PennEnergy v. Winfield Resources
301 A.3d 439
| Pa. Super. Ct. | 2023Background
- PennEnergy and Winfield were parties to a 2012 Joint Development Agreement (JDA) governing an AMI; Winfield sought to transfer ~9.93% working interest to MDS.
- Winfield and MDS executed a February 2018 PSA providing MDS would assign acquired interests to a yet‑to‑be‑identified limited partnership (later called MDS 2017), with MDS as managing general partner; the PSA also expressly disclaimed any limited partnership as a third‑party beneficiary.
- PennEnergy refused to consent to MDS’s joinder under the JDA and initiated arbitration against Winfield; the Court of Common Pleas referred related claims to arbitration and PennEnergy joined MDS as a respondent.
- MDS counterclaimed for tortious interference; it did not expressly plead that it was suing on behalf of MDS 2017 and only disclosed at the arbitration hearing that it was acting as MDS 2017’s managing general partner seeking damages for the limited partnership.
- The arbitrator found PennEnergy tortiously interfered and awarded $2.4 million to MDS (identified in the award as general partner for MDS 2017). The trial court confirmed the award. PennEnergy appealed.
- The Superior Court reversed: it vacated the damages award as to MDS 2017, holding PennEnergy lacked notice that MDS was seeking damages for MDS 2017, there was no arbitration agreement with MDS 2017, and the PSA disclaimed MDS 2017 as an intended beneficiary.
Issues
| Issue | Plaintiff's Argument (PennEnergy) | Defendant's Argument (MDS) | Held |
|---|---|---|---|
| Whether the arbitrator exceeded powers by awarding damages to non‑party MDS 2017 | Award exceeded authority because MDS 2017 was not a party to arbitration and had not been joined | MDS could represent MDS 2017 as its managing general partner and recover for the partnership | Held for PennEnergy: arbitrator exceeded authority as MDS 2017 was not a party and award to it is vacated |
| Whether MDS’s failure to disclose representative capacity violated PennEnergy’s due process/right to fair hearing | Failure to disclose that MDS prosecuted claims for MDS 2017 deprived PennEnergy of notice and opportunity to defend | MDS: general partner status obviated need to separately caption/plead the LP; PennEnergy had or should have known | Held for PennEnergy: insufficient notice; arbitration was procedurally irregular and violated due process |
| Whether PennEnergy was judicially estopped from arguing there was no arbitration agreement with MDS 2017 | PennEnergy argued no agreement to arbitrate with MDS 2017; trial court said earlier briefs estopped PennEnergy | MDS argued PennEnergy had opposed dismissal and thus cannot contest arbitration scope now | Held for PennEnergy: judicial estoppel does not apply because PennEnergy had not taken a contrary position about MDS 2017 specifically |
| Whether MDS 2017 was an intended third‑party beneficiary (standing to recover) under the PSA | PSA expressly disclaims limited partnership as beneficiary; therefore MDS 2017 lacks standing to recover for tortious interference | MDS argued the LP was an assignee and MDS (as GP) could stand in its shoes; and PennEnergy knew the LP would be the tax vehicle | Held for PennEnergy: PSA’s express no‑third‑party‑beneficiary clause means MDS 2017 had no contract rights under the PSA and could not recover |
Key Cases Cited
- Metromedia Energy, Inc. v. Enserch Energy Servs., Inc., 409 F.3d 574 (3d Cir. 2005) (arbitration awards receive extremely deferential review)
- Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576 (U.S. 2008) (courts enforce arbitration bargains and errors of law/fact generally do not justify vacatur)
- McKenna v. Sosso, 745 A.2d 1 (Pa. Super. 1999) (courts will not revisit arbitrator’s factual or legal errors absent statutory grounds)
- Civan v. Windermere Farms, Inc., 180 A.3d 489 (Pa. Super. 2018) (arbitration panel exceeded power where it asserted jurisdiction over parties that never agreed to arbitrate)
- Mellon v. Travelers Ins. Co., 406 A.2d 759 (Pa. Super. 1979) (due process requires notice of issues and parties so litigants can prepare their cases)
- Alaia v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 928 A.2d 273 (Pa. Super. 2007) (arbitrator may not decide claims against non‑parties not before the tribunal)
- Eljer Mfg. v. Kowin Dev. Corp., 14 F.3d 1250 (7th Cir. 1994) (broad arbitration clauses do not permit arbitrators to adjudicate disputes between a party and a non‑party)
- Scarpitti v. Weborg, 609 A.2d 147 (Pa. 1992) (third‑party beneficiary recovery requires both contracting parties intended beneficiary status and that intent appear in the contract)
- Kirschner v. K & L Gates LLP, 46 A.3d 737 (Pa. Super. 2012) (same principle on third‑party beneficiary intent and contractual interpretation)