Weitz v. Hudson

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Present: All the Justices
BEN AMN B. VEI TZ
v. Record No. 002073 OPIN ON BY JUSTICE CYNTIH A D KINSER
June 8, 2001
DONALD E. HUDSON
FROM THE CI RCULT COURT OF LOUDOUN COUNTY
Janes H Chanblin, Judge
Pursuant to Code § 8.01-581.016, this case is an
interlocutory appeal froman order denying an application
to compel arbitration.! Because we conclude that the
specific controversy alleged in a notion for j udgnent is
covered by an arbitration clause in a limited partnership
agreenent, we wll reverse the judgment of the circuit
court.
FACTS AND MATERI AL PROCEEDI NGS
The appellee, Donald E. Hudson, and the appellant,
Benjamn B. Witz, were general partners in a limted
partnership formed under the law of the State of Mryland
and know. as Leesburg Minor Associates Limted Partnership

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(Leesburg Minor). Witz also served as the nanaging

‘In pertinent part, Code § 8.01-581.016 authorizes an
appeal from “[an] order denying an application to conpel
arbitration made under § 8. 01-581. 02.”

2 Leesburg Minor originally had two other general
partners.

general partner.3 The limited partnership agreement,
entered into in April 1972, contained two provisions that
are at issue in this appeal. 	The first provision,
paragraph 20, addresses the arbitration of disputes:
Any dispute or controversy arising under,
out of, in connection with, or in relation to
this Agreement, and any amendments or proposed
amendments hereto, shall be determined and
settled by arbitration in Baltimore, Maryland
pursuant to the Rules of the American Arbitration
Association then obtaining. 	Any award rendered
therein shall be final and binding upon the
parties hereto, and judgment may be entered
thereon in any court of competent jurisdiction.
The second relevant paragraph, number 16(b),
establishes the order of distributing proceeds from the
liquidation of Leesburg Manor’s assets. 	That paragraph
provides that, after the payment of all debts and
liabilities, such proceeds shall be applied
[t]o the setting up of any reserves which
the General Partners or special liquidator may
deem reasonably necessary for any contingent or
unforeseen liabilities or obligations of the
Partnership or of the General Partners arising
out of or in connection with the Partnership or
its liquidation.
In February 1999, Leesburg Manor sold its principal
asset, an apartment complex. 	A distribution of the
3 Paragraph 9(i) of the partnership agreement states
that “[t]he General Partners may . . . designate one
General Partner as the Managing General Partner, who shall
have and may exercise all of the powers of the General
Partners, as if he were the sole General Partner.”
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proceeds from that sale indicated that Hudson was to
receive the sum of $51,884. 	However, Weitz allegedly
withheld Hudson’s share of the proceeds and placed the
money in an “interest bearing escrow account,” telling
Hudson that he had done so to assure “that [Hudson’s]
indemnification liability to [Weitz and another general
partner] will be met in small part.”
Hudson then filed a motion for judgment against Weitz,
alleging wrongful conversion and misappropriation of
Hudson’s share of those sale proceeds. 	Hudson alleges that
Weitz’s decision to escrow those funds has nothing to do
with Leesburg Manor. 	Instead, he claims that Weitz acted
in retaliation against Hudson because of Hudson’s
cooperation with limited partners in other partnerships in
which both Hudson and Weitz were general partners.
Therefore, Hudson contends that Weitz illegally converted
the funds.
Pursuant to Code § 8.01-581.02(A), Weitz filed an
application to compel arbitration.4 At a subsequent hearing
_______________________
4 Code § 8.01-581.02(A) provides that
[o]n application of a party showing an agreement
described in § 8.01-581.01, and the opposing party’s
refusal to arbitrate, the court shall order the
parties to proceed with arbitration. 	However, if the
opposing party denies the existence of the agreement
3

on Weitz’s application, the court declined to receive any
evidence, but heard argument of counsel. 	During that
hearing, the court indicated that it would grant the
application if Weitz agreed that he would not present any
affirmative defenses to the arbitrator or explain why he
escrowed the funds. 	The court stated:
[I]f Mr. Weitz will agree for purposes of
this suit that his sole defense is he was acting
within his authority under the agreement . . .
then I’ll send it to arbitration.
But if he wants to argue other things[,]
. . . 	about six or seven . . . affirmative
defenses[,] . . . then the motion for arbitration
is denied . . . .
The court opined that Weitz’s assertion that he escrowed
the funds because he was afraid that Hudson would move to
Florida and leave Weitz solely responsible for the
partnership’s liabilities has nothing to do with the
partnership agreement.5
_______________________
to arbitrate, the court shall proceed summarily to the
determination of the issue of the existence of an
agreement and shall order arbitration only if found
for the moving party.
5 Prior to the commencement of this action, both Hudson
and Weitz, along with another general partner in Leesburg
Manor and several other partnerships, were sued jointly and
severally in Maryland. 	Hudson allegedly told Weitz that he
was moving his permanent residence from West Virginia to
Florida to insulate his personal and marital assets in the
event that an adverse judgment should be entered against
him in that case. 	Hudson allegedly stated that, under West
Virginia law, spouses’ jointly held assets are subject to
4

Weitz declined to limit his defense before the
arbitrator. 	Accordingly, the court entered an order
denying his application to compel arbitration. 	Weitz
appeals from that order.
ANALYSIS
The dispositive question on appeal is whether the
specific controversy alleged in Hudson’s motion for
judgment is subject to arbitration under paragraph 20 of
the partnership agreement.6 Hudson answers this question in
the negative because he claims that this case is just about
the conversion or misappropriation of funds and that the
arbitration clause does not encompass intentional torts.
According to Hudson, the dispute is not between two general
partners. 	Instead, Hudson asserts that the controversy is
between two individuals who were general partners in
several partnerships, and involves an act of revenge or
“self-help personal financial protection” by Weitz.
_______________________
the claims of either spouse’s judgment creditors, whereas
under Florida law, they are not. 	Hudson allegedly did move
his legal residence to Florida.
6 After Weitz filed his notice of appeal to this Court,
Hudson moved for leave to amend his motion for judgment.
Although the circuit court granted that motion, the
allegations with regard to additional sums of money
withheld by Weitz were not before the court when it denied
the application to compel arbitration. 	Consequently, we
will not consider Hudson’s allegations in his amended
motion for judgment in the disposition of this appeal.
5

Finally, Hudson argues that there is no provision of the
partnership agreement to which the parties must refer in
order to resolve the dispute alleged in the motion for
judgment. 	We do not agree with Hudson’s arguments.
As we have said previously, a party cannot be
compelled to arbitrate a question that is not arbitrable
under the agreement between the parties. 	Doyle & Russell,
Inc. v. Roanoke Hosp., Assoc., 213 Va. 489, 494, 193 S.E.2d
662, 666 (1973). 	“[T]he extent of the duty to arbitrate,
just as the initial duty to arbitrate at all, arises from
contractual undertakings.” 	Id. 	Thus, we begin our
analysis of the question before us by considering the
language of the parties’ contract, specifically paragraph
20 of the partnership agreement.
According to the terms of that paragraph, the parties
agreed to arbitrate “[a]ny dispute or controversy” that
arises either “under, out of, in connection with” or “in
relation to” the partnership agreement. 	This Court has
described language that is strikingly similar to, and
perhaps even less expansive than, the terms of paragraph 20
as “very broad in its coverage.” 	Waterfront Marine
Constr., Inc. v. North End 49ers Sandbridge Bulkhead Groups
A, B and C, 251 Va. 417, 426, 468 S.E.2d 894, 899
(1996) (citing McMullin v. Union Land & Mgmt. Co., 242 Va.
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337, 341, 410 S.E.2d 636, 639 (1991)). 	In McMullin, the
contract language required arbitration of “[a]ny claim or
controversy arising out of or relating to” the parties’
agreement. 	242 Va. at 340, 410 S.E.2d at 638. 	In
discussing the arbitration clause in McMullin, we stated
that “ ‘[b]road language of this nature covers contract-
generated or contract-related disputes between the parties
however labeled.’ ” 	242 Va. at 341, 410 S.E.2d at 639
(quoting Maldonado v. PPG Indus., Inc., 514 F.2d 614, 616
n.6 (1st Cir. 1975)). 	We further recognized that “ ‘[a]n
arbitration clause covering claims “relating to” a contract
is broader than a clause covering claims “arising out of” a
contract.’ ” 	242 Va. at 341, 410 S.E.2d at 639 (quoting
International Talent Group, Inc. v. Copyright Management,
Inc., 629 F. Supp. 587, 592 (S.D.N.Y. 1986)).
Based on our prior cases and the terms employed in
paragraph 20, we conclude that the specific controversy
alleged in the motion for judgment is a dispute “in
relation to” the partnership agreement. 	Hudson alleges
that Weitz converted funds belonging to Hudson, but Weitz
asserts that he had a right, as the managing general
partner, to escrow those funds from the sale of Leesburg
Manor’s asset. 	Weitz relies on paragraph 16(b) as the
source of his authority. 	That provision authorizes a
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reserve fund to be set up “for any contingent or unforeseen
liabilities or obligations of the Partnership or of the
General Partners arising out of or in connection with the
Partnership or its liquidation.” 	Thus, to resolve the
controversy, paragraph 16(b) will need to be construed or
applied to determine whether Weitz converted the funds at
issue or properly escrowed them. 	See McMullin, 242 Va. at
342, 410 S.E.2d at 639 (because parties had to refer to
agreement to resolve controversy, dispute was one “relating
to” agreement).
CONCLUSION
For these reasons, we conclude that the circuit court
erred in denying Weitz’s application to compel arbitration.
Accordingly, we will reverse the judgment of the circuit
court and remand for further proceedings consistent with
this opinion and in accordance with the Uniform Arbitration
Act, Code §§ 8.01-581.01 through –581.016.7 On remand, the
circuit court must determine whether any new issues raised
in the amended motion for judgment are subject to
arbitration, and if not, whether they are severable or
subject to the stay. 	See Code § 8.01-581.01 through –
581.016.
7 In light of our decision, we do not reach Weitz’s
remaining assignment of error.
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Reversed and remanded.
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