Sklaroff, S. v. Zaken, I.
Sklaroff, S. v. Zaken, I. No. 3841 EDA 2016
| Pa. Super. Ct. | Aug 18, 2017Background
- Stefan Sklaroff (employee/25% member) and Ilan Zaken (75% member) plus Cella Luxuria executed an Operating Agreement (11/5/2012) governing formation, governance, and member buyout on termination.
- Sklaroff later executed an Employment Agreement with Cella Luxuria (1/1/2013) setting employment terms and containing an arbitration clause and a merger/entire agreement clause.
- Sklaroff sued Zaken and several Zaken-owned companies alleging breaches of the Operating Agreement, fiduciary duty, fraud, and veil-piercing for self-dealing and wrongful termination-related harms.
- Zaken and the corporate defendants moved to compel arbitration (and filed preliminary objections), arguing the Employment Agreement’s arbitration clause superseded the Operating Agreement and covered the claims; they also argued related parties were bound.
- Trial court denied the petition and overruled the preliminary objections; Superior Court affirmed, holding the Employment Agreement did not supersede the Operating Agreement, the arbitration clause did not cover the Operating Agreement claims, and related nonparties were not shown to be third-party beneficiaries.
Issues
| Issue | Plaintiff's Argument (Sklaroff) | Defendant's Argument (Zaken/Cella) | Held |
|---|---|---|---|
| Whether a valid arbitration agreement applies to the dispute | Employment agreement is separate from Operating Agreement; claims arise under Operating Agreement, not the Employment Agreement | Employment Agreement contains arbitration clause that supersedes/modifies Operating Agreement and covers the claims | Held: Arbitration clause in Employment Agreement valid but does not apply to Operating Agreement claims; arbitration denied |
| Whether the Employment Agreement superseded or modified the Operating Agreement | The Operating Agreement remains the governing document for member/ownership issues | Employment Agreement’s merger clause ("supersedes all prior agreements") operates to modify/supersede the Operating Agreement | Held: Employment Agreement did not supersede/modify the Operating Agreement; they govern different subjects and have different parties |
| Whether nonparties (Zaken and his companies) are bound by arbitration | Nonparties cannot be compelled; no arbitration agreement with Zaken or his companies | Zaken and his companies are third-party beneficiaries or otherwise bound by the Employment Agreement’s arbitration clause | Held: No evidence parties intended Zaken/companies as third-party beneficiaries; nonparties not bound |
| Whether the claims fall within the scope of the Employment Agreement’s arbitration clause | Claims (buyout, taxes, corporate breaches, fiduciary duty) arise from Operating Agreement and corporate governance, not employment | The Employment Agreement’s arbitration provision is broad and should encompass related disputes | Held: Claims arise from the Operating Agreement and are outside the scope of the Employment Agreement’s arbitration clause |
Key Cases Cited
- Elwyn v. DeLuca, 48 A.3d 457 (Pa. Super. 2012) (two-part test: existence of arbitration agreement and scope analysis)
- Gaffer Ins. Co., Ltd. v. Discover Reinsurance Co., 936 A.2d 1109 (Pa. Super. 2007) (standard of review and arbitration principles)
- Smay v. E.R. Stuebner, Inc., 864 A.2d 1266 (Pa. Super. 2004) (arbitration two-part test and interpretation guidance)
- Bair v. Manor Care of Elizabethtown, PA, LLC, 108 A.3d 94 (Pa. Super. 2015) (contract interpretation and federal policy favoring arbitration)
- Setlock v. Pinebrook Personal Care & Retirement Center, 56 A.3d 904 (Pa. Super. 2012) (order arbitration only for disputes within arbitration clause scope)