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Bloom v. Landy

OPINION FILED APRIL 26, 1979.

ALEX BLOOM, PLAINTIFF-APPELLEE,

v.

GERALD LANDY, DEFENDANT-APPELLEE. — (MORRIS GOLDMAN, DEFENDANT-APPELLANT.)



APPEAL from the Circuit Court of Cook County; the Hon. DANIEL COMAN, Judge, presiding.

MR. JUSTICE LINN DELIVERED THE OPINION OF THE COURT:

Plaintiff, Alex Bloom, and co-defendant, Gerald Landy, were equal partners in the accounting firm of "Alex Bloom & Co." Co-defendant, Morris Goldman, executed a purchase agreement and agreed to buy for $45,000 Bloom's 50% interest in the accounting partnership. By a separate document, Landy personally guaranteed to Bloom Goldman's payment of the purchase price. Subsequently, in December 1972, Goldman and Landy executed a new "Partnership Agreement."

In May 1974, Bloom filed suit in the circuit court of Cook County against Goldman and Landy seeking to recover $30,000 allegedly still due him under the purchase agreement. Landy petitioned for and acquired, within the context of Bloom's lawsuit, an order compelling Goldman to submit to arbitration specified disputes arising from the dissolution of the Landy-Goldman partnership. The trial court later confirmed the arbitration award. Bloom then moved for summary judgment against Goldman and Landy. After denying Goldman's motion for leave to file an amended answer and counterclaim, the trial court: (1) granted Bloom partial summary judgment in the amount of $20,677.50; (2) held that Goldman was entitled to a credit of $412.50; and (3) found that issues of fact existed with regard to other credits claimed by Goldman amounting to $8,910.

Goldman appeals from the trial court's: (1) confirmation of the arbitration award; (2) award of partial summary judgment for Bloom; and (3) denial of his motion for leave to file a counterclaim.

We affirm the trial court's confirmation of Landy's arbitration award; we reverse the trial court's entry of partial summary judgment for Bloom, finding that Goldman should have been allowed to amend his answer to Bloom's complaint; and we dismiss the remainder of Goldman's appeal for lack of jurisdiction. For purposes of clarification, it should also be noted that we do not reach that portion of the trial court's summary judgment order which entered judgment in Goldman's favor for $412.50.

The pertinent facts disclose that in 1972, Bloom and Landy were certified public accountants and equal 50% partners in the accounting firm of Alex Bloom and Co. On November 27, 1972, Goldman executed a "Purchase Agreement" whereby he agreed to buy Bloom's 50% interest in the accounting partnership for $45,000. The purchase became effective January 1, 1973, when Goldman paid Bloom $5,000 and executed an installment note for $40,000. In a separate document, Landy unconditionally guaranteed Bloom Goldman's payment of the purchase price.

The November 27, 1972, purchase agreement anticipated that Landy and Goldman would enter into a new accounting partnership effective January 1, 1973. The purchase agreement provided that Bloom would occupy the position of a non-capital partner in the new partnership of Landy and Goldman until the entire $45,000 purchase price was paid to him. The purchase agreement also specified that the accounting partnership of Landy and Goldman would be known as "Alex Bloom & Co.," from January 1, 1973, until May 1, 1973, and as "Bloom, Landy & Goldman" from May 1, 1973, on.

Finally, the purchase agreement designated certain clients belonging to the old partnership of Bloom and Landy who were expected to continue on as clients of the new accounting partnership of Landy and Goldman. If any of these designated clients terminated their relationship with the partnership of Landy and Goldman on or before October 1, 1973, Goldman's $45,000 purchase price for Bloom's 50% interest would be reduced according to the following formula:

"by a sum equal to 50% of 1-1/2 times the [client's] annualized fees * * *. (A)nnualized fees shall be deemed to be the greater of the following two (2) amounts:

(A) The annual fee described in * * * Exhibit "A"'

(B) The actual annualized fees derived by said partnership from any such clients immediately prior to the termination of relationship with the partnership."

On December 11, 1972, Landy and Goldman executed a "Partnership Agreement" whereby they agreed to create a new accounting firm in which each of them would hold a 50% ownership interest. This partnership commenced January 1, 1973. In this partnership agreement, Goldman expressly convenanted to hold Landy harmless on Landy's personal guaranty, to Bloom, of Goldman's payment of the $45,000 purchase price:

"If at [the] time * * * of any of the events described in Paragraphs Nos. 16, 17, 19 or 20, Landy still has a contingent liability by virtue of his guaranty of the Purchase Agreement, Goldman and/or Goldman's estate or personal representative, shall furnish to Landy, such collateral as Landy feels is reasonable in order to insure that he will not ever have to disburse any monies on such guaranty."

The Landy-Goldman partnership agreement also contained the following arbitration clause:

"The Partners agree that irrepairable [sic] damage would be done to the goodwill and reputation of the Partnership if any Partner should bring an action in court to dissolve this Partnership. Accordingly, each of the Partners accepts the provisions under this Agreement as his sole entitlement on termination of the Partnership. Each Partner hereby waives and renounces his right to seek a Court decree of dissolution or to seek the appointment by a Court of a liquidation of the Partnership. In lieu thereof, the Partners agree to arbitrate any disputes between them in accordance with the rules of the American Arbitration Association."

On May 15, 1974, Bloom filed suit against Landy and Goldman seeking to recover $30,000 still allegedly due him under the purchase agreement. Subsequently, on July 11, 1974, Landy informed Goldman by mail that he was voluntarily dissolving their accounting partnership.

On July 31, 1974, Goldman filed a verified answer to Bloom's complaint, denying that $30,000 remained due and owing Bloom under the purchase agreement. Goldman also alleged insufficient knowledge "as to the truth" of the complaint's allegation that Bloom had fully performed all of the covenants and conditions in the purchase agreement. As an affirmative defense, Goldman asserted that certain (unnamed) clients designated in the purchase agreement had terminated their relationship with the partnership of Landy and Goldman prior to October 1, 1973. Goldman, therefore, alleged that, under paragraph 5 of the purchase agreement, he was entitled to have the $45,000 purchase price reduced by $30,000.

On August 20, 1974, within the context of Bloom's pending lawsuit, Landy filed a petition to compel co-defendant Goldman to submit to arbitration all disputes arising from the dissolution of their accounting partnership. (See Ill. Rev. Stat. 1975, ch. 10, par. 102(c).) Landy argued that various claims which he possessed as a result of the partnership's dissolution, could not be raised against co-defendant Goldman in a cross-complaint because their partnership agreement contained a binding arbitration clause. Landy, therefore, requested that the trial court compel arbitration and retain jurisdiction to enforce the arbitration order and subsequent arbitration award.

On October 29, 1974, the trial court directed Goldman to file an answer to the petition to compel arbitration, and directed Landy to file an answer to Bloom's complaint. Landy filed his answer on November 26, 1974, denying any indebtedness to Bloom. As an affirmative defense, Landy alleged that he was only a guarantor of the claimed indebtedness flowing from Goldman to Bloom, and that if this basic indebtedness was not established no liability would accrue on his (Landy's) guaranty.

On January 20, 1975, Landy submitted to the trial court a proposed order compelling Goldman to submit to arbitration "all alleged claims, demands and disputes between said parties, emanating and/or arising from the dissolution of [their] partnership * * *." On January 24, 1975, Goldman filed his response to Landy's petition and proposed order to compel arbitration. Goldman contended, among other things, that Landy's petition and proposed order failed to demonstrate that the "alleged claims, demands and disputes" sought to be arbitrated fell within the scope of the arbitration clause contained in the Landy-Goldman partnership agreement.

On February 13, 1975, following arguments of counsel, the trial court denied Landy's petition to compel arbitration and granted Landy leave to file an amended petition. Landy filed his first amended petition on February 20, 1975. Landy alleged that he had exercised his right to voluntarily dissolve the accounting partnership of Landy and Goldman but that differences between the two partners precluded the partnership's proper liquidation. Landy asserted further that the following claims fell within the scope of the partnership agreement's arbitration clause:

(1) division of the partnership's

(a) clientele,

(b) physical assets,

(c) accounts receivable and work in progress,

(d) existing liabilities;

(2) Goldman's obligation, under paragraph 22 of the Partnership Agreement, to furnish Landy, upon dissolution, with reasonable collateral to ensure that Landy would never have to disburse any money on his personal guaranty to Bloom; and

(3) Landy's alleged right to be reimbursed for attorney fees and court costs expended by him in connection with his personal guaranty to Bloom.

Goldman moved to strike Landy's first amended petition to compel arbitration, contending: (1) that the matters alleged to be subject to arbitration were not encompassed within the scope of the parties' arbitration clause; and (2) that two conditions precedent to obtaining a judicial order compelling arbitration had not been met, namely: (a) that a formal demand for arbitration had never been served on Goldman; and (b) that arbitration proceedings had never been initiated before the designated American Arbitration Association.

On June 3, 1975, the trial court struck and denied Landy's first amended petition to compel arbitration and granted him leave to file a second amended petition. On June 6, 1975, Landy filed a formal demand for arbitration with the American Arbitration Association. On June 19, 1975, after receiving a copy of the arbitration demand, Goldman requested the trial court to stay the arbitration proceedings until the scope of the parties' arbitration clause could be judicially determined. A stay was granted to September 8, 1975.

On July 11, 1975, Landy filed with the trial court his second amended petition to compel arbitration. Goldman moved to dismiss the second amended petition on two grounds: (1) that the matters Landy wanted submitted to arbitration were beyond the scope of the arbitration clause; and (2) (Goldman asserted for the first time) that an agreement to arbitrate did not exist because the purchase and partnership agreements were both invalid and unenforceable as a result of alleged fraud in the inducement. In a verified affidavit Goldman stated:

"During 1972, affiant entered into negotiations with Alex Bloom & Company in order to purchase the fifty percent (50%) partnership interest of Alex Bloom in said company and to enter into a partnership agreement with Gerald Landy. * * *

Unknown to affiant, Alex Bloom & Company, prior to affiant's purchase of Alex Bloom's interest therein, had repeatedly violated the ethics of the accounting profession in the following manner:

(a) Alex Bloom & Company prepared on plain stationary a false financial statement for one of its clients showing a positive net worth in excess of $200,000, knowing that this financial statement was to be used and was in fact used by said client in order to obtain credit from third parties. A second financial statement was prepared for this client on the partnership's letterhead which showed a negative net worth.

(b) Alex Bloom & Company prepared for a certain client a trial balance which showed a reserve for cumulative depreciation of a building. Although no building appeared as an asset on said trial balance, an unaccounted for receivable due from a shareholder in the approximate amount of the cost of said building did appear. This fact and the existence of stale outstanding checks (some over 15 years old) indicate that funds may have been improperly taken out of the corporation without taxation.

(c) Affiant is informed and believes that Alex Bloom & Company filed on behalf of at least one client ...


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