Opinion
No. 56955-4-I.
July 24, 2006.
Appeal from a judgment of the Superior Court for King County, No. 05-2-26520-5, Carol A. Schapira, J., entered September 22, 2005.
Counsel for Appellant(s), Ann Marie Bender, Smith Hennessey PLLC, 316 Occidental Ave S Ste 500, Seattle, WA 98104-2874.
Brent T Caldwell, Smith Hennessey, PLLC, 316 Occidental Ave S Ste 500, Seattle, WA 98104-2874.
James R. Hennessey, Smith Hennessey PLLC, 316 Occidental Ave S Ste 500, Seattle, WA 98104-2874.
James Alexander Jr Smith, Smith Hennessey PLLC, 316 Occidental Ave S Ste 500, Seattle, WA 98104-2874.
Counsel for Respondent(s), Kenneth R. Friedman, Friedman Rubin White, 1126 Highland Ave, Bremerton, WA 98337-1828.
Michael N White, Friedman Rubin White, 1126 Highland Ave, Bremerton, WA 98337-1828.
Reversed by unpublished per curiam opinion.
Moss Adams, LLP (`Moss') appeals the trial court's denial of its motion to compel arbitration of Yardarm Knot, Inc.'s (`YAK') various claims based on Moss's alleged failure to advise YAK that it had to own a property for at least one year before donating it in order to deduct the fair market value of that property on its tax return. Moss argues a 2003 engagement letter requiring arbitration applies to YAK's claims. We agree.
The 2003 engagement letter covered preparation of YAK's 2002 tax returns and advice on other tax matters arising during 2003. YAK purchased the subject property in April 2003 and shortly thereafter sought Moss's tax advice on donating that property. Because all of YAK's claims arise from or relate to allegedly deficient advice Moss provided in 2003, the 2003 engagement letter applies. We reverse and stay the action to allow arbitration of YAK's claims under the 2003 engagement letter.
FACTS
YAK, a Seattle-based seafood company, has used Moss for tax and audit accounting services since the late 1980s. YAK has worked primarily with Moss accountant Mark Christopher. On January 20, 2003, YAK signed an engagement letter stating that Moss would prepare its 2002 tax returns. The letter provided that Moss was `available at your request to advise you on other tax matters that arise during the year. . . . Fees for such additional services would be invoiced separately and billed at our standard rates.' The letter also contained the following arbitration clause: If any dispute arises, you agree to try first in good faith to settle the dispute by mediation. . . . All unresolved disputes shall then be decided by final and binding arbitration in accordance with the Rules for Professional Accounting and Related Services Disputes of the AAA. . . . In agreeing to arbitration, we both acknowledge that in the event of a dispute related to this agreement, or its performance, each of us is giving up the right to have the dispute decided in a court of law before a judge or jury and instead we are accepting the use of arbitration for resolution.
In April 2003, YAK purchased three properties in Alaska. Shortly thereafter, YAK decided one of the properties (the `Ekuk' property) did not fit its business plan and sought advice from Moss about donating the property for tax-deduction purposes. On August 7, 2003, at Moss's recommendation, YAK hired the Compass Valuation Group to appraise the Ekuk property. Compass inspected the property from August 20-24. In February 2004, YAK and Christopher discussed the donation documents and the donee's non-profit status. On March 18, 2004, 11 months after it bought the Ekuk property, YAK donated it to Alaska Hubzone, Inc., a non-profit charitable organization. On May 21, 2004, Compass appraised the Ekuk property as of the donation date at $4.8 million.
On February 2, 2005, YAK signed another engagement letter substantially the same as the 2003 letter, stating that Moss would prepare its 2004 tax returns and was also available at YAK's request to advise on other tax matters that arose during 2005. But instead of requiring arbitration of disputes, the Professional Services Agreement attached to the letter stated that
Neither party produced an engagement letter covering the 2003 tax year and advice on tax matters arising in 2004, although YAK requested this document as part of discovery.
[i]f a dispute arises out of or relates to the engagement described herein, and if the dispute cannot be settled through negotiations, the parties agree first to try in good faith to settle the dispute by mediation. . . . If the claim or dispute cannot be settled through mediation it shall be submitted to a court of applicable jurisdiction in the state of Washington, and each party hereby consents to the jurisdiction and venue of such court as the exclusive jurisdiction to hear and decide such disputes.
On February 23, 2005, Christopher signed YAK's 2004 tax return, including the $4.8 million fair market value deduction for donation of the Ekuk property. Before YAK filed that return, one of its shareholders questioned Christopher about the deduction because YAK had held the property less than one year. Christopher changed the return to reflect a deduction of only $350,000, YAK's cost basis for the Ekuk property. YAK then filed the return. On August 11, 2005, YAK filed a summons and complaint against Moss. YAK stated that during 2003 and 2004, it sought tax advice from Moss about the charitable donation of the Ekuk property. It alleged Moss advised YAK it could deduct the fair market value of the Ekuk property provided it obtained a fair market value appraisal, but failed to inform YAK it had to own the property for at least one year before donating it in order to deduct the fair market value rather than its much lower cost basis. YAK asserted six causes of action: professional negligence, negligent misrepresentation, breach of fiduciary duty, breach of contract, violations of the Consumer Protection Act and fraudulent concealment. On September 7, 2005, Moss moved to stay the action and compel arbitration under the 2003 engagement letter and the Washington Arbitration Act, RCW 7.04.010-.220. On September 22, 2005, the trial court denied Moss's motion without comment.
DISCUSSION
The question for this court is whether the 2003 engagement letter, including the arbitration clause, applies to the dispute. We review questions about arbitrability de novo. As the party opposing arbitration, YAK bears the burden of showing that the 2003 engagement letter does not apply to this dispute.
Walters v. A.A.A. Waterproofing, Inc., 120 Wn. App. 354, 357, 85 P.3d 389 (2004) (citing Kamaya Co. v. Am. Prop. Consultants, Ltd., 91 Wn. App. 703, 713, 959 P.2d 1140 (1998), review denied, 137 Wn.2d 1012 (1999)).
See Zuver v. Airtouch Commc'ns, Inc., 153 Wn.2d 293, 302, 103 P.3d 753 (2004) (`The party opposing arbitration bears the burden of showing that the agreement is not enforceable.').
Moss argues the alleged acts and omissions that form the basis for YAK's claims arose in 2003 and related to Moss's performance under the 2003 engagement letter. It contends the 2005 engagement letter applies only to its preparation of YAK's 2004 tax return and advice it provided during 2005. YAK argues the dispute relates to the 2005 engagement letter because it stems from Moss's deficient advice on the 2004 tax-year consequences of donating the Ekuk property. It asserts the premature donation of the Ekuk property in 2004 caused the harm that gave rise to its claims.
We apply four guiding principles in determining whether two parties agreed to arbitrate a given dispute: "1) the duty to arbitrate arises from the contract; 2) a question of arbitrability is a judicial question unless the parties clearly provide otherwise; 3) a court should not reach the underlying merits of the controversy when determining arbitrability; and 4) as a matter of policy, courts favor arbitration of disputes." Washington has a strong policy favoring arbitration of disputes, and we resolve any doubts about the scope of an arbitration agreement in favor of arbitration unless we are satisfied the agreement cannot be interpreted to cover a particular dispute. But we will not require parties to arbitrate a dispute unless they have agreed to do so.
Mendez v. Palm Harbor Homes, Inc., 111 Wn. App. 44 6, 445-46, 45 P.3d 594 (2002) (quoting Stein v. Geonerco, Inc., 105 Wn. App. 41, 45-46, 17 P.3d 1266 (2001)).
Zuver, 153 Wn.2d at 301 (citing Int'l Ass'n. of Fire Fighters, Local 46 v. City of Everett, 146 Wn.2d 29, 51, 42 P.3d 1265 (2002); Mendez, 111 Wn. App. at 454; Perez v. Mid-Century Ins. Co., 85 Wn. App. 760, 765, 934 P.2d 731 (1997)).
Mendez, 111 Wn. App. at 456 (citing King County v. Boeing Co., 18 Wn. App. 595, 603, 570 P.2d 713 (1977)).
Powell v. Sphere Drake Ins. P.L.C., 97 Wn. App. 890, 898, 988 P.2d 12 (1999).
The 2003 engagement letter's arbitration clause requires arbitration of all unresolved disputes `related to this agreement, or its performance.' After it purchased the Alaska properties in April 2003, YAK asked Moss for tax advice about donating the Ekuk property. Shortly thereafter, in response to this request, Moss advised YAK about the tax-related requirements for donating the property, allegedly failing to mention the one-year holding requirement. YAK does not allege that Moss provided this advice under an agreement other than the 2003 letter. Moss's allegedly deficient advice was about a `tax matter' arising during 2003 and falls under the plain language of the 2003 engagement letter.
It does not matter that YAK actually donated the property in 2004 and claimed the deduction on its 2004 tax return, or that Moss allegedly omitted the necessary advice up through the March 2004 donation date. YAK's claims hinge entirely on whether Moss provided deficient advice leading to the premature donation. The donation date does not change the fact that YAK requested, and Moss provided, the advice at issue in 2003. And while Moss could have fixed the alleged deficiency by advising YAK of the one-year holding requirement at any time before YAK actually donated the property in March 2004, this also has no bearing on the fact that Moss gave the advice in 2003. Our only concern is whether the 2003 engagement letter applies to YAK's claims. Simply put, YAK requested the advice in 2003 and Moss advised YAK of the tax requirements in 2003, so the 2003 engagement letter applies.
Even if Moss continued providing deficient advice up until YAK donated the Ekuk property in March 2004, the matter arose in 2003 when YAK requested the advice and Moss informed it of the requirements for donating the property.
YAK argues the 2005 engagement letter applies at a minimum to its fraudulent concealment claim because that cause of action arose in 2005 when Moss concealed information about the allegedly deficient advice by misrepresenting that advice and lying to YAK officers. But this claim, like the others, hinges entirely on whether Moss did provide deficient advice in 2003. YAK's fraudulent misrepresentation claim has no factual basis if Moss did not provide deficient advice in the first place. Thus, the 2003 engagement letter also applies to the fraudulent concealment claim.
We reverse and stay the action to allow arbitration of YAK's claims under the 2003 engagement letter.
AGID, ELLINGTON and APPELWICK, JJ., concur.