An operating agreement’s requirement to arbitrate disputes between former principals and the firm will also apply to disputes between former principals and current principals who acted as agents of the firm, according to Altobelli v Hartmann, No. 150656.
Dean Altobelli filed a wrongful termination complaint in the Ingham Circuit Court against seven individual principals of the law firm of Miller, Canfield, Paddock and Stone, P.L.C. (the Firm)—five managing directors, the Firm’s CEO, and the head of the Firm’s litigation group. Despite having made the demand for arbitration, Altobelli filed the instant lawsuit alleging that these seven individuals were responsible for engaging in tortious conduct with regard to Altobelli’s request for a leave of absence and retention of his equity ownership in the Firm. They responded with a motion to compel arbitration as required by the arbitration clause. The trial court and the Court of Appeals held that the dispute was not subject to the arbitration clause. The Michigan Supreme Court reversed.
The Michigan Supreme Court explained that a company can only act through its agents, the individual defendants are agents of the Firm, and that Altobelli’s claims inextricably tie the seven principals’ actions as agents to the alleged deprivation of plaintiff’s rights under the operating agreement. Therefore, Altobelli’s dispute was subject to binding arbitration. The court outlined three key conclusions in determining that the arbitration clause applied. First, a court reviewing the disposition of a party’s motion to compel arbitration must avoid analyzing the substantive merits of the dispute. If the dispute is arbitrable, the merits are to be analyzed by the arbitrator and not the court. Second, agency principles that apply to corporations also apply to professional limited liability companies. The actions of employees, when the employees are operating on behalf of the company, are the acts of the company. Because a company cannot act on its own, an arbitration clause that includes a company as a party to arbitration must also include those employees that act as agents of the company. Third, an arbitration clause intended to cover any dispute between a current or former principal and a company is broad in scope, but applies only when the subject matter of the dispute involves actions taken by a principal acting on behalf of the company.