ETHAN CIVAN AND ELANA CIVAN v. WINDERMERE FARMS, INC. AND GAMBONE BROTHERS DEVELOPMENT COMPANY
No. 1559 EDA 2017 & No. 1560 EDA 2017
IN THE SUPERIOR COURT OF PENNSYLVANIA
February 27, 2018
2018 PA Super 42
LAZARUS, PLATT, and STRASSBURGER, JJ. OPINION BY STRASSBURGER, J.
Appeal from the Orders Dated April 11, 2017 and April 12, 2017 in the Court of Common Pleas of Montgomery County Civil Division at No(s): 2006-26794
FILED FEBRUARY 27, 2018
Ethan Civan and Elana Civan (the Civans) appeal from orders entered April 11, 2017, and April 12, 2017, wherein the trial court granted the petition of Gambone Brothers Development Company (Gambone) to vacate
On December 5, 2006, the Civans filed a complaint against Windermere Farms, Inc. (Windermere) and Gambone related to alleged faulty construction of a new home sold by Windermere to the Civans pursuant to an agreement of sale. Gambone is not a party to the agreement of sale, but the Civans averred that Gambone designed and constructed the home. Complaint, 12/5/2006, at ¶ 9. The counts asserted against Gambone included negligence, breach of implied warranties, fraud, conspiracy, and violations of the Unfair Trade Practices and Consumer Protection Law (UTPCPL),
Windermere and Gambone filed joint preliminary objections to the complaint, asserting, inter alia, that the court must dismiss the action against Windermere with prejudice in favor of arbitration due to the existence of an agreement between the Civans and Windermere that required the Civans to submit to binding arbitration all claims related to the agreement of sale and construction of the home. Preliminary Objections, 12/22/2006, at ¶ 13.
While the preliminary objections were still pending, the Civans filed a motion seeking to compel arbitration against both Gambone and Windermere. The Civans argued that although Gambone was not a party to
On April 26, 2007, the trial court granted the motion to compel arbitration, stating, “the parties shall enter private arbitration in accordance with the parties’ agreement.” Order, 4/26/2007, at 1. The order did not specify which parties must enter arbitration.
The Civans and Windermere proceeded to arbitration, but Gambone refused to participate. Via a letter and subsequent memoranda of law, Gambone advised the arbitrators that, based upon lack of jurisdiction, Gambone objected to being included in any arbitration proceeding or award. Gambone argued it was not subject to any agreement to arbitrate with the Civans, and jurisdiction over the dispute between the Civans and Gambone was exclusive to the court of common pleas.
Nevertheless, the Civans persisted in seeking an arbitration award against Gambone. On July 29, 2008, after finding the panel had jurisdiction over Gambone, the arbitrators entered an award in favor of the Civans and against Windermere and Gambone, jointly and severally, for $142,250. Gambone timely filed a petition to vacate the arbitration award, to which the Civans responded. Because a praecipe for argument was not filed in accordance with a local rule of civil procedure, neither the petition nor the
Before we reach the merits of these appeals, we must consider the appealability of the Vacate Order and the Denial of Confirmation Order. The Civans argue that both orders are final orders pursuant to
Neither party is correct. Notwithstanding that the claims set forth in the December 5, 2006 complaint against Gambone are still pending in the court of common pleas by virtue of the vacation of the arbitration award as to Gambone, this Court has jurisdiction to hear these appeals pursuant to
Thus, we turn our attention to the merits. The Civans ask this Court to resolve the following questions.
- Did the [trial] court, in vacating the arbitration award against Gambone, exceed the scope of review applicable to common law arbitration awards?
- Did the [trial] court err in finding that [Gambone] presented clear evidence that Gambone was denied a hearing or that fraud, misconduct, corruption[,] or other irregularity caused the rendition of an unjust, inequitable or
unconscionable award, the burden of proof required by 42 Pa. C.S.[] § 7341 [?] - Did the [trial] court err in denying [the Civans‘] petition to confirm the common law arbitration award?
The Civans’ Briefs at 6 (suggested answers and unnecessary articles, quotation marks, and party designations omitted).
We will address the Civans’ first two issues together. Generally, we use the following standard to review a trial court‘s ruling on a petition to vacate a common law arbitration award.
Judicial review of a common law arbitration award is severely limited as otherwise arbitration would be an unnecessary stage of litigation, causing only delay and expense without settling the dispute. The arbitrators are the final judges of both law and fact, and an arbitration award is not subject to a reversal for a mistake of either. Neither we nor the trial court may retry the issues addressed in arbitration or review the tribunal‘s disposition of the merits of the case. Rather, we must confine our review to whether the appellant was deprived of a hearing or whether fraud, misconduct, corruption or other irregularity tainted the award. The appellant bears the burden to establish both the underlying irregularity and the resulting inequity by clear, precise, and indubitable evidence. In this context, irregularity refers to the process employed in reaching the result of the arbitration, not to the result itself.
U.S. Spaces, Inc. v. Berkshire Hathaway Home Servs., Fox & Roach, 165 A.3d 931, 934 (Pa. Super. 2017) (internal citations omitted).
This standard is derived in part from the Uniform Arbitration Act (the Act), which provides:
[t]he award of an arbitrator in a nonjudicial arbitration which is not subject to Subchapter A (relating to statutory arbitration) or a similar statute regulating nonjudicial arbitration proceedings is binding and may not be vacated or modified unless it is clearly
shown that a party was denied a hearing or that fraud, misconduct, corruption or other irregularity caused the rendition of an unjust, inequitable or unconscionable award.
Here, the Civans and Windermere are parties to an agreement of sale, whereby the Civans, the “Buyer,” agreed to purchase a lot and a new home to be constructed by Windermere, the “Seller.” Agreement of Sale, 12/30/1999, at 1. The Agreement of Sale contains an arbitration clause in paragraph 23, providing that
[a]ny and all disputes arising out of or relating to the sale of the premises or construction of a house thereon or otherwise arising out of this Agreement shall be decided by binding arbitration as the exclusive forum for determination pursuant to Subchapter B of the Pennsylvania Uniform Arbitration Act (
42 Pa. Cons. Stat. Ann. §73.41 et seq.) being common law arbitration. The dispute shall be determined by a panel of three arbitrators: one selected and paid for by the Seller; one selected and paid for by the Buyer: and the third selected by the Seller‘s and the Buyer‘s arbitrators and the cost split equally by the parties. A majority decision of the arbitrators shall be controlling. ... This paragraph shall survive settlement.
Id. at 3.
The Civans acknowledge that Gambone is not a party to the Agreement of Sale. The Civans’ Briefs at 8. Nonetheless, the Civans argue that the trial court‘s April 26, 2007 order subjected Gambone to the jurisdiction of the arbitration panel. Id. at 14. Even if it did not, based upon the trial court‘s narrow standard of review, the Civans argue that since the arbitration panel ruled that it had jurisdiction over Gambone, the trial court did not have the authority to substitute its judgment to the contrary.
The April 26, 2007 order, which granted the Civans’ motion to compel arbitration, stated, “the parties shall enter private arbitration in accordance with the parties’ agreement.” Order, 4/26/2007, at 1 (emphasis added). In its
We agree with the trial court that the April 26, 2007 order does not clearly mandate that Gambone, a non-party to the Agreement of Sale, submit to arbitration. A court has the power to order the parties to proceed with arbitration upon an application to compel arbitration.
Arbitration is a matter of contract, and parties to a contract cannot be compelled to arbitrate a given issue absent an agreement between them to arbitrate that issue. Even though it is now the policy of the law to favor settlement of disputes by arbitration and to promote the swift and orderly disposition of claims, arbitration agreements are to be strictly construed and such agreements should not be extended by implication. In general, only parties to an arbitration agreement are subject to arbitration. However, a nonparty, such as a third-party beneficiary, may fall within the scope of an arbitration agreement if that is the parties’ intent.3
Pisano v. Extendicare Homes, Inc., 77 A.3d 651, 661 (Pa. Super. 2013) (citing Elwyn, 48 A.3d at 461, and Schoellhammer‘s Hatboro Manor, Inc. v. Local Joint Executive Board of Philadelphia, 231 A.2d 160, 164 (Pa. 1967) (declining to compel non-signatory of agreement to submit to arbitration because “arbitration, a matter of contract, should not be compelled of a party unless such party, by contract, has agreed to such arbitration“)).
While Gambone is a party to the Civans’ lawsuit, the Agreement of
Turning next to the Civans’ argument that the trial court impermissibly substituted its judgment for that of the arbitration panel regarding whether the panel had jurisdiction over Gambone, we observe that it is well settled that arbitrators do not have the power to decide jurisdictional issues such as whether a party has agreed to arbitrate a dispute. “Our decisional law has made clear that the issue of whether a party agreed to arbitrate a dispute is a threshold, jurisdictional question that must be decided by the court.” Pisano, 77 A.3d at 654 (internal citations omitted). See also Flightways Corp. v. Keystone Helicopter Corp., 331 A.2d 184, 185 (Pa. 1975) (holding that “whether an agreement to arbitrate was entered into” is a question for the court); Ross Dev. Co. v. Advanced Bldg. Dev., Inc., 803 A.2d 194, 199 (Pa. Super. 2002) (holding that courts, not arbitrators, must decide questions of substantive arbitrability such as whether there is a valid agreement to arbitrate and whether disputed claim is within scope of agreement); Smith v. Cumberland Group, Ltd., 687 A.2d 1167, 1171 (Pa. Super. 1997) (“Arbitration is a matter of contract and, as such, it is for the court to determine whether an express agreement between the parties to arbitrate [exists].“).
Most cases addressing jurisdictional disputes arise prior to arbitration, such as in the context of a motion to stay or petition to enjoin arbitration. While petitioning the trial court to enjoin the arbitration is the preferred procedure, this Court has entertained a jurisdictionally-based challenge to an award after its entry, holding that a petition to enjoin is not the exclusive method whereby a party may attack an arbitrator‘s jurisdiction. Gaslin, Inc. v. L.G.C. Exports, Inc., 482 A.2d 1117, 1122-23 (Pa. Super. 1984), superseded by statute on other grounds as stated in Beriker v. Permagrain Products, Inc., 500 A.2d 178 (Pa. Super. 1985).
In Gaslin, appellees purchased an exclusive license to operate a restaurant through a franchise agreement containing an arbitration clause. Id. at 1119. Jorge Figueroa signed the franchise agreement on behalf of one of the licensors. Id. A dispute arose stemming from the franchise agreement, and one of the licensees filed a demand for arbitration. Id. Figueroa objected to the jurisdiction of the arbitrators, alleging that he was not a party to the franchise agreement in his individual capacity, and did not participate in the arbitration. Id. The arbitrator entered an award against Figueroa and the licensors, and the licensee subsequently filed a motion to confirm the award. Id. Figueroa filed an answer opposing the motion to
In its review of the order confirming the award against Figueroa, this Court noted that Figueroa did not participate in the arbitration hearing and objected to the lack of jurisdiction at every stage of the proceeding.4 Id. at 1123 n.7. After deciding that common-law arbitration principles governed the case, this Court stated, “although the arbitrator is the final judge of law and fact, his power has not been extended to the degree that he may determine his own jurisdiction, that is, whether the arbitration tribunal has the requisite power to hear the particular case brought before it.” Id. at 1121. The Court acknowledged that ordinarily a court may set aside an award only upon a showing of denial of a hearing or fraud, misconduct, corruption, or similar irregularity leading to an unjust, inequitable, or unconscionable award. Id. at 1124 n. 8. Nevertheless, the Court concluded that
the central inquiry is not whether the award was just, but whether Figueroa was bound to arbitrate this dispute in the first place. If Figueroa was not a party to the franchise agreement
Id.
Accordingly, the Court reversed the judgment, vacated the order confirming the award as to Figueroa, and remanded to the trial court so that the court could hold an evidentiary hearing to determine whether Figueroa signed the franchise agreement in his individual capacity. Id. at 1124.
After Gaslin, this Court has examined whether a trial court possessed the authority to vacate an arbitration award based on its conclusion that an agreement to arbitrate did not exist on two occasions. See Schwartz v. Wells Fargo Advisors, LLC, 58 A.3d 1270 (Pa. Super. 2012); Gwin Engineers, Inc. v. Cricket Club Estates Dev. Group, 555 A.2d 1328 (Pa. Super. 1989).
In Schwartz, the appellant filed a civil complaint against a financial firm and his former financial advisor. Schwartz, 58 A.3d at 1270. The firm and advisor filed a petition to compel arbitration pursuant to subsection
On appeal, this Court held that section
absence of an agreement to arbitrate is not a basis for vacating an award
In Gwin, this Court was asked to review an order confirming an arbitration award after an individual declined to participate and objected to the arbitration, contending that he was not a party to the arbitration agreement in his individual capacity and had disassociated from the partnership subject to the agreement. Gwin, 555 A.2d at 1330. Without addressing Gaslin, the Court determined that it would be improper to reach the appellant‘s arguments because his claim did not fall into any of the statutory grounds for vacating or modifying the award. Id. at 1330. The Court stated that the appellant should have brought his claim to the attention of the arbitrator because the claim “would be appropriate for the arbitrator‘s resolution but it is not a claim upon which we can grant review.” Id.
Not only did the Court fail to cite to authority to support this statement, the statement is contrary to a long line of cases holding that the determination of whether there is a valid agreement to arbitrate is for the
Neither this Court nor our Supreme Court has addressed directly the tension between the holdings in Gaslin and Gwin. The cases citing Gwin do not rely upon it for its specific holding that the validity of an agreement is an issue for the arbitrator and that the limited standard of review in section
In Shapiro, an insured filed a petition to compel arbitration in Philadelphia County. Id. at 892. After the petition was granted, the insurance company filed a petition for reconsideration and a petition to stay the arbitration, arguing that the parties had agreed by their contract to
On appeal, this Court summarized the narrow standard of review applicable to common-law arbitration awards, but also stated the following:
An arbitration award can be challenged if the arbitrators, in conducting hearings and making an award, exceed the power and authority given to them. This power and authority of the arbitrators is wholly dependent upon the terms of the agreement of the parties, who may place restrictions on their submission to arbitration. The arbitrators cannot validly determine a dispute if they violate or act inconsistently with the terms of the submission. Sley System Garages v. Transport Workers Union of America, AFL-CIO, Local 700, 178 A.2d 560, 561 (1962); Giant Markets, Inc. v. Sigma Marketing Systems, Inc., 459 A.2d 765, 768 (Pa. Super. 1983). See also[ Gaslin, 482 A.2d at 1121] (“although the arbitrator is the final judge of law and fact, his power has not been extended to the degree that he may determine his own jurisdiction, that is, whether the arbitration tribunal has the requisite power to hear the particular case brought before it.“).
Id. at 893-94. The Court concluded that “[t]he court could enforce arbitration ... only in accordance with the terms of the parties’ agreement.” Id. Therefore, the Court held that the trial court erred by confirming the award and declining to enforce the parties’ agreement. Id.
Gaslin is also in accord with settled law that only “parties of equal bargaining power [who] consent in an agreement to settle all future disputes as to its interpretation by utilizing common law arbitration ... []are bound by that provision, and the function of the courts is limited to enforcing this contractual provision according to its terms as established by the parties.”6 Fastuca v. L.W. Molnar & Assocs., 10 A.3d 1230, 1245 (Pa. 2011) (emphasis added). Indeed, subchapter B of the Act relating to common law arbitration applies specifically to “agreement[s] to arbitrate a controversy on a nonjudicial basis.”
In other words, in order to invoke the limited judicial standard of review of an arbitration award, the parties have to agree to arbitrate the
dispute in the first place. Therefore, we hold that the narrow standard of
Turning to the instant case, as discussed supra, Gambone is not a party to the Agreement of Sale. Therefore, Gambone never agreed to arbitrate disputes arising out of the Agreement of Sale. As also discussed supra, the Civans failed to obtain an order compelling Gambone to arbitrate pursuant to subsection
Nor did the trial court err by refusing to confirm the award against Gambone. The Civans argue that because more than thirty days have passed, the trial court was required to confirm the award pursuant to
(b) Confirmation and Judgment. On application of a party made more than thirty (30) days after an award is made by an arbitration under Section
7341 (relating to common law arbitration), the Court shall enter the award confirming the award and shall enter a judgment or decree in conformity with the order....
We have consistently interpreted this language to mean that the trial court is required to confirm the award unless the other party has filed a petition to vacate or modify the award within 30 days of the date of the award. Lowther v. Roxborough Mem‘l Hosp., 738 A.2d 480 (Pa. Super. 1999); Beriker, 500 A.2d at 179. Here, Gambone filed a petition to vacate the award within thirty days of the date of the award. For the reasons stated supra, the trial court properly vacated the award. Therefore, the court was not required to confirm the award in accordance with subsection
Accordingly, we affirm the trial court‘s April 11, 2017 and April 12, 2017 orders.
Orders affirmed.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 2/27/18
Notes
there was no agreement to arbitrate and the issue of the existence of an agreement to arbitrate was not adversely determined in proceedings under section
7304 (relating to court proceedings to compel or stay arbitration) and the applicant-party raised the issue of the existence of an agreement to arbitrate at the hearing....