eckert and Eckert, individually, and Tarleton, individually, because the two attorneys signed

2 At the hearing on the motion to compel arbitration, counsel for Eckert stated to the chancellor: “this whole thing is about a $5,000 fee dispute.”

8 the agreement in their individual capacities. While the agreement and arbitration clauses are

valid, the current dispute does not fall within the scope of the agreement. The only section

where monetary issues between former members and the firm is addressed is in Sections 6.2

and 6.3 of the agreement, where a resigning or withdrawing member will be “bought out”

by the terms of the agreement. Section 6.2 provides that in the event of a “nonpreferred

withdrawal,” the withdrawing member is entitled to “the amount of the member’s buy-in that

has been paid” and sixty-percent of that member’s pro-rata share of the cash flow as of the

date of the withdrawal. “Cash flow” is defined as all cash funds derived from operations of

the firm. Thus, the express language of the agreement applies to current funds and accruals

as of the date of the member’s nonpreferred withdrawal. The current fee dispute was simply

not envisioned by the agreement. It does not apply to future fee disputes in cases where

members have withdrawn from the firm, nor does it or mention any entitlement of the firm

to a portion of a contingency fee realized by a former member after withdrawal.

¶19. We cannot say, as Ungarino & Maldonado argues, that the fee dispute would fall

under the general arbitration provision of Section 9.8 due to the language “[a]ny suit

involving any dispute or matter arising under this Agreement”; quite simply, the fee dispute

between Eckert & Tarleton and Ungarino & Eckert does not arise under the Agreement.

¶20. Accordingly, we affirm the chancellor’s decision to deny Ungarino & Maldonado’s

motion to compel arbitration.

¶21. AFFIRMED.

CARLTON AND J. WILSON, P.JJ., GREENLEE, WESTBROOKS, LAWRENCE AND C. WILSON, JJ., CONCUR. TINDELL AND McDONALD, JJ.,

9 CONCUR IN PART AND IN THE RESULT WITHOUT SEPARATE WRITTEN OPINION. McCARTY, J., CONCURS IN PART AND DISSENTS IN PART WITH SEPARATE WRITTEN OPINION, JOINED BY WESTBROOKS, TINDELL AND McDONALD, JJ.

McCARTY, J., CONCURRING IN PART AND DISSENTING IN PART:

¶22. I agree with the majority that the fee dispute was not within the scope of the

agreement. But based on the record I would have also affirmed the trial court’s finding that

the affirmative defense of arbitration was waived.

¶23. At the root here is the basic idea that we want dispute resolution to be streamlined and

efficient—whether the dispute is resolved in a courtroom with a judge or a boardroom with

an arbitrator. The focus should be on the speed of resolution. This is why the Supreme

Court has determined that waiver constitutes “either active participation or substantial

invocation of the litigation process which results in detriment or prejudice to the other party,

or engaging in conduct inconsistent with timely enforcing the arbitration agreement . . . .”

Century 21 Maselle & Assocs. Inc. v. Smith, 965 So. 2d 1031, 1036 (¶8) (Miss. 2007)

(emphasis added). If you slow down the process, or unnecessarily multiply it, you risk

waiving the affirmative defense of arbitration.

¶24. There was already one full arbitration over the lawyers leaving the firm, and both

sides knew the fee dispute was looming. This is why the trial court held that the law firm

“was aware of the fee dispute, but actively participated in an arbitration to settle [the

departure issue],” and this “failure to include the present issues in the previous arbitration

is conduct inconsistent with the timely enforcement of the arbitration agreement and

constitutes a waiver.” The point is not that any party was prejudiced by the prior

10 arbitration—it is that the other disputes could have been grouped together and dealt with at

that time but were not. We should hew to the principle in Century 21 Maselle and affirm

the trial court on this issue as well.

¶25. For these reasons, I concur in part and dissent in part.

WESTBROOKS, TINDELL AND McDONALD, JJ., JOIN THIS OPINION.