128 A.3d 334
Pa. Commw. Ct.2015Background
- In 1998 Pennsylvania and other jurisdictions (Settling States) entered the Master Settlement Agreement (MSA) with participating manufacturers (PMs) to resolve tobacco-related claims; PMs make aggregate payments which an Independent Auditor allocates to States.
- The MSA contains an NPM Adjustment that can reduce PMs’ payments if PMs lost market share to nonparticipating manufacturers (NPMs); a State can avoid reduction if it “diligently enforced” a qualifying statute (Pennsylvania’s is the TSAA).
- Section XI(c) of the MSA requires arbitration of disputes arising from the Independent Auditor’s determinations, including NPM Adjustment calculations; arbitration panels are three neutrals selected by “each of the two sides to the dispute.”
- The 2003 NPM Adjustment dispute went to multistate arbitration after many States and PMs agreed to a multistate process (Agreement Regarding Arbitration, ARA); the 2004 NPM Adjustment dispute prompted this litigation.
- Pennsylvania moved to compel single-state arbitration on its diligence for 2004; PMs moved to compel multistate arbitration. The trial court denied Pennsylvania’s motion and ordered multistate arbitration; Pennsylvania appealed.
Issues
| Issue | Plaintiff's Argument (Commonwealth) | Defendant's Argument (PMs) | Held |
|---|---|---|---|
| Whether appellate jurisdiction exists over interlocutory orders compelling multistate arbitration | Denial of Commonwealth’s motion to compel single-state arbitration is immediately appealable under Pa. R.A.P. 311(a)(8) and UAA §7320(a)(1); alternatively, orders are collateral under Pa. R.A.P. 313 | Orders merely determine manner of arbitration and are interlocutory; not appealable as of right and do not meet collateral-order test | Court: Orders are collateral under Rule 313 (all three prongs met); appellate jurisdiction exists |
| Whether the MSA permits multistate arbitration of the 2004 NPM Adjustment (including State diligence) | Arbitration clause contemplates only a two‑party dispute (Commonwealth v. PMs); diligence is state‑specific, so Commonwealth should have single-state arbitration; consolidation requires clear contractual authorization (Stolt-Nielsen) | The core dispute is whether PMs are entitled to the NPM Adjustment (PMs vs. Settling States). Diligence is a subsidiary, interconnected issue affecting all States; MSA broadly covers auditor determinations so multistate arbitration is appropriate | Court: The arbitration clause reasonably covers the nationwide NPM Adjustment dispute; multistate arbitration (Settling States v. PMs) is proper |
| Whether forcing multistate arbitration infringes State sovereignty / due process | Multistate forum undermines sovereign rights protected elsewhere in MSA (choice of State courts, state law); Pennsylvania would lose independent selection of arbitrator and state‑specific adjudication | Commonwealth voluntarily contracted to the MSA; sovereignty is respected by enforcing the agreed arbitration terms; no provision trumps the MSA arbitration clause | Court: Sovereignty not undermined; enforcing MSA terms respects Commonwealth’s agreement |
| Whether Stolt‑Nielsen (class/consolidation limits) bars multistate arbitration absent express agreement | Multistate/consolidated arbitration is akin to class/consolidation and requires explicit consent | No stipulation that MSA precludes multistate arbitration; MSA’s broad language and structure imply a single panel resolving auditor disputes among all parties; not a class action of absent parties | Court: Stolt‑Nielsen is inapposite; intent to have a single multistate arbitration can be inferred from MSA text and structure |
Key Cases Cited
- Stolt‑Nielsen S.A. v. AnimalFeeds Int'l Corp., 599 U.S. 662 (U.S. 2010) (party consent required for class arbitration)
- Maleski v. Mutual Fire, Marine & Inland Ins. Co., 633 A.2d 1143 (Pa. 1993) (order compelling arbitration is generally not immediately appealable)
- Pridgen v. Parker Hannifin Corp., 905 A.2d 422 (Pa. 2006) (substantial litigation costs can support finding irreparable harm for collateral-order review)
- U.S. Auto. Ass'n v. Shears, 692 A.2d 161 (Pa. Super. 1997) (order compelling arbitration may be collateral where important rights and irreparable loss are shown)
- Highmark Inc. v. Hospital Service Ass'n of N.E. Pa., 785 A.2d 93 (Pa. Super. 2001) (arbitration agreements construed strictly and under contract principles)