Substance of Pro Se Petition Rejected by Appellate Court (PA)

On November 02, 2018, the Superior Court of Pennsylvania affirmed a judgment entered in the Chester County Court of Common Pleas denying a petition to vacate an arbitration award in Jenn-Ching Luo v. Lowes Home Centers LLC  The case arises out of a minor construction project gone wrong which resulted in property damage.  Jenn-Ching Luo (“Luo”) contracted with Lowe’s Home Centers, LLC (“Lowe’s”) to install a new residential roof, skylights and gutters.  Lowe’s hired Kolb Roofing Company to perform the installation, however, Luo claimed the installation did not protect against a brief rainstorm which caused damage.  Attempting to rectify the problem, Lowe’s hired Charles S. Ernst to evaluate the property damage, but Luo didn’t agree with his assessment.

Luo then proceeded to file suit in the Chester County Court of Common Pleas.  However, the original installation contract contained an arbitration provision and thus the case proceeded to arbitration.  The arbitrator found in favor of Luo and against Lowe’s and Walters in the amount of $2,034.07.  Luo was unsatisfied with this award and filed a petition pro se to vacate the award.  In doing so, Luo raised an astonishing 23 issues in her appellate brief.

In dismissing the appeal, the court cited a litany of errors and violations of the Pennsylvania Rules of Appellate Procedure.  Luo had failed to cite to any relevant legal authority, failed to divide her brief “into as many parts as there are questions to be argued,” failed to cite to the record and made a number of other errors not referenced in the opinion.  This case, while extreme, highlights the importance understanding jurisdiction-specific procedural rules and strictly adhering to them.  Failing to do so can have grave consequences including the potential for the dismissal of your case.

As anyone who does appellate work, civil or criminal, will tell you, a skilled adversary presents a challenge.  But a pro se adversary presents a more time-consuming challenge, because the attorney has to address all arguments, even nonsensical ones.  Here, Lowe’s had to oppose a 23 point appeal, on a $2,000 arbitration award.   “Judicial economy” usually takes a backseat when pro se litigants are involved.  Thanks to Garrett Gitler for his contribution to this post.  Please email Brian Gibbons with any questions.

Measure Twice, Cut Once – Invalid Agreement Nullifies Claim for Arbitration (PA)

On April 27, 2018, the Superior Court of Pennsylvania affirmed the trial court’s decision to deny a defendant’s preliminary objections to compel arbitration in Brennan v. NVR, Inc.,  Plaintiffs Terrance and Gladys Brennan executed a purchase agreement with defendant NVR, Inc. (NV Homes) for the construction of their home.  The agreement stated that the purchaser would receive a limited warranty before settlement on the home, which contained language mandating binding arbitration.  The plaintiffs did not receive a copy of the limited warranty until nine months after settlement.

Prior to settlement, the plaintiffs had an inspection done which identified defects in the house-wrap, flashing, and window installation which would allow water intrusion.  The plaintiffs brought these findings to NVR’s project manager prior to settlement who reassured them that NVR would take care of the issues.  Based on this representation, the plaintiffs completed settlement.  After settlement, however, the plaintiffs noticed water leaks around their doors, windows, and walls and a subsequent inspection found that the original defects had not been fixed.

The plaintiffs filed a complaint alleging fraudulent misrepresentation and violation of Pennsylvania’s unfair trade practices and consumer protection laws. NVR filed preliminary objections in the form of a motion to compel arbitration based on the warranty agreement.  The trial court overruled these preliminary objections and ordered NVR to file an answer.  NVR then filed an appeal.

First, the Superior Court first found that an order denying a motion to compel arbitration is immediately appealable in Pennsylvania, which allowed the Court to examine the agreement on the merits.  The court next moved to whether the arbitration agreement was enforceable.  To decide whether arbitration should be compelled, courts use a two-part test: 1) does a valid agreement to arbitrate exist; and 2) is the dispute within the scope of the agreement.  Here, the court found that there was no valid agreement to arbitrate.  First, the original purchase agreement did not contain an arbitration clause.  Next, the warranty that does mention mandatory arbitration was never signed by the plaintiffs, was buried in the homeowner’s manual, and was only provided to them nine months after settlement.  Even if there was a valid agreement, the court found that it would not fall within its scope as the warranty only dealt with disputes over improper construction of the home and not claims for fraudulent misrepresentation.

An agreement must be valid and cover the scope of the dispute.  If a company provides a clear and well-drafted agreement, then it can avoid the costs and risks, known and unknown, presented by trial, by moving a case into arbitration. Here, the contractor included an arbitration agreement in the HO manual, but never mandated its execution before settlement on the home.  As such, there was no de facto agreement in place.

This decision also highlights prudent pleading by plaintiff’s counsel — by alleging fraudulent misrepresentation instead of improper construction, plaintiff’s suit did not fall within the scope of the arbitration agreement, even if the agreement were valid.  Thanks to Peter Cardwell for his contribution to this post.  Please email Brian Gibbons with any questions.

When Compulsory Arbitration is Not Actually Compulsory (PA)

An assisted living facility for the elderly was recently denied its petition to compel arbitration following a grievance brought by one of its residents.  In Clemenston v Evangelical Manor, No. 299 EDA 2017 (Pa. Super.), the Superior Court of Pennsylvania denied Evangelical Manor’s appeal of the Philadelphia Court of Common Pleas’ ruling denying its petition to compel a dispute to arbitration.  The appeal was lodged after Clementson brought a negligence action in the Philadelphia Court of Common pleas seeking damages for a fractured tibia she suffered during a fall while she was a resident at the Manor.

In February 2012, Clementson began her residency at the Manor.  At that time, Clementson’s daughter signed the Manor’s Responsible Person Agreement (“RPA”), in which her daughter agreed to be held responsible for the financial obligations associated with Clementson’s residency.  Clementson’s daughter also signed the Manor’s Admission Agreement which included, inter alia, a compulsory arbitration clause stipulating that any grievance for personal injury due to inadequate care must be resolved exclusively by arbitration through a pre-selected arbitration service.  Clementson’s daughter executed both agreements, however she did not possess power-of-attorney status at the time.  Later, in 2014, Clementson’s daughter was granted durable power-of-attorney status by Clementson, however the power-of-attorney agreement did not contain explicit language to apply the power-of-attorney designation retroactively.

In December 2016, the Philadelphia Court of Common Pleas denied the Manor’s petition to compel arbitration, concluding that no agency relationship existed between Clementson and her daughter because Clementson’s daughter had no express or implied agency based on the RPA, and that Clementson’s daughter furthermore had no apparent authority or agency by estoppel because there was no evidence that Clementson was present when the paperwork was signed or that she even knew what the agreements contained.  The Manor appealed, arguing that a principal/agent relationship could be inferred from Clementson’s apparent consent to her daughter executing the paperwork as well as the 2014 durable power-of-attorney designation.

The Pennsylvania Superior Court articulated a two-part test regarding enforceability of the arbitration agreement:  1) whether a valid agreement to arbitrate exists; and 2) whether the dispute is within the scope of the agreement.  The Court also explained that the party alleging the existence of a valid arbitration agreement has the burden of proof.  Ultimately, the Court concluded that no principal/agent relationship existed between Clementson and her daughter because Clementson’s daughter was not Clementson’s attorney-in-fact at the time the agreements were executed in 2012 (and the 2014 durable power-of-attorney did not contain retroactive language), the Manor did not produce any evidence to show that Clementson was present when the agreements were signed or that Clementson was ever presented with the agreements, and that Clementson did not sign any document conferring authority upon her daughter to act on her behalf.  Furthermore, the Court found that the RPA bound only Clementson’s daughter and the Manor (not Clementson herself), and that the Admission Agreement was an agreement between Clementson’s daughter as the Responsible Person, and the Manor.  Thus, no valid agreement to arbitrate existed between Clementson and the Manor because Clementson did not authorize her daughter to agree to arbitrate on her behalf.  The Court did not need to examine the 2nd prong of the enforceability test.

Because the Court concluded that Clementson was not bound by the Agreement to Arbitrate, it differed ruling on the enforceability of the arbitration agreement itself.  This case and the Superior Court’s opinion offers helpful insight into the contractual analysis that accompanies contracts of adhesion and compulsory arbitration clauses.  Thank you to Greg Herrold for his contribution to this post.  Please email Brian Gibbons with any questions.

Ain’t No Stoppin’ (The Arb’ Panel) Now (PA)

On January 22, 2016, the United States Court of Appeals for the Third Circuit held that legal error alone is not a sufficient basis to vacate the results of an arbitration in Whitehead v. Pullman Group LLC, 15-1627, 2016 WL 279015 (3d Cir. Jan. 22, 2016).

Singer-songwriters Gene McFadden and John Whitehead, were an influential Philadelphia R&B band in the 1970s, best known for their signature tune “Ain’t No Stoppin’ Us Now.”  In 2002, appellant David Pullman approached Whitehead and McFadden about purchasing their song catalogue.  The parties signed a contract, but never finalized the sale.  Whitehead and McFadden died in 2004 and 2006, respectively, and Pullman became embroiled in a series of disputes with their respective estates over ownership of the song catalogue.  The parties ultimately agreed to arbitrate.

A panel of three arbitrators issues its final award in September of 2014.  While the panel agreed with Pullman that the May 2002 agreement with Whitehead and McFadden was a valid contract, it also concluded that Pullman had failed to introduce evidence sufficient to prove that he had ever notified Whitehead and McFadden that he had completed his due diligence.  Consequently, the panel ruled that Pullman’s option to purchase the song catalogue had lapsed and the May 2002 agreement was no longer enforceable.

Pullman then moved to vacate the arbitral award contending, among other things, that the arbitrators’ actions amounted to a “manifest disregard of the law.”  The District Court denied the motions, giving way to an appeal.

The Federal Arbitration Act specifies four circumstances under which a district court can vacate an arbitral award.  The available federal statutory grounds for vacatur include:  award procured by corruption, evident partiality of the arbitrator, refusal to postpone the hearing for good cause, refusal to consider material evidence, and arbitrators exceeding their powers.  Most jurisdictions also permit vacatur if the arbitrator’s award exhibits “manifest disregard of the law,” and some recognize other judicially created grounds: “contrary to public policy,” “irrational,” and “arbitrary and capricious.”

The Third Circuit held that legal error along is not a sufficient basis to vacate the results of an arbitration.  The court opined that for an error to justify vacating an arbitration award, it must be “not simply an error of law, but [one] which so affects the rights of a party that it may be said that he was deprived of a fair hearing.”  Ultimately, the court discerned no unfairness justifying vacating an arbitration award, concluding that the arbitral panel reasonably chose not to consider potentially self-servicing evidence about communications with persons who are no longer able to present their side of the story.

Generally speaking, the odds are stacked heavily against a successful vacatur action.  When the American Bar Association reviewed 182 vacatur applications, they found that 120 were brought in state courts and only 62 were brought in the federal courts.  Of the state court cases, 31, or about 25.8 percent, resulted in vacatur.  By contrast, in the federal cases, only six awards were vacated, or about 9.7 percent.  As to the most potential grounds for vacatur, the ABA found that the most frequently asserted and most frequently successful of all of the statutory and other grounds advanced by parties seeking vacatur was the allegation that the arbitrators had “exceeded their powers, or so imperfectly executed them that a . . . final and definitive award upon the subject matter submitted was not made.”  The next most active category was that the arbitrators allegedly “manifestly disregarded the law,” but motions on this ground succeeded in only two cases, or about 4 percent of the time.  The third most frequently advanced ground was that the arbitrators had committed “misbehavior by which the rights of a party were prejudiced,” a catch-all category encompassing various judge-made grounds for vacatur other than “manifest disregard.”  This ground includes allegations that the award was “irrational,” “violated public policy,” or was “arbitrary and capricious.”

In sum, it is extremely difficult for parties to obtain vacatur of an arbitration award, and the decision to apply for vacatur should not be made lightly.  Thanks to Hillary Ladov for her contribution the this post.  Please email Brian Gibbons with any questions.