Strickland v. Ernst & Young
REITERATIONFacts
The Antecedents: Dale Strickland (Strickland) filed a complaint for collection of sum of money against Ernst & Young LLP (EYLLP) and Punongbayan & Araullo (PA), among others. PA, the Philippine member firm of EYLLP, entered into a Financial Advisory Services Agreement (FASA) with the National Home Mortgage Finance Corporation (NHMFC) for the liquidation of NHMFC's Unified Home Lending Program (UHLP). Strickland, a partner of EYLLP seconded to EYAPFS, was part of the Engagement Team for the FASA and played a role in its negotiation. A Partnership Agreement existed between EYLLP and its partners, including Strickland, which contained a dispute resolution clause mandating mediation and binding arbitration. Strickland's engagement with the UHLP Project became contentious after his resignation from EYLLP/EYAPFS. Despite negotiations for his continued participation, no final written agreement amending the original engagement materialized. Strickland sought equitable compensation for services rendered after his separation from EYLLP/EYAPFS. Procedural History: Strickland filed a complaint against EYLLP, PA, and others. EYLLP/EYAPFS filed a Motion to Refer to Arbitration, which the Regional Trial Court (RTC) denied, ruling that the dispute was domestic and not commercial of an international character, and the arbitral clause was inoperative. The Court of Appeals (CA) annulled the RTC's orders, granted EYLLP's petition, ordered EYLLP dropped as a defendant, and referred the dispute between Strickland and EYLLP to arbitration. Subsequently, PA filed a Motion to Suspend Proceedings in the RTC, arguing that any settlement in the arbitration between EYLLP and Strickland might prejudice PA, as Strickland's cause of action against PA was incidental to that against EYLLP. The RTC denied PA's motion. PA filed a petition for certiorari with the CA, which annulled the RTC's orders and directed the RTC to suspend proceedings pending arbitration. The Petition: Strickland filed consolidated petitions for review on certiorari, assailing the CA's decisions that annulled the RTC orders, ordered EYLLP dropped as a defendant, referred the dispute to arbitration, and directed the suspension of proceedings in the RTC.
Issue(s)
Whether the Court of Appeals erred in referring the dispute between Strickland and EYLLP to arbitration and ordering that EYLLP be dropped as defendant in Civil Case No. 05-692. Whether the Partnership Agreement was properly alleged and proven according to Section 7, Rule 8 of the Rules of Court on actionable documents. Whether the dispute between Strickland and EYLLP based on Strickland's complaint is arbitrable. Whether the Court of Appeals erred in suspending the proceedings in Civil Case No. 05-692 pending the arbitration between Strickland and EYLLP, and whether PA is an agent of EYLLP. Whether Strickland's causes of action against all the defendants are intricately intertwined such that the separate causes of action against PA and the other impleaded defendants cannot independently proceed from the arbitration between Strickland and EYLLP.
Ruling
The petitions are denied. The Decisions of the Court of Appeals in CA-G.R. SP No. 102805 dated June 17, 2010 and CA-G.R. SP No. 120897 dated August 5, 2013 are affirmed.
Ratio Decidendi
On the issue of referring the dispute between Strickland and EYLLP to arbitration: The Court affirmed the CA's ruling that EYLLP substantially complied with Section 7, Rule 8 of the Rules of Court by quoting the arbitration provision in its answer and later submitting a copy of the Partnership Agreement. The Court emphasized that the arbitration clause is a contract in itself and, under the doctrine of separability, its validity is independent of the main contract. The Court found that the Partnership Agreement contained a clear dispute resolution clause mandating binding arbitration. Furthermore, the Court determined that the arbitration sought was international commercial arbitration, falling under Article 1(3)(b)(ii) of the Model Law on International Commercial Arbitration, as EYLLP's place of business was in the USA and the services for which Strickland sought remuneration were rendered in the Philippines. The Court also noted that the assignment letter from EYLLP to Strickland contained a choice of law provision stating that the assignment would be governed by the laws of the U.S. and that the parties agreed to the exclusive jurisdiction of the U.S. courts, further supporting the referral to arbitration. On the issue of compliance with Section 7, Rule 8: The Court affirmed the CA's ruling that EYLLP substantially complied with Section 7, Rule 8 of the Rules of Court by quoting the arbitration provision in its answer and later submitting a copy of the Partnership Agreement. On the issue of arbitrability: The Court found that the Partnership Agreement contained a clear dispute resolution clause mandating binding arbitration. On the issue of suspending proceedings in Civil Case No. 05-692 pending arbitration and the agency of PA: The Court affirmed the CA's suspension of proceedings. The Court established that PA was an agent of EYLLP, as evidenced by correspondence where PA represented itself as the Philippine member firm of EYLLP and acted on behalf of EYAPFS in the FASA with NHMFC. As an agent, PA's liability is anchored on that of its principal, EYLLP. On the issue of intertwined causes of action: The Court also found that Strickland's causes of action against all defendants were intricately intertwined and stemmed from his contractual relationship with EYLLP. The Court reasoned that Strickland's allegations in his complaint and amended complaint were hinged on the disintegration of his working relationship with EYLLP, which he blamed for his failure to receive compensation from other defendants. The Court concluded that the designation of Strickland in the Engagement Team of the FASA did not constitute a stipulation pour autrui in his favor, as there was no clear right-duty correlative supporting his causes of action against PA independently of the arbitration with EYLLP. The Court reiterated that the arbitration clause in the Partnership Agreement, coupled with the agency relationship and the intertwined nature of the claims, justified the suspension of the RTC proceedings to allow for an expeditious resolution through arbitration.
Main Doctrine
The Court affirmed the Court of Appeals' decision referring the dispute between Strickland and EYLLP to arbitration, holding that the arbitration clause in the Partnership Agreement is valid and enforceable, and that the dispute between Strickland and PA should be suspended pending the arbitration proceedings due to the agency relationship and the intertwined nature of the causes of action.